Posted by “In today’s information age, models no longer need to make assumptions about how the world looks; policymakers can use real-time data. The tools are now available to answer the question: “Who trades what with whom?”. Data will transform how to formulate policy, assess the impact of the changing trade landscape, and how banks finance trade.”
Dr Rebecca Harding is an independent economist specialising in trade and trade finance and CEO of Coriolis Technologies, providing data as a service to the trade and trade finance space. In this interview, Rebecca explains how the role of data is influencing trade policy and unlocking new opportunities for trade financiers.
Q: You have described your company, Coriolis Technologies, as the leading source of global trade, corporate, geopolitical risk and trade-related economic data for the trade finance sector. What is data’s role in business and finance today, and how is it evolving?
Harding: Policymakers and companies can find themselves trying to make sense of lagged and fragmented data points which puts them in danger of making decisions without a reliable evidence base.
This situation would be bad enough in a benign international trading environment. When taken against a backdrop of a global trade war, the pandemic, and the war in Ukraine, it becomes critical to rectify.
Politicians, negotiators and businesses alike need accurate and timely data to assess the impact of, for example, higher tariffs, more significant non-tariff barriers, regulatory changes, sanctions, and the reconfiguration of trade agreements. These changes require accurate, timely and consistent data that can cater to the complexities of global supply chains across multiple borders and components.
In today’s information age, models no longer need to make assumptions about how the world looks; policymakers can use real-time data. The tools are now available to answer the question: “Who trades what with whom?”. Data will transform how to formulate policy, assess the impact of the changing trade landscape, and how banks finance trade.
I’d also add that accessing data in business and finance has become a competitive advantage. Information has always been key to business success, and now there is so much information from many different sources available; how that data can be made material to specific challenges will save organisations time, money and resources. I’d argue that in an information age, data and how it is processed will also drive market speed and efficiency.
Q: In one article, you claimed that trade has a “data problem”. What is the problem facing trade regarding data, and why haven’t trade finance providers been keeping up?
Harding: The fundamental problem is not the lack of data. Rather, there is so much data that has to be processed manually that trade finance and trade can’t use it in a way that makes a difference in reducing costs, driving new revenues or responding flexibly to client needs, especially those of smaller businesses. Data is regularly siloed, creating an aggregation problem – where relevant and current, information is not displayed in a way that enables decisions to be made quickly or flexibly. Ultimately the data problem is not caused by a lack of willingness to find a solution but more due to the processes developed in an industrial world that need reconfiguring for a digital and global economy that can produce real-time data.
Q: I want to dig deeper into two challenges preoccupying trade financiers: enabling SMEs to access trade finance and assessing the ESG profile of entire supply chains and individual transactions. Starting with SME financing, why are so many companies still struggling to access trade finance despite efforts to tackle the trade finance gap?
Harding: We all know about the trade finance gap affecting SMEs in emerging markets, but SMEs everywhere face a challenge in accessing trade finance without strong counterparties or an established reputation. The reason is that the due diligence costs are the same for big corporate deals as they are for more complex, smaller deals, pushing the SME out of the market. The result is a gap that is anything between $1.5tn and £3.1tn, depending on whether the research is from the ICC, the World Economic Forum or Standard Chartered!
Similarly, ESG is very simply a symptom of the same data and information disease that trade faces – it isn’t that information isn’t there to find out about businesses. Instead, the information is inconsistent, incomplete and based on self-reporting, meaning that each provider is different. There is no single source of truth against agreed standards and benchmarks. The providers of varying truths play on the differences between the data standards – the rating agencies all have different starting points for their assessment and, therefore, different endpoints. This has two effects: it makes business decisions impossible to make because they use asymmetric information and creates a market opportunity for businesses who want to standardise that information.
