Director-General Ngozi Okonjo-Iweala and International Finance Corporation Managing Director Makhtar Diop launched at the WTO on 13 December a co-publication titled “Trade Finance in the Mekong Region” to underline how an expansion in trade finance could further increase the region’s participation in world trade. Presenting survey results from banks in the Mekong-3 countries — Cambodia, Lao People’s Democratic Republic and Viet Nam — the publication reveals the challenges faced by businesses in accessing credit and proposes strategies for improving local producers’ access to finance and integration into global supply chains.
In her opening remarks, DG Okonjo-Iweala emphasized the importance of conducting regional trade finance surveys to better examine the gap between demand and supply. “In 2023, the Asian Development Bank estimated the global trade finance gap to be US$ 2.5 trillion, mainly in developing countries. Such large gaps are holding back trade and closing off economic opportunities for people,” she said.
The Director-General highlighted the regional variation in trade finance gaps. In Viet Nam, the trade finance market is “segmented,” with international firms and large local companies easily obtaining trade finance while small producers struggle to access the loans needed to participate in supply chains. In Cambodia and Lao PDR, the situation is even more challenging, and self-financing or working capital lines at expensive rates remain the norm, the DG said.
By comparison, in West Africa, a highly concentrated trade finance supply is directed by too few banks towards too few traditional traders, as revealed by the first WTO-IFC study on trade finance.
The DG underlined the economic potential that could be unleashed by narrowing the gap in trade finance. In both West Africa and the Mekong-3 countries, no more than 20% of trade is currently supported by trade finance, compared to 60% to 80% in advanced economies, she noted. According to WTO economists’ simulations, increasing trade coverage from 25% to 40% would result in an average annual increase in trade flows by 8%, she added.
“The main gains would be for local small businesses and second-tier local suppliers of international supply chains. More trade finance means not only more trade integration but also more socioeconomic inclusion through trade,” said DG Okonjo-Iweala.
The DG outlined several ways to boost trade finance in developing economies. Trade finance programmes of the IFC and other multilateral development banks should continue to support trade transactions in low- to middle-income economies, particularly regarding trade in food, medicines and other critical goods, she said.
Efforts should be directed toward supporting local producers so that more players could emerge and benefit from global supply chains, the DG emphasized. A lot remains to be done as “we found that only 2% of available local trade finance was supply chain finance,” she added.
In addition, the DG emphasized the need to continue the WTO-IFC joint workshops in capacity building and to strengthen collaboration between multilateral development banks and development financial institutions to address trade finance gaps.
Mr Diop praised the findings of the two joint studies issued over the past two years. He said: “I would like to thank the WTO for the great collaboration in producing this report. We have seen time and again the transformative power of trade finance for developing economies.”
He continued: “But it takes coordinated action by the private sector, policymakers, financial institutions and international organizations to address constraints to trade finance and to realize its full potential for emerging markets.”
At the launch event, IFC Vice-President Susan Lund and WTO Counsellor Marc Auboin presented the findings of the joint publication. WTO Chief Economist Ralph Ossa moderated a panel discussion on the topic.
Source: wto.org (Collected by Pham Bang Tam)