The annual GTR Asia event returned on November 16-18, 2021, in a virtual format for the second year running, to reflect on an eventful 12 months for global trade and developments in the Asian market.
Bringing together participants from local and international banks, multinational corporations, SMEs, independent financiers, commodity brokers and traders, insurers and risk managers, lawyers, consultants, ECAs and multilaterals, the event saw lively discussions on a wide range of topics, from the ongoing supply chain crisis to Asia’s role in the post-Covid trade recovery, as well as cross-cutting issues such as digitalisation, ESG, and SME access to finance.
In this post-conference wrap-up, we bring together some of the main takeaways and key insights.
The longevity of Asia’s world-beating trade recovery is in question
Opening the conference with an upbeat keynote address, Peter Ong, chairman of Enterprise Singapore, highlighted Asia’s dominance of the rebound in world trade volumes. “Global trade has been able to and will continue to adapt to the new environment,” he said. “Today, we see global trade booming, with merchandise trade growing at double digit rates and surpassing pre-pandemic levels for many countries. Asia is leading this, with export volumes for the first quarter 15% higher than they were in 2019.” However, he cautioned that, in the face of numerous threats, the region “cannot afford to be complacent”.
Arguably the most pressing issue facing Asia’s burgeoning trade bounce back is the supply chain crisis. A global imbalance of containers, port disruptions caused by Covid outbreaks, and a still-wobbly supply-demand curve as economies recover at differing rates are sending shipping costs soaring – and the problem has no easy solution, according to Michael Every, head of financial markets research, Asia Pacific at Rabobank. In a session titled In Deep Ship, he examined current shipping dynamics, structural issues and brewing geopolitical risks, concluding that “shipping snarls are here to stay for the long term”.
But shipping bottlenecks aren’t the only threat to trade in the region.
The latest edition of the Atradius Payment Practices Barometer for Asia, which polled 1,200 businesses across China, Hong Kong, Indonesia, Singapore, Taiwan and the United Arab Emirates during Q2 this year, found that a barely credible 50% of all B2B invoices were overdue. Despite an increasingly buoyant outlook for trade in Asia, the risk of insolvency is increasing, as late payments and the withdrawal of government support packages test the ability of companies in the region to maintain adequate cash flow.
“Governments set things up very early on last year when Covid cases were emerging to ensure that our financial systems had support. They took a real sector wide perspective and that has helped the financial sector play its role throughout the crisis,” said Diane Tate, CEO of the Australian Finance Industry Association, in a panel on credit risks and insolvencies. “There is a conversation about the tsunami of insolvencies, and whether we really have zombie companies. There are incredibly low arrears, and it seems there is a lot of cash in the system. I do wonder how that will play out next year.”
Geopolitics will continue to upset trade for some time to come
The use of trade by governments as a tool of wider economic diplomacy continues, and Asia’s dominant position in international commerce is exposing it to ever-increasing tensions, as Rebecca Harding, CEO of Coriolis Technologies, pointed out in a conversation with Henry Gao, associate professor of law at Singapore Management University, and Kristy Sandino, head of international policy at the Confederation of British Industry. “It was easy to think that the world would become more multilateral without Donald Trump, but we’ve been disappointed,” Harding said, adding that moves by the West to build a more strategic security and trade focus towards the region – such as the signing of the Aukus security pact between Australia, the US and the UK – risk creating further divisions.
The ESG debate needs to be a nuanced one
Held a few short days after the Cop26 climate change conference, the event also saw a heavy focus on the need for trade to be sustainable – but the wide disparities between Asian markets pose a particular challenge.
While positive environmental moves have been taken recently, such as the Asian Development Bank’s (ADB) ban on the financing of coal mining and power plants, as well as upstream oil and gas activities, balancing these with the economic development needs of emerging Asia has become a topic of intense debate.
“There is a transition which is going to happen, and this will have to be managed,” said Gopul Shah, head of global treasury and trade finance at Golden Agri-Resources. “You can’t just say, ‘look, stop a certain activity today’, because emerging markets in Asia will have to manage the social impact of this.”
