How will the global trade landscape evolve over the next 50 years? Three payments and trade experts share their views on where we’ll see growth, and where the biggest changes will come.
No discussion of the next 50 years can avoid the question of how trade and economic relationships will evolve and shape the global economy.
“It’s amazing how quickly change happens,” says Tod Burwell, President and CEO, Bankers Association for Finance and Trade (BAFT). “In 1995, the E7 group of emerging economies [Brazil, China, India, Indonesia, Mexico, Russia and Turkey] was half the economic size of the G7. By 2015 membership of both groups became roughly equal. Now it is projected to become twice the size of the G7 by 2040.” Burwellalso sees significant potential within the continent of Africa. “There’s the possibility for the establishment of a single market in Africa,” he says. “It’s a logical way to unlock rapid industrial growth potential, considering the resources and labour force currently available on the continent,” he adds—pointing out that Nigeria is projected to become the world’s third most populous country by 2050.
“We should anticipate more regional reconfigurations in the coming decades,” says Pamela Mar, Managing Director, Digital Standards Initiative, International Chamber of Commerce. “Regions like the ASEAN Economic Community and the RCEP (Regional Comprehensive Economic Partnership) will start to create a more multi-polar balance of global economic power,” says Mar. “We’ll also see a more heterogenous mix of multinationals rather than the present domination of American, European and Chinese companies.” There are now more Fortune500 companies based in China, including Hong Kong, than the US (136 vs 124), with 47 based in Japan, notes Mar. 1 “I think we’ll see the so-called emerging economies continue to grow and develop to become sources of innovation,” she says.
The shifting regional power balance envisioned here represents a continuation of the globalisation trend of the past several decades. “The forces of globalisation will continue their forward momentum, but they will have to navigate a far more protectionist era,” says Mar. “However, concerns about deglobalisation mainly apply to manufactured goods,” she adds. “Over the coming decades, we will see a shift towards services, which are much harder to stop at the border.”
This shift, and a greater integration of digital technology and data visualisation tools, could help ease today’s global supply chain issues and foster more sustainable operations. “Supply chain issues are affecting goods, but services will continue to get cheaper due to improved cross-border data flows and the continuing penetration of the internet,” she says. “As services grow, manufacturing will have to consolidate; this will help create more capital resources to invest in sustainable production processes. We should be fully supporting the growth of services because it's cleaner and more inclusive.
“At the same time, the decreasing cost of digitisation, automation and manufacturing technologies will mean that production can take place anywhere. This will help facilitate a more equal global power balance,” suggests Mar.
Payments that know their context
Future decades will see fundamental changes to the structure of global payments, says Shirish Wadivkar, Head of Wholesale Payments and Trade Strategy, Swift.
“We need to start thinking about what the world looks like without paper being transacted alongside the goods being traded,” says Wadivkar. “Alongside zero paper trade, I can see the introduction of context-aware payments being a major transformation in the next 5-10 years. This could be enabled by the global adoption of Internet of Things (IoT) technology which would give you greater visibility over what goods have been exchanged for payments in your account. Payments could be interrogated using AI to understand their context: why was the payment made, who made it, the traceability to the goods exchanged, and what was the logic behind the transfer?” he explains.
“Contextual payments would need to be supported by an evolution of existing IoT technology,” says Wadivkar. “This, combined with generative AI, would help validate against the relevant regulatory frameworks when trade is crossing borders that have exchange or capital controls in place.
“True awareness of context transforms mere data into usable information,” he continues. “This has the potential to allow for 100% reconciliation of funds and could even eliminate fraud altogether, which always exploits rich context lost in translation and transmission.”
The impact of technology
Wadivkar sees another trend with the potential to usher in even more profound change: an improvement in the form of money itself. “I can see fundamental changes in the way money is controlled and transferred,” he says.
Wadivkar goes on to suggest that any ’value transfer’ could be improved by the mass adoption of technologies like Distributed Ledger Technology (DLT). Although in its current form this technology is not energy efficient, the concept of a permissioned, single source of truth could change the way trust operates across the global economy. “Using DLT as a source for Know Your Customer, risk and other data has the potential to become a significant friction reducer in payments and trade,” he says.
