TRADE FINANCE
Charting a new course for trade finance Macro headwinds such as the post pandemic, trade wars and cross-border tariffs are creating the conditions that will force the evolution of new processes that could see new players bypassing or disintermediating banks in the global trade finance market
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ith COVID-19 continuing to challenge different economic sectors across the world, the blistering pace of vaccine rollouts in the Middle East is spurring recovery momentum in the region despite pandemic-related supply chain bottlenecks that are threatening to choke volumes of global trade. The prolonged pandemic and the plunge in global oil demand and prices dealt the GCC countries a health crisis and a commodity market shock. However, the International Monetary Fund (IMF) projected that the economies of the six oil-rich Gulf nations, which contracted by
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an average of 4.8% in 2020, will grow by an average of 2.5% this year and an even bigger 4.2% growth in 2022. A re c e n t st u d y by t h e As i a n Development Bank (ADB) estimated that the gap in trade finance availability reached $1.7 trillion in 2020, representing 10% of global trade. McKinsey said that the global trade disruptions that were fuelled by the coronavirus are believed to have exacerbated this shortfall and the need to improv the $5.2 trillion global trade finance ecosystem, which facilitates the movement of goods and services around the world, has become more evident.
Banking and Finance news in the MEA market
Macro headwinds such as health crises, climate change, trade wars and cross-border tariffs and sanctions together with greater competitive pressure, increased cost burdens and a technology-driven shift from traditional trade services are placing a strain on the profitability of trade finance. Combined, these threats are creating a perfect storm of changes that may see banks bypassed, displaced and disintermediated in the global trade market. However, the ongoing transformation of trade finance offers banks a valuable opportunity to transform their operations and reimagine how they can facilitate and finance trade with no constraints and no legacy baggage. Against a backdrop of the increasing digitisation of financial and commercial services, trade finance has been relatively slow to modernize its decadesold processes. It remains a very paperheavy and manual business making it particularly costly for banks to serve smaller enterprises, but digitalising trade finance to serve new markets more effectively will be an important driver as the global economy rebounds. “The