The work Coriolis did for the ICC suggests that banks estimate that digital instruments would increase their trade finance revenues by 15%, the equivalent to £24.6bn of extra trade for SMEs by 2024, a 25% increase in three years. One of the critical issues is that, according to our research, SMEs are still relying too heavily on manual trade finance processes. Digitalisation is the key. If we can use digital technology to track and measure trade information, we can completely streamline processes for SMEs. The advantage is that digital solutions are independent, automated and scalable, so they can also be applied to ESG.
Q: tradeXplain was told told a few years ago that when it comes to ESG, we “don’t yet have data you can trust”. Is this still the case, and what can we do to address that?
Harding: Currently, there is a heavy reliance on self-reporting from companies, which means there is a risk of ending up with data that is not comparable, incomplete, or simply greenwashing. We, therefore, need a standardised way of measuring ESG.
The International Chamber of Commerce’s joint position paper on measuring sustainable trade proposed using the United Nations Sustainable Development Goals as a framework for the approach to financial reporting. Building on this, we can create an automated, consistent mechanism for measuring sustainability. This initial framework is helpful, yet there is little guidance on exactly what needs to be measured and, most importantly, what is the base unit of measurement.
The solution is to use an approach developed by the United Nations Economic and Social Commission for Asia and the Pacific, first published in 2019, by matching product HS codes (used in international customs and excise records) to Sustainable Development Goals. By focusing on trade flows between countries, we can build a picture of the sustainability of companies and supply chains and cross-reference this against global regulations while creating a scalable framework that can incorporate any potential future regulations.
Q: In your book Gaming Trade: Win-Win Strategies for the Digital Era, you and your co-author focus on the relationship between digital trade and power politics. Can you give examples of how this relationship is playing out right now?
Harding: Russia has been dissatisfied with globalisation almost since the collapse of the Berlin Wall in 1989. Its strategic goal is to have a seat at the table, to be seen as the powerhouse it was during the Cold War era of the Soviet Union. It criticises the multilateral institutions of rules-based trade but, alongside this explicit criticism, has used globalisation’s real strengths – free-flowing information, technology, ideas and people across borders – to gain influence in the financial, information and cyber space.
The superpower battle for the 21st Century will not just be a military one. We are seeing this now in the Russia-Ukraine conflict. Russia is using military means to exert influence and project power on a part of the world that it considers legitimately part of Russia historically. The West, while providing means for Ukraine to defend itself, cannot engage directly with Russia for several reasons, the biggest of which is the threat of triggering a nuclear way by miscalculation. President Putin knows this and knows there is limited appetite, or indeed military capability in the West for full-scale “boots on the ground” warfare.
However, Mr Putin has also made it clear that he sees the current sanctions as an existential threat to Russia. At the beginning of the crisis, he made it clear that “a world without Russia is unimaginable”. He escalated his definition of an existential threat to Russia to include sanctions and trade measures against the country. This means that it was always going to be multi-domain warfare, which now effectively includes trade, finance and economics as one of those domains – alongside military, information, electro-magnetic (digital), space and cyber.
Q: From a personal perspective, what fascinates you about digital trade, and why do you keep engaging with this topic?
Harding: There is still much to be done to simplify global trade and improve the industry for all factions. From a digitalisation perspective, new technologies, tools, and techniques can bridge the SME trade finance gap, particularly in emerging/developing markets. At a broader level, we can standardise ESG assessment within trade finance, creating a global, non-punitive tool which seeks to prevent ESG risks from becoming a developed-world-led compliance nightmare, ultimately supporting the growth of a more sustainable economy.
I founded Coriolis Technologies to be at the heart of these industry ambitions by providing an integrated data fabric that covers all the domains of trade, including ESG, SMEs, trade finance and geopolitics. Our products use innovative technologies, including cloud-based data aggregation, semantic web programmes, natural linguistic programming, artificial intelligence, and machine learning. The Coriolis Technologies team and network include highly experienced experts in the field, providing industry-leading insight and commentary. My ultimate ambition is to create a more balanced industry for all players in the market.
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