E-Finance for Trade: Challenges and Opportunities for Developing Economies Rouben Indjikian Electronic Commerce Branch,
: Electronic Commerce and Development Internet 2000: 94 million hosts & more than 300 million users OECD countries 82 hosts per 1000 inhabitants Canada & USA 45% Non-OECD countries 1 host per 1000 inhabitants Asia-Pacific Region 23 % Others 5 % Europe 27 % Sources: US Internet Council 2000, OECD 2001 0.5%
: Electronic Commerce and Development Internet Connectivity and E-Readiness: E The World Digital Divide In 2000 World Wide Web contained more than 2 billion pages & around 18 million domain names (9mln dot.coms) OECD countries still have 80 % of ICT related production. ICT related investment exceeds 7% of their GDP. The ICT connectivity(number of companies using web,email or EDI) was ranking from 65% in the US to 34% in Italy EIU E-readiness indicators show similar patterns. China is catching up rapidly and is already the 3 rd user of Internet and mobile after USA& Japan Developing countries ICT infrastructure grows faster with email dominating over web. More bandwidth, ISP and lower costs are the key issues Internet might help their firms to access foreign B2B and even B2C markets and sell online directly to buyers through e-markets, Rouben e-procurement INDJIKIAN systems or through their own websites
: Electronic Commerce and Development Internet Connectivity and E-Readiness: E examples from Asia -Pacific Asia-Pacific has currently 70 million Internet users and forecasts suggest that by 2003 it will surpass N. America and Europe Regional E-commerce is estimated to be USD 1,6 trillion by 2004 China and other economies of the region are leapfrogging by introducing fibre optic and wireless technologies. But poor telecom infrastructure, low circuit capacity for bandwidth, high tariffs, low PC literacy are still major problems Majority of websites are for information while trade is still offline Realistic projects including outward online information, marketing and trade ventures might have a future and boost e-commerce For many countries liberalisation is not enough for IT related investments. International assistance in debt relief, project cofinancing, human resource development and business facilitation are equally needed to overcome the threat of further digital divide
: Electronic Commerce and Development E-Commerce E initiatives 1994 - United Nations International Symposium on Trade Efficiency (UNISTE) launched the Trade Points Network (GTPNET) creating the first Internet based one stop shop starting from export offers import requests of primarily SME exporters and importers. Since then GTPNET proliferated to more that 100 counties and became one of the biggest sites in Internet 1998 -Lyon Summit GET UP initiatives; assisting developing countries to link online the logistics of customs and transports; making their regulatory framework e-commerce compatible; transferring training packages through Internet to the local training centres and focusing primarily on training trainers 1998-2000- E-Commerce and Development Report; e-commerce seminars in, Geneva Latin America, Africa and Asia; a seminar and a conference on financing trade in electronic age in Africa
: Electronic Commerce and Development New activity: Annual Electronic Commerce and Development Reports: E-commerce 2000 Report has covered concepts and definitions, issues of digital divide, taxation, regulation, sectors of finance and transport, e- commerce in Africa. It contained also agenda for action and extensive references (terminology, index, bibliography, hyperlinks) 2001 Report will cover online payments, b2b e- marketplaces, legal issues etc
: Electronic Commerce and Development maintains that e-commerce is NOT about technology NOT a purely virtual world NOT only for advanced countries and large multinational companies NOT a traditional trade through e- means
: Electronic Commerce and Development Establishing a chain of trust Exporter Business Practices Customs Information Finance Telecom Transport Importer
160 140 120 100 80 60 40 20 0 : Electronic Commerce and Development Keyword for E-E Finance: cutting transaction costs Cost of trading transactions $150 $69 $10 Fullservice Discount Online broker broker 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Cost of banking transactions US$1.27 US$0.27 Branch ATM Internet Source: Andersen Consulting US$0.01
Buyer Goods and Services 2 Seller 1 Money Issuing bank 5 Interbank balances Online Payment Online Payment Online Payment 4 Online Payment Interbank fund transfers (clearing) Money Merchant s bank Interbank balances 3
: Electronic Commerce and Development E-Finance WWW-Revolution: Banking and Brokerage From simple information sharing and education sites with f.a.q and sample presentations To online payments and proactive financial planning as well as personalised advisory services for customers Future?- personalised WebPages with clients assets and liabilities and programmes optimising their future cash flows and investment decisions based on future incomes, preferences and professional advise of financial intermediaries
: Electronic Commerce and Development E-Finance for Trade: from conventional to online payments instruments Conventional could be electronic while online is www Conventional: cash, money orders, checks, credit and debit cards, as well as drafts, notes, bills of exchange letter of credit and others, with or without third party protection Online B2C&B2B: personal, corporate and government credit, debit and prepaid cards based on SSL, SET and other security systems; electronic money, e-cash, smart cards, electronic checks, EBP, other electronic trade finance instruments and systems
: Electronic Commerce and Development E-Finance for Trade: B2B selected online payment instruments Electronic checks: Financial Services Markup Language (FSML), digital signatures el al. Public key infrastructures (PKI): issues of interoperability customisation, pricing, governance and oversight From Business banking to Internet banking: FSTC Bank Internet Payments System (BIPS) as a front end to existing ACH debits and credit, wire transfers and other networks Smart cards for B2B: smart cards represent less than 10 % of cards and a bulk of it is in B2C. With decreased costs in 2 years they might capture 25-30% of the card market. B2B might become important. Example-Visa Commerce Card
: Electronic Commerce and Development E-Finance for Trade: B2B business growth in e-markets e and beyond In coming 3 years the B2B trade is projected to grow nearly 4 times from current level of $700 billion to $ 2700 billion of which more that half will be accounted for e-markets with computing and electronics, motor vehicles, paper and office, petrochemicals and utilities as leading industries E-markets improve access to information on products and prices cut search, selling and distribution costs, cushion variability of demand
: Electronic Commerce and Development E-Finance for Trade: B2B business growth in e-markets e and beyond(2) E-markets and large e-procurement systems might become powerful driving forces to improve both developed and developing countries SMEs access as suppliers to B2B business Companies inter alia from developing countries could equally start moving to EDI type foreign trade platforms for online negotiation, contracting, delivery and payments (Bolero, Tradecard etc)
: Electronic Commerce and Development E-Finance for Trade: electronic credit information, credit insurance, factoring, l/c To become trusted partners companies from developing country need to be registered in local, regional and global Internet based commercial risk databases. Thus they might get access to online trade finance on competitive terms to complete B2B transactions To make it happen institutions of local credit information providers, credit insurers, factors should emerge while local banks should adapt their practices accordingly and move online their databases, l/c-s and similar instruments
: Electronic Commerce and Development B2B E-Finance E for Trade: other implications for developing countries To participate in e-finance extensive institutional building in financial and in telecom and services is needed. Liberalisation and concerted support from WB, MDBs and other development agencies are also key ingredients So far given the weak local banking systems the successful 3 rd world online traders might opt for merchant accounts in banks in the developed countries of their choice. Use any possibility to circumvent technological and institutional hurdles. Thus in developing countries lacking telecom infrastructure smart cards could be used offline using so called 2cards talk to each other technology
: Electronic Commerce and Development 3 keywords for e-finance e for trade
: Electronic Commerce and Development How much time is left to... & provide proper legal & regulatory environment? & adapt institutions to the challenges of e-finance? & build infrastructure? & train people? & establish trust? Exchange experiences
: Electronic Commerce and Development Thank you for your attention for further information please contact rouben.indjikian@unctad.org or consult and download docs from http://www.unctad.org/ecommerce