Embracing the future of trade finance in Africa and the Middle East

Page 1


THANKSTO

AkinkunmiAbolade

InwangAkpan

YoussefAhouzi

KhalilAlHarthy

NassourouAminou

RaviAmin

SilviaAndreoletti

RobertBessling

FedericoAvellanBorgmeyer

SeanBowey

TodBurwell

AndréCasterman

AbdelrahmanEl-Beltagy

AlexGray

MariyaGeorge

DoaaHafez

NealHarm

MohammedKabbaj

MichaelMatossian

JohnMiller

PeterMilne

VikramNair

SindisoNdlovu

AneelSabir

NeilShonhard

ShonaTatchell

RichardWulff

TFGEDITORIALTEAM

DeepeshPatel

BrianCanup

CarterHoffman

DuyguKarakuzu

KirtanaMahendran

SilviaAndreoletti

LAYOUTDESIGN

MariyaGeorge Co-founder&CEO Cleareye.ai

KhalilAlHarthy CEO

CreditOman

NigelTeoh

SindisoNdlovu

Website www.tradefinanceglobal.com

MagazineandAdvertising talks@tradefinanceglobal.com

EditorialandPublishing

©TradeFinanceTalksisownedandproduced byTFGPublishingLtd(t/aTradeFinance Global).Copyright©2024.AllRightsReserved. Nopartofthispublicationmaybereproduced inwholeorpartwithoutpermissionfromthe publisher TheviewsexpressedinTrade FinanceTalksarethoseoftherespective contributorsandarenotnecessarilyshared byTradeFinanceGlobal

AlthoughTradeFinanceTalkshasmade everyefforttoensuretheaccuracyofthis publication,neitheritnoranycontributorcan acceptanylegalresponsibilitywhatsoeverfor theconsequencesthatmayarisefromany opinionsoradvicegiven Thispublicationis notasubstituteforanyprofessionaladvice

Foreword-EmbracingthefutureoftradefinanceinAfricaandtheMiddleEast

Usingdeep-tiersupplychainfinancing’spotentialtounlockcapital

Thefutureoftradefinance:Leveragingtechnologytoovercome industrychallenges

Deepdive:ICISA’s2023industryresultsexplained

Navigatingsanctions:TheroleoftransshipmenthubsinWestern-made componentstoRussia

Riskmanagementintradefinance:HowaCITRcertificationcanhelp

TL;DR:FCIannualreporthighlightsstablegrowthandtechinnovationin2023

TheBaselEndgame:ImplicationsforUScreditinsurance

Q&A:ReducingrisksandboostinggrowthinSaudiArabiaandtheGCC

TDMeconomicinsight:CantheMiddleEastsavefreetrade?

efcom:Turbochargingthegrowthoffactoringandsupplychainfinancein MENAandIndia

TheroleofinnovativetechnologiesintransformingMoroccantrade

Navigatingtrade-basedfinancialcrime:ImpactofUCP600andISBP821Earticles

CreditOman:AdvancingOman’sglobaltradepresence

Tradetransactions:Removethepaper-keeptheprocess

UnderstandingLettersofCredit&TheUCP600RulesinNigeria

Levellingtheplayingfieldforfactoringaroundtheworld,wherewillfuture growthcomefrom?

BreakingdownthegrowthoffactoringandcollateralregistriesinAfrica Nigeria,Ghana,andSouthAfrica:Challengesandopportunitiesfor theSub-Saharangiants

Embracingthefutureof tradefinanceinAfricaand theMiddleEast

hepotentialofthisrichlydiverseregionisvast, andasrecentdevelopmentsshow,this potentialisbeingadeptlyfulfilled.Asthisedition willdemonstrate,itiscrucialtomonitortrade financedevelopmentsinAfricaandtheMiddle East,astheywilllikelyinformtheindustry’s trajectoryacrosstheworld

It magazinearoundthethemeof AfricaandtheMiddleEast. Encompassingaround2billion people-25%oftheworld’s population-thesegmentation thatwe’vechosenforthis editioncoversareaswith enormousnatural,cultural, political,andeconomic differences.

resources-includingminerals, metals,andagricultural products-whiletheMiddleEast ispredominantlyknownforits oilandnaturalgasreserves Africaishometothousandsof ethnicgroupswithdiverse languages,traditions,and religions,whiletheMiddleEast, althoughculturallyrich,has

fewerethnicandlinguistic groups,withapredominant culturalinfluenceofArab traditionsandIslam.

Africancountriesoftenhave variedpoliticalsystems, includingemerging democraciesandsome authoritarianregimes,whereas theMiddleEastfeaturesamix ofmonarchies,theocracies, andauthoritariangovernments

Fromatradeperspective, Africaisheavilyinfluenced byitscolonialhistoryand primarilyexportsrawmaterials, whiletheMiddleEast’strade isdominatedbyoilexports, withsignificantgeopolitical implicationsforglobal energymarkets

Aswediveintothisedition, ouraimistoprovidea comprehensiveunderstanding ofthecurrenttrendsandfuture prospectsfortradefinancein AfricaandtheMiddleEast From cutting-edgeinnovationsto shiftsinriskmanagement,we explorethekeytrendsthatare revolutionisingtheindustry

Unlockingpotential throughinnovation

The16thcenturyspicetrade puttheAMEAregioninthe centeroftheglobaleconomy Today,lettersofcreditarethe newclovesandcardamom,as AfricaandtheMiddleEasthave becomecriticalplayerswithin globaltradefinance.

Oneofthemostsignificant innovationsreshapingthe regionisthedigitalisationof tradefinanceprocesses,with traditionalmethodsbeing replacedbycutting-edge technologiessuchas blockchain,artificialintelligence (AI),andmachinelearning

Fintechsacrosstheregion arespearheadingthedrive towardsfinancialinclusion. Byofferinginnovativesolutions tailoredtotheuniqueneedsof localbusinesses,thesefirms canenableSMEstoaccess creditandotherfinancial servicesmoreeasily.Thisis particularlyvitalinaregion where,accordingtotheIMF,

MSMEscompriseupwardsof 90%ofthebusinessesbutoften facechallengesinsecuring traditionalfinancing.

Inmanyinstances,innovative approachestoage-old methodsaregainingtraction Deep-tierfinancing,which extendscredittosuppliers atmultiplelevelsofthesupply chain,improvesliquidity forsmallersuppliersand strengthenstheentiresupply chain,makingitmoreresilient todisruptions.AI-driven analyticsinsupplychain financecanalsohelpprovide real-timeinsightsintocash flowanddemandpatterns, enablingbusinessestomake moreinformeddecisions

It'snotjusttheprivatesector pushingtheinnovation agenda;governmentsand public-privatepartnerships areemergingaspowerful catalystsforchange,driving thedevelopmentand implementationofinnovative tradefinancesolutions.

InitiativessuchasSaudi Arabia'sVision2030and theUAE'sNationalInnovation Strategyarecreatinga conduciveenvironmentfor technologicaladvancements, aimingtodiversifyeconomies andreducedependenceon oilrevenues InAfrica,Mobile Moneytechnologycontinues togrowrapidly,reaching$14 trillionintransactionvalue in2023,a14%year-on-year increase.

Collectively,these advancementsarehelping topositionAfricaandthe MiddleEastasglobalhubs forinnovationandtrade.

Spotlightonrisk management

Effectiveriskmanagement remainsacornerstoneof successfultradefinance operations

AcrossAfrica,geopoliticalrisks -includingongoingconflicts andpoliticalinstability-impact thetradeandinvestment climates InJulyandAugust, youth-ledprotestsinKenya, Nigeria,andUgandaaboutthe costofliving,unemployment, andgovernmentcorruption haveledtowidespreadunrest andevenrealpolicychanges, withKenyanPresidentRuto retractinganunpopulartaxbill andreplacinghiscabinetasa result.

EconomicrisksintheMiddle Eastareparticularlytiedtooil pricevolatilityandsignificantly impactoil-dependent economies,suchasSaudi ArabiaandtheUAE.Sharp changesinoilpricescanhave reverberatingimplicationsfor governmentrevenuesand economicprospectsinthese nations

Despiteglobaldisruptionsand geopoliticalconflicts,African andMiddleEasterntrade

remainsresilient.Theregion's strategiclocationandgrowing consumptioninemerging marketspositionitasafuture globaltradehub.

TheICCTradeRegisterreport showsarobustcreditriskprofile fortradefinanceintheMENA region,butchallengessuch asinflation,interestrates,and supplychainvulnerabilities continuetoimpactthe businessenvironment.

Africa'sevolving tradelandscape

InAfrica,theriseofmobile bankingandfintechsolutions isenhancingcreditaccess andmanagement,particularly forMSMEs.

Governmentinitiativessuch astheAfricanContinentalFree TradeAgreement(AfCFTA) areexpectedtocreategreater opportunitiesforregionaltrade.

AfCFTA,whichcommencedin January2021,createdasingle marketof13billionpeoplewith acombinedGDPof$34trillion andisexpectedtoboost intra-Africantradebyupwards of50%byeliminatingtariffs onmostgoods.

opment estingin chasroads, mmunications, rade bankalso elopmentof reementsand uralreforms ecurityand alareas. vancements, n Trade non-tariff adequate ntinueto tradeacross ditionally, tiesbetween riskto and nomiesare estrongUS raisesthe nominated andimports, ancountries algoodsand cerbates uresand serves, tomanage ntain y hedollar financial mportcosts, tsustainability, neededrelief miesfacing

Aswepresentthisedition, ourgoalistoprovideyouwith adeeperunderstandingof thecurrenttrendsandfuture prospectsintradefinance, withaparticularfocuson AfricaandtheMiddleEast

Whiletheseregionscertainly havetheirdifferences,we hopethattheinsightsand analysesprovidedthroughout thesepagesbyourmany contributorswillhelpequipyou withanedgewhennavigating thiscomplicatedlandscape.

Wehopeyoufindthisedition bothinformativeandinspiring aswecontinuetoexplorethe possibilitiesoftradefinance inAfrica,theMiddleEast, andbeyond.

Todiscussthepaperandbetterunderstand howDTSCFcanpromotefinancialstability,risk management,andsustainability,TradeFinance Global(TFG)spokewithTodBurwell,President andCEOofBAFT.

Deep-tiersupplychainfinance (DTSCF)isaninnovative financialsolutionwiththe potentialtounlockfinancingfor smallersuppliersdeepintoa supplychainbyleveragingthe creditriskoftheanchorbuyer.

Thelatestwhitepaperfrom BAFT(BankersAssociation forFinanceandTrade)and theAsianDevelopmentBank (ADB),“Deep-TierSupply ChainFinance:Unlockingthe Potential”,exploressomeof themoreopaqueaspects ofdeep-tiersupplychains.

