Simon Paris: Furthering financial inclusion and driving sustainable trade

Blog provided by Simon Paris, Co-Chair of the World Trade Board & President, Finastra. Blogs are the author’s own opinion and not necessarily representative of Finastra or the World Trade Board.

International trade is on the threshold of a new era; an era which will be driven by enhanced governance, new financing models and new technology; an era which, if managed correctly, will mean true transformation for widespread economic prosperity, and that reduced poverty can truly (and finally) be on the horizon.

Change is afoot

As the power and influence of Western markets dilutes, so it is that Asian countries are taking a stronger part in world trade. China’s $40 billion ‘One Road, One Belt’ initiative is set to re-open ancient trade routes aiming to achieve $2.5 trillion of additional annual trade within 10 years. Indeed, South-South trade is likely to account for over a third of global trade by 2025. As a consequence, the existing structures that govern world trade are increasingly being called into question.

Globalisation 2.0 demands that a fresh approach be taken to the negotiation of agreements, standards and protocols to ensure that they are both fair and equitable for all. The perceived failure of global agreements to obtain satisfactory progress has resulted not only in a call for a new international organisation – WTO 2.0 – but also an interim proliferation of regional trade agreements, most recently and most significantly the Transpacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). Both have come under scrutiny in terms of welfare rights and environmental impact.

Prior to 2008, global trade had been growing at approx. 1.5 times the rate of global GDP. However, since then there has been a growing disconnect and even a declining ratio between global trade and global GDP. Barriers to trade and political uncertainties have increased; investment has been slow to recover as costs have risen, particularly in the context of the cost burden for regulation and compliance. Yet in a world where the power and range of global connectivity is rising and the cost of transportation is falling, the decline of trade in relative terms as a share of economic activity is somewhat paradoxical.

Feeling the impact

What is the impact of this trade (and trade finance) shortfall? More often than not, it is small and medium-sized enterprises (SMEs) which find themselves up against a significant funding gap; a funding gap some estimate at $1.4 trillion. SME organisations are the lifeblood of most economies but banks in general have neither the capacity nor, seemingly, the appetite to close this gap. Consequently, we have seen the emergence of a rapidly growing alternative finance market in which crowdfunding, microfinance and supply chain initiatives have an increasingly important role to play.

Digitalisation: driving value creation for all

At the same time, we see the development and adoption of new technologies accelerating rapidly, especially in emerging markets, driving e-commerce evolution and the transformation of trade. Thanks to digital innovation, supply chains have evolved into value webs that connect whole ecosystems with the power to increase transparency, reduce risk and enhance service levels.

That’s why the technology underpinning the global trade ecosystem has a huge role to play in furthering financial inclusion and driving more sustainable trade. Imagine, for example, a shoe manufacturer in India wants to sell its goods to a retailer in the UK. Facilitating global trade by boosting financial access for SMEs and creating a positive environment for correspondent banking to thrive can help developing economies and SMEs reduce costs in the supply chain, broaden economic prospects and improve wealth distribution (and poverty reduction) for everybody.

We are also seeing several new models emerging which could develop into a genuine paradigm for sustainable trade. Digitalisation of goods, services and information are the central concepts behind these models, where the “3 I’s” of insight analytics, information sharing and inclusion could re-energise trade in a fundamental way and drive greater equality in the distribution of the value of world trade.

Digital information and technologies could revolutionise trade by enabling new services, funding models and entrants. Gartner predicts that, by 2020, more than 25 billion ‘smart’ objects will be connected and that the ‘Internet of Everything’ will create an economic opportunity in excess of $14 trillion. The extent to which these astounding developments in new technology can be applied for the common good is dependent upon the overriding trends in policy, investment and implementation.

Innovative technology, a focus on global standards and an ability for financial institutions and policy makers to be agile to different social contexts can pave the way not only to improve financial services, but also people’s lives.

Originally created for Sibos 2016 and published on the Sibos site.