Global trade has been disrupted by a pandemic, a war and other supply chain issues. However, digital developments in the Middle East and North Africa (MENA) region have picked up pace and have led to increased demand for trade and supply chain finance solutions. At the recent GTR MENA 2023 conference, panellists discussed the significance of today’s developments on tomorrow’s solutions.
From inflation, interest rates, geopolitical conflict to vulnerable supply chains, the challenges impacting the business environment continue to grow. These external factors have and continue to impact trade and supply chain finance.
MENA trade, however, remains resilient. According to Standard Chartered’s ‘Future of Trade 2030’ report, Middle East and Africa continue to be bright spots in the global economy and will define future global trade flows, driven by growing consumption in emerging markets and their attractiveness as sourcing locations.
Alongside the key regional trade hubs like Singapore and Hong Kong, the UAE will play a critical role in driving greater connectivity as it reinforces its position as a gateway to MENA, the report stated. The UAE is forecasted to see exports grow to USD 299 billion in 2030 from USD 166 billion in 2020, as it shifts towards a high-tech manufacturing and innovation hub.
Saudi Arabia, on the other hand, is expected to see exports surge to USD 354 billion by 2030 from USD 171 billion in 2020, as it reduces its dependence on the petroleum sector and develops other areas led by services and innovation.
Supporting MENA trade growth
With Middle East trade expected to grow significantly in the next decade, how will supply chain finance support that growth?
Here is a summary of the discussion from the panel:
What are the key factors influencing the changing needs of funding and risk mitigation within supply chains?
- Maintaining strong liquidity levels
- Increasing appetite for structured trade finance, and inventory & receivables financing
- Reducing risk by leveraging new technologies and data points
“We’ve seen an increase in fraud come about because of the pandemic and workers not being physically present at a factory or a port when something was shipped. Fraud is also affecting a bank’s ability to finance, and they have to leverage new technologies, new data points or other partners to be able to mitigate risk.” – Carl Wegner, CEO, Contour
What are the key enablers for Supply Chain Finance 2.0?
- Collaboration between fintechs and banks
- Adoption of new technologies like blockchain and Digital Identities
- Potential for Artificial Intelligence to transform supply chains
“In a report by Gartner, they’ve stated Trade 2.0 will involve smart robots, 3D printing, data analysis, and AI to transform supply chains. They are in many respects absolutely on the money in that regard. It is about more inclusive, smarter trade, using that data to enable much more rapid and efficient decision making, whether that’s on the physical supply chain, or on the financial supply chain.” – Dominic Broom, SVP Working Capital Technology, Arqit
Will the lack of legal frameworks impede the implementation of new technologies, like Digital Identities?
- Regulation is a key enabler for the banking industry to implement new solutions.
- To speed up digital adoption, the UAE Central Bank has launched the ‘Financial Infrastructure. Transformation Programme’ that covers nine initiatives, including open finance, KYC, instant payment platforms, etc.
“It’s still a work in progress but this is very important. If we don’t have the framework, we can’t use the technology… This is where we have the dilemma between the solution, the regulator and the framework. We want to use it but it has to be recognised.” – Selima Mehiri, Head of Energy and Natural Resources, RAKBANK
- Regulation, on the other hand, will always lag the industry.
- The industry needs to take the lead.
“We still have to move ahead without the regulations (and use those) that exist, because the industry can’t wait for the regulator to change the regulation. The regulators will always be two steps behind the industry. (If) we move ahead, they’ll follow us.” – Raja Debnath, Co-founder, Veefin Solutions
What is the nature of collaboration between fintechs and banks? Has that dynamic changed?
- Banks are more strategic when selecting fintechs to solve business problems for a seamless experience across multiple channels.
- Instead of competiting with fintechs, banks are now investing in fintechs, as they recognise the need for collaboration.
- The banks’ job is to own the corporate customer instead of the fintech doing so.
- No one fintech can cover everything, hence they have to collaborate and be interoperable with each other to delight the banks and their corporate customers.
“There is probably room where we can improve collaboration between the bank and the fintech to provide a seamless experience across multiple channels without leveraging existing technologies.” – Matthieu Andrieu, Head of Corporate Banking at Finastra.
Does AI/ChatGPT have a role in the future of trade?
- AI may not impact trade now, but in the future, it could be used as an engine in banks’ back offices.
- There is a lot of data in the banks’ possession that isn’t being leveraged. This is where there is potential for AI to automate and provide data analytics to help grow the industry.
As the MENA region positions itself at the heart of global trade, there is an accelerated effort to digitise trade finance, creating more opportunities and providing resiliency to industries that would otherwise be impacted by the disruptions. And these digital developments will be critical in the physical and financial supply chains of tomorrow.
If you’d like to learn more about digitising your trade workflows, contact us to kickstart your digital trade journey.