by Shahrokh Moinian, Managing Director and Head of Trade Finance and Cash Management Corporates Americas, Global Transaction Banking, Deutsche Bank
Five or six years ago, trade finance was becoming increasingly unfashionable. Articles discussed the decline of trade finance in favour of open account while most conversations around emerging markets focused on BRIC (Brazil, Russia, India, China) primarily for low-cost sourcing and commodities. The idea of the financial supply chain was largely conceptual and alternative financing techniques were often relegated to smaller companies. In only five years, we have seen a transformation in the global business environment and consequently, the way that corporations do business. Treasurers have become increasingly proactive and pragmatic in the way that they manage credit and liquidity risk and support the business in building its international footprint. As part of this transformation, trade finance has become an essential tool for treasurers, a trend that is set to continue in 2013 and beyond.
From single track to super highway
Latin America, particularly Brazil as the largest economy in the region, has experienced a volatile few years. In 2007 and 2008, Brazil’s economy was growing rapidly, the country had become a net creditor and its rating was increased. The 2008-9 financial crisis hit the region hard, not least due to its reliance on commodity-based trade with North America and Europe, which declined sharply. Brazil was one of the first economies to experience recovery in 2010, but something had changed.
South-south trade routes that had been narrow and bumpy before the crisis are now becoming the trade superhighways
While traditional trading partners remain important, and commodities continued to be the backbone of international trade, south-south trade routes that had been narrow and bumpy before the crisis are now becoming the trade superhighways. China, for example, has become Latin America’s second largest trading partner after the US. In June 2012, this link was strengthened further by a China – Brazil trade agreement intended to encourage bilateral trade flows and mutual investment in industries such as manufacturing, aviation, mining and infrastructure. Over the next five years, we expect Brazil to become one of Asia-Pacific’s fastest-growing export and import partners, with rapid growth in trade with India, Indonesia, China and Singapore. Strongly emerging south-south trade routes are not restricted to Asia, however: in 2010, trade between Latin America and Africa totalled USD 7bn according to the International Monetary Fund (Direction of Trade Statistics 2000 – 2011). In 2011, this increased by more than fivefold to reach USD 39bn, and 2013 is likely to see a continuation of this upward trend.