Stopping Corruption. How Blockchain Can Benefit Emerging Markets

Stopping Corruption. How Blockchain Can Benefit Emerging Markets

I think we can all agree that one of the main things that continue to eat at the efficiency of public offices and how they use tax-payer funds around the World, but mainly in emerging or 3rd world countries, is corruption. Not a day goes by that one news item will carry a story on how either X amount cannot be traced because it was illegally transferred to multiple accounts and then offshore, or 5Y amount was used to procure items while it could easily have been achieved for 1.5Y instead. Couple that with synchronized fires – mysteriously disguised as acts of God – in government accounts and finance departments that destroy crucial paper trails and evidence and truth remain uncovered and perpetrators end up going scotfree in what has become a vicious cycle that undermines GDP and stunts development in places that need it the most. 

What if there is a solution to this madness? I think there is.

The Blockchain Solution 

The solution is Blockchain. In case technical jargon puts you off, I’ll try to make it as simple as possible. Imagine you go to a shop and you bargain for a $10 product and agree to pay $9 instead. Your payment is stored in a ledger that is publicly available and can be seen by anyone and everyone who searches for it. The shop then changes management and is bought in its entirety by someone else. You a year later go back to the shop and want to buy the same $10 product for $9 (the product at this point has had no increase from a cost of inputs perspective). You tell the shopkeeper that you paid $9 before and if they dispute, they can check the records. They check the record and verify that you indeed did pay $9 and give it to you at the same price.

From a public finance perspective, imagine a mature government grants aid money to a government in an emerging economy based on a proposal that outlines healthcare, education, and public transport infrastructure as the beneficiaries of the grant. Now, the following things are stored in the public ledger – a conclusive list of potential suppliers of said goods including their ability to supply based on previous work completed, the approximate cost of the goods in the open market, acceptable ranges of profit margins, tentative lead times to produce and supply, and amounts paid out to these suppliers against milestones. All this data is publicly available and can be read by anyone and everyone. No one person can delete or edit this data to their advantage because of blockchain’s distributed setup. This means everyone reading this on the blockchain would have a clear copy of these records making it impossible to give false accounts. Such a setup would ensure that work is awarded based on merit and not contacts and connections, and most importantly; that taxpayer money is not lost through deal-making and corrupt practices. 

Other practical uses are in supply chain management especially in products that have for years benefited few actors in many value chains. Take coffee production and consumption for example. Introducing blockchain into the coffee value chain would ensure that the business owner (or even possibly end consumer) would know how much of the $10 (KES 1,000) they pay for a kilogram of coffee beans, and $5 they pay for a cup of coffee actually reaches the farmer. The compensation farmers typically get is usually on the lower side despite being the ones that produce the gold that makes the entire process possible. With Blockchain, the farmer can see how much everyone in the value chain is getting – how much the customer pays, what the coffee shop owner buys the bag for, how much the coffee roaster makes, how the coffee collection centre makes money, and what the brokers are getting as well. It helps enable fair trade practices in these kinds of transactions to ensure no one is left out, and that all are fairly compensated.

For other value chains where both farm-to-fork and farm-fresh are key Uniques Selling Points (USPs), a restaurant owner can potentially trace which specific farm the pastured, or Kienyeji, chicken and potatoes he is serving have come from and how far back they were harvested.

That said, blockchain has nothing to offer but good. How quickly industries all-around can adopt it into their operations – either due to fear of complete transparency, or possible exposure of all transactions and dealings – remains the larger question. However, for the public good, adopting blockchain is definitely the way to go.

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