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Entrepreneurs in the developing world looking for capital and investors looking for opportunities. Blockchain is the solution for both.
December
11, 2018
5 minutes of reading
Opinions expressed by Business owner the contributors are theirs
We live in a world that is increasingly borderless, with the unprecedented growth of technology in a number of sectors. However, geographical and economic boundaries remain firmly rooted in the global financial landscape, preventing those in emerging markets from accessing the scope of capital growth.
None of the three countries with the highest GDP growth between 2008 and 2017 – Nauru, Ethiopia and Turkmenistan – has a stock exchange, depriving emerging investors and entrepreneurs of the much-needed access to global capital. When investors enter the traditional market, they have to pay extremely high brokerage fees. Despite the growth of technology centers in emerging markets, economic exclusion and inequality remain huge barriers for those seeking profitable investment opportunities. Blockchain technology, like a boundless force, could contain the solution to this problem. By reorganizing international investment to create a more decentralized, secure and accessible way of doing business, blockchain-based exchanges could help to eradicate economic inequalities and foster a new era of financial inclusion for developing countries.
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Emerging markets have limited access to stock exchanges.
Comparing the South African Stock Exchange of Johannesburg (JSE), the largest exchange in Africa, with its North American counterpart, the New York Stock Exchange, it becomes evident that economic exclusion is a prevalent issue in emerging markets. The JSE has around 375 listings and a market capitalization of around $ 988 billion. In comparison, the New York Stock Exchange lists more than 3,000 companies worth over $ 28 trillion in June 2018. This means that even those who have sufficient privileges to access the South African JS are not yet exposed to the same level of opportunity as those operating on large foreign stock markets.
There is also a huge gap in the availability and accessibility of financial institutions. Two billion people are excluded financially from formal institutions such as banks. This means that a huge percentage of our global population can not interact on international investment platforms, despite a clear demand for capital growth in developing countries such as Nauru, Ethiopia and Turkmenistan.
The demand for investments and the expansion of business by entrepreneurs in emerging markets increases year by year. The 2017 Global Findex reported that 71% of adults in high-income economies spared in 2017, while the same applies to only 43% of those in developing countries. However, both economies have reported the same percentage of people saved to start, run or expand a business. In Sub-Saharan African economies, this was twice the global average, with one in three adults saving for business expansion. The main obstacle to business growth in the region has been the lack of financial support services, such as exchanges, which encourage investment opportunities.
It is an unfortunate truth that current financial models are favorable and exclusive for high-income economies. Those in emerging markets have no choice but to invest in non-formal ways, such as through a savings club or in the form of livestock, jewelry or real estate. This excludes communities from global markets and, therefore, wider investment opportunities. Equitable access to global networks could transform these informal savings into true capital growth. Empowering emerging markets, especially small and medium-sized enterprises in developing countries, should be at the center of all financial initiatives.
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Expensive intermediaries are obstacles to growth.
The expensive intermediaries in the stock exchange are an important deterrent for entrepreneurs operating in developing countries. At the moment, no stock exchange in the world allows customers to invest directly on their platform. Potential investors are forced to place trades through intermediaries, such as banks or intermediaries, which is both an expensive and exhaustive process.
A report entitled & # 39; Blockchain in Capital Markets & # 39; estimates that IT and operational expenses are close to $ 100-150 billion a year among banks, with post-trade service fees and estimated securities in $ 100 billion. The high costs for both merchants and banks, brokerage services represent an important obstacle to growth for start-ups. For emerging markets, this makes cross-border trading an unlikely and often impossible option, having neither the money nor the time to invest in intermediate networks. Therefore, the current stock market is a double whammy of inaccessibility for foreign and smaller players.
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Blockchain without borders can solve economic exclusion.
Changes are needed to combat the problems of financial exclusion and these obstacles to growth. A decentralized blockchain-based exchange offers a possible solution to this problem. An exchange without borders removes the intermediary. Excluding the traditional monopoly of banks and brokers, cross-border trade allows formerly excluded companies to connect with global investor networks and at the same time raise capital. This immediacy, when compared with the costly and exhaustive process of interim intervention, enables business owners in unprecedented ways to expand their business, which in turn will promote growth in their local communities and economies.
Although there are around two billion non-subscribing adults, almost two-thirds of the population have access to a mobile phone. Blockchain technology, through initiatives such as app-based exchanges, could exploit this easily accessible method of communication to overcome the barriers of high costs and inaccessible institutions. The frontierless nature of digital technologies is an incentive for foreign investors to engage with emerging markets, redistributing wealth and investment in economies where growth is most needed.
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Perhaps the most exciting element of blockchain technology is its ability to destroy and decentralize the traditional financial market, especially as regards the redefinition of the stock market. Decentralized exchanges can exploit the core values of platforms that are borderless, decentralized and accessible to give developing countries unprecedented power to acquire wealth.
Technology has become an integral part of our daily lives and work functions. Blockchain has the ability to promote change and capital growth in emerging markets and beyond.
