International trade growth has dropped drastically compared to those years before the global financial crisis but is now hesitantly picking up, according to Global Survey 2014, the largest and most comprehensive International Chamber of Commerce (ICC) report to date, which includes data from 298 banks across 127 countries.
Survey highlights include:
Lack of available trade finance causing global trade growth to slowGlobal trade growth was a shade above three per cent during 2013, although picked up to an annualised growth rate of four per cent during the first quarter of 2014 and is anticipated to accelerate beyond five per cent through 2016.
“We are cautiously optimistic, with a realisation that this optimism is framed within a fragile international trade environment,” said Vincent O’Brien, a member of the ICC banking commission executive committee. “The fragility is magnified by unpredictable political developments on the fringes of Europe, the Middle East, South East Asia and other part of the emerging world.”
Further encouragement came from the survey with 68 per cent of respondents reporting positively that the availability of trade finance increased by value compared to the previous year. However, in terms of “trade finance gaps”, 41 per cent of respondents reported that they perceive a shortfall of trade finance globally.
According to O’Brien,“This gap remains a major challenge, especially for SMEs as without access to trade finance, now widely acknowledged as an engine of growth, SMEs will not be able to contribute substantially towards economic recovery and development.”
KYC and AML regulations causing banks to decline transactions and close relationshipsKnow Your Customer (KYC) and Anti-Money Laundering (AML) regulations caused 68 per cent of respondents to decline transactions, and nearly a third (31 per cent) to close down correspondent account relationships. Indeed, 41.03 per cent of respondents reported that complying with sanctions restricted trade finance operations in 2013 to a greater extent than in previous years. Certainly, such compliance is expensive, with the ICC Global Survey citing the cost of compliance for one counterparty being as high as $75,000.
G20 countries stalling agenda to open up world trade because of trade-restrictive measuresThe ICC survey also highlighted that G20 countries accounted for three quarters of the trade restrictive measures imposed since 2008, with WTO figures showing that those countries introduced 193 new trade restrictive measures between December 2012 and November 2013. “Such restrictions – many of which are protectionist and, therefore, trade distorting – have stalled the agenda to open up world trade.”
Basel III regulations having an impact on bank liquidity 65 per cent of respondents stated that Basel III regulations have affected the cost of funds and the liquidity of trade finance. Within the export finance section of the Global Survey, 72 per cent of respondents agreed that Basel III has made them more innovative as an organisation, although 69 per cent also said it had caused them to increase pricing for their customers.
South-South exports represent 46 per cent of global exports One key finding of the survey is that South-South exports now represent 46 per cent of global exports. Also, 40 per cent of respondents identified Asia as the primary focus for trade. Even with trade slowing in emerging markets, their significance within the global economy is increasing as new trade corridors are opening up. Yet it is these markets that most keenly feel the pinch on trade financing availability. “Through aiding senior executives and world leaders in formulating policy, the Global Survey could prompt changes that would close the trade finance gap as well as increase productivity and competitiveness in trade, and thus create jobs.”
Enhanced partnership between trade facilitation stakeholders“The ICC Global Surveys provide meaningful statistical data to stakeholders and policy-makers, and over the past six years the ICC Banking Commission has played a key role in influencing regulatory reform,” says Kah Chye Tan, its chairman.
“This study has reached a higher level of participation than ever before, and its broad geographical reach enhances the richness of the data collected. As such, we trust that the impact of the results on trade finance regulation, and the subsequent change it triggers, will be the most significant to date.”
The survey adds, “Indeed, one important benefit of the financial crisis is the spirit of partnership that has evolved between trade and trade finance stakeholders – something very evident since the commencement of the ICC Global Trade Finance Surveys.”