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Is digital trade changing the concept of business in the Middle East?
As digital trade solutions have accelerated in recent years, and spawned a host of new challenges. Industry experts outline how policy action can enable this new playing field
Deep within Dubai’s Jebel Ali Free Zone, the Middle East’s largest automated distribution center receives, categorizes irons, and sorts up to 15,000 trays of retail items per hour. Mechanized processes at this $272-million warehouse can handle up to 2.2 million cartons and 2 million textiles on hangers, so the Landmark Group’s many retail outlets receive items pre-sorted in the order required for smooth on-site replenishment.
Chances are, items being added to shopping baskets at Splash, Kurt Geiger, or the group’s other stores in the region likely passed through this logistics and distribution facility.
This vital node in the region’s retail trade shows how global supply chains have transformed in recent years. Indeed, when the group inaugurated the facility in 2019, there was no way of knowing just how valuable investment would be when supply chains were upended and digitalized just a few months later.
Ashish Sood, Landmark’s Chief Supply Chain Officer, says the center strengthens the conglomerate’s supply chain capabilities and is an investment in its future. “We are investing in digital technologies that help us react fast to the market dynamics and disruptions to help us provide an amazing customer experience.”
For Landmark, those technologies span the gamut from end-to-end data visibility to infrastructure and process hyper-automation to elastic logistics. Together, these digital solutions support improved decision-making while streamlining dependency on human capital and promoting resiliency against black swan events. “At an overall level, these solutions are helping us build automated processes and a strong and responsive supply chain and achieve significant cost efficiency while delivering a strong customer experience. They also help drive sustainability by reducing inefficiencies and our carbon footprint,” Sood said.
DIGITALIZATION OF TRADE
Trade flows were slowly digitalized before the pandemic, but the process has accelerated in the past two years. Now, sales of everything from fast fashion to agricultural commodities or machine spare parts depend at least in part on the uptake of new digital technologies, or TradeTech, as the World Economic Forum (WEF) describes it.
This new form of trade – or Trade 2.0, if you will – isn’t just bringing new products and services to digitally connected consumers around the world; it is accelerating more equitable, inclusive, and resilient growth for nations by opening up new opportunities within a key economic sector that accounts for half of all global exports and two-thirds of global gross domestic product (GDP).
As organizations look to respond, they will turn to data, advanced analytics, artificial intelligence (AI), the internet of things, 3D printing, robotic process automation, smart robots, autonomous vehicles, or drones, according to global technology consultant Gartner.
“We expect digitalization will be key to further shaping business opportunities in the decade ahead,” said Christian Titze, VP Analyst at Gartner’s supply chain practice. He added that the transformation presents an opportunity for businesses to transform their supply chains, preparing them and improving their performance for the uncharted environment.
Alexandros Komianos, Chief Fulfilment and Logistics Officer at Chalhoub Group, offered an example of TradeTech’s benefits for the luxury retailer.
“Mastering technology is a must to succeed in today’s retail world, with one of the most challenging tasks being the creation of valuable and actionable consumer insights. Chalhoub Group is continuously evolving its system architecture but also data quality as this is very important for the region,” he said. “As an example, Chalhoub Group was able to decrease delivery delays both in UAE and KSA by almost 80% via introducing better delivery address management and GPS coordinates creation.”
CHALLENGES FOR POLICYMAKERS
But while businesses are driving the adoption of TradeTech, trade policymaking must keep pace, the World Trade Organisation (WTO) said in an April report identifying key policy dimensions for widespread digital trade adoption.
The benefits of TradeTech on efficiency and sustainability are highly promising, but uneven deployment due to regulatory fragmentation could result in unintended consequences of unequal growth, threats to cybersecurity, and a growing trend in techno-nationalism, the WTO Director-General Ngozi Okonjo-Iweala, and WEF President Børge Brende wrote in a forward to the report.
Countries have been enacting policies that support this altered trade landscape in the Middle East and put it at the center of their economic and social development plans. Bahrain was the first country to establish a legal framework for using blockchain in commercial and government sectors. Oman introduced e-delivery and e-cargo release orders in 2020 to speed up maritime transactions.
Meanwhile, last November, the UAE and Singaporean financial regulators successfully concluded the first cross-border digital trade document transfer, removing the need for paper-based documents in international trade finance. “Advanced technologies have a critical role in not just improving trade but sparking a new, more inclusive era of global trade. Artificial intelligence can help automate customs procedures, data analytics, and machine learning can monitor supply chains. Blockchain can revolutionize trade finance by issuing credit letters in real-time, facilitating near-instant payments, and enabling cross-border data transparency to reduce the time, cost, and duplication of know-your-customer and anti-money-laundering procedures,” said Dr Thani bin Ahmed Al Zeyoudi, UAE Minister of State for Foreign Trade.
“It is vital that the global community establish a proper regulatory framework for digital trade to ensure end-to-end compliance, ensuring we can all derive the maximum benefit from the efficiencies these new technologies promise,” he added.
Dr Shereen Nassar, Global Director of Logistics Studies, Edinburgh Business School, Heriot-Watt University Dubai, outlined some barriers to digital trade that countries need to address. Many countries central to trade flows suffer from uneven internet connectivity, particularly in remote areas. Second, local payment platforms may not be able to support online payments and electronically secure international transactions. Then there are issues of data protection, where countries mandate that data must reside within their borders.
“The services regulatory environment for digital trade is globally fragmented. Digitalization has made trade policy more complex. Therefore, for a simple transaction, a series of factors are required to support the process, such as the cost of the internet to the consumer, download capacity, and the regulatory environment in which the retailer creates its webpage,” she said.
The upcoming edition of the biannual Future of Trade report from the Dubai Multi-Commodities Centre (DMCC) offers some actionable tips for policymakers to increase digital services at both national and international levels.
Broader digital infrastructure, digital access, and funding for digital-skills development are important areas to bridge the access gap between economies of varying income levels. It is also critical that international policies on data usage are harmonized, ensuring no market is left behind. Third, governments and large businesses need to incentivize ICT use amongst smaller firms so they can be effectively integrated into global digital value chains, creating a level playing field that benefits all parties.
Finally, robust eCommerce and digital services trade segments must be incorporated within new international trade agreements.
“At its core, the widespread adoption of digital technology is intimately linked with economic transformation, which brings many challenges. Chief among these is acquiring and building the investment and mechanisms required to adopt and scale a new technology,” said Feryal Ahmadi, Chief Operating Officer, Dubai Multi-Commodities Centre.
“This challenge of implementing new technology, integrating it with existing systems, and maintaining infrastructure over time, is particularly important for countries with developing economies. However, we are seeing the ‘leap-frog’ effect as countries enhance their digital infrastructure,” adds Ahmadi.