The outlook for world trade may be gloomy, with forecasts suggesting ongoing inflation and suppressed demand in many markets. But in the Middle East, the sentiment is the opposite. The region’s energy market continues to thrive, as European nations historically reliant on Russian oil and gas seek alternative sources of supply. At the same time, efforts to diversify export portfolios are being complemented by upgrades to port infrastructure and hi-tech logistics offerings, opening fresh opportunities for trade.

Gulf Cooperation Council (GCC) economies have bounced back strongly from the pandemic. World Bank forecasts suggest growth across the six GCC member states – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates – will have hit nearly 7% for 2022, more than double the figure for the rest of the world.

The figures mark a departure from macroeconomic trends worldwide. The World Trade Organization warned in March it was expecting to record steep declines in export orders, air freight and container port throughput, as well as trade in electronic components and agricultural raw materials, in the final quarter of 2022.

The Middle East, meanwhile, has been buoyed by strong growth in the hydrocarbons sector. US and European sanctions against Russia drove up prices, raising export revenues for major exporters like Saudi Arabia and the UAE. At the same time, oil and gas importers were forced to turn to alternative markets; Qatar quickly emerged as a reliable supplier of liquefied natural gas to Europe, signing landmark supply agreements with Germany, the continent’s largest gas importer.

The region is also showing signs of growth beyond the hydrocarbons sector. Dubai, for example, is positioning itself as a leading market for importing and processing raw commodities, overtaking Antwerp as the world’s second-largest centre for rough diamonds while also continuing to expand its gold industry. Huge solar and wind projects have already been completed in Saudi Arabia and the UAE, with more already under construction.

These initiatives are backed by increasing investment in logistics and upgrades to infrastructure, cementing the region as a hub for global trade. Dubai’s Jebel Ali has already grown to become one of the world’s largest container terminals, in Oman alone, three water ports and one dry port are to be developed with the backing of Chinese investment. As one speaker at the GTR Mena 2023 conference in Dubai said, growth across all GCC states “makes for an altogether more compelling option”. “When you’re looking at changing supply chains, nearshoring or onshoring, five years ago you wouldn’t have thought of the GCC as a spot for that,” they said. “Now, you are.”

For trade finance banks, this upwards trajectory could represent a sizeable opportunity. In commodities alone, research by McKinsey has predicted that demand for finance is likely to increase by US$300bn and US$500bn this year.

But to seize this opportunity, those banks will need to demonstrate efficiency and agility. They must have the capability to react quickly to shifts in trade flows, onboard new customers and handle an increase in requests from existing clients. This is not possible through market knowledge and experience alone; making use of technology will prove essential.

Again, the commodities market has already provided an illustration of the importance of a technologically-savvy approach. A March report published by Oliver Wyman found that 2022 was the most lucrative year on record for commodities trade, with revenue surpassing US$100bn for the first time. Those rewards were not spread equally, however. The report said that “agile players with big, diversified systems” benefited most, while those unable to respond quickly to market volatility and supply chain shifts were left behind.

One speaker at the GTR Mena conference noted that their bank partner, a UAE-headquartered trade finance lender, rapidly introduced solutions around digital documentation and supply chain management during the pandemic. This resulted in improvements at the front-end, in terms of the bank’s interface with its clients, while making back-end functions such as transaction processing more efficient. “Really, this helped us a lot,” they said. “Without it, we would have totally stopped our operation.”

In some cases, opportunities will require modern approaches to traditional trade finance products. One Mena-headquartered bank noted last year that demand for digital letters of credit was soaring in the Saudi Arabian market. For products like receivables or supply chain finance programmes, growth will come from reaching a greater number of suppliers – particularly SMEs – requiring the ability to onboard large numbers of customers quickly and safely.

Research suggests trade finance is ripe for a technological overview. A 2022 Surecomp survey found that of 121 respondents, only 6% were ‘entirely happy’ with their current trade finance processes, which were found to be overly error-prone, time-consuming or reliant on paper-based documents and processes. Around half of respondents were not using any digital channel whatsoever, while two-thirds communicated with their financiers and counterparts by email. Just 24% used bank portals or similar.

Perhaps the hottest use case for technology in the Middle East’s trade finance market is in fraud prevention. The region was one of a handful of international trade hubs that experienced major scandals and company collapses in 2020, when a squeeze on liquidity exposed numerous traders that had long been raising finance against false documents, or financing the same trades multiple times with different lenders. Losses to banks are understood to have totalled several billion dollars.

Technology is essential in solving this problem. Historically, restrictions on banks sharing customer information have made it impossible to know whether they were financing trades that were already being financed by other institutions. Digital tools can be used to encrypt information from invoices into a database, allowing banks to check for potential duplicate entries without ever viewing confidential data.

These solutions are also able to flag up suspicious activity associated with invoices, and detect partial matches that could indicate document tampering. The more uptake such tools have, the more effective they will become in rooting out fraud.

The end result for lenders is compelling. A technology-driven approach to trade finance will enable them to seize on the unique import and export opportunities emerging across the Middle East, ensure they can remain agile and efficient enough to capitalise on shifting trade flows and supply chains, while minimising the risk of exposure to criminal activity.