22 Feb 2018
International Trade Finance is a product offered by select financial services providers and is crafted to assist and enable businesses - from SMEs to large corporations - to facilitate imports and exports.
As vital as importing and exporting is to the growth of our economy, it can often be a very confusing process for businesses trying to manage on their own. Rob Pedder, who heads up Business Finance at Sasfin - a division that assists businesses with navigating these complex challenges and providing the necessary finance for trade - says that “this is only made more complex by constantly changing market conditions, an uncertain political landscape and regulatory changes.”
Pedder believes that future trade prospects in the country will be dependent on the country’s credibility from a credit-rating perspective and steps taken by the new leadership within the ruling party. He says that he is cautiously optimistic that this vital component of our economy will fare better in 2018, although local conditions such as drought and the world economy are factors that play a critical role the import and export game.
“In any trade balance, exports are extremely important to maintain a positive balance. We are fortunate to have abundant mineral resources, however, we have room to improve in terms of exporting manufactured goods. Then there are natural factors that impact businesses, such as the current drought conditions in the Cape, which will impact our fruit exports to some extent but on the other hand may create opportunities for suppliers of water saving equipment, for example. Imports have also slowed down naturally with the weak economy fluctuations in the Rand-Dollar exchange rates. This appears to have stabilised at least for the time being, but we keep a steady eye on conditions and advise our clients accordingly.”
Pedder believes that half the challenge of managing imports and exports successfully, is the ability for business to have access to experts who make solid decisions based on their analysis of economic landscape and the factors that influence it – be they environmental, political, or exchange-rate related. Pedder believes that just as China became a major player in the market, there are a lot of opportunities for South African companies, particularly in Africa.
There are, however, global trends that indicate that global trade is impacted by a number of factors. The International Chamber of Commerce (ICC) report “Rethinking Trade & Finance 2017” says that prior to 2008, global trade had been growing at approximately 1.5 times the rate of global GDP thanks to the expansion of global supply chains and associated cost reductions, especially in emerging markets.
However, the ICC reports that since 2008, trade has not only suffered the negative impact of increased regulation but also a significant slowdown in investment. The decline of trade as a share of economic activity is paradoxical in a world where connectivity is on the rise and transportation costs are falling.
The challenges to international trade globally are largely mirrored in South Africa where Pedder says the biggest challenges for local exporters and importers within the international trading arena relate to exchange rates and being suitably hedged for this purpose. “In addition, the increased regulatory compliance adds to any business’s administrative and managerial load.” That said, Pedder believes that such compliance is necessary to ensure the long-term health of international trade: “Trade finance by the nature of its function is naturally a high risk product and the checks and balances required are very onerous but necessary. This may hamper volumes that were experienced previously but good governance will prevail and ultimately lead to successful trading, especially in current economic conditions,” he says.
Pedder explains that with the many challenges facing businesses who import and export, Sasfin has adapted a client-centred approach to trade finance to ensure that businesses benefit comprehensively from advice and finance from the Bank. “This approach enables us to not only provide a working capital solution for imports and exports, but post shipment finance and debtor finance too. Of course, there is also a full range of services which we provide including insurance, shipping and clearing, as well as all our clients’ foreign exchange requirements. In essence, our approach is to provide a complete start-to-finish range of services with the option for our clients to select the appropriate products that are suitable for their particular requirements,” he says.
Pedder explains that while a basic trade finance product may get the job done, there are elements that businesses must consider and are ultimately just as important. “It is vital to have insurance cover in all trade transactions, for example, whether it is for marine cover for goods shipped, fire and flood cover for goods in transit or in a warehouse and for those unexpected events, which can lead to loss through decreased production or sales. For example, there are weather conditions that cannot be anticipated and can put businesses at serious risk if their goods are not covered correctly. KZN and Gauteng experienced abnormal flooding recently with many factories experiencing excessive water damage to machinery, equipment and stock. Naturally, if these areas are not covered with suitable insurance, massive losses can be incurred.”
Pedder says that it is for these reasons that Sasfin always ensures that clients have adequate cover for equipment and goods that Sasfin has financed. “We are fortunate that we have our own in-house brokers who are very well placed to provide the necessary expertise in these areas.”
A new, digital future
Another area of growing importance in international trade is the rise of technology.
Block Chain Finance is on the rise and many find that such tech advancement makes trade and payments seamless across borders and internationally.
According to the ICC Rethinking Trade & Finance 2017 report, digitalisation is influencing business models and strategies for corporates and banks, primarily due to its power to simplify and to reduce costs, while also allowing banks to better serve SMEs and stimulate trade flows.
The report says the benefits of digitalisation include its capacity for reduced risks, increase speed, improve working capital management, efficiency, transparency, and operational improvements, to name but a few.
In fact, the World Trade Organisation (WTO) estimated that technological progress will have the largest impact on GDP levels by 2035, accounting for 9% higher or lower GDP levels in developed countries. In emerging markets, the variation is even greater – up to 20% higher or lower than GDP in Brazil and 55% in China.
The ICC says when the cost of processing a Letter of Credit (LC) decreases, so too does the entire cost of trade finance – which enables financial inclusion. “The ease of process also facilitates customs clearance procedures – allowing goods to move through supply chains more easily and reach consumers faster,” says the ICC.
Pedder believes that such tech plays a great role in growing business and making processes more seamless, however, he cautions that it should never eliminate the role that service or years of experience plays. “Tech developments should always enable efficiencies and enhance the ability to deliver personalised service. While Sasfin is currently looking at various tech advancements to ensure efficiencies for our clients, we believe that this should always be with the purpose of making it easier for our clients to do business – both out there and with us.”