The MENA region’s digital trade transformation – already making significant headway – has been spurred on by the Covid-19 pandemic. Sunil Veetil, regional head of global trade and receivables finance at HSBC Middle East, North Africa and Turkey, discusses some of the bank’s recent successes in harnessing digital trade opportunities, and the value that he sees in blockchain technology in further accelerating trade flows.
GTR: Covid-19 has accelerated digital trade efforts to ensure that deals get signed and financed – how has this played out across the MENA region?
Veetil: The impact of Covid-19 has put an even greater focus on digital banking, with it almost acting like jet fuel for our digital trade activity.
As we know, trade is a document-intensive business involving multiple counterparties across the globe, many of which still require the use of paper. We’ve worked out that we see on average 40 pages for every transaction, and we process thousands of transactions a day – so you can imagine the sheer volume of paperwork that goes through the system on a daily basis.
Clearly, with Covid-related lockdown measures and to avoid the risk of infection, the movement of this paper was restricted. For us, the one way that we could keep the wheels of the economy turning was to migrate a number of our activities to digital.
In some countries, we even worked with the regulators to mandate counterparties to digitise some of their related operations in order to ease this process. Before the pandemic, 50% of our transactions took place using digital channels, and today that figure has reached beyond 90%.
Because of our efforts, we were able to provide our clients with the same level of service throughout the pandemic that they had come to expect pre-Covid. The acceleration of our digital agenda has really been the silver lining for this crisis.
Our digital transformation has not only been about our engagement with clients, but also our own internal operations and how we process transactions. As part of our Trade Transformation strategy, we had invested in automating our internal operations, risk management and client service aspects of the business and thankfully, along with proactive contingency plans, we were well-equipped to deal with remote working even before it became a necessity.
As we hopefully move beyond Covid, we need to ensure that as an industry we continue to make good progress on digitalisation – even after the crisis has passed – and ensure we do not slip back into our old, paper-intensive ways.
GTR: There has been an uptick in digitalisation across the wider trade ecosystem with some very encouraging developments. HSBC recently financed a live transaction on the Contour blockchain platform involving a shipment of steel from Tata Steel in India to Universal Tubes and Plastic Industries (UTP) in the UAE. The documentation of the trade was digitised from end to end. What are the fundamental benefits of digitising trade processes and speeding up transaction times – now reduced to under 24 hours? What does that mean for a company’s working capital?
Veetil: Being able to bring together multiple counterparties on one particular platform, and allowing for full transparency, security and privacy among all parties, makes blockchain technology ideal for the trade finance industry.
From the start, HSBC has been at the forefront of blockchain in trade finance, and we’ve done a number of transactions globally. In addition to the recent transaction involving UTP, for example, we previously worked with UAE retail conglomerate Landmark Group to complete a first-of-its-kind transaction that connected two independently built blockchain platforms.
In both the cases, we have seen considerable efficiency in working capital. For example, in the Landmark Group transaction, the company estimated that it saved around 30 to 40% of its working capital. This proves that the efficiency that solutions like this deliver can really help companies dramatically accelerate the velocity of their trade.
With digitising trade transactions, it’s not just about making the physical and financial supply chains more efficient, but also about creating opportunities to boost business volumes on the back of those efficiencies – and that’s the biggest potential for companies.
Away from blockchain technology, we have also applied new technologies like artificial intelligence, machine learning, robotic process automation and APIs to connect with clients and improve our turnaround time, minimise errors and hence dramatically improve the client experience. There are many areas in which we are investing, and we are constantly looking for ways to future-proof trade finance.
GTR: What’s your take on how successfully digital trade solutions are being adopted in the UAE – given the government’s steps to boost digital transformation – and across the rest of the region?
Veetil: The UAE is at the forefront of innovation and technology, which it is leveraging to drive efficiency, governance and trade.
The UAE has made great strides. For example, it was the first country ever to appoint a minister of artificial intelligence in 2017; the Emirates Blockchain Strategy 2021 aims to put at least half of all government transactions on the blockchain by the end of the year; and the nation’s digital economy contributes 4.3% to GDP. The fact that UAE leaders’ thought processes are both progressive and resolute certainly bodes well for trade digitalisation efforts.
If you consider the UAE’s strategic position as a global trading hub – and how the velocity and efficiency of those already substantial volumes of trade might be boosted as a result of all these new technologies and digitalisation efforts – it is clear that there are significant opportunities for this part of the world.
Aside from the UAE, we are also seeing progress in other countries in the region. There are various ongoing initiatives in Bahrain, Oman, Qatar and Saudi Arabia.
For example, Bahrain FinTech Bay, an early-stage incubator launched in 2018, is the leading fintech hub in the Middle East. Bahrain is also home to Tarabut Gateway, the region’s first and largest regulated open banking platform.
Digitalisation is transforming Saudi Arabia, as can be demonstrated by the landmark project Neom, an innovative, fully-automated smart mega-city, which will be powered entirely by renewable energy. Details of the project’s first development, The Line – a high-tech metropolis – were announced at the start of this year.
Elsewhere, the Kingdom recently established the Saudi Data and Artificial Intelligence Authority, a significant regulatory development that aims to drive the national data and AI agenda.
We are in discussion with a number of government and non-government bodies to enable digital trade.
GTR: What are some of the barriers to the adoption of new and innovative finance solutions in trade, and how have these difficulties evolved over time?
Veetil: There used to be concerns within the trade finance industry about the number of platforms that were emerging, and how they were going to all work together. I think that’s less of an issue now because the technology has evolved to such an extent that the information exchange between the platforms may not be the real issue. We proved this ourselves with the Landmark Group transaction, which saw two different blockchain platforms interact with one another.
The bigger obstacle now is the evolution of a regulatory framework within countries and the lack of standards in trade in terms of establishing agreed data structures and documentation. Some governments and independent bodies like the International Chamber of Commerce are making good progress on this front in terms of developing open trade standards.
For exporters or importers, a lack of – or disparate – standards in trade increases the investment cost of being able to join these platforms and access the trade finance that they need. This is especially problematic for SMEs, which we know are the hardest hit by the well-documented US$1.5tn trade finance gap. I believe that blockchain technology can contribute greatly to driving financial inclusion for those SMEs and bridging that gap.
GTR: What are you most enthusiastic about in terms of the future of digital trade in the MENA region?
Veetil: For me, two trends are exciting. Firstly, the impact that new technologies and processes will have on the wider economy, especially in improving financial inclusion, and secondly, the focus on environmental, social and governance (ESG) in the region.
The digitalisation of trade increases its scale, scope and speed. Being able to connect a large number of firms – including smaller ones – across the globe will enable more cross-border trade.
At the same time this will increase transparency around transactions and pricing, ultimately helping to overcome barriers for smaller companies. The ability to scale irrespective of size with minimal investment is impactful.
I’m equally enthusiastic about the future of sustainable trade. Whether it is the transparency enabled by blockchain technology to facilitate ethical sourcing, or the momentum behind efforts to promote clean energy, the development and investment in these areas will encourage sustainable trade.
HSBC has led a number of groundbreaking sustainable finance transactions in MENA and at the start of this year we arranged the region’s first green trade finance facility. We raised US$48mn for UAE based Lamprell – an engineering services provider – to support its fabrication work on the Seagreen Offshore Wind Farm project off the coast of Scotland.
It’s important to remember that technology is just an enabler. Yes, it will help us do things better and give us more information. But it is the impact that it will have on people and businesses – both big and small – which is the most exciting.
