A white paper published by the World Economic Forum, in collaboration with global consulting firm Bain & Company, found that blockchain’s distributed ledger technologies (DLT) and other “fourth industrial revolution” technologies offer new efficiencies to SME’s and emerging markets involved in global trade. These improvements in efficiencies could lead to a $1 trillion dollar improvement in the global trade finance gap.
The paper is a joint initiative of the Supply Chain and Transportation industries and the System Initiative on Shaping the Future of International Trade and Investment. It looks in particular at the effect and costs of the administrative processes involved in cross border transactions. These administrative processes could be reduced using DLTs while also preventing illegal trading activity and providing a full record of the origins of certain goods where a proven ethical source is preferred.
Transforming paper-based documentation
The paper concludes that digitalization and advanced technologies, with an emphasis on blockchain or DLT, can reduce processing times and the cost of cross-border movements of goods.
“Transforming paper-based documentation into electronic formats and applying smart tools and technologies help to reduce trade barriers, particularly for small businesses and companies in higher risk developing countries,” said the paper. “Distributed ledger and other technological innovations promise groundbreaking advances.”
The authors argue that “archaic” processes are an obstacle. One example it uses is a test shipment of flowers from Kenya to Rotterdam, the Netherlands, which generated 200 communications documents. The cost of processing these documents added up to around a fifth of the physical transportation costs. Digitizing this supply chain would improve efficiency and reduce costs.
Distributed ledger technology, through immutable and easily shared records, could also provide governments greater transparency of trade information to prevent smuggling and drug trafficking. Tracking shipments of goods from origin to consumer also provides the in-demand proven ethical source information today’s consumers require.
Blockchain technologies could lead to global GDP growth of 1.5% in the next decade
Bain & Company outlines that around 1.5 trillion dollars worth of trade is lost due to rejected trade finance transactions. DLT could improve trust and trade volumes and help meet this gap by addressing efficiency issues with trade and supply chain finance through managing paper intensive issues like letters of credit.
DLT could therefore enable up to $1 trillion of this lost trade in new trade revenue over the next decade which would translate to 1.5% GDP growth on 2017 levels.
The full white paper explains the exact mechanics in detail summarizing that DLT can provide faster credit risk assessments, minimize human errors, and give instant verification and automatic execution of workflow through the use of smart contracts.
Bain & Company estimates that DLT could reduce trade finance operating costs by 50-70% and improve turnaround times of trade financing products.
“Distributed ledgers will help to truly revolutionize trade when applied in conjunction with other technologies,” said the report.
DLTs, or blockchain technologies, are being developed and adopted in many markets and certainly quickly in cross-border transactions, payment processing, and global supply chains.
The report cites a number of examples of recent blockchain pilots conducted between banks, suppliers, and technology companies. The examples include trades carried out by IBM and Maersk, and Spain’s Banco Bilbao Vizcaya Argentaria (BBVA), FRIME in Spain, a Mexican supplier of Tuna and the Mexican bank Bancomer.
With billions being invested globally into blockchain technologies, global supply chains and indeed global trade may well be one of the first areas to show significant benefit over the next decade, should adoption continue apace.
Editor’s note: This article was updated on 9/20 to correct the author. It originally said Jack Filiba, but Melanie Clay is the correct author.
Source: Coinsquare : World Economic Forum Finds Blockchain Could Enable Trillion in Trade
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