Technology is transforming trade, bringing efficiencies and capabilities that could redefine economies. However, to ensure restoration following the crisis is unilateral; regulations, support packages and finance platforms that nurture the development and adoption of technology in an inclusive way, is critical.
Technology could fundamentally change the way resources are allocated and international trade operates. Disruptive emerging technologies such as blockchain, Artificial Intelligence (AI), 3D printing, and Internet of Things (IoT) have reshaped trade flows at break-neck speed, transforming efficiency and facilitating transactions previously hindered by difficult logistics and language barriers.
3D Printing has reduced international trade volumes while blockchain is increasing the value of international trade by trillions through improved efficiencies in security, tracking documents and goods and governance. Trading services via digital platforms and mobile payment capabilities are also redefining trade opportunities by connecting more people to market opportunities. According to the World Bank Global Inclusion Database, the number of people who gained access to bank accounts increased by 20% between 2011 and 2014, and mobile money accounts were a major drive for financial inclusion, especially in emerging economies.
Meanwhile consumer adoption of digital trade opportunities has also been embraced. According to UNCTAD, global e-commerce sales in 2018 amounted to $25.6 trillion, up 8% over 2017. Moreover, a growing share of digital trade involves cross-border sales between smaller traders who are now able to participate in supply chains that previously had prohibitively high barriers to entry. Digital trade and technological innovations are therefore helping to facilitate inclusive, international trade by redefining global value chains and setting a new precedent for equality.
Although this shift was already underway, cross-border data-flow capabilities and digital service delivery – both key digital trade innovations - are emerging as critical tools in the global response to the current pandemic, particularly in African nations. In Senegal, for example, the Ministry of Trade and SMEs recently partnered with key private sector actors to facilitate delivery of essential goods and services through e-commerce platforms that link informal operators to established marketplaces and help remote or vulnerable households access market vendors, using local transport solutions. In addition, the Ministry of ICT in Uganda is supporting efforts to develop digital solutions to support health systems and public service delivery during the crisis, meanwhile, in May the Bank of Indonesia facilitated a collaboration between the banking industry and Fintech companies, to support digital payment in various sectors, and introduce Sharia-compliant instruments to encourage trade and transactions.
Therefore, as the world begins the long journey down the path towards recovery, it is likely that the deepening in the digital shift brought about by the pandemic could facilitate economic restoration and redefine trade in the process.
According to Natalie Blyth, Global Head of HSBC’s trade finance business, the future of trade will be driven by digital innovations that helped facilitate economic recovery. Blyth predicts that digital platforms will changes how trade takes place; “As digitalization of trade accelerates, it will place a greater focus on platforms that service transactions, in financing, logistics, payment, and insurance.”
She explains that the next generation of trade is going to build a digital thread that will bind these elements tighter. “This transparency will completely disrupt business models and cut out middlemen” she says. “It will connect billions of people, businesses, and trade effectively in that single ecosystem, which itself will create value and efficiencies. We are seeing innovation on a scale and pace never seen before, and it’s touching every thread of our societies, whether it’s the iPhone reshaping an entire industry or the rethinking of economic and capital models via blockchain.”
Blyth also predicts that digital innovation in trade will transform what gets traded. “We’re seeing new innovations in trade like 4D printing and the cloud—this could be the digital printing of instructions, or tech companies effectively providing infrastructure as a service. The fastest area of trade growth is in the movement of trade from the physical to the digital.”
The global crisis has shown that the power of digitalisation to influence the behaviour of people, businesses and governments in a matter of months, driving an unprecedented transformation of how goods and services are developed, produced, sold, distributed and consumed. However, whilst digital trade generally facilitates inclusive trade, barriers still exist and, in some cases, are growing.
Inadequate governance or new forms of protectionism are forcing e-commerce entrepreneurs to navigate challenges from last-mile delivery logistics to secure cross-border payments. To tackle these issues, a universal approach to creating a supportive regulatory environment is crucial.
According to a recent seminar hosted by trade finance platform TXF, there is a persistent global trade finance gap for small businesses of $1.5 trillion that could widen to as much as $2.25 trillion if inequality of trade is not addressed. This gap shows the difficulty small businesses face when trying to raise finance to invest in innovation or technology in order to grow, but highlights the disproportionate impact on emerging markets, women and minority-owned businesses.
During the discussion, Joanna Wissing, director of global transactions at Lloyds Bank said the difficulty SMEs have in accessing the finance needed to innovate is dominated by factors including regulatory frameworks, and the requirements and cost of compliance rather than the cost and availability of finance. Therefore, to support inclusive trade, regulation must be developed, but the technology of banks and lenders must also be improved to allow fair access to finance for all entities.
Once this is corrected, and businesses of all types are able to invest in innovation, “new technology will create growth, big data will help analyse trade patterns and allow analysis of risk early on and artificial intelligence can also be used to create more efficient and sustainable trade finance channels for the future” she explained.
The global crisis of 2020 will become a flagstone in history for many reasons, but it could also be the moment that a new paradigm for trade was created. One that fosters inclusivity and drives global prosperity through technology. But this will only be possible if inclusive regulation and supportive networks are established to allow businesses of all size and location to thrive.
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