Singapore — A country with huge impact on the future of trade and trade financing
Trade finance can be explained as the use of financial tools in order to clear the way for international trade. Examples of these financial tools are letters of credit, trade credit insurance, and factoring. The ultimate goal is to make international transactions easier through the introduction of a third party that attenuates the risks associated with these transactions.
In the last few years, trade finance has evolved to the point of being fundamental for international trade, covering at least 80% of global trade flows. Furthermore, predictions for the next decade show no sign of slowing down. According to the International Chamber of Commerce (ICC), the next decade will be “more transformative, fast-paced and disruptive” than the previous one. In as few as ten years, we’ll live in a more connected world where data flows will drastically change trade and trade finance as we know it today.
Currently, Asia accounts for more than 60% of worldwide economic growth and some countries within the region have taken full advantage of this phenomenon. One such country, Singapore, has assumed the role as one of the main commercial focal points, making good use of their geographic location. Using their ports as a gateway into and out of Asia, Singapore has developed a detailed network of companies that continue to enhance and promote economic development within the area. In addition, and equally important, Singapore shot to the forefront of this flourishing economic growth through the digitization of trade and trade finance, ultimately changing how trade is performed at the most basic of levels.
The digital trade pursuit has long been in sight for Singapore. In the early 90’s TradeNet was launched. TradeNet was essentially a trade declaration that allowed both the private and public sector to share trade details electronically. Years later it became the National Trade Platform (NTP), a system that connects “logistics providers, business partners and regulatory authorities” while enabling the sharing of information between them. The next step will be to connect stakeholders with that same objective at an international level.
However, there are a few requirements in order to achieve a generalized acceptance and usage of digital trade finance. First of all, technology must be standardized to enable different systems and products to interact on a consensual basis. Secondly, legislation needs to follow these advancements in technology, it’s the government’s duty to put in place laws that allow the legalization of digital documents. The legal authority to embrace these systems would encourage wide spread adoption. Thirdly, investment in infrastructure needs to happen from a “ground up” approach. The digital foundation needs to be implemented at the national level first, in order to succeed at the international level. Next, the entities that can truly shape the development of digital trade, such as multinational corporations and governments, must collaborate and share the responsibilities of working towards the goal of implementing digital trade finance. Finally, small and medium-sized enterprises (SMEs) need to be educated on the advantages that digitalization provides. Those advantages, such as increased productivity and access to markets they couldn’t previously enter, will allow those SMEs to gain an upper hand in the trade finance realm.
Currently, the Monetary Authority of Singapore and the Hong Kong Monetary Authority are working together to develop a Global Trade Connectivity Network which will share data at high speed through “distributed ledger technology” between their respective trade finance programs. Assuredly, Singapore has demonstrated a willingness to overcome all obstacles and the initiative to remain at the vanguard of trade finance.We are looking forward to seeing what kind of developments this project will have in the second half of 2019
