Ambassador Paparizov,
Excellencies,
Ladies and gentlemen,
Good morning. I am pleased to be here today, at this meeting of the Working Group on Trade, Debt and Finance.
And I’d like to congratulate Ambassador Atanas Paparizov on taking up the position of Chair. I’m sure we wish him all the best in this task.
Appropriate levels of trade finance are fundamental for a healthy trading system. Yet, access to trade finance continues to be an issue for many traders across the globe — in developing and developed countries alike. And, of course, smaller businesses face the greatest hurdles.
I’m pleased that WTO members are increasingly aware of this issue, and over the last year I think we have had a number of opportunities to discuss how to respond.
I highlighted the gaps in trade finance provision at the Third UN Conference for Financing for Development in Addis Ababa last summer and in several high-level meetings since then.
Just yesterday at our ’Trade Dialogues’ event, a number of the businesspeople taking part raised trade finance as a pressing issue where action was needed.
To contribute further to this debate and put forward some possible actions, we produced a report entitled “Trade Finance and SMEs: Bridging the gaps in provision“, which was published earlier this month.
I would like to thank all involved in producing this report, especially Marc Auboin in our Economic Research and Statistics Division.
We have shared the report with a range of partners — including the heads of the multilateral development banks — and hope to work with them further to tackle this issue.
I think the report makes some useful contributions to our meeting today. So let me give you an overview of its key points.
The report highlights that trade finance is still an area where official international statistics are lacking. However, we know that this is a very large market. It is estimated that up to 80 per cent of global trade is supported by some sort of financing or credit insurance.
Yet, coverage is not uniform. The Global Survey conducted by the International Chamber of Commerce indicates that liquidity is in fact concentrated on a few large traders.
In addition, according to the Bank of International Settlements, trade finance is dominated by large banks.
There are also indications that markets are even more selective after the 2008 crisis. Under increased regulatory scrutiny many institutions have lowered their risk-appetites and are focusing more on their established customers. Some are deliberately decreasing their number of clients in a so-called “flight to quality”.
So, for many, it has become more difficult to obtain trade finance. And some big gaps in provision have emerged.
For example, in Africa, almost one third of all requests for trade finance is rejected by banks. In Asia, the estimated amount of requests for trade finance rejected is approaching one trillion dollars. All in all, the global trade finance gap is estimated to be around 1.4 trillion dollars annually. And the poorer the country, the more difficult it is.
In developing countries, the alternatives to bank financing such as inter-company lending and factoring may simply not exist. Trade credit insurance may not be available, and the legal framework for factoring may not be in place.
And amid these factors, small and medium-sized enterprises are the most affected. Even in developed countries, trading SMEs face much greater challenges than larger firms.
Globally, 52 per cent of SMEs see requests for their trade finance rejected, against 7 per cent for multinational companies.
I think this is a very striking contrast, and it is of particular concern as SMEs are a leading driver of trade and employment. These companies are responsible for the largest share of employment opportunities in most economies. In some developing countries, they employ around 90 per cent of the work force.
Thus, the lack of trade finance can prevent them from integrating into the trading system and accessing further trade opportunities.
And it can therefore prevent them from leveraging trade as a powerful source of development, growth and job creation.
So we need to respond.
Of course, this is a complex problem. There is a mix of structural and developmental factors at play.
A strong response requires a sense of shared endeavour among a range of organisations.
And with that in mind, in I think there are a number of actions that are within reach.
First, I think we can work with partners to enhance existing trade finance facilitation programmes to reduce the gaps in trade finance.
A network of these programs has already been established in multilateral development banks, including the International Finance Corporation, the Asian, African, Islamic and Inter-American Development Banks, and the European Bank for Reconstruction and Development.
All in all, this network supports roughly 30 billion dollars in small trade transactions, notably in some of the poorest countries in the world. And these schemes are becoming increasingly important.
With global financial institutions cutting down on their lines of credit for trade, in particular in developing countries, multilateral development banks have seen an increase in demand for trade finance support.
Therefore, the report suggests that multilateral development banks should examine limitations on existing trade finance facilitation programmes and increase programme size where possible.
A realistic yet ambitious objective would be to increase the trade volume supported by all existing multilateral trade finance facilitation programmes from the current 30 billion to 50 billion dollars per annum.
From our exchanges with the multilateral development banks we believe that this is within reach, but a collective push will be needed to make it a reality.
It would need to be a shared effort between all relevant bodies — and of course how to share the increase would be for MDBs to determine.
WTO Members could potentially make a difference here by making a united call for action.
A second step would be to address the knowledge gaps in local financial institutions.
Economies will graduate from trade finance facilitation programmes as the capacity of local financial sectors to support SME traders grows.
We should therefore seek to enhance technical assistance to build capacity in the local banking sector, including by training a new generation of trade finance specialists.
From this perspective, the ICC Academy’s new curriculum on trade finance will be an important complement to the e-learning portals operated by multilateral institutions, including the WTO.
A realistic objective would be for all of these partners to train 5,000 professionals worldwide in basic trade finance over the next five years.
A third step is to increase dialogue with regulators.
This could lead to improved knowledge and experience for all parties, and help to ensure that trade and development considerations are fully reflected in the implementation of regulations.
This is an area where this Working Group has indicated its willingness to facilitate a dialogue.
Maintaining an ongoing channel of exchanges between organizations, regulators and agents will be indispensable to tackle these issues.
Finally, it is important to improve the monitoring of trade finance provision.
Disruptions in trade finance markets are typically sudden, and there is a lack of information available.
Greater cooperation between organisations could again lead to better market intelligence, which would enable us to be more responsive to problems as they emerge.
In my view it is imperative that we improve analytical indicators and early warning for trade finance before any future financial turmoil.
So, in conclusion, I am very pleased to see that trade finance remains high on the agenda.
I think that ideas and proposals of this Working Group can help spark progress here and in other fronts.
So I hope that this recent report — and the points I highlighted today — can offer some food for thought for your discussions.
As in other areas of our work, I think we should now be looking to move from reflection to action.
I wish you every success in the deliberations this morning.
Thank you for listening.