New solutions are at hand to stamp out bad actors in trade finance
The widely publicised ‘Dear CEO’ letter from the UK’s top two banking regulators, which warned of “significant issues relating to both credit risk analysis and financial crime controls”, has brought fraud back to the top of the agenda. With the Asian trade and commodity finance market still wary of providing finance to the sector after a string of frauds, a solutions-focused session featuring fintech company MonetaGo alongside Swift and the International Chamber of Commerce’s (ICC) Digital Standards Initiative highlighted the need for the application of technology to restore confidence to the sector.
“Fraud has a real economy impact,” explained Louise Taylor-Digby, Swift’s global head of trade strategy. “It distorts the real risks involved in trade financing, and the people who ultimately pay for that are the SMEs. Defaults in trade finance are incredibly low, even during an unprecedented pandemic. What we need to be mindful of is that fraud impairs the flow of financing to the people who need it most.”
During the session, MonetaGo CEO Jesse Chenard outlined the work underway with Swift to trial the fintech company’s trade finance fraud prevention solution, which enables financial institutions to check for duplications of documents, from invoices to bills of lading, warehouse receipts and purchase orders, before deciding to finance them, and also discussed the potential benefits to SMEs – often the first clients to be ‘offboarded’ when times get tough.
The trade finance gap is even bigger than we think
Remaining on the topic of SMEs, several of the discussions during the event made reference to the recently published data from the ADB showing that the trade finance gap hit new heights during the Covid-19 pandemic in 2020, with the difference between demand and supply now standing at a towering US$1.7tn – a 15% increase over the previous estimate of US$1.5tn in 2018.
Although that number is shocking enough, Steven Beck, head of trade and supply chain finance at the ADB, told conference attendees that it is very likely to be an underestimation.
“The number of applications actually dropped. We have a larger rejection number from fewer applications and requests for support and that is quite telling,” he said. “The second thing that’s quite interesting is since we collected the data for the study, there’s been a significant spike in inflation, and as a result we are seeing transactions that are of significantly higher value than they were a year ago. That’s going to eat up the country and counterparty limits that we have available to support trade.”
To close the widening trade finance gap, the development bank has come up with a number of policy recommendations, including more partnerships between the public and private sectors, and an acceleration of the trade digitalisation agenda.
This latter recommendation was the topic of a lively industry discussion held between Gabriel Petrus, deputy director of global partnerships and development at the ICC; Frank Wendt, executive chairman of FQX, a Swiss-based fintech focused on electronic negotiable instruments; Claire Thompson, executive vice-president of enterprise partnerships at Mastercard; Tom James, CEO at TradeFlow Capital; and John Galani, COO at Triterras.
“Our experience started in 2016 looking at the trade finance gap, and really looking at why the banks or lenders couldn’t lend to many SMEs on transactions,” said James. “In the end, we found that it was often to do with data. Ultimately, there is a lack of data on SMEs, and so they don’t fit the traditional lending approach.”
We aren’t there yet on digitalisation, but we’re closer than we were
After what has felt like years of mostly just talk, there are finally signs that the ‘blockchain story’ may be progressing, and Asia is at the forefront of trade digitisation advances. Recent examples of this progress include the recent inaugural trade finance NFT transaction conducted on the Singapore-based XDC Network, whilst other notable activities include the newly expanded Hong Kong-based Global Shipping Business Network (GSBN) consortium, set up to provide greater linkage between the shipping and finance sectors to facilitate end-to-end trade digitisation.
When asked his view on whether the trade digitisation landscape is beginning to reach maturity, Sriram Muthukrishnan, group head of product management at DBS, said: “The market is definitely maturing, and as it matures it is throwing out new opportunities. The technology is evolving and the collaboration opportunities are improving so we can set out to solve a lot more problems.”
“We’ve come a long way,” added Josh Kroeker, chief product officer at trade finance blockchain network Contour. “At last year’s GTR Asia conference we were in our beta phase. Now, we’ve been in full production since the beginning of the year, and people are currently doing their regular business on the platform. We’ve moved away from experimentation towards the state where people are scaling their use in production networks.”