Could blockchain be the answer to stamping out corruption in the public sector?
SA loses billions of rand every year due to corruption in public procurement
As blockchain technology continues to gain prominence in the fintech industry, many industry players believe the technology could be key in the fight against corruption in the public sector.
Every year, SA loses billions of rand due to corruption in public procurement.
Blockchain, or the distributed ledger system, has given rise to cryptocurrencies such as bitcoin. The system uses independent computers to synchronise transactions online without the need for independent validation.
It promotes a secure exchange of value without any need for a central authority, such as a bank, government or financial institution.
Conducting public procurement via a blockchain platform may make procurement more efficient, transparent and less likely to result in disputes, according to Prof Sope Williams-Elegbe from the department of mercantile law at Stellenbosch University, who delivered her inaugural lecture at the university in October.
The Reserve Bank has also been pushing blockchain technology via its Project Khokha, which was concluded earlier in 2018. The project successfully trialled interbank settlements using distributed ledger technology, of which blockchain is one type.
According to Williams-Elegbe, public procurement is the main conduit for government expenditure, apart from grants and social programmes. In SA, the annual procurement spend is R800bn and it is estimated that about 50% of this might be lost to corruption, she said.
“In South Africa, 50% of the complaints submitted to the office of the public protector refer to problems with the public procurement process, and recent auditor-general’s reports have highlighted immense increases in fraudulent expenditure linked to procurement spending,” said Williams-Elegbe.
Blockchain technology could help to address these problems.
“What makes blockchain technology fascinating is that it is both a digitised and a decentralised public ledger of transactions,” said Williams-Elegbe.
“Every copy of the record that is kept by the computers on the network is identical. This means that the record of information or transactions cannot be altered by any of the participating parties, unless it is altered by all.
“A procurement blockchain platform can improve the process for identifying and verifying potential bidders, simplify contractor registration, provide a shared information repository on contractors’ past performance, and enable real-time reporting.’’
Saurabh Kumar, co-founder and CEO at In2IT Tech, has previously argued that since blockchain is an encoded digital ledger that is stored on multiple computers in a public or private network, its very nature enforces transparency and accountability.
“As each block in the blockchain cannot be changed or deleted at the whim of a single actor, each amendment or action taken must be verified and managed by multiple stakeholders using automation and shared governance protocols. This eliminates the possibility of any public-sector misconduct, as the entire process of managing important public records is visible and auditable.”
Such a system has already been successfully piloted in Ghana, where they have begun placing the land registry record on blockchain, Kumar said.
According to Corruption Watch, blockchain technology has certain characteristics that make it resilient to corruption: transparency, immutability, security, inclusiveness and a reduction in the use of intermediaries.
Although there are legal and physical challenges in the implementation of blockchain, the benefits are considerable, especially in terms of improving data management in the public sector, Corruption Watch points out in an article published on its website.
In the case of supply-chain management, storing product data on a blockchain makes transaction data instantly available and traceable in real time. Transactions are safer and more transparent as time stamps make it possible to audit transactions, the organisation said.