“There is a need for stronger interoperability, regardless of whether there’s more globalisation or regionalisation. In theory, technologies like DLT could remove the need for some intermediaries and paper title transfers, and could provide a way to verify that a product has been grown organically or sustainably manufactured,” Wadivkar says. “But good governance, along with adoption, will be critical.”
While many of the changes that look set to sweep the global economy are technological in nature, progress will also be defined by the acceptance of, or resistance to, these changes. This raises questions of generational attitudes and human nature.
“The digitisation of trade is going to give us better visibility into what we are manufacturing and give us better control over supply chains and markets,” says Mar. “Future production planning models must take advantage of this. A potential barrier is that humans tend to hate change, especially when they don’t quite understand it or can’t understand what’s in it for them. Sometimes the assumption that humans are always smarter than machines is wrong. The principal barrier preventing digital transformation is that the human will not get out of the way,” she continues.
“The current structure of capital markets reinforces this resistance to change,” says Mar. “However, there is increasing dissatisfaction with the way markets only reward short-term thinking rather than rewarding lasting positive change, both among younger generations and on a policy level,” says Mar.
Burwell agrees that structural deficiencies need to be addressed. “The financial industry and the public sector need to find a regulatory balance between financial inclusion and access to capital and factors like resiliency, risk and financial crime,” he says.
“Innovation prioritises problem solving, and safeguarding the system is a secondary thought. However, innovation must eventually address both, else it will create further disparity between inclusive-yet-risky versus resilient-and-safe market solutions,” cautions Burwell. While supply chain managers may struggle to embrace the rapid pace of technological change; this will be a much more intuitive process for consumers who have already come to expect seamless transactions. “The technology already exists for consumers to just scan a product on the shelf and walk out without any queuing or face-to-face transaction,” says Burwell. “In the future, IoT could be able to identify that something in your house, your restaurant or your store needs to be replenished and that will happen instantly.
“Operators will need to keep pace with rapidly-evolving consumer demand to deliver seamless supply cheaply and efficiently,” says Burwell. “On the financing side, it’s conceivable that current work around digital assets and NFTs will increase our ability to transact digitally on the micro level.”
There could be a generational dimension to embracing change, thinks Mar. “We may have to wait for the next generation of workers to come in, who aren’t afraid to use digital tools to make really smart, data-driven purchasing decisions,” she says.
Meanwhile, another exponentially growing technology will have an unintended effect of disrupting traditional supply chains - 3D printing. “In the future, industrial 3D printing centres may completely transform supply chains, delivering the raw materials for printing to ‘print sites’, where consumers just pay to ‘print’ the item they want, reducing waste, and the carbon footprint of global transportation,” says Wadivkar.
Burwell identifies another, more troubling, behavioural barrier to progress. He says that “one of the biggest barriers to trade will be the fact that humans use trade as a geopolitical tool” to advance foreign policy objectives. “Today’s mix of geopolitical conflicts and nationalism will eventually fade out, but not in the immediate term,” he adds.
Unlocking the future of payments
With many of the technological and cultural pieces of the puzzle already present today, what can companies and policymakers do to ensure that the full potential of the global economy is unlocked in the coming decades?
“The world needs to coordinate and act now to make digitally-enabled trade happen,” says Mar. “We need a supportive policy environment that can enable capacity-building throughout the entire economy and popularise the use of global digital standards, because nations will be made stronger by acting together. The way to drive better distribution of resources is to open up the economy and level it off using digitalisation driven by common rules and transparency,” concludes Mar.
Burwell echoes this sentiment – “It's essential that the public and the private sectors work together in the coming decades,” he says. “We need to find the formula for allowing for the efficient use of data without exposing individuals, companies or countries to unwanted risks. Figuring out how to balance data sharing with data privacy and protection will ultimately unlock the acceleration of global digitalisation and move us forward at pace.”
The views expressed on these pages are those of the authors and/or the institution they represent, and not necessarly those of Swift.