Related News

ECAs continue to debate fate of Mozambique LNG project

UK targets supply chain shocks in critical imports strategy

UKEF supports €415mn Angolan water infrastructure project

UN teams up with ECAs on net-zero alliance

UKEF, K-Sure join forces on UK wind factory

GTR UK 2019 returned to London on May 8, reflecting on a momentous year for the country’s trade. GTR’s editorial team brings together some of the main takeaways and key insights.

 

1: Liam Fox: “Tariffs are taxes”

As part of his keynote speech, UK trade secretary Liam Fox warned of the growing trend of new barriers to trade being erected by countries in favour of protectionist trade policies.

“For the first time in decades, the system of free, fair, rules-based international trade which underpins our global prosperity is under attack,” he noted. “Tariff and non-tariff barriers have been thrown up as countries try to defend or support domestic industries. Economists rarely agree on anything, but there is a near-universal conclusion that protectionism of this nature only ever leads to a dead-weight loss.”

Without referencing any specific real-world examples, Fox criticised the mentality of holding international trade hostage and using tariffs as a political weapon to punish problematic global partners, which he said only leads to a tit-for-tat escalation to the benefit of neither participant.

Fox also compared tariffs to a tax in all but name.

“Tariffs are a nice euphemism, but in truth are simply a tax on imports – an impediment to that prosperity, with far-reaching consequences. Tariffs are taxes. You can’t like tariffs but hate taxes,” he continued. “Tariffs mean people at home pay more for the things they use every day, and the businesses that we rely on to drive our economy will pay more to manufacture products with components from overseas.”

Fox concluded that these barriers to trade have the potential to dampen export orders and reduce manufacturing output, causing poor growth and kindling inflation.

The trade secretary also used his speech to outline his ambitions for the UK to become an active, independent member of the World Trade Organisation (WTO) once Brexit is complete, despite having reservations about its utility as a dispute arbitrator. Fox laid out plans to reform the WTO rulebook to tackle underlying trade tensions in areas such as industrial subsidies, state-owned enterprises and forced technology transfer.

“For all its [the WTO’s] faults, it represents the best hope of retaining a global consensus on how we operate our trading system,” he said.

 

2: Corporate confusion continues

A point that was hammered home repeatedly throughout the event was that UK businesses considering exporting or looking to grow into new markets are still none the wiser about where to look for advice and support. Moreover, even when they are aware of the help offered by the department for international trade (DIT), along with other government entities and banks, potential exporters are still bamboozled by the scale of information they receive.

Conference delegate Annette Boulter, director of Bedford Pumps, a British manufacturer, tells GTR that the problem for new exporters is not the lack of help but the lack of a single point of contact for that help.

“Our first line of help has been from our bank in supporting overseas bonds and guarantees and providing contact with UK Export Finance (UKEF), who are supporting the costs of these. What would help new and small exporters however is a single, very simple website to cover the basics that every newbie needs to know,” she says.

“The exporting arena can be frightening from the point of view of costs, paperwork and, not least, acronyms. It is a jungle where abbreviations that are day-to-day language to ‘those in the know’ confuse the picture to companies just setting out on a journey.”

During a panel on the state of the UK manufacturing industry, Henry Anson, managing director at Hennik Research, outlined that a key issue for the sector was that the perceived value of government support for the industry was low.

“I know there are some wonderful initiatives but they [manufacturers] don’t know about them. The manufacturers in this room are here because they know, but 99.9% of them [manufacturers] are not here and they don’t have any clue that support is available,” he said. “There’s a real communication job to be done here in demystifying the landscape.”

According to the DIT, companies interested in taking the first step in exporting can find help and assistance on the great.gov.uk platform.

 

3: Direct lending on the rise, but not enough support available for SMEs

Direct lending by export credit agencies was seen by panel participants as a vital untapped source of financing for UK exporters, with Gabriel Buck, managing director of GKB Ventures, pointing to the correlation between the volume of business done and the amount of direct lending an ECA does. UKEF trails its counterparts in Korea, China and Japan in terms of direct lending to exporters, and participants in the morning breakout panel on government support called for this to change.

“We need to expand direct lending for UK exporters,” Buck said, highlighting that the key benefit is to provide access to the OECD commercial interest reference rate (CIRR). “The possibility of offering export credits with CIRR rates is a good tool to support export contracts as it allows to combine the need for fixed rates and the need for some flexibility,” Buck said, adding that the current OECD CIRR on a proposed repayment period of 8.5 years or more is 3.47% for dollars and 0.82% for euros. “No bank today can provide these rates,” he said.

Giving a corporate viewpoint, Guto Davies, managing director and global ECA CoE leader at GE Capital, called for direct lending to be deployed to overseas buyers, too, in order to free up precious working capital for UK exporters. “There is not currently a solution for buyer credits for £5mn-to £34mn,” he said. “This way, the obligation can be shifted to the buyer rather than sitting on an SME’s balance sheet.”

 

4: Trade finance distribution picks up steam

Optimism abounded from participants in a session on the distribution of trade risks that more non-bank investors are looking seriously at the asset class, thereby giving banks more capacity to originate new trade finance lending.

Damian Austin, European head of trade finance at Bank ABC, explained why this has been such a long time coming. “In 20 years, not much has changed in the trade distribution space,” he said, highlighting the lack of awareness among investors as a key sticking point. “In the past, if wasn’t on Bloomberg, funds wouldn’t look at it.”

But as new technology and an influx of platforms provide new ways of divvying up risk among investors, this now looks set to change. “While distribution has traditionally been bank-to-bank, there is now interest from funds,” said Aarti Patel, head of European sales at Tradeteq, which is spearheading the Trade Finance Distribution Initiative (TFDI). She explained how the industry-led initiative, which includes 14 global financial institutions, is working to figure out how to make trade finance an easier asset to invest in through the use of technology.

As Austin pointed out: “Banking is prehistoric in this space.” And it is for that reason that some of the more established fintechs and non-bank players are now taking more of a role in originating transactions and engaging directly with the corporate market.

 

5: New technology is all about the corporate

After three years of countless fintech announcements, proofs of concepts and pilots, the event’s technology panel discussed the inevitable questions the industry faces next: how do new fintech and blockchain projects drive scale?

In addition to debating challenges around regulation, standards and collaboration in the industry, the panelists emphasised how the industry is now taking a much more client-centric approach to technology than was previously the case.

“Development has changed over the last 20 years,” said Michael Vrontamitis, head of trade for Europe and Americas at Standard Chartered. “20 years ago, people would come up with a problem, build, then two years down the line deliver, and then ask people what they thought about it. Now we ask people up front.”

As an example, he said, working with the recently launched Trade Information Network, the consortium interviewed 35 large corporates before deciding to go ahead with the project.

Another example is Marco Polo, a blockchain platform for open account trade finance, which came out of a client use case back in 2017.

“When we’re talking to banks specifically about how we need to develop the product further, the feedback that we get a lot is: we will do what the corporate wants. So there are definitely on-going conversations,” said Cindy van Niekerk, blockchain implementation project manager at TradeIX, the technology vendor for Marco Polo.

This is an important change for the industry in light of past attempts to digitise trade finance that failed to gain corporate uptake. The bank payment obligation (BPO), for one, will soon be a solution of the past after Swift confirmed it will pull the plug on its trade services utility (TSU), the engine behind the BPO.

Jacco De Jong, head of global sales at Bolero International took the occasion to elaborate on leanings from the past. “With the BPO, we had standards, we had rules, we had a network, we had Swift’s TSU engine, but it didn’t pick up,” he said. “The biggest driver to make something work is that it has to make sense to the clients, to the corporates, because that’s why we do it.”

With additional reporting by Eleanor Wragg and Sanne Wass.