Inclusive trade has the potential to generate significant economic growth and lift millions out of poverty but at present, there are a number of barriers – social and regulatory – that are preventing the full potential of inclusive trade to be reached. Technological innovation could provide the answer to unlocking these gates and allowing more communities to participate in global value chains.
Open trade and market access are fundamental drivers of economic growth and poverty reduction at every level of development. Allowing businesses of all sizes and sectors to participate in the economy can help foster stability and transparency and enable economic growth. In turn, trade has the potential lift entire communities out of extreme poverty. This is because, according to the World Bank, “open trade benefits lower-income households by offering consumers more affordable goods and services”, whilst on a macro level, countries that are open to international trade, grow faster, innovate more, have higher productivity, and provide higher income and more opportunities to their people.
However, in many economies, barriers to inclusive trade continue to prevent or limit rural communities from benefitting from open trade and the resulting economic rewards. From a social point of view for example, a United Nations Department of Economic and Social Affairs report; 'The World Social Situation' argues that to promote inclusive trade, “barriers to participation must be broken down by revising laws, policies, institutional practices, discriminatory attitudes and behaviours, and taking steps to ensure that participation is easier.”
Supporting this approach, in a speech promoting inclusive trade through women’s economic empowerment, Director-General Roberto Azevêdo noted “Trade plays an important role in gender empowerment. It helps to create job opportunities and provide better salaries. It encourages education and skills development. And it helps to increase financial independence.” He explained that in Rwanda for example, 74% of those engaged in cross-border trade are women, and 90% of them rely on cross-border trade as their sole income source, yet women remain under-represented in international trade, whilst female-led businesses suffer significantly from legal and regulatory barriers and greater difficulty in securing finance. Therefore, if social and regulatory barriers to inclusive trade could be addressed, communities traditionally left out of trade opportunities could increase their competitiveness, allowing greater integration of rural markets with the global economy and improved education, skills, and gender equality across the board.
From a logistical point of view, one of the major barriers to inclusive trade is ensuring the infrastructure needed to participate in the global economy is fit for purpose and accessible. At present, cross-border payments suffer from delays in clearing and settlements of cross-border payments, complex regulations relating to anti-money laundering and terrorism financing laws and complicated payment systems. According to a new report by the Committee on Payments and Market Infrastructures (CPMI) - the organisation that sets international standards of cross border payments - resolving longstanding challenges in cross-border payments could result in “faster, cheaper, more transparent and more inclusive cross-border payment services that would benefits citizens and economies worldwide by supporting economic growth, international trade, global development and financial inclusion.”
The CPMI report goes on to outline critical areas that need to be improved in order to facilitate inclusive trade. For example, the report suggests policy-makers consider the feasibility of “new multilateral platforms and arrangements for cross border payments, and ensures that these new systems allow and indeed promoted international inclusivity”. It argues that this would improve efficiency of trading and also to ensure that businesses of all sizes are able to enter a market. It also suggests consideration of ‘global stablecoin arrangements’, to reduce risk by avoiding market volatility when trading.
The report also found that to allow more communities to benefit from global economic opportunities, greater ‘public and private sector commitment’ in delivering universal guidance on processes and governance related to cross border payments is urgently needed. Supporting the findings of another recent report published by the Financial Stability Board (FSB) that identified seven areas of friction in cross border payments - the common denominator that binds all of the recommended improvements in facilitating inclusive trade together is technology.
Technology can play a vital role in expanding access to financial services and trading opportunities between both developed and less developed economies. In the past, the steam power revolution and the invention of shipping containers laid the foundation for globalisation, whilst more recently, technologies such as Optical Character Recognition (OCR) to read container numbers, Radio Frequency Identification (RFID) and QR codes allow efficient identification and traceability of shipments.
As we enter the fourth industrial revolution, digitization of trade has improved the reliability, security and efficiency of the international trade. For example, blockchain-based distributed ledger technologies have the potential to transform the global trade supply chain and encourage inclusive trade by allowing efficient movement of goods and disrupt the world of trade finance by simplifying the payment process by addressing global trade issues such as high costs and lack of transparency and security to encourage more communities to join the global value chain.
For example, Deloitte was able to help an Indian private sector bank redesign the ability to provide finance by developing a blockchain solution that reduced the issuance time from 20-30 days to hours, meanwhile, companies such as Skuchain use blockchain to streamline the global supply chain and facilitate more efficient trade by providing real-time tracking of goods and inventory financing that de-risks transactions, and allows financiers to provide working capital relief to all supply chain partners at the lowest cost of capital in that chain. It can also be used to encourage inclusive trade.
Meanwhile, Artificial Intelligence and Machine Learning technology can be used to optimise trade shipping routes, manage vessel and truck traffic at ports, and translate e-commerce search queries from one language into other languages and respond with translated inventory. Alongside efficiency gains, these technologies facilitate better consumer service and help to make global trade sustainable. For example, in 2016 Google launched Global Fishing Watch, a real-time tool using machine learning to combat illegal fishing by providing a global view of commercial fishing activities based on ship movements and satellite data.
Another technology with the potential to drive inclusive trade is the evolution of digital payment platforms. From Apply Pay to Alipay to M-Pesa, mobile payments are transforming retail and connecting consumers to greater market opportunities. Indeed, according to Emma Wade-Smith OBE, the UK’s Trade Commissioner for Africa; “Although 60% of adults in sub-Saharan African still do not have access to traditional means of financial services, mobile phone penetration rates having risen to over 40%, allowing technology to play an increasing role in expanding access to financial services and other sectors.” As the newly banked population becomes connected to mobile payments, it’ll be much easier for them to participate in global trade.
However, despite the potential of these technologies, there are a myriad of domestic and cross-border governance challenges that are preventing the deployment of innovation where it is needed the most.
Indeed, many agreements that govern international trade were written before digital commerce existed. Therefore, to truly capture the potential of inclusive trade and the technology facilitating it, the global trade system must ensure laws and regulations are updated and fit for purpose, facilitating inclusive trade instead of standing in its way. To do so allows trade to be more efficient, more inclusive, and less costly. This is particularly relevant as the global economy searches for a path of recovery from the pandemic. As ABAC Chair Dato’ Rohana Tan Sri Mahmood of Malaysia explained; “Globally, we face significant health and economic challenges as a result of the effects of COVID-19. Fundamentally trade can and must be at the centre of tackling both the immediate crisis and of laying the groundwork for a return to growth”.
Technological innovations offer an exciting future for international trade among today’s uncertainties. With the right governing approach to ensure that no economy or community is left behind, innovation has the potential to deliver a future of greater inclusivity and more efficient trade growth.
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