denton2_Witthaya PrasongsinGetty Images_digitalshipping Witthaya Prasongsin/Getty Images

Fixing Global Trade Finance

The smaller the business, the more difficult it is to navigate the complexity, fragmentation, and opacity of today's trade-finance system. But more digital interconnection would greatly benefit micro, small, and medium-size enterprises and hence the global economy, too.

PARIS – Goods and services move around the world via critical infrastructure: roads, ports, rail networks, shipping routes, and data servers. The $5.2 trillion global trade finance ecosystem that facilitates these flows is just as essential. Unfortunately, it does not always work as well as it could.

Today’s trade finance system is characterized by a complex web of decades-old manual processes and more recent “digital islands” – closed systems of trading partners that are disconnected from the global whole. New research by the International Chamber of Commerce’s Advisory Group on Trade Finance, Fung Business Intelligence, and McKinsey & Company highlights how simplifying processes and connecting and integrating these islands across networks and platforms could transform the global economy.

According to the Asian Development Bank, the global trade financing gap increased in 2020 to a record $1.7 trillion – equivalent to 10% of global goods trade, up from 8% in 2018. The shortfall is even more acute for micro, small, and medium-size enterprises (MSMEs), which accounted for 40% of rejected trade-finance applications in 2020. So, while digital networks are undoubtedly the future of trade, expanding them in their current form risks widening the gap between large, connected multinationals and the MSMEs that are central to economic growth and job creation throughout the developing world.

We hope you're enjoying Project Syndicate.

To continue reading and receive unfettered access to all content, subscribe now.

Subscribe

or

Unlock additional commentaries for FREE by registering.

Register

https://prosyn.org/n7ABdS3