Adopting electronic forms of trade documents could cut costs and boost profits following the Covid-19 pandemic
Widespread acceptance of digital trade documents could generate an additional US$1.2 trillion in trade by Commonwealth countries by 2026, a report has found.
The analysis covers each economy in the 54 Commonwealth nations and presents a picture of the potential for cost reductions and trade increases if digital trade documents are accepted in the same manner as their paper equivalent.
The report from the Commonwealth Connectivity Agenda found that widespread use of digital trade paperwork could increase trade by Commonwealth countries by an additional US$1.2 trillion through the impact of cost reductions and greater access to trade finance.
Developing economies across the spectrum – emerging, small states and least developed countries – see the greatest reduction in costs from these changes.
Kirk Haywood, Head of the Commonwealth Connectivity Agenda, said: “The Covid-19 pandemic has left deep economic scars across the globe, and while countries are now looking to rebuild, many are likely to struggle for years to come.
“Commonwealth trade is set to grow by an average of just 0.2 per cent a year between 2021 and 2026. Of the 20 countries with the slowest growth projections, six of these are emerging African economies and only seven are not SIDS.
“It is vital that viable opportunities to boost trade are explored and acted upon if all member nations are to see increased prosperity.
“Commonwealth leaders have already committed themselves to the goal of increasing Commonwealth trade to US$2 trillion by 2030. This report clearly illustrates how the adoption of digital trade paperwork across the Commonwealth can help us reach this goal.
“In the current challenging fiscal environment, such regulatory interventions can support post-Covid recovery without relatively large government expenditure. The UNCITRAL Model Law on Electronic Transferable Records provides a good starting point for countries looking to undertake such interventions.”
Trade costs are currently prohibitive for many countries across the Commonwealth. For four Commonwealth economies (Vanuatu, Tonga, Gambia, and Papua New Guinea) costs are higher than 100 per cent of the revenues received from trade, while another 34 economies are burdened with costs that exceed 50 per cent of their revenues.
These figures come from costs associated with border crossing and transport alone. Adding raw materials, production, sales, and distribution costs means more countries are likely to find exporting prohibitive.
Moving toward paperless trade will cut these costs, helping to open new markets and stimulate trade where previously very little existed.
For all Commonwealth economies, accepting electronic documents will bring significant improvement in trade from two factors:
- Reduction in trade costs, which enables more exporters to access trade routes.
- Improvement in access to finance, which has the effect of creating markets, especially for MSMEs who are currently excluded because they are unable to access traditional forms of trade finance because of due diligence costs involved.
- There are challenges associated with moving to an electronic trade system.
- Paper forms of trade documents such as bills of lading, bills of exchange, promissory notes, warehouse receipts, guarantees and standby letters of credit are overwhelmingly used across the world.
- An estimated four billion paper-based documents are being processed at any one point in time around the world according to the International Chamber of Commerce (ICC).
- The non-standardised and manual nature of a bill of lading makes border processes complex for the exporter.
- Additionally, lower levels of digital literacy pose a major challenge for some groups.
- The Commonwealth Secretariat is working to address the digital divide across member states through the Commonwealth Connectivity Agenda – a platform for countries to exchange best practices and experiences in trade and investment to prompt domestic reform.
- Specific targets for action were also outlined in the Declaration on the Commonwealth Connectivity Agenda for Trade and Investment made by Commonwealth Heads of Government in April 2018.