Todiscussthepaperand betterunderstandhow DTSCFcanpromotefinancial stability,riskmanagement, andsustainability,Trade FinanceGlobal(TFG)spoke withTodBurwell,President andCEOofBAFT.

BAFTisamemberofthe GlobalSupplyChainFinance Forum(GSCFF),anorganisation establishedin2014todevelop, publish,andchampionaset ofcommonlyagreedstandard marketdefinitionsforsupply chainfinance(SCF).

TodBurwell

partiallyorfullypaid bydiscountofbenefit ofReceivable1

Receivesthebenefitof thefinancing*basedon theAnchorBuyer’sIPO

IPO=irrevocablepaymentobligation

*PricedbasedontheAnchorBuyer’screditrisk

Note:Allpartiesenterintoplatformtermsandconditions

Source:AsianDevelopmentBank,theBankersAssociationforFinanceandTrade,andSimmons&SimmonsJWSPte Ltd

DTSCFandits differencesfrom traditionalsupply chainfinance

DTSCF,avariationofthe traditionalformsofSCF,hasthe potentialtoreachmicro,small, andmedium-sizedenterprises (MSMEs)deepwithinsupply chainsbyallowingthemto financetheirpayablesbased onthecreditriskprofileofthe anchorbuyer

AccordingtotheBAFTandADB whitepaper,aprogrammust haveseveralcoreelementsto beconsideredDTSCF.

Forexample,itmustbe relatedtotradefinance, drivenbytheanchorbuyer’s supplychain,occurpostshipment,andbepredicated onanirrevocablepayment obligation

Burwellsaid,“DTSCFallows anoriginalreceivableto bediscountedinpartsat multiplelevels,withthebenefits transferringdownthechain”

Itisadistinctformof payablesfinanceastier1 suppliersaretypicallythe mainbeneficiariesofa payablesfinancestructure.

Tier-2 Supplier

Receivesthebenefitof thefinancingbasedon theAnchorBuyer’sIPO

Supplier

Fromabuyerstandpoint,DTSCF createsgreaterresilienceand transparencyinthesupply chainbycreatingvaluefor lower-levelsuppliersthrough reducedcostsandfraudrisks

Burwellsaid,“Inadeeptier structure,yourtier2supplier whohaspresentedaninvoice toyourtier1supplieralsogets theabilitytodiscountthat invoice,andthetier3supplier thathaspresentedaninvoice tothetier2supplier,andso forthdowntheline”

Fromafinancier’sperspective, withmanycurrentlynot financingMSMEs,thispresents awaytogrownaturalclient basesduetotheincreased visibilityofdeeper-tier suppliers

Thereisalsoanopportunityto linkESGreportingoncedeeper levelsofthesupplychainare connected.

Burwellsaid,“DTSCFcreates moreefficientoperations, whichcanhelplowercosts. AsweseemoreESGcreeping intothestructureofsupply chains,itenablesthese lower-tiersupplierstoachieve complianceandreporting requirementsinthecontext ofthatsupplychain.”

Coreimplementation challenges

DTSCFbuildsonseveralofthe coreelementsoftraditional SCF.Unfortunately,inadequate securedfinancinginfrastructure haspreventedthewidespread adoptionofSCFinmany markets Withoutthatfoundation, manymarketsarenotprepared foradeep-tieralternative.

Currencyimpediments arealsofactors Whiletier1 suppliersoftendealinmajor tradablecurrencies,suppliers furtherdownstreamarelikely toworkwithlocalcurrencies thatcanbesubjecttotight FXcontrolregimes

Burwellsaid,“Onebig challengeishavingwilling participants.Youaredependent oneveryoneinthesupplychain tobeopentobeingtransparent witheveryoneelse.

Youstartwiththeanchor buyer,butifyouarethetier1 supplier,youneedtobewilling toopenupaboutyourown supplychaintoyourbuyer”

Accordingtothewhitepaper, complexandonerous onboardingprocedures alsohinderthescalabilityof supplier-ledfinancingofferings Thecostandeffortrequiredto onboardsuppliers,particularly MSMEs,canbeprohibitivefor lenders,makingitdifficultto extendfinancingtothedeeper tiersofthesupplychain.

Despitethechallenges,there arecasestudiesofsuccessfully implementedDTSCFprograms

Successful implementation casestudies

OneoperationinChina hadreached9levelsdown thesupplychain,reaching$70 billionoverseveralyears,with theaverageinvoicetotalling $77,000

Burwellsaid,“Thesmallest invoicewecameacrossinthis programwas$15.Traditionally, thiswouldbeunthinkable becausemanyfinanciersare notinterestedinadealifthe ticketsizesarethatsmall.But thepointofthisistoprovide valueattheMSMElevel,where youwillhavesmallerand smallerticketsizes.Ifitcan workfora$15invoice,itcan workforanything.”

Anotherexampleisabank withabout1000supplierson ablockchain-basedplatform thatreducedonboardingtime by75%.Giventhatmany considerthesupplier onboardingprocessalone responsibleforholdingback SCFscaling,thisiscritical.

Burwellsaid,“Havingtheright technologyandthestructure whereeachofthetiersare onboardingtheirownsupplier networks;ifyoucanreduce onboardingtimeby75%,you havesomething”

Nextstepstoscale andfullyrealise opportunities

TocontinueadvancingDTSCF, thetwomostimportantnext stepsareeducationand developingconsistentlegal frameworks

Ontheeducationside,the industrymustcontinueto engagewithandcommunicate DTSCFstructuresandbenefits

Themoreorganisationsknow aboutautility,themoretheyuse it,andthemoreinnovationwill beaddedtoexistingstructures.

Onthelegalside,itwillbe importanttocreateconsistent legalframeworkstoenable DTSCFonacross-borderbasis Whilesomestructuresare basedoncontractrights withirrevocablepayment undertakings,othersarebased onnegotiableinstruments.

Burwellsaid,“Theheavylifting forusisgoingtobelooking atthelegalframeworksand howwecanbetterenable cross-borderlegalframeworks tostandardisetheclient agreementsandonboarding processestoachievescale.”

Tradefinanceisatacriticaljuncture.Withan ever-growing$2.5trilliontradefinancegapand over4billionpiecesofpapercirculatinginthe globaltradeecosystem,theindustryisripefor digitaltransformation.

Tradefinanceisatacritical juncture.Withanever-growing $2.5trilliontradefinancegap andover4billionpiecesof papercirculatingintheglobal tradeecosystem,theindustry isripefordigitaltransformation

Financialinstitutionsand corporatesalikemustadopt technologicaladvancements toremaincompetitiveand compliant Thoughtherehas beenadmirableprogressin recentyears,theindustryneeds tocontinuetoinnovateandnot idlywaitforsomeoneelseto taketheinitiative.

ClearTrade®: Highlightingthe imperativefordigital transformationin tradefinance

Cleareye’splatform, ClearTrade®,isdesigned totransformtradefinance operationsbyaddressingkey challengesandproviding comprehensivesolutions

Theplatform’sdigitisation moduleisatitscore,converting unstructuredtradedocuments

intostructureddatasetsusing advancedOpticalCharacter Recognition(OCR),Machine Learning(ML),andNatural LanguageProcessing(NLP) algorithms.

Thisprocessnotonlyboosts operationalefficiencybutalso significantlyreducestherisk ofhumanerror.

Thedigitisationoftrade documentsiscrucialforseveral reasons Firstly,itstreamlines processessuchassanctions screening,TradeBased MoneyLaundering(TBML) assessments,workability checks,anddocument examination.

Thesedatasetscanbe seamlesslyintegratedinto tradeback-officesystems, enhancingoperational efficiency ClearTrade®’s classificationandextraction accuraciesexceed93%and 88%,respectively,setting newstandardsintheindustry

Furthermore,thesanctions screeningmodulewithin ClearTraderefinestheprocess bycategorisingnounsintrade documentsintocorporate entities,vessels,locations, andindividuals

Thisrefinementreduces falsepositivesbyupto70%, optimisingproductivityand efficiency.Thecompliance andTBMLmoduleintegrates avarietyofchecks,including maritimeassessments andhigh-risktransaction evaluations,aligningwith regulatoryguidelinesto ensurecomprehensiverisk management.

Addressingoperational challenges,compliance andESG

Tradefinanceisamanually intensiveindustry,burdened bypaperandlacking standardisation Banksface significantoperational challenges,includingpotential lossesfromhumanerrorand ashrinking,highlyspecialised workforce

Additionally,theincreasing complexityofregulatory landscapesdemands heightenedvigilanceand auditability,makingmanual compliancescreening impracticalandcostly

Cleareye’ssolutionsare designedtoalleviatethese painpoints TheClearTrade® platformautomatescritical complianceprocesses,from redflagchecksandvessel trackingtoBillofLading validation

Thisautomationreduces theoperationalburdenon staff,decreasestherequired headcountformaintaining compliance,anddelivers substantialcostsavings.

Inadditiontooperational efficiencyandcompliance, thereisaclearneedto addressESGcompliance intradefinance

WhileESGhasbeenanareaof focusinrecentyears,thereare betterandmoreefficientways toapproachit

ClearTrade®’sESGmodule enablesbankstoassess transactionsfromanESG perspective,trackcustomer trends,andintegrateESG principlesintotheiroperations

Thispioneeringapproachsets thestageforenhanced ESGcompliance,fostering responsiblebusinesspractices forbothcorporatesandbanks.

Theplatformevaluates transactionsbasedon parameterssuchasbuyer, seller,distribution,anduseof proceeds.Thisenablesbanks toassesstransactionsfrom anESGperspectiveandtrack customertrendseffectively

ByintegratingESGprinciples intotheiroperations,financial institutionscanensurethey areconductingESG-compliant businessintradefinance.

Cleareye’sinnovativeapproach toESGcomplianceintrade financedemonstratesits commitmenttopromoting sustainableandresponsible businesspractices

Thepathforward: Collaborationand innovation

SinceitsalliancewithJ.P. MorganinSeptember2022, Cleareyehasdeepenedits integrationwithinthetrade financeindustry. Collaborationswithtrade back-officeproviderslike FinastraandSurecomp, andcloudproviderssuchas IBMandMicrosoft,havehelped shapeindustrystandardsand shareknowledge

Workingwithothercloudand technologyproviders,and majorglobalbanks,ensures thatmultipleindustriesand perspectivesallowsforthe mostcomprehensive collaborationtooccur.

