"I always say the future of trade is digital, but I emphasise that the future of trade must also be green," In a speech given earlier this year, the head of the World Trade Organisation, Ngozi Okonjo-Iweala reiterated the important role that global trade can play in solving the major challenges facing the world today.
Evidently, global trade is shifting; it is no longer simply about increasing revenue and GDP figures. As the founder and executive chairman of the World Economic Forum, Klaus Schwab, also said recently, trade must become more "human-centred."
Fortunately, global trade is already changing to meet its new ambitions. Supply chains must not only serve the interests of businesses and their customers but also meet the needs of the environment too. Digital tools are crucial for this transition to ensure that the future of trade is one that protects, rather than harms the environment.
The new drivers behind global trade
Trade drives the world economy - and has understandably experienced significant disruption over the last couple of years. The COVID-19 pandemic caused a huge contraction in global trade - the largest seen since World War Two. The value of goods exports across OECD countries fell by 8.2% in 2020, while service exports dropped by 16.7%. And while the recovery has been impressive, on the whole, changes to the structure of global trade could have longer-term implications.
Post-pandemic, there is a greater focus on supply chain resilience alongside the need for a renewed emphasis on sustainability. Like all economic activity, trade can be a contributor to climate change but it can also prove essential to its prevention. Trade can facilitate the sharing of goods, services, and ideas that help create a global net-zero economy.
Recently, the UN Environment Programme highlighted a technology campus in Hyderabad, India that consists of solar panels built in China, back-end technology and cabling from Australia, the US and the European Union. It is also partnered with a biogas plant made up of parts from a multitude of different countries. It is a powerful example of how global trade can drive sustainability. At the same time, it also shows how trade can also serve as an engine for economic growth and poverty reduction.
If this new vision for global trade is to become more common, digital solutions will undoubtedly play an increasingly important role. When compared with the inefficiencies of traditional trade processes, "going digital" is hassle-free, paperless, and leads to faster turnaround times. Electronic invoicing, cross-border data protection, and digital identification can streamline the global trading process and help facilitate more projects like the Hyderabad technology campus. The intersection of paperless, digital trading with a new sustainable future for the world economy can be achieved today.
Reacting to a new global trading system
Although many of the shifts affecting global trade may have accelerated since the COVID-19 pandemic, they have roots that predate it. Artificial Intelligence, the Internet of Things, and many other digital solutions have been earmarked as having a potentially transformative impact on global trade for a number of years. Similarly, the UN's 2030 Agenda for Sustainable Development has included international trade as a key driver for both inclusive economic growth and the attainment of its Sustainable Development Goals (SDGs) since 2015.
For businesses, therefore, the evolution of the global trading system should not come as a complete surprise. In order to make the most of the new trading reality, organisations need to streamline their approach to global trade, ensuring that they have rapid access to the financing they need to acquire sustainable solutions from all over the world. With the regulatory environment around sustainability changing quickly, businesses need to be able to react equally fast to the market and compliance demands surrounding green tech development. Trading bottlenecks that hinder the ability to import or export sustainable solutions can have damaging effects on business revenues and the health of the planet.
For small and mid-size enterprises (SMEs), in particular, the new realities of the global trading system can be difficult to manage. Recently, the global trade financing gap hit a record high of $1.7 trillion. This means that businesses can struggle to import or export the essential goods and services that are needed around the world. For SMEs, financing can be particularly challenging with larger international banks often uninterested in assuming the costs of onboarding these kinds of players, while smaller, domestic banks may not have the knowledge of international trade that is required.
This is why MODIFI is playing an increasingly important role in facilitating trade and suitable payment terms for SMEs by reducing its complexity. With banks rejecting around 50% of all SME trade finance requests (despite these companies contributing around 30% of worldwide trade volumes), it is vital that they have access to the capital and tools they need to trade as freely as possible. At MODIFI, we have a paper-free online service that boosts your cash flow when you need it. So you feel empowered to take part in international trade even during periods of peak demand and unexpected market turbulence.
A recent survey of SMBs found that 64% expect supply chain disruptions to last through the first half of 2022 at least. But there are ways to mitigate the impact of this disruption - ensuring that businesses can continue to use trade to create a more equitable and sustainable world. With MODIFI, your business can be a part of this future.