Trade finance banks will have to focus on supply chain optimisation as global trade grows and new corridors emerge, HSBC forecasts.
In its Global Connections report, the bank predicts a 5% increase in world trade in 2013, followed by 6-7% growth in 2014-16, led by emerging markets in Asia and Latin America. As a result, HSBC expects the structure of supply chain finance to change and adapt to new trade flows, prompting innovation within banks.
James Emmett, HSBC global head of trade and receivables finance, tells GTR: “At the moment a lot of discussions around the supply chain really focus on large corporates in the EU or US discounting their receivables, making them into payables and paying them in advance leveraging their own credit post invoice acceptance.
“When you start looking at some of the other trade flows that we’re talking about, whether it’s Mexico to India, or Malaysia to Latin America, you need to think about how financing that supply chain will work outside of the discounting of an invoice.
“Additional solutions will have to be found because the large corporates are not necessary there in the way that we look at them at the moment. If you look at Walmart in the US for example, you can see how you’re going to discount the payables because you can judge the payment risk and then make the invoice payment discount.
If you then look at that in a Mexican context, there may well be a significant portion of mid-market enterprises dealing with mid-market enterprises in Malaysia.
How are you going to manage that supply chain, at what point do you discount, how do you get the data available?”
The report also predicts increased exports from developed economies such as the US and the UK into China as demand grows for high-value products, which will create a need for more export finance in Western countries.
On the other hand, the pressure to finance global trade will not fall solely on international banks, and the development of local players will help to make financing more efficient.
“The growing maturity of emerging markets is going to include local financial services and transport systems, so that optimisation by default will also come from the development of the infrastructure in those local markets. If you have better transport links, that’s going to save you time and therefore money; if you have a more dynamic local financial market, it’s going to save you financing costs,” adds Emmett.
According to HSBC, export growth will be strongest in India, Vietnam and China, which will all post double-digit annual growth between 2013 and 2030. In the Americas, growth will be led by Mexico (8%) and Argentina (7%), while US and Canadian export growth will remain around 6% a year until 2015 and pick up slightly between 2016 and 2020.
The Middle East and North Africa will suffer from softening oil prices and lower business confidence due to recent political uprisings. The bank forecasts export growth of 4-6% a year in Saudi Arabia and the UAE until 2015.
However, as oil prices pick up after 2016, growth should accelerate, reaching 7-8% a year through to 2020. Egypt is emerging thanks to lower energy costs, which should help to push export growth to 12% a year between 2013 and 2015, but HSBC warns that the country’s prospects could still be undermined by political tensions.
In Europe and the CIS, Turkey is expected to be the fastest-growing exporter with growth of around 9% a year between 2021 and 2030, while Western European countries look for new markets to maintain their own export growth between 4 and 6%.
Meanwhile, HSBC’s Trade Confidence Index shows a one-point drop in the last six months, reflecting tough economic conditions around the world. The index has an average of 112, with a clear gap between emerging markets (116) and developed markets (101).
Although confidence has dropped only slightly and 84% of businesses expect trade volumes to grow or hold steady, nearly a quarter (23%) of exporters foresee buyer defaults to increase. Buyer confidence levels remain the same with 16% anticipating non-delivery from their suppliers (15% in H1 2012).
In terms of general economic trends, 32% of businesses project growth, 31% a decline and 36% expect trade activity to maintain current levels. The percentage of businesses that will rely on their banks to fund trade expansion has gone up to 43%, from 40% in H1 2012. According to survey respondents, primary barriers to trade growth are foreign exchange (41%) and logistics (32%).