Thisstrategicapproach involvesthoroughmarket researchanddirect engagementwithTrade OperationsandCompliance teamsacrossdifferentclients

Forexample,byunderstanding thespecificrequirementsof financialinstitutions,Cleareye candevelopsolutionsthatnot onlyaddresscriticalcustomer needsbutalsomaximise efficiencygainsandmitigate compliancerisks

CaseStudy: Cleareye’sintegration withglobalbanks

Theseinnovationsarenot hypotheticaleither,therehave beenmultipleconcrete examplesofClearTrade®’s impactwithinmajorglobal banks

Specifically,ClearTrade®was usedtoenhancedigitisation, compliance,andautomated documentexamination moduleswithinthebank

Theresultsweretransformative andhighlightedthereal-life efficacyofCleareye’ssolutions inaddressingtheindustry’s challenges

Detailsofthecase studyarebelow:

DigitisationModule

TheDigitisationModuleof ClearTrade®ingeststrade documentimagestoextract relevantdata,eliminating manualentryandrekeying Additionally,digitisation includesnounextractionfrom documentsandde-duplication, enablingeffectivesanctions screeningforrestrictedparties, vessels,andhigh-risklocations.

Benefits:

Enhancedprocessingpower: Thebankfuture-proofed itstradeoperationswith advancedautomation technology,enhancing processingpowerata fractionalcostcompared tolegacysystemsor hiringadditionalresources

Competitiveadvantage: Leveragingtheplatform’s machinelearningcapabilities, trainedonalargevolume oflettersofcredit(LCs)and documents,resultedin reducedfalsepositivesand alowerriskofhumanerror.

Highconfidencedata extraction:Achieveddocument classificationandextraction ratesof98%and93%, respectively,comparedtothe averageof65%observedin thelegacysystem,ensuring reliabledataextractionat highconfidencelevels.

Costsavings: Realised$1millioninsavings oninternaltechexpensesfor dataextractionand$300,000 savingsforsanctionsscreening efficiencyviareductionoftraffic toexistingenterprisesanctions screeningsoftware.

Costavoidance: Avoided$1millionincosts forinternalcompliancebuild

TheClearTrade®Compliance Moduleutilisesthedata extractedfromtheDigitisation Moduleandemploysaseriesof redflagchecks,vesseltracking, BillofLadingvalidation,and otherriskcontrolmeasuresto ensureregulatorycompliance foreachtransaction

Benefits:

Operationalefficiency:Enabled a70%decreaseintherequired headcountforupholdingglobal marketstandardsinthebank’s tradeoperationsfunction. Compliance&TBML Module

Annualsavings:Achieved annualsavingsof$13million oninfrastructure,maintenance, andenhancementsfor complianceandauto documentexamination,plus $1millioninoperationalsavings forcomplianceandauto documentexamination

Tradefinanceisatacrossroads, withdigitaltransformation offeringapathwaytoenhanced efficiency,compliance,and sustainability.TheClearTrade® platformexemplifieshow advancedtechnologycan addresstheindustry’smost pressingchallenges,from digitisingtradedocuments toautomatingcompliance processesandintegrating ESGprinciples.

Themessageisclear:the timetofuture-prooftrade financeisnow

TheClearTrade®AutoDoc ExamModuleleverages advancedtechnologies tointerpretrulesand conditions,validatingthem againstLCpresentation documentstooptimise tradeoperations.Itcomes preconfiguredwithtrade financerulessuchasthe UCP,ISBP,andURC,offering flexibilitytocustomise therules.

Financialinstitutionsmust embracetechnological advancementstostay competitive,compliant, andpreparedforthefuture

Byleveragingadvanced technologiesandfostering industrycollaborations, Cleareyeisnotonlysimplifying tradefinancebutalsosetting newstandardsforefficiency, compliance,andsustainability.

TradeFinanceGlobal(TFG)

2.3

Deepdive: ICISA’s2023industry resultsexplained

TradeFinanceGlobaldivesintothereport’s findingsandfeaturesinsights,speaking exclusivelytoRichardWulff,ExecutiveDirector ofICISA.

heInternationalCreditInsurance &SuretyAssociation(ICISA)has releasedits2023industryresults, highlightingkeytrendsand developmentsinthetradecredit insuranceandsuretybond markets

ICISArepresents95%ofthe world’sprivatecreditinsurance business,withnearly€32trillion intradereceivablesinsured andbillionsininfrastructure guaranteed.

TradeFinanceGlobaldives intothereport’sfindingsand featuresinsights,speaking exclusivelytoRichardWulff, ExecutiveDirectorofICISA

ICISAplaysacrucialrole insupportingglobaltrade andeconomicdevelopment.

Bybringingtogether theworld’sleading creditinsuranceandsurety companies,ICISAensures theprotectionoftrade receivablesandguarantees constructionandservice projectsglobally.

Theassociationservesas asafeharbourfortrade andinvestment,providing securityandstabilityamid economicuncertainties.

RichardWulff

Keyfindingsfromthe 2023industryresults

The2023industryresultsreveal severalimportanttrends:

SuretyHighlights:

Insuredexposureincreased by7.7%,reaching€1.4trillion.

Premiumswrittenroseby 89%to€69billion

Claimspaidsurgedby 68.5%,totalling€2billion.

Theriseinpremiumswritten reflectsincreaseddemand forsuretybonds,which provideguaranteesforthe completionofconstruction andinfrastructureprojects. Thegrowthininsured exposureindicatesa broadermarketacceptance andrelianceonsurety productstomitigaterisks inthesesectors(ICISA).

TradeCreditInsurance Highlights:

Insuredexposuregrewby 45%,totalling€32trillion

Premiumswrittenincreased by5%,amountingto€8.2 billion.

Claimspaidroseby114%, reaching€32billion

Theincreaseintradecredit insuranceexposureand premiumshighlightsthe criticalroleofthese productsinprotecting businessesfromtheriskof non-payment,ensuring liquidityandfinancial stability(ICISA)

Suretybondsplayacritical roleinguaranteeingproject completionandprotecting againstcontractordefault.

Theincreaseinsuretyclaims paid,whichsurgedby685% to€2billion,highlightsthe difficulteconomicconditions contractorsandother principalsfacetoday.Equally, ithighlightsthevaluethat suretiesprovidetothe economybymitigatinglosses whendefaultsoccur

Similarly,thetradecredit insurancesectorhasseen substantialgrowthreflecting thedemandfrombusinesses forprotectioninuncertain times

Tradecreditinsuranceprotects businessesfromtheriskof buyernon-payment,ensuring thatsuppliersreceivepayment evenifthebuyerdefaults

Thisinsuranceiscrucialfor maintainingcashflowand

allowingbusinessestoextend morefavourablecreditterms totheircustomers.

Increasesinbothinsured exposureandclaimsforboth TCIandsuretymarketsclearly demonstratethechallenging economicenvironmentwe facewheredefaultsaremore frequent.Stronglycapitalised andstableTCIandsurety marketsareessentialfor economicresilienceinsuch periods(ICISA)

Impactof macroeconomicfactors

Theglobaleconomic landscape,markedbyhigh interestrates,risingcosts, theenergytransition,and geopoliticaltensions,has significantlyinfluencedthe tradecreditinsurance marketin2023

Wulffsaid,“Thereisnodoubt thattheriskawarenessof clientshasincreased.Therisk ofinsolvencyhasincreased notablyoverthepastcouple ofyears,leadingtoasteep increaseinbusinessfailures withintheOECDarea.Thishas manycausessuchasinterest rateincreasesandsupplychain disruptionsduetopolitical events(exportsfromUkraine, theIsrael-Hamasconflict impactingRedSearoutesetc) Thishasputthespotlight onourindustryandthe professionalisminunderwriting riskforthebenefitofitsclients.”

Technological innovationsintrade creditinsurance

Theriseof‘Insurtech’, includingAIanddigital platforms,hastransformed thetradecreditinsurance sectorbyimprovingrisk assessmentandoperational efficiency.

Wulffsaid,“Wesee theimpactonboththe product/distributionsideas wellasforinternalprocesses.

Initiativesofinsuring businesstransacted onB2Bplatformsfitinto thefirstcategory

IntegratingAIintounderwriting andclaimsprocessesfits intothesecond.Thesector willcontinuetodevelopinline withtheavailabilityofnew technologiestooptimizecover andspeedtoservecustomers inthebestpossibleway”

EnvironmentalandSocial Governance(ESG) initiatives

ICISAmembersareincreasingly integratingESGprinciplesinto theiroperations,reflecting agrowingawarenessof sustainabilityinfinancial services.

Wulffsaid,“Sustainability principlesareincorporated anddeeplyrootedintoour members’business From underwritingguidelines(which sectorstopromote,whichto avoid)toinvestmentpractices. Anditisnotsimplyamatter ofenvironmentalimpact ICISA membersareconsciousofthe needtomonitorhumanrights, governanceandsocialissues withinthevaluechainthey areinvolvedin.

Itisnottobeunderestimated thatactingresponsiblyalsohas animpactontheattractiveness ofoursectortonewtalent

Challengesinthe suretymarket

Thesuretymarketfaces challengessuchasregulatory hurdlesandmarketdemand fluctuations ICISAmembers areactivelyaddressingthese issuestomaintainmarket stability.

Onthecurrentchallenges facingthesuretymarket,Wulff said,“Theinflationarypressures thatwehaveseenhavehada majorimpactontheexpense baseofcontractors,amajor cohortofclientsofoursurety members.”Thishasimpacted thepricesofbuildingmaterials aswellaswagesandlabour availabilitygenerally

“Thishasweakenedmany contractors’balancesheets, makingthemmorevulnerable tonegativesituationswhere theycannolongerfulfilbonded contracts Ourmembers haveworkedtirelesslytofind solutionsthatarepalatable forthebeneficiaryofthebond (whowantsthecontracted workdone).

Onalonger-termhorizon, andespeciallyinEurope, amultitudeofregulatory, politicalandeconomicfactors limitopportunitiestostart newconstructionprojects Thisistothedetrimentofthe constructionsectoraswell astothepublicatlarge,for instanceforpeoplelookingfor anaffordableplacetolive.”

Futureoutlookfor tradecreditinsurance

Lookingahead,thetradecredit insurancemarketispoisedfor growth,drivenbyemerging marketsandtechnological advancements However, potentialrisksremain,requiring continuousinnovationand adaptation.

Wulffsaid,“Wearevery optimisticforthefuture. Ourmembershaveshown themselvestoberesilient andtobeabletoservetheir clientsinafast-changing environment.Riskswillremain andpopupfromtime-to-time, butthisiswhatwedobest.

Thisisourreasonforexistence –tomitigateriskandtohelp clientsrebuildafterloss events.”

ICISAhaslaunchedthe Women’sSuretyNetworkand theWomeninCreditInsurance initiatives,reflectinga commitmenttodiversity andinclusionintheindustry.

Theseprogrammesaimto supportandpromotewomen inthefield,fosteringamore inclusiveindustryenvironment

Howwillindustryinitiatives actuallyimpactgender diversity?Wulffsaid,“Attracting andretainingtalentto ourindustryisvitalforits developmentandtheability todelivermaximumvalueto customersandshareholders alike Uniformityintalentleads tosuboptimaloutcomes. Genderdiversityinitiativeslike WICIandWSNaddresspart ofthis Weseeourmembers hiringdiversetalent,andthese initiativessupportthem”

ICISAwelcomedthreenew members:Export-ImportBank ofThailand,Interamerican,and RenaissanceRe.

Theseadditionsstrengthen ICISA’snetworkandenhanceits capacitytosupportglobal tradeandinvestment:

Export-ImportBankof Thailand:Playsakeyrolein drivingThailand’stradeand investmentstrategies.

Interamerican:Aleading insurancecompanyin Greece,enrichingour networkwithexperienceof Greekandneighbouring suretymarkets

RenaissanceRe:Basedin Bermuda,addstothe expertisewithinICISAwith aninnovativefocusonrisk managementandfinancial solutions(ICISA)(ICISA)

Supportingthe globaleconomy

Despiteeconomicchallenges, ICISAmemberscontinueto provideessentialsupport totheglobaleconomy.

Theincreaseintradecredit insuranceexposureandsurety claimspaidreflectsthe industry’sresilienceandits criticalroleinmitigatingrisks,

ensuringliquidity,andfostering economicstability.

The2023ICISAindustryresults underscorethepivotalroleof creditinsuranceandsurety bondsinfacilitatingglobal trade

Astheindustrynavigates economicchallengesand embracestechnological innovations,ICISAmembers remaincommittedto supportingeconomic developmentworldwide.

RaviAmin

TradeComplianceSubject MatterExpert

S&PGlobalMarketIntelligence

DeepeshPatel

EditorialDirector

TradeFinanceGlobal(TFG)

Navigatingsanctions: Theroleoftransshipment hubsinWestern-made componentstoRussia

TodiscussS&PGlobalMarketIntelligence’s whitepaper,“Aretransshipmenthubs facilitatingthemovementofWestern-made componentstoRussia?”TradeFinanceGlobal’s DeepeshPatelspokewithRaviAmin,Trade ComplianceSubjectMatterExpertatS&PGlobal MarketIntelligence.

Sanctionsandfrosty traderelationshavebeen aconsistentthemeof internationaltradeinthepast half-decade,butevenmore soaftertheRussianinvasion ofUkraineon24February 2022.

Sincethen,Western governmentshave attemptedtocurtaildirect andindirecttradewithRussia, bothtoimposeeconomic punishmentanddiminish Russia’sabilitytoproduce militaryequipment.

However,theworldof internationaltradeisoften quiteopaque,andwhile governmentscanintroduce sanctions,theireffectiveness isnotguaranteed

TodiscussS&PGlobalMarket Intelligence’swhitepaper, “Aretransshipmenthubs facilitatingthemovementof Western-madecomponentsto Russia?”TradeFinanceGlobal’s DeepeshPatelspokewithRavi Amin,TradeCompliance SubjectMatterExpert,atS&P GlobalMarketIntelligence.

Effectivenessandevasion ofsanctionsonRussia

Sinceearly2022,Western governmentshaveimposed numerousroundsofsanctions onRussianeconomicactivity.

AsofJune2024,theEUalone hasimplemented14roundsof sanctionsagainstRussiasince theirinvasionofUkraine

Aminsaid,“Theideaistorestrict Russia’seconomy,stopthem fromexportinggoodsand makingmoney,andthenstop theimportofgoodsintoRussia tostoptheperforationoftheir warefforts”

Initially,thefocuswason itemsdirectlysupporting Russia’smilitary,suchas semiconductorsandelectronics, buteventuallyexpandedto includecivilianluxurygoods.

Theitemsweredividedinto differenttiers,rangingfrom 1-4b,whichessentiallywasan augmentationof50HScodes HSCodes,“HarmonizedSystem codes”,arethesix-digit numbersusedinternationally toclassifygoodsforcustoms purposes

AdministeredbytheWorld CustomsOrganization(WCO), theycover98%ofgoodsin internationaltradeandover 5,000commodities.

CustomsauthoritiesuseHS codestoapplytariffsandtaxes togoodsandkeeptrackof importsandexports.

Despitetheseextensive measurestosanctionmaterials basedontheirHScodesand differenttiers,Russiahasbeen abletoworkaroundsomeof

Market Intelligence

Tier1:IntegratedCircuts,HSCode854231

Tier2:Wirelesscommunicationsandsatelliteradio navigation,HSCode851762

Tier3A:Discreteelectroniccomponents, HSCode850440

Tier3B:Bearings,opticalandnavigationequipment, HSCode848220andHSCode880730

Tier4A:Electronicmanufacturingequipment, HSCode9030andHSCode9030

Tier4B:Computernumericalcontrolmachinetools, HSCode84581

thesanctions,maintaininga relativelystabletradeprofile.

Aminsaid,“They’veredirected theirexportstocountriesinAsia andareimportinggoodsfrom neighbouringcountriesthat haven’timposedsanctions.

Overall,thetradeprofile isrelativelyconsistentpreinvasionversuspost-invasion; they’vejustuseddifferent countriestoacquireorsell thosegoods.”

Neighbouringcountries particularlythosewithin theCommonwealthof IndependentStates(CIS), suchasKazakhstan,Armenia, andUzbekistan have significantlyincreasedtheir tradewithRussia.

Thesecountriesarenotonly relyingongoodsfromthe UnitedStateseither,though asignificantamountofthe importsdostemfromthere

Countriesthathaveincreased tradewithRussiasincethe invasionhavealsobeen increasingtheirimportsfrom theEU

Aminsaid,“Russia’strading partnersarepotentially importingmaterialsfromother countriesaswellwithinEurope. ”

Thisunderscoresacritical challenge:whilesanctions disruptdirecttradechannels, theyoftenfailtoeliminate economicinteractionsentirely andmerelydisplacetradeflows tootherwillingpartners.

ThedatafromS&PGlobalMarketIntelligencecorroboratesthisadaptivebehaviour

Figure1:ExportstoRussia,2022vs.2023,%change($value)

DatacompiledMarch13,2024

Source:GlobalTradeAnalyticsSuite,aproductofS&PGlobalMarketIntelligence ©2024S&PGlobal

Figure2:ImportsfromRussia,2022vs.2023,%change($value)

DatacompiledMarch13,2024

Source:GlobalTradeAnalyticsSuite,aproductofS&PGlobalMarketIntelligence ©2024S&PGlobal

ItshowsthatcountrieswithoutsanctionsonRussiahaveseenincreasedimportsofgoodsthatcould berepurposedformilitaryuse.Thistrendisparticularlynotableintheelectronicsandmanufacturing sectors,wheregoodsinitiallyintendedforcivilianuseinintermediarycountriesaresubsequently funnelledintoRussia.

Roleoffinancial institutionsandthe supplychainin compliance

Theresponsibilityforenforcing sanctionsextendsbeyond governmentagencies,deeply involvingfinancialinstitutions andthebroadersupplychain

Aminsaid,“Therehasbeen alotoffocusonfinancial institutionsfrommultiple regulatorsaroundtheworldin thepast Primarily,theonushas onthemtostoptheflowof sanctionedgoods,andthey wouldhavehadtoadapttheir complianceproceduresto incorporateanychanges.” Thisinvolvesacomprehensive reviewoftradeembargoes, exportcontrols,andtracking goodsthatmayhavemilitary applications.

Forinstance,banksmust performenhanceddue diligenceifatradetransaction involvesacountryidentifiedas atrans-shipmenthubfor Russiangoods.

Aminsaid,“Ifthereisatrade thatisgoingfrom,say,theUS to,say,Kazakhstan,for example,younowknowthat thereiselevatedriskbasedon theproximityofKazakhstanto Russia,basedonthedatathat we’vejustshown.Eventhough Kazakhstanisnotasanctioned country,whyisthatcompany nowwantingtotradewith Kazakhstanwherepreviously theymightnothave?Doesthe trademakeeconomicsense?”

UnderUSAExecutiveOrder14114, thescopeofthesesanctions

isnolongerlimitedtofinancial institutionsintheUnitedStates. Theorder,signedbyUS PresidentJoeBidenin December2023,expandsthe abilitytoimposesanctionson foreignfinancialinstitutions engagingintransactions involvingRussia’smilitaryindustrialbase.

Whiletheburdenhas traditionallysatwithfinancial institutions,entitiesacrossthe entiresupplychainnowhave anincreasingroletoplayin maintainingcompliance.

TheUSAhasalsoimposeda Quint-SealNotice,which mandatesthatallparties involvedinthetradeprocess fromfinancierstoshippers mustensurethatthegoods beingtradeddonotcontravene internationalsanctions.

Aminsaid,“It’snolongerjust thefinancialinstitutionthat’s responsible,it’severybody”

Futureprojections andstrictersanctions

Lookingahead,thelandscape ofsanctionsagainstRussiais poisedtobecomeevenmore stringent

Aminsaid,“Aslongasthe conflictcontinues,sanctions willcontinue Whatwillend uphappeningisthey’llstart targetingnewsectorsofthe Russianeconomy They’ve alreadydoneagriculturetoa degree,sanctioningfertilisers, timber,andthelike They’ve alreadytargetedtransport They’vealreadytargeted defence They’llfindnewways, newitemstosanctionRussia withuntiltheconflictends”

Inearly2024,theUnitedStates announcedanewroundof over500sanctions,targeting cardpaymentsystems,military institutionsandfinancial institutions Afterthisround, theUnitedStateshas sanctionedover4,000entities connectedwithRussiasince thestartoftheinvasion.

Additionally,the14thround ofsanctionsbytheEUtargets sectorslikeliquefiednatural gas(LNG)andimposesstricter controlsonvesselshistorically linkedtoRussianports.

Theinternationalcommunity remainssteadfastinitsefforts tocurtailRussia’seconomic andmilitarycapabilities throughincreasingly sophisticatedandtargeted measures.

Whilethesemeasureshave undoubtedlydisrupteddirect tradechannels,Russia’s strategicredirectionoftrade highlightsthechallengesof enforcingacomprehensive sanctionsregime.Assanctions becomemorestringent andexpansive,theneedfor coordinatedeffortsacross alllevelsoftradeandfinance becomesparamount.

TransactionBanking

LondonInstituteofBanking andFinance(LIBF)

TheICCestimatesthatifeven1%ofthe$5 trillionglobaltradefinancingmarketis susceptibletofraud–andassumingonly10%of thosetransactionswillleadtolosses–thisstill meanstherewillbeanestimatedannualcost ofaround$5billionintotalbusinessdisruption.

Internationaltrademakes theworldgoround

Theextremevastnessofthis industryispreciselywhat makesitsofascinatingand, atthesametime,sorisky Itis easytoseehowvariousrisks canarisealongthe internationaltradeprocess. Rangingfromphysical commoditytradingtoshipping, storage,distribution,andthe finalsale,theprocesscango wronginmanyways

AccordingtoaPWCstudy across53countries,over51% ofcompanieshaveexperienced somesortoffraud

TheICCestimatesthatifeven 1%ofthe$5trillionglobaltrade financingmarketissusceptible tofraud–andassumingonly 10%ofthosetransactionswill leadtolosses–thisstillmeans therewillbeanestimatedan annualcostofaround$5billion intotalbusinessdisruption

Thatiswhyunderstandingrisk and,moreimportantly,learning tomitigatethatriskaresomeof themostimportantaspectsof workingininternationaltrade.

Tolearnmoreaboutrisks andriskmanagement,Trade FinanceGlobal(TFG)spoke withPeterMilneandAlexGray, DirectorofTradeand TransactionBankingatthe LondonInstituteofBanking andFinance(LIBF).

Internationaltradebrings manyinherentrisks

Theindustry’scomplexity meansrisksarealwayslurking aroundthecorner Eachstep intheintricatetradeprocess–fromphysicalcommodity tradingtoshipping,storage, distribution,andthefinalsale–holdspotentialpitfallsthatcan jeopardisetransactions.

Understandingtheserisks andhavingplansinplace toaddressthemshould theyarise,canmakealarge difference.

Graysaid,“COVID-19 differentiatedbanksthat werepreparedforcertain risksfromthosethatweren’t Thebanksthathadthose continuousemergency plansinplacewereable toadaptquickly. ”

Traditionalrisks,such ascreditrisk(where acounterpartydefaultson payment),performancerisk (whereacounterpartyfails tofulfilitscontractual obligations),and sovereignrisk(involving acountry’spoliticaland economicinstability),remain ever-presentdangers,but newerrisksarealsoemerging.

Contemporaryissueslikecyber riskhavegainedprominence intheindustry Cybersecurity breachescancompromise sensitivetradedataand disruptoperations,posing severethreatstoallparties involved

Additionally,theincreasing emphasisonESGfactors introducesnewdimensions ofriskthatmustbe navigatedcarefully.

Graysaid,“Morepeople–even thosenotintheindustry–are becomingmoreawareofthose risksthantheywouldhave beeninthepast.It’sbecoming alotclearerthattherisksin tradeaffectpeopleeveryday”

Giventheindustry’sevolving risknature,theLIBFhas releaseditslatestcertification, theCertificateinInternational TradeRisk(CITR).

TheCITRfortrade financeprofessionals

TheCITRisaLevel4certificate designedtoequiplearners withspecialistexpertisein internationaltraderisk.

Theprogramoffersa comprehensiveframeworkfor professionalsseekingtomaster theintricaciesoftraderisk managementandequips participantswiththeskills toidentify,understand,and mitigatetheseriskseffectively

TheCITRprogramcoversboth traditionalandcontemporary risksandistailoredtomeetthe needsofprofessionalsat differentstagesoftheircareers

Graysaid,“Theaudience,for mostofourqualifications,is splitintotwogroups.There arethepeoplewhohavethe knowledgealreadyandneed

awaytodisplayit,andthere arethepeoplewhowant tolearnaboutit”

Forthosefamiliarwithtrade risk,theCITRformallyrecognises theirexpertise,enhancingtheir credentialsanddemonstrating theirproficiencytoemployers andpeers Fornewcomers,it providesasolidfoundation, equippingthemwiththetools andunderstandingneededto dealwithtraderisks.

Notably,theCITRprogram focusesonpractical applications,emphasising real-worldscenariosand casestudies,andallowing participantstoapplytheoretical conceptstoactualtrade situations

Thispracticalemphasisensures thattheknowledgegainedis comprehensiveanddirectly applicabletoday-to-day professionalactivities.

Adaptabilityand internationalscope oftheCITRprogram

Theriskspresentin internationaltradearealways changing,whichmeansthat astrongtraderiskeducation offeringmustbeableto changejustasfast

Technologicaladvancements likeblockchainandartificial intelligence(AI)are transformingtradefinanceand introducingnewrisksthatmust bemanaged

TheCITRprogramisdesigned tokeeppacewiththese developments,incorporating thelatesttrendsandemerging risksacrossarangeofglobal marketsthroughitsupdatable onlinedeliveryformat.

Milnesaid,“Thebeauty aboutthisprogramisthatit isbrokendownintosections andmodules,andtheycan beadapted,ornewmodules includedsothatthosecoming todothequalificationwillbe gettingthelatestinputonwhat thecurrenttrendsare. ”

Developedwithcontributions fromexpertsworldwide,the CITRprogramoffersaglobal perspectiveontraderisk, allowingittoreflectthe latestchangesandregional differences,makingit applicabletoprofessionals

operatinginvariousmarkets

Itsholisticapproach,practical emphasis,andadaptability makeitaninvaluableresource forthoseseekingtobetter understandandmanagethe risksassociatedwith internationaltradefinance

TheCITRcoursewillbeavailabletostudy from24June2024.Ifthissoundslikethe certificationyouhavebeenlookingfor, youcanlearnmoreaboutithere:

TradeFinanceGlobal(TFG)

TL;DR:FCIannualreport highlightsstablegrowth andtechinnovationin2023

Thereportshowsaglobalfactoringgrowth of3.6%,markingthethirdconsecutiveyear ofexpansion.

BrianCanup

TradeFinanceGlobal(TFG)

TheFCIAnnualReviewfor 2023confirmsareturnto pre-pandemicstabilityin theglobalfactoringmarket.

Thereportshowsaglobal growthof36%,markingthe thirdconsecutiveyear ofexpansion.

NealHarm,FCISecretary General,said,“Aswas predictedinlastyear’sreport, 2023volumesslowedfrom thepriortwoyears However, theworldfactoringstatistics indicatethatthe2023volumes infactoringandreceivables

financewitnesseda continuedgrowthtrajectory, increasingby+3.6%,which comesofftheheelsoftwo consecutivesolidgrowth yearsin2021-2022”

Thisgrowthisbasedon anestimatedvolumeof €3,791billion,upfrom €3,659billionin2022.

Domesticfactoring continuestodominate, comprising78%ofthetotal volume,whileinternational factoringaccountsfor theremaining22%.

Globalfactoringvolumeevolution2003-2023 Source:FCIAnnualReview2024

HongKong’smarketshrank byover20%,whileJapan experiencedmodestgrowth andTaiwansawa14%decline.

Thisrepresentsasignificant dropintheTwo-Factor Systeminternational factoring,whichdecreased from€58billionin2022to €51billionin2023

AlbertoWyderka,FCIRegional DirectorfortheAmericas,said, “Challengesareaconstant, muchlikepoliticalchanges anduncertainties.However, theoutlookfortheaccounts receivablefinancingindustry remainspositiveand promising.”

TheEuropeanUnion sawmodestgrowthof2%, reachingatotalturnover of€2,443billion

Theregionremainsthe largestfactoringmarket globally,representing66% oftheworldmarket.

DespitetheEUGDPdropping to04%from35%in2022,the penetrationrateoffactoring overEuropeanGDPwas stableat12%.

“TheECB’sseverepolicyto curbinflationledtorapid increasesinlendingrates, coupledwithconflicts betweenRussiaandUkraine andIsraelandPalestine

TheAsia-Pacificregion remainsasignificantdriverof growth.Chinaledwitha10% increaseinfactoringvolume, demonstratingresilience despiteeconomicchallenges

North-EastAsiasawanoverall growthof7%,withmainland Chinacontributing81%ofthe region’smarket.However, AsiaPacific

IntheAmericas,thefactoring volumegrewby4.3%inSouth andCentralAmerica,while NorthAmericasawa107% decline

Thetotaldomesticfactoring volumeintheregionreached €222billion,withinternational factoringexceeding€11billion.

Despitethis,theEuropean factoringmarketremains themostimportantglobally, representing66%ofthe worldmarket”said FaustoGalmarini, ChairofEUF

FCIFactoringVolumes.Source:FCIAnnualReport2024

MiddleEastandAfrica

TheMiddleEastshowed growthdrivenbyfavourable commoditypricesand diversificationintonewsectors

Theregion’sfactoringmarket isexpectedtogrowby2.3%in 2024.Africa,representing1.3% oftheglobalfactoringvolume, sawasignificantgrowthrate of13.5%in2023

SouthAfrica,thelargestmarket onthecontinent,witnessed a14%increaseinvolume. SouthAfrica,thelargestmarket accountingforover80%ofthe

entirevolumeonthecontinent, witnessedanincreaseof14%. Countriesthatledthisgrowth includedMauritius,Egypt, Tunisia,andothersfor158%

“ThisindicatesthattheAfrican marketcontinuesitsstrong growthtrajectoryintothe foreseeablefuture”said NassourouAminou,FCI RegionalManagerforAfrica

TheFCIhasalsoevolvedasan association,growingfromover 100members20yearsago tonearly400today.

Technology,education andpartnershipdrive globalfactoringadoption

Thisgrowthisdrivenbya significantincreasein membershipfromemerging markets,whichnowaccount forover70%ofnewmembers.

In2023,FCIadded31 newmembers,while26 membershipswereterminated Thistrendhighlightsthe growingglobalinterestin factoringandthevalue providedbyFCI

Technologicaladvancements haveplayedacrucialrole inFCI’sevolution.

Thelaunchoftheedifactoring 2.0platformin2022represents asignificantinvestmentin technology FCIhasalso implementedaninternally controlledbookkeepingsystem andanautomatedinvoice approvalsystem,enhancing operationalefficiencyand financialcontrol.

Buttechnologyisonly oneaspectofFCI’sholistic approach Educational initiativeshavebeenafocusfor FCI,withvariousprogrammes aimedatenhancingindustry knowledgeandskills

Craftinganeffectiveeducation programmetakestime, resources,andpartnershipsto properlyeducateregionsabout thepotentialoffactoring.Thisis whytheAfricanDevelopment Bank(AfDB)special-purpose grantisvitalinthisprocess

Thegranthelpsprovide consultancyservicestohelp supportnewandexisting

factoringfirmsacrossAfrica, creatingsustainaiblegrowth fortheindustrythroughout thecontinent.

“Weworktowardspromoting andeducatingpeopleon factoringandsupplychain finance.Ourcollaborations bringtogetherindustryleaders, banks,financialinstitutions, legalprofessionals,factoring companies,andgovernments tocoverawiderangeoftopics” emphasisedÇagatayBaydar, FCIChairman.

However,forfactoringtobe increasinglysuccessful,there needstoberiskmitigation beforewidespreadadoption

Thisiswhycreditinsurance playedavitalroleinmitigating riskswithinthefactoring industryin2023.Itprovided additionalsecurityforfactors, especiallyinvolatilemarkets, ensuringstabilityand confidence

Thefutureoffactoring

Lookingahead,FCIisoptimistic aboutthefutureofthefactoring industry.Withcontinuousgrowth inmembership,technological advancements,andeducational initiatives,theassociationis well-positionedtosupport theglobalfactoringmarket

Thefocusremainsonproviding valuetomembersthrough advocacy,education,and arobustglobalnetwork.

“Wearepoisedtoleadthe factoringindustryintoanew eraofgrowthandinnovation” , saidHarm

DOWNLOAD THE REPORT HERE

MembersthatuseCreditInsurance CoverageforBuyers2023

DeepeshPatel

EditorialDirector

TradeFinanceGlobal(TFG)

TheBaselEndgame: ImplicationsforUScredit insurance 2.7

UnderstandingtheimpactofBaselIIIonbanks: learnabouttheglobalregulatoryshiftand increasedcapitalrequirements.

TheBaselIIIproposalssignifya globalregulatoryshiftforbanks, focusingonincreasedcapital requirementsandrefinedrisk weightcalculations

IntheUS,thisimplementationis calledthe‘Baselendgame,’ whiletheUKreferstoitasBasel 3.1andtheEUcallsitFinalised BaselIII.

Thistermhasdrawnsignificant attentionfromUSfederal bankingagenciesundera ‘NoticeofProposedRulemaking’ (NPR).

Theregulatorshaveinvited publiccomments,andthe creditinsuranceindustryhas engagedactivelytoadvocate formeaningfulRisk-Weighted Assets(RWA)relief.

TradeFinanceGlobal(TFG) spoketoindustryleadersSian Aspinall,MarilynBlattner-Hoyle, TodBurwell,NealHarm,Scott Ettien,TomaschKubiak,Azi Larsen,HarpreetMann,Jean Maurice-Elkouby,HernanMayol, MarcusMiller,RichardWulff,

lookingattheimplicationsof BaselIIIimplementationinthe US,andwhatthismeansfor thetradefinanceandcredit insurancesector

Thehistorycontext ofBaselregulations

TheBaselCommitteeon BankingSupervisionestablished Baselregulationsinresponse tofinancialturmoilinthe late1970s.

BaselI(1988)focusedoncredit risk,BaselII(2004)included operationalandmarketrisks, andBaselIII(post-2008crisis) aimedtostrengthenbank capitalrequirementsand improveriskmanagement

The2008financialcrisis revealedsignificant shortcomingsinBaselII,leading toBaselIII,whichintroduced morestringentcapital requirements,newriskweight calculations,andarevised leverageratioframework

BaselIII’snuanced implementation

EachmarkettailorstheBaselIII implementationtoitsspecific regulatoryenvironment. TheUScallsitthe‘Basel endgame,’theUKreferstoit asBasel31,andtheEUcalls itFinalisedBaselIII

Implementationhasbeen pushedbackto1January2025 fortheEU,and1July2025for theUKandUS.Canadaand Australiahavealreadyadopted BaselIII

TheBaselendgamefocuses onincreasingcapitalagainst credit,market,andoperational risks,significantlyimpacting lendingcostsandavailability.

WhiletheStandardised approachdoesnotallow modelling,AdvancedInternal Ratings-Based(A-IRB)banks previouslymodelled probabilitiesandlossgiven defaults(LGDs)

BaselIIIremovesthisflexibility bysettinginputfloors(LGDsat 40%forcorporatesand45%for financialinstitutions)and anoutputfloor(capital requirementscannotbeless than725%oftheStandardised equivalent)

BaselIII–ThecurrentUSvsEUregulatorycomparisons(likeforlike)

Aspect

CapitalRequirements

RiskWeightCalculations

CreditConversionFactors

RecognitionofCreditInsurance

LeverageRatio

Keyregulatorychanges andwhatthismeans fortheUS

TheBaselIIIendgameincreases capitalrequirementsagainst credit,market,andoperational risksintheUS

Itintroducesadualstructure forthecalculationof Risk-WeightedAssets(RWAs) forbankingorganisationswith totalassetsof$100billionor more,includingthelegacy standardisedapproachand anewexpandedrisk-based approach.

UnliketheEUandUK,theUS approachtorecognising creditinsuranceforcreditrisk mitigationhasledtovarying interpretationsandoversight

Creditinsurancecanmeet theoperationalrequirements setoutinRegulationQfor eligibleguarantees

USregulations (Baselendgame)

Higher,strictleverageratios

Stringent,detailed standardisedapproach

50%forperformance guarantees,higher

Limitedrecognition, non-favourabletreatment

Non-risk-based,actsasa backstop

However,thevaguenessof RegulationQhasresultedin differentinterpretationsby banksandinsurers,leadingto variedpracticesinthemarket

Thisambiguityhasbeena focalpointinadvocacyefforts, emphasisingtheneedfor clearerpolicyguidelinesto ensurecreditinsuranceis appropriatelyrecognisedand utilisedasariskmitigationtool

Industryreaction

Industryreactionsare variedUSbanksarguethat increasedcapitalrequirements areimpactingtheir competitivenesscomparedto EUbanks,asitcoststhemmore, whichisnottheintentofBasel.

Insurersseethisasan opportunitytoprovidegreater supporttoUSbanks,similarto whattheyofferintheUKandEU, helpingtodiversifycarriers’ portfolios

EUregulations(BaselIII)

Moreflexible,lowercapital charges

Moreflexible,lessstringent

20%forperformance guarantees,lower

Recognisedasa riskmitigationtool

Flexible,notbinding

Thereiscurrentlyalackof clearrecognitionofcredit insuranceforcreditrisk mitigationintheUS,partly becausemostinsurance companiesprovidingcredit insurancedonotqualifyas eligibleguarantors

Thiscouldpresentan opportunityforUSregulators toleveltheplayingfieldby recognisingcreditinsurance, potentiallyencouraging itsgreateruseasarisk mitigationtool.

Advocacyeffortshave highlightedhowcredit insuranceworks,thetransfer ofriskfrombankstoinsurers, andthebenefitsofspreading riskacrossinsurersand reinsurers

Thisdiversificationofriskis akeyadvantage,providing amorestableandresilient financialsystem

Manyhaveassociations advocatedUSregulators throughassociationslike BAFT(BankersAssociation forFinanceandTrade),the InternationalTrade& ForfaitingAssociation(ITFA), InternationalAssociationof CreditPortfolioManagers (IACPM),andReinsurance AssociationofAmerica(RAA).

MarshMcLennancompanies (MMC),includingMarsh, OliverWyman,andGuy Carpenter,havealso independentlyadvocated forregulatorychanges.

Theybelievecreditinsurance shouldqualifyasaneligible guaranteeandinsurance companiesaseligible guarantors.MMCisseeking clarificationsthatwouldallow insurancecompanieswithout debtsecuritiestoqualify basedontheirparent companies’status

Additionally,theyrequest confirmationthatcredit insurancepoliciesbe classifiedascorporate exposureswitha65%risk weight,insteadofthecurrent 100%

BAFT(BankersAssociation forFinanceandTrade)has raisedconcernsabout increasedcapital requirementsdrivingupthe costoftradefinanceand reducingitsavailability.

Theyarguethattheproposed 50%creditconversionfactor forperformanceguarantees andstandbylettersofcredit overestimatestherisk comparedtotheEU’s20%, disadvantagingUSbanks.

TheInternationalChamber ofCommerce(ICC)hasalso advocatedforthe20%CCFin theEU,supportedbydata fromtheICC-GCD2022study, whichshowedevenlowerCCF requirementsforperformance guarantees

Theproposedguidelinesunder theBaselIIIendgamesuggest a50%CreditConversion Factor(CCF)forperformance guaranteesandstandbyletters ofcredit(SBLCs),whileindustry associationsareadvocatingfor areductionto20%,aligningwith EUstandards.

Theguidelinesalsopropose alowerriskweightof20%for trade-relatedexposureswith maturitiesofthreemonths orless,comparedto recommendationsinother jurisdictionsfortenorsof sixmonthsorless.

AssociationslikeITFAandIACPM areadvocatingforinsurance companiestobetreatedas banks,potentiallyattracting lowerriskweightsforselfliquidatingtradefinance instruments

RichardWulff,Executive DirectorofICISAsaid,“Ata timeofeconomicdifficulty, unlockingbankfinancingto therealeconomyisan importantpolicyquestion governmentsmustaddress Recognisingtheprotection thathighly-capitalisedand well-regulatedinsurersdeliver tobanksforpreciselythis purposecouldbeaneasywin, benefitingbusinessesaround theworldinthelongrun”

MarilynBlattner-Hoyle,Global HeadofTradeFinance,Trade Credit&WorkingCapital SolutionsatSwissRe CorporateSolutions,and ViceChairoftheICCBanking Commission,said, “USregulatorshaveawin-win opportunityheretofurther theBaselfinancialstability aimswithaprovenecosystem –theinsuranceandbank partnershipinthecredit space Thisecosystemhas thepotentialtocreatetrade andhelpcompanies Weare convincedthattheinsurance industrywillcontinueto beasafeanddiversifying riskpartner”

Theyarguethattherulesfail toacknowledgethevaluable protectioncreditinsurance providestobanksinreducing anddiversifyingtheircreditrisk

Thesilenceonthissubjectin theBaselstandardsisinpart duetothisrelationshipbetween banksandinsurersdeveloping asmarketpracticeinthe periodsincethestandards firstemerged

IntheEUandUKregulators arealsoexaminingtheuse ofcreditinsuranceinthisway andassessinghowbestto incorporateeligibilityofthis kindofprotectioninthe versionsoftheBaselstandards

Thiswouldincludeboththe criteriaforutilisingcredit insuranceinthisway,aswell askeymetricssuchasthe loss-givendefaulttoapply toaninsurancepolicyused inthisway

AssumingtheEUandUK adoptanapproachthat enablesbankstocontinue

tobenefitfromcreditinsurance post-Baselimplementation, theUScouldmissoutbynot adoptingasimilarapproach.

Infact,astheproductisnot aswellestablishedonthatside oftheAtlantic,thereishuge potentialforbankstobegin usingcreditinsuranceand otherunfundedcreditrisk transfersolutionstoboost bankfinancingbygivingproper recognitionintheregulation

Thecreditinsurancemarket providesvariouscreditrisk transferproductstailoredto differentassetclasses, allmeetingregulatory eligibilitycriteria

KeyproductsincludeNonPaymentInsurance(NPI)for lendingbooks,TradeCredit Insurance(TCI)forreceivables andsupplychainfinance,and SuretyMasterRiskParticipation Agreements(MRPAs)for unfundedguaranteebusiness

TheITFA-IACPMwhitepaper providesacomprehensive analysisofcreditinsurance asariskmitigationtool

Creditinsuranceprotects policyholdersfrom non-paymentordelayed paymentbydebtors,dueto individualfinancialissuesor externaleventslikepolitical incidents,catastrophes,or macroeconomicproblems.

Historically,creditinsurance wasnotexplicitlyrecognised asacreditriskmitigantin Baselregulations

However,Article506, introducedinOctober2022, marksabreakthroughby recognisingitasadistinct riskmitigantintheEU.

TheUKhadalreadytaken similarstepswithapolicy statementin2018,explicitly recognisingtheroleof creditinsurance.

Creditinsuranceas ariskmitigationtool

Theprivatecreditinsurance markethasgrownsignificantly overthepast20years,with around60insurersholding investment-graderatings

Banksusecreditinsuranceas aportfoliomanagementtool, withoverahundredbillion dollarsofcoverageglobally.

A2020surveybyITFAand IACPMfoundthat$135billion ofcreditinsurancecoverage facilitated$346billionin loanstotherealeconomy.

Forexample,thewhitepaper notesthatcreditinsurancecan significantlyreducebanks’risk exposure,allowingthemto lendmoreconfidentlyand atlowerrates

Thisisparticularlyimportantin sectorswithhigherdefaultrisks, wheretraditionallendingmight beprohibitivelyexpensive Thepaperincludesdata demonstratingthereliability ofcreditinsurancepolicies.

Between2007and2020, 9773%ofthevalueofallclaims waspaidinfull,showingthe robustnessofthesepolicies evenduringfinancialcrises Onewhitepaperanecdote illustratestheseregulatory differences’practicalimpact.

AmajorUSbank,unableto leveragecreditinsurancedue toregulatoryrestrictions, facedhighercapitalcharges andreducedlendingcapacity. Incontrast,aEuropean competitor,benefitingfrom moreflexibleregulations, managedtosecurea significanttradefinancedeal byusingcreditinsuranceto mitigateriskandlowercosts.

InalettertothethreeUSfederal bankingagencieson16January 2024,HernanMayol,Board Member,ITFA,andSom-lok Leung,ExecutiveDirector, IACPMsaid,“Theproposed implementationoftheBasel Accordsshouldrecognisethe suitabilityofcreditinsurance asaneligibleriskmitigant underthecapitalrules This willnotonlyadvancethegoals oftheBaselAccords,butalso placeUSbanksonequal footingwithnon-USbanks. ”

Comparativeanalysis: USvsNon-USbanks

Theregulatorydifferences betweenUSandnon-US banksunderBaselIIIcreate competitivedynamics

TheCollinsAmendmentlimits USbanks’abilitytogaincapital reliefcomparedtonon-US banks.EUbanksbenefitfrom moreflexiblerisk-weighting rulesandleverageratios TheTargetedReviewofInternal Models(TRIM)intheEUadds capitaladd-onsforEuropean banks,mitigatingtheBaselIII endgame’simpact.

IntheUS,theFederalReserve’s assessmentsandstresstests serveasequivalents,but withoutsimilaradd-ons, USbanksfacestricter requirements.

Differencesinregulatory frameworksbetweenthe USandEUmayintroduce opportunitiesforregulatory arbitrage,benefitingbanksthat navigatethesediscrepancies.

TheBaselIIIendgamepresents anopportunityfortheUStrade financeandcreditinsurance sector

Advocacyeffortshave focusedoneducationaround howcreditinsurancebenefits realeconomicgrowthand tradefinance

Allgoingwell,thetransferof suchriskfrombankstoinsurers andreinsurersequatesto$250 billion,accordingtotheIACPM andITFA,potentiallyoccurring withinthefirstthreeyears

Thishigh-caliber,low-losslevelbusinesscouldenhance thestabilityofinsurers’ portfolios.

However,addressingissues suchasthenuclearexclusion clause,whichtypicallyexcludes coverageforlossesdueto nuclearincidents,remains achallenge.

Whilesomeflexibilityhas beenachieved,insurers’ currentcapacitytofully waivethisclauseislimited, potentiallyhinderingthefull implementationofRWArelief.

NeilShonhard

ChiefExecutiveOfficer MonetaGo

SeanBowey

HeadofProduct,GlobalTrade andReceivablesFinance SAB

BrianCanup

AssistantEditor TradeFinanceGlobal(TFG)

TheMiddleEastisembarkingonadigital transformation,withpioneeringdevelopments inSaudiArabiaacrossbanking,supplychain financing,andriskmitigation.Regulationand private-publicpartnershipsmustkeeppaceas thesechangesaccelerate.

Theglobaleconomyhas alwaysundergonechanges Fromtheagrarian-based economyinthe18thcentury totheadventoftheIndustrial Revolution,fromsailboatsto steamships,therehasalways beenashiftineconomy, industry,and,ultimatelythe dynamicsofacountry

In2024,weareinthemidst ofyetanothertransformative eraaswetransitionthe internationaltradeindustry toamoredigitalstate.

Todiscusssomeofthedigital developmentoccurringinSaudi Arabia,TFG’sBrianCanup(BC) spokewith:

SeanBowey(SB),Headof Product,GlobalTradeand ReceivablesFinance,SAB

NeilShonhard(NS),Chief ExecutiveOfficer,MonetaGo

BC:Tostart,couldyougiveus yourbroadperspectiveonthe mainareastofocusonto promotecontinuedgrowth acrosstheMiddleEast?

SB:Startingwiththebigpicture, SaudiArabia’sVision2030is concentratedonthegrowth ofthenon-oileconomy.

Coupledwiththat,there'sa significantpushtowards becomingafullydigital bankingenvironment.Thisis crucialbecausearobustdigital publicinfrastructure,paired withayoung,technologically adeptpopulation,beginsto removemuchofthefriction traditionallyassociatedwith trade.

Thereisalsogrowing entrepreneurship,whichis supportedbyenhancingSME growththroughvarious governmentschemesand funds,suchasguarantee schemes,butalsobycreating adigitalpublicinfrastructure thatsimplifiesovercoming traditionalchallengesinthis space

Thedigitalidentityandthe infrastructuretosupportitare verystrong.We’realsoseeing astrengtheninginfrastructure tosupportinvoicevalidation, whichisn'tjustforitsownsake

Thissetupallowsus,asbanks, toinjectmoreliquidityintothe spacebecausethetraditional roadblocksareremoved KYC becomesaloteasieraswe getfeedsdirectlyfrom thegovernment’sdigital infrastructure

Thefraudriskintermsoftrade andinvoicefinancingisalso reducedbecausewecantap intothird-partyvalidation throughtrustedplatforms, suchasVATtaxplatforms andinvoicefinancevalidation throughplatforms.

These,Ithink,areoften overlookedfactorsinterms ofeconomicgrowth,butyou havetocreatethatunderlying infrastructure,thoseunderlying conditionsforthatgrowthto happen.

BC:Movingtotechnology, howdotechproviderslike MonetaGoslotinand supportremovingrisk?

NS:FocusingonSaudiArabia here,weknowthatjust5%of lendinginKSAistotheSME sector Thatneedstobe drasticallyimproved Froma MonetaGoperspective,having toolslikeourscanhelpcreate safer,moretrustedfinancing ecosystems,whichiswhat SaudiArabiaisafter.

Withinnovativesolutions,banks canhaveincreasedconfidence inextendingtheirbooksof business,whichiskeyto increasingtradegrowth.Crossborderinteroperabilitywithinthe GCCisalsokey,bothforSaudi Arabiaandthewiderregion

We’reengagedinexpanding ourinteroperableandscalable solutionthroughtheGCC.

Manyofthebanksthat we’vespokentointheregion haveremitstoextendtheir supplychainfinancebooks Havingtheabilityto validatetransactiondatain SaudiArabiaisobviouslykey, buthavinginteroperability acrosscountriesorregionally isalsokey

BC:Sean,couldyouexpandon themarketforsupplychain financeandhowit's developingintheregion?

SB:It'sstillarelativelynascent marketforthisformoffinance It'sexperiencedgrowthstarting intheUS,withAsiaandEurope followingsuit.However,this marketisstillrelatively immaturefromaproduct perspectiveandfrom corporateacceptanceof theproduct,althoughitis developingquicklyandthere's interestintheproduct.

Itisalsoaneasiermeansfor thebankstodemonstratethat they'resupportingtheSME sector This,ofcourse,isthe easiestwaytodoitbecause you 'retakingthatcorporate balancesheetandthat

corporateriskandusingthat toinjectliquidityintotheSME sector

BC:Whatarethechallenges withexpandingfurtherintothe SMEworkingcapitalcycle?

SB:TherealtrickforSABishow dowegetfurtherintothe workingcapitalcycleofthe SME?Obviously,traditional payablesfinanceisonlyafter theacceptanceoftheinvoice.

Wewanttobeabletofinda waytosupportthepreacceptance,thepre-shipment, andthebuildphaseofthe workingcapitalcycleforthose SMEs,whichiswherethey reallyneedthatadditional support.

Whydon’twetypicallydothis? ItcomesbacktoNeil'spoints It'sthefraudriskandthecredit riskinthatspace

BC:Sohowdoesemerging technologyplayintothis de-riskingagenda?

NS:It'scrucialforbankslike SAB,whichoperateregionally, tohaveaninterconnected andinteroperabletechnology infrastructure This infrastructurenotonly validatestransactiondatafor fraudpreventionlocallybut alsodoessoonaregional scale.

Connectiontothingslike theSauditaxregistryZATCA, orconnectiontodata aggregatorslikeLloydsList IntelligenceandS&PGlobal forpricevalidation,both domesticallyandregionally, enhancestheutilityofthis infrastructure.Itnotonly fosterswideradoptionbut also simplifiestheuser experienceforbanks.

SB:That'sexactlyit ForSAB,it's aslightlydifferentsituationas alocal,domesticbankinSaudi. Cross-borderfinancingis limitedbybankingregulations However,weleveragetheHSBC networktoachievethatglobal andregionalbankeffect

Thenecessarytechnologies areinplacetoestablishan infrastructurethatprovides third-partyvalidationforthe elementsfundamentalto financing Soasabank,I'm lookingforadigitaltriggerfor financing,takingoutasmuch ofthefraudriskaspossible fromtheequation.

Intheregion,practiceslike doublefinancingofinvoices

andforwardthinkingand receptivetoinputinterms ofregulation.

Broadlyspeaking,thelegal regulatoryframeworkfor bankinghaskeptpaceandis movingintherightdirection

Ithinktheonewherewewould seethebenefit,intermsof Saudibecomingatradehub, istheadoptionofMLETRcompliantlegislationlocally, especiallyaftertheUKhas adoptedETDA,andFranceand theUSaremakingstrides.

SoifSaudiwantstobecome aregionaltradehub,Ithinkit woulddowelltoaccelerate adoptionandIknowthatwork

andcircularfinancing,where relatedpartiescirculateand financethesameinvoices amongthemselves,arequite prevalent However,current technologiesareeffectively reducingtheseissues,enabling bankstoinjectliquiditywith greaterconfidence.

BC:Whataretheregulatory challengesinkeepingupwith digitalevolution?

SB:Regulationusuallylagsabit behinddigitalevolution;that's thenatureofit.Regulatorsin thisregiontendtobeengaged

isunderwayconsidering thatregulation

There'sadigitalplatform,the NafithPlatform,forpromissory notes,forexample,which underpinsalotofthe financinginSaudiArabia

There'sadigitalplatform aspartofthedigitalpublic infrastructurerunbythe MinistryofJusticethatcreates promissorynotes,whichif theycomethroughthat platform,areguaranteed tobeenforceable.

BC:DoyouseeSaudiactingas acatalystforothercountries intheregiontoenhancetheir tradeandregulatory frameworks?

NS:Vision2030setatrend Othercountriesfollowedwith differentvisionstatements. SaudiArabiahasaknackfor settingfashionorthepace, andonewouldhopethat othercountriesintheregion arewillingandabletoadopt innovativetechnologiesfor thebenefitoftrade,risk prevention,riskmitigation, anddigitalisation.

SB:AndIthinkintermsof adoptionofspecificlegislation, IknowthattheIFCrecently adoptedwhattheydeemedto beMLETR-compliantlegislation. BahrainandtheAbuDhabi GlobalMarkethavealready adoptedlegislation Sosome jurisdictionsareabitahead, butithasn'treallygained tractionyet

Whereas,IthinkifSaudi adoptedlegislationandstarted doingtransactions,Ithinkit wouldhaveasnowballeffect withintheregion

BC:Returningtothetopicof fraudprevention,whattypeof economicchangescouldbe expectediftheseprogramsand technologiesareimplemented morewidely?

NS:UsingMonetaGo’s experienceinIndiaasacase study,we'veobserved exponentialgrowthfrom creatingsaferfinancing environments Thefocuson previouslyneglectedsectors liketheSMEandMSMEsectors hasmultiplebenefits.

Morefinancingtranslatesinto moreeconomicgrowth;more goodsproduced,andmore taxesgenerated Additionally, increasingconfidenceincredit insurance,whichmighthave beenreluctanttounderwritein certainmarketspreviously, catalysesevenmorelending.

Thisresultsinadominoeffect governmentscollectmore revenue,businessesthrive,and banksprofit.Ultimately,leading towidespreadsocio-economic benefitsbothnationallyand regionally

BC:Couldyououtlinekeynext stepstoadvancethe technologyandfraud preventionindustries?

NS:Fromthefintech perspective,agilityiskey Governmentscansometimes beslowertoact,whichiswhere partnershipsbetweenpublic andprivatesectorsbecome essentialtoacceleratethetime tomarketandsubsequent benefitsofthesesolutions

AnexampleisSwift;realising theyweren’tagileenoughto deploynecessaryvalue-added services,theyinitiatedapartner program,whichledtoour

partnershipwiththemcreating aglobalstandardforprevention

Thisstandardhasexpedited ourcollaborationswithcentral banksandotherpublicentities, enhancingourimpactacross theGCCandglobally.Such partnershipsarecrucialfor thrivingbusinessandfinancing ecosystems

SB:Absolutely,Neil’spoint aboutthesynergybetween agilefintechsandthemore methodicalgovernmental approachiscrucial Saudi Arabiaandothergovernments intheregionarequiteforwardthinkingandplanstrategically toincorporatethese advancements

Thedriveoftenstemsfrom practicalusecasesprovided bycorporatesandfintechs Asa bank,wemaynotalwaysbeas nimble,butwearecommitted tosupportinganydevelopment thatfacilitatesouroperations moredigitaltriggerpointsand controlsmeanasmoother processintradefinance

We’reverykeenonanything thatbolstersthisenvironment, asitultimatelysimplifiesour workandenhancesthe serviceswecanprovide

AstheU.S.andtheEuropeanUniongradually slideintoaquasi-permanentprotectionist mindset,includingtit-for-tattradewarswith China,whathappenstofreetradeinother regionsoftheworld,includingtheMiddleEast, willbecomemoreimportant.

MiddleEast: Thebigpicture

Therearefewregionsas pivotaltoglobaltradeasthe MiddleEast Thepetroleumrichareaisthesourceof roughlyone-thirdofthe world’soilproduction.When geopoliticaltensionsinthe MiddleEastforceupoil prices,thewholeworld catchesacold

TheSuezCanalisone oftheworld’sessential transshipmentpoints. And,becauseofstrategically significantnationssuchas Israel,EgyptandSaudiArabia, theMiddleEastpunches faraboveitsweightin internationalpolitics

In2024,theregionhasbeen hitbyconflict,piracy,and thevagariesofsupplychains andtheoilmarket

Thespectreofprotectionism appearsthreatening,especially betweencountriesinconflict witheachother

AstheUS andtheEuropean Uniongraduallyslideintoa quasi-permanentprotectionist mindset,includingtit-for-tat tradewarswithChina,what happenstofreetradeinother regionsoftheworld,including theMiddleEast,willbecome moreimportant

Tobesure,thebigpictureisnot asbleakastheheadlinesmight suggest.Economistsforecast exportgrowthataround4% fortheregionin2024

Andsomeoftheeffortsat diversification,thebiggest challengeforoil-reliantMiddle Easterneconomicpower, aresucceeding Non-oilfrom SaudiArabia,forexample, rose43%to$122billion, whileimportsincreased55% to$34.6billioninthefirsttwo monthsof2024,according toTradeDataMonitor.

ThewarinIsraelandGaza hasdisruptedtheeconomies ofbothnations Consumers inIsraelarelessconfident spendingmoneyduringatime ofhighriskandconflict.Israeli importsofcarsandtrucksfell 37%year-on-yearto$1billion inthefirstquarterof2024, accordingtoTDM

Importsofbusses,however, rose10.6%to$104.3million. Israeliexportsfellin10ofits 12topmarkets.Shipmentsrose toChinaandtheU.S.,butfell toGermany,Turkey,Italy, France,Russia,India,South Korea,Spain,theUK,and theNetherlands.

ThewarhasmadeIsrael increasinglyreliantonitstrade relationshipwiththeUS Total Israeliexportsincreasedby 12%to$169billion Shipments totheUS rose9%to$48 billion.Exportsofelectronic integratedcircuitssoared 416.4%to$478.2billion.

Protectionistcasestudy: Israel-Turkey

Theyearhasbeenastudy ofthevolatilityoftradeinthe region.InMay,oneofthe MiddleEast’smostsuccessful tradingpartnerships unravelledamidtensionover thewarinGaza.

AfterTurkishPresident TayyipErdogansaidhis countrywouldhaltexportsto Israel,TelAvivretaliatedby nixingafreetradeagreement withTurkeyandpromisingto imposea100%importtariffson goodsfromthecountry.

Earlierthismonth,Turkeysaid “itwasstoppingexportsto Israelduringthedurationof theIsrael-Hamaswar,citing a“worseninghumanitarian tragedy”inthePalestinian territories.

However,theTurkish TradeMinistryhassaidthat companieshavethreemonths tofulfilexistingordersviathird countries

WarinIsrael-Palestine

Already,tradebetweenthe twocountrieshastakenahit. TurkishimportsfromIsraelfell 21.5%year-on-yearto$429 millioninthefirstquarterof 2024,whileexportsdropped 217%to$12billion,according toTDM

That’snotwhattheregion needsifitscountriesareto diversifytheireconomiesand buildstablemiddleclasses

Accordingtoarecentreport bytheInternationalMonetary Fund,MiddleEasterncountries couldincreasetradebyupto 17%by“reducingnontarifftrade barriers,boostinginfrastructure investment,andenhancing regulatoryquality”

CountriesintheMiddleEast andNorthAfrica“canmitigate ongoingshippingdisruptions byimprovingtheirsupplychain management,securingnew suppliersinthemostaffected sectors,seekingalternate shippingroutes,and assessingairfreightcapacity needs,”theIMFsaid.

TheRedSeacountries Egypt, Jordan,SaudiArabia,Sudan, andYemen–risklosingaround 1%oftheirgrossdomestic productiftheattackscontinue.

Cargovolumesaredown inkeyregionalportssuchas Jeddah,SaudiArabiaand AlAqaba,Jordan Egyptian importsfell254%year-on-year to$5.5billioninJanuary,the latestmonthforwhichdatais available,accordingtoTrade DataMonitor Egyptianexports fell164%to$35billionover thattime

China

Protectionismisn’ttheonly problemtheregionfaces. Attacksonmerchantshipsin theRedSeahaveheightened insuranceratesandfearsof riskamongmanufacturers andshippinglines

TransitsthroughtheSuezCanal havefallenover50%sincethe Israel-Palestinewarstarted inOctober.

Likeotherpartsoftheworld, Chinareliesheavilyonoiland gasimportsfromtheMiddle East.Withoutpetroleumand naturalgassuppliedbySaudi Arabia,Qatarandothers,the Chineseeconomywould takeamajorhit,evenasit replacessomeofitsenergy mixwithfreshsuppliesofgas andoilcomingfromRussia. Iftheconflictdrivesupenergy prices,thatwillincrease manufacturingcostsinChina China,ofcourse,isalsoa market,butliketheUS and EU,MiddleEasterncountries struggletopenetrateit.When countrieslikeSaudiArabialook

athowthey’regoingtodiversify theireconomies,oneoftheir mainmarkets,inevitably, mustbeChina.Afterall,China istheleadingtradingpartner forover100countries.Itremains achallenge.Inthefirsttwo monthsof2024,Saudinon-oil exportstoChinafell155% to$9448million

GulfcountriesincludingSaudi Arabia,Kuwait,Omanand Bahrainhavebeennegotiating anewtradeagreementwith China,butSaudiArabiahas stalledtalksoverChina’s reluctancetolimitexportsto theoilpower.Saudiofficials wantsomeprotectionfortheir ownmanufacturingsectorto develop TheArabblocdidsign afreetradedealwithSouth Korealatelastyear

Intimesofrisk,tradeingold andpreciousstonesoftenrises asinvestorsseeksafetyintimehonouredgoods.Inthefirst quarterof2024,Israelidiamond exportsrose14%to$1.8billion. SaudiArabiaboostedgold importsawhopping144% year-on-yearto$24billion inthefirsttwomonthsof2024, accordingtoTDM.

JohnW.Millerischiefeconomic analystforTradeDataMonitor.

Preciousstones

WhileEuroperemainsadominantplayerin theglobalfactoringmarket,contributingto approximately70%ofthetotalvolume,the focusisgraduallyshiftingtowardsemerging markets.

Factoringisoften under-appreciated

Yet,whileitmaynotreceive alltheattentionothertrade financeproductsdo,itis equallyimportant

AccordingtoFCI’sreport releasedon21May2024, theworldfactoringindustry demonstratedrobust resilienceandgrowthin2023, withanotable3.6%increase involumecomparedto2022, bringingthetotalto€3,791 billion

Thisfollowstwoconsecutive yearsofdouble-digit growth,markingareturn topre-pandemicstability

Overthepasttwo decades,factoringhas shownremarