Digital trade: The new normal for Africa and the Middle East?
As measures to combat COVID-19 force the paper-heavy world of trade into a new digitised reality, the AME region is better prepared than many.
As with most of the world, AME’s trade flows are currently at risk. Lockdown measures to mitigate the spread of COVID-19 threaten to jeopardise the manual signing and review of the documents needed to keep goods moving. Demand for digital solutions in trade – up until now relatively low – has risen as exporters and banks alike seek to find a new way of working in this new normal.
“We have all now come to realise that this might be the new way of working,” said Syed Khurrum Zaeem, Head of Trade and Transaction Banking for the Middle East and North Africa (MENA) at Standard Chartered. “Banks and clients alike are working from home. As we look to the future post-COVID-19, the only way to ensure resilience will be through digitisation.”
Digital natives
According to the World Bank1, AME has one of the highest youth population shares in the world, giving it a generational advantage when it comes to technology. Having grown up in societies where digital devices are commonplace therefore, business leaders in the region are particularly open to the potential for digital technology to connect them to the rest of the world.
Its governments, too, are alive to the possibilities that digitisation brings. Ranking fifth in the world for technology adoption according to Cisco’s 2019 Digital Readiness Index, the United Arab Emirates (UAE) has forged ahead. In Dubai, the aim is for all government transactions, where possible, to be digital by the end of next year. Meanwhile, Saudi Arabia has pledged to become one of the world’s top-20 digitally innovative nations, positioning digital transformation as one of the four pillars of its Vision 2030 programme.
And this progress is not limited to the Gulf states: Egypt has unveiled a digital transformation strategy which will see, among other initiatives, a digital trade platform set up to facilitate export and import activity, while Kenya’s government’s commitment to its information communications and technology (ICT) policy has seen the emergence of a world-class tech hub known as the Silicon Savannah.
“There is a great drive from the governments in the region to put the infrastructure in place for people to go digital,” Zaeem added.
“One example is the Kenya Revenue Authority,” said Patrick Makau, Head of Trade for Kenya and East Africa at Standard Chartered. “It has enabled the digital issuance of customs bonds – and is going through a phased approach to make this process completely digital through the integrated customs management system.”
Flight to digital
Makau spoke of a “flight to digital” that has been fast-tracked by the difficulties thrown up during 2020’s economic lockdowns. “Companies that are not there yet are quickly seeking to move to digital platforms, while those who are there already are recognising the benefits of their earlier decisions.”
This receptiveness to new technologies has already seen several corporates in the region digitise at least some of their trade processes, which has prepared them well for the current situation. Meanwhile, for those corporates yet to have got on board with digitisation, the pandemic has served as a catalyst for them to take up new solutions to facilitate trade.
Charles Abobare, Principal Trade Products Manager for Nigeria at Standard Chartered, highlighted this new trend. “With the COVID-19 situation, everybody has come to the realisation that they have to go digital. Companies can now clearly see the cost savings. They want to be able to initiate transactions on digital channels.”
“We have seen a significant uptake in one supply chain programme we have for a large retailer in the last month. That is really a testament of how powerful it is. It is automated. It is end-to-end. It is done seamlessly,” added Zaeem.
An overnight transformation
With both domestic consumption and international trade volumes slashed overnight by COVID-19-related restrictions, finding urgent solutions to immediate problems has become of existential importance across Africa and the Middle East.
Corporates that don’t yet have digital processes in place have sought workarounds, and according to Zaeem, solutions have had to be found to avoid disrupting trade. “To cater to the current situation, we have allowed flexible signatures and delivery methods to take care of immediate needs. We are also accepting transactions – reviewed on a case-by-case basis – via email with digital signatures, with callbacks and other procedures put into place,” he added.
A call for regulatory support
However, bilateral efforts between banks and exporters can only go so far in keeping the wheels of trade turning. A conducive regulatory framework is also needed, and this is where the bottlenecks are, according to a recently released World Bank study.
In Digital Trade in Mena: Regulatory Readiness Assessment2, the multilateral organisation said that regulation of digital markets in the region remains “underdeveloped”, being mostly covered by general laws not originally intended for the digital era.
While all countries in the region have advanced on regulating electronic transactions, typically following the United Nations Commission on International Trade Law (UNCITRAL) guidelines for e-documents and e-signatures, the World Bank’s research found that most regulatory frameworks remain “incomplete or outdated”, providing partial solutions or unnecessarily burdensome requirements that limit the use of electronic signatures.
“The biggest challenge we have is that regulators don’t allow digital document presentation,” added Zaeem. “This impacts upon banks in terms of managing risks if an exporter has presented valid documentation to us and we are unable to send it.”
So far, banks and exporters have worked together to mitigate those risks. But in order to maintain the free flow of trade amid these difficult times and into the post-COVID-19 future, the region’s regulators and governments need to allow digital acceptance or digital presentation of documents – or risk trade coming to a standstill in one of the world’s most important trading hubs.
This article was first published by Global Trade Review (GTR).
1 https://data.worldbank.org/region/middle-east-and-north-africa
2 http://documents.worldbank.org/curated/en/786271585574266618/Digital-Trade-in-MENA-Regulatory-Readiness-Assessment