Opinion: Commodity tokenization is the economic bailout Africa needs

Author: EMMANUEL ASAMOAH, COINTELEGRAPH; Compiler: Songxue, Jinse Finance

When I was young, I walked the cocoa farms in Ghana with my grandfather, a soldier turned farmer. He shares how these beans fuel our nation’s pride and economy. As the digital age begins, I often wonder: Is the modern marvel of crypto tokenization the change my grandfather and countless cocoa farmers needed?

Despite their vast agricultural and mineral wealth, many African countries face limited access to global markets, unfair trading terms, lack of transparency in transactions, and vulnerability to market manipulation. These challenges hold back economic growth, perpetuate poverty, and keep many Africans from reaching their full potential.

For decades, Africa’s economic potential has been stifled by outside forces with vested interests. Colonial-era economic control strategies may have disappeared, but modern neo-colonialism is subtly pervasive. It thrives on unfair trade deals, economic policies set by global financial giants, and a complete lack of transparency in international transactions.

Take the Ghanaian government under President Nana Akufo-Addo, which has received $3 billion in loans from the International Monetary Fund since 2017. While these loans may have temporarily filled state coffers, they have also deepened the country’s debt.

Nana Akufo-Addo could have advocated for commodity tokenization instead of seeking an IMF loan. Tokenizing Ghana’s major commodities such as gold, cocoa and oil on the blockchain will create significant economic opportunities. In 2022, Ghana’s gold production is estimated at 3.7 million ounces, valued at $6.7 billion; cocoa production is a record 689,000 tonnes, valued at $1.65 billion; and oil production is around 150,000 barrels per day. )

Given these figures, it is conceivable that such an initiative by Ghana could increase the trade in these goods by billions of dollars. According to Bank of Boston, the current market price for gold is $1,909 per ounce, cocoa is $3,340 per ton, and oil is $82 per barrel, and tokenization can significantly reduce transaction fees, which may be much lower than traditional routes. Consulting Group - Economic activity from global trade could boost Ghana’s income substantially.

The tokenization of commodities, particularly Ghana’s gold reserves, offers a new way to drive economic development. Let’s dig into what that means: Ghana could use its physical gold to back digital tokens such as Dai, a decentralized stablecoin backed by multiple real-world assets. These physical gold-backed tokens became globally recognized digital currencies.

Why would anyone buy this gold-backed digital currency? Investors and countries looking for a stable digital currency will be attracted. It’s not just a number - each token has the value of real gold. It’s a way for investors to hold gold without physical constraints, making it especially attractive in the digital age.

How will this diversify Ghana’s income streams? Well, tokenization opens up new revenue avenues. Traditional gold sales still exist, but now with an additional source: digital gold sales. Every time tokens are purchased, Ghana benefits. In addition, the state could charge fees or premiums for these digital transactions.

Finally, the move will put Ghana at the forefront of digitalisation. With the rise of the digital economy, being a pioneer of such initiatives could be a game-changer, allowing Ghana to dominate its economic narrative in the digital sphere.

If the potential income from tokenized goods is explored, it may provide a viable alternative to the frenzied lending. Take Ghana’s finance minister, Ken Ofori-Atta, for example. His policies tended to tax poor citizens. Confusingly, creating a clear regulatory framework for encryption is not a high priority in the rapidly evolving digital age. Could this hesitation stem from a fear of losing control of traditional financial power structures? Or just a lack of foresight?

Additionally, international institutions such as the World Bank have shown inertia in promoting innovations such as cryptocurrency tokenization. Why do they seem more interested in making loans than creating an environment that encourages self-sustainability through technology? Do they have a fundamental motivation to put their own interests above the real development of Africa?

The promise of blockchain technology offers a beacon of hope for addressing these injustices. By adopting blockchain, countries such as Ghana can ensure a level of transparency where every transaction is recorded and cannot be changed. This transparent approach will be a powerful weapon against corruption and illicit financial flows and will be a step towards better governance.

Tokenizing goods through the blockchain also enables direct transactions, effectively removing the need for middlemen who have historically made undue profits. This ensures that farmers and producers get their fair share.

A decentralized financial system could pave the way for a greater degree of self-reliance, while also reducing the overall impact of neo-colonial interests rather than relying on external financial giants. Furthermore, the potential of tokenized goods demonstrates the enormous opportunity blockchain presents in introducing new avenues of income, reducing external debt and boosting the overall economy.

Ghana could similarly offer to back DAI with its gold reserves. Botswana could do the same with its diamond reserves. These traditionally undervalued or poorly traded commodities can now generate significant revenue. By tokenizing these assets, Ghana could not only sell gold at international market prices, but also introduce tokenization premiums and fees, which could become a whole new revenue stream.

If the actions of the likes of Goldman Sachs and BackRock are any indication, tokenization could be a huge market opportunity. Embracing blockchain could add trillions of dollars to the continent. It can stimulate job creation, increase investment, and more.

However, realizing this potential requires addressing logistical challenges, including storage, transportation, and tax considerations. Trust and security are also critical and may require third-party audits from globally reputable companies. An audit by a firm such as KPMG or PwC would provide important credibility and assurance throughout the tokenization process, increasing global investor confidence in the integrity and security of the tokenized commodity market in Ghana.

If Ghana provides forward-thinking cryptocurrency entrepreneurs with a strong regulatory regime, blockchain-driven growth could lead to an economic revolution in the country. This revolution could have knock-on effects across the continent, whether or not African governments fail to live up to the expectations of their people. To me, it’s not just speculation. It is a call to reflection and action.