tralac’s Daily News Selection
Digital innovation in trade finance: have we reached a tipping point? (Swift)
The Boston Consulting Group published a white paper, to which SWIFT contributed, on digital innovation in the area of trade finance. Trade finance has lagged other financial services in moving from paper to digital. The number of players and stages in the trade transaction flow did not help to standardise processes: up to 20+ entities can be involved in a trade transaction (e.g. importer, exporter, importer’s bank, exporter’s bank, shipper, freight forwarder, customs authorities, etc.). Nor did it help to have to deal with multiple industries and multiple geographies. Extract (pdf):
BCG believes digital trade finance can cut costs by between $2.5bn and $6bn (or 35%) over three to five years, driven by: intelligent automation (e.g., intelligent OCR, artificial intelligence programs); collaborative digitisation (e.g., e-docs and electronic bills of lading); emerging digital solutions (e.g., DLT and smart contracts). In the medium-term, banks must defend their share and capture business from the ‘digital wave’ in trade finance. The only way to be sure of this is to focus on customers’ needs, and support them with innovative, mutually beneficial products, such as products that tap into supply chains. BCG also believes that banks have the opportunity to increase their revenues from trade finance by 10%. Given the labour intensiveness of paper-based documentary trade and historically less information available than large corporates, it is challenging for banks to profitably serve SMEs in trade. As a result, more than 50% of SME trade finance requests are rejected, compared to around 7% for multinational companies. As digitisation reduces the cost to serve, banks will be able to unlock the value of the SME trade finance market. Governing bodies, such as regulators and NGOs, could prove the most significant roadblocks to digital innovation. They must prioritise keeping trade safe, secure and compliant. But they should view digital as an opportunity to improve security and compliance.
Fintechs and the financial side of global value chains: statistical implications (OECD)
Structural changes to the trade finance market occurred during the last decade: Fintechs - financial technology companies - have been established and become successful in segments traditionally occupied by banks; and alternative trade finance solutions, such as supply-chain financing, have emerged. Estimates on global trade finance are scarce and very divergent. Estimates by the WTO (for 2009) suggest that the global trade finance market (including credit insurance) is about 80 percent of global merchandise trade. For 2015, this would roughly be $17 trillion in trade finance flows, with an estimated outstanding stock amount of $6 trillion (assuming an average duration till maturity of 4 months). The estimated outstanding stock of other investment trade credits, based on BOPSY for 2015, is about $1.14 trillion. To ensure that macroeconomic statistics mirror global realities and maintain policy relevance, a stepping-up of trade finance statistics is needed. Current statistical frameworks do not adequately capture the trade finance market. Trade finance instruments currently included in macroeconomic statistics are spread over different functional categories, are combined with other instruments, and often only proxied or imputed in data compilation. No separate breakdown is available on third party supply chain financing, and current data do not capture the great variety of traditional and new SCF instruments.
E-Commerce elements for MC11: communication from China (WTO)
Based on the experiences of some WTO members like China, the facilitating role of free zones and customs warehouses as defined in the Specific Annex D of International Convention on the Simplification and Harmonization of Customs Procedures, or Kyoto Convention of the World Customs Organization, may be explored in depth: (i) Bringing into play the role of free zones and customs warehouses in facilitating the operation of cross-border e-commerce can not only save time for cross-border logistics and delivery to cut costs, improve e-commerce customer experience, and enhance the transaction efficiency of both sellers and buyers, but also make the job of regulatory authorities easier, by reducing the administrative costs and raising the administrative efficiency in the regulation of relevant goods. (ii) It is worth noting that making use of free zones and customs warehouses to facilitate the operation of cross-border e-commerce is without prejudice to the Members’ existing trade policies, the regulatory framework and implementation, namely policies of tariffs and related internal taxes, export tax refund, and licensing of various kinds in relation to import and export.
India has rejected fresh efforts by a clutch of countries led by the EU, Japan, Canada and Australia to negotiate new global e-commerce rules under the aegis of the WTO. During an informal meeting at the WTO on Monday, the EU, Canada, Australia, Chile, Korea, Norway and Paraguay, among other countries, circulated a restricted draft ministerial decision to establish “a working party” at the upcoming WTO ministerial meeting in Buenos Aires and authorizing it to “conduct preparations for and carry out negotiations on trade-related aspects of electronic commerce on the basis of proposal by Members”. India fears that new rules could provide unfair market access to foreign companies, hurting the rapidly growing domestic e-commerce platforms. A key demand by the developed countries is to make permanent the current ban on customs duties on global electronic transactions—they were suspended in 1998. [E15Initiative Blog: E-commerce and digital trade for development - negotiations to soft launch at MC11]
The EAC Secretariat has embarked on the training of officers from all state agencies and players operating on all OSBPS in the region. The first beneficiaries of the training were 30 officers and stakeholders at the Lunga Lunga/Horohoro OSBP on the border between Kenya and Tanzania. Mr Stephen Analo, the Customs Training Expert at the EAC Secretariat, said that the training targets 450 customs officers and cross border stakeholders. The OSBP training programme will be effected over a period of nine months stretching from October 2017 to June 2018.
The Council of the Regional Customs Transit Guarantee Scheme has adopted the revised Operations Manual with amendments and decided that it should be circulated to all members before the end of this year. The manual was revised considering operational changes and developments in the sector, information communication technology enhancements and regional developments and authorities’ decisions made over the recent past. The eleventh meeting of the RCTG Council met in Lusaka last week and approved the 2017/2018 RCTG Annual Work programme. They also discussed trade facilitation along the major transport corridors.
Running the Numbers: How African governments model extractive projects (AfDB, OpenOil)
But if this is the theory, how in practice are financial models currently used by governments? Is there sufficient data available to produce robust results? Is the information produced fully utilized to inform decisions? The AfDB and OpenOil’s research (pdf), the first of its kind in Africa, interviewed 50 officials from 19 resource-rich African countries, to assess the current use of financial models and outline a set of actions for governments and development partners to close capacity gaps and maximize impact. The research finds that the use of models is increasing among African governments. However, its use is still not fully integrated into policy processes and, often, models are applied in a once off manner and mostly only at the negotiation stage.
Tanzania: Barrick deal to serve as model, says JPM (The Citizen)
The government and Barrick Gold Corporation yesterday reached a landmark deal that will ensure that economic benefits generated by Acacia Mining’s operations in the country are shared between the two parties on a 50/50 basis. The deal, which will also see the government acquiring a 16% stake in each mine owned by Acacia, puts to rest a tug-of-war that dates back to early this year. Barrick Gold executive chairman John L. Thornton described yesterday’s agreement as “the single most distinctive business model for the 21st century that exists in the world”, adding that it created trust between the two partners. President John Magufuli said the deal enabled him to call Barrick Gold Corporation executives “brothers” because “they are here to stay” for benefit of both the investors and the Tanzanian government and its people.
Angola posted a trade surplus of 1.686 trillion kwanzas ($10bn) in the first half of 2017, with exports amounting to 2.710 trillion and imports amounting to 1.024 trillion kwanzas, according to the National Statistics Institute (INE). In the second quarter Angola exported goods, mainly oil, worth 1.339 trillion kwanzas, a year-on-year increase of 8.6% and a decline of 2.3% over the first quarter and imported goods valued at 0.521 trillion kwanzas, a year-on-year drop of 3.4% and an increase of 3.9% over the first quarter. [Government of Angola appoints technical committee to assess textile industry]
Affordability of Chinese products underpins growth in Ghana-China trade: Imani Ghana analysts (Xinhua)
Anita Nkrumah, a research associate at Imani, told Xinhua after her presentation, Maximizing gains from Ghana’s trade partnerships, that one of the key factors spurring this growth is affordability as majority of Ghanaians fell into the lower income bracket. Although no specific Bilateral Trade Agreement exists between Ghana and China, save the economic cooperation agreements in agriculture, trade, infrastructure and investment, trade volumes have increased to $5.9bn in 2016, from $683m in 2006. “When it comes to trade, imports are demand driven. Products from China are relatively more affordable than products from EU and other markets. And given the low middle income level of the country, Ghanaians will have more preference for imports from China and that may have accounted for high volumes,” she said.
Speaking at a one day stakeholders forum on Ease of Business for port operators in the South West, SON’s Director of Enforcement and Monitoring, Bede Obayi, said that the agency had noticed that importers were now cloning imported products, particularly Nigerian cables and presenting them as made in Nigeria. ”We have ensured that Made in Nigeria cables are about the best in the world so people are cloning imported products as if they are made in Nigeria. And almost all the made in Nigeria products are certified by SON, and other certification and standardization agencies. What you find now is that people go to clone their brand and bring them into the country as if they are made in Nigeria and already certified by SON. This is not true because imported products cannot be branded as made in Nigeria.”
Speaking exclusively to Xinhua, Tewolde Gebremariam, CEO of ET, said the airline is working on boosting lagging facilities such as in-customer service, airport entertainment for transit passengers and Wi-Fi internet connectivity. He also said Africa’s largest air carrier is working on relieving congestion in Addis Ababa International Airport by establishing regional hubs such as in Lome, Togo to service West Africa region and in Lilongwe, Malawi to service southern Africa region. ET is also discussing with the authorities in the DRC to have a hub in Kinshasa for Central Africa region. “The hubs will give us closer connection with customers and expand the low Inter-Africa connectivity” said Gebremariam, adding that increased air connectivity can significantly increase the Inter-Africa trade from the current 15%.
Choppies’ African offensive: Seven countries and still counting (Mmegi)
Before the end of the year, Botswana’s largest fast moving consumer goods company, Choppies Enterprises will enter the Namibian market, the eighth African country for the budget retailer to establish presence. The aggressive expansion drive, which has seen the company opening shop in four countries in the last two years, has not only come at a considerable capital outlay but has also had a drag-on effect on the company’s bottom line. BusinessWeek’s Brian Benza spoke to CEO Ramachandran Ottapathu: “Our capital expenditure budget for the current year to June 2018 is at P300 million. We plan to add 40 new stores to the 217 stores we already have across the region. The bulk of our new stores will be opened in South Africa (13), Zambia (8), Kenya (4), Tanzania (3), Mozambique (3), Zimbabwe (2), Namibia (3).”
Textile industry players in the region have been challenged to start making garments that require low level technology and skills as the EAC countries prepare to phase-out imported used clothes. Lilian Awinja, the Executive Director of the East African Business Council, said the sector can manufacture apparels such as inner garments, ties, scarfs that require low level technology and skills. “It is a high time that EAC countries embarked on manufacturing apparels such as inner garments, ties, scarfs that require low level technology and skills as the region works on a phase out approach of imported second hand clothes,” said Awinja. Awinja was speaking ahead of the second East African Business and Entrepreneurship Conference and Exhibition (14-16 November, Dar es Salaam). The event is meant to provide a platform to create synergies and linkages between the local cotton and textile industries with local suppliers and the fashion and design industry.
Turkey to focus on energy trade during D-8 presidency (Daily Sabah)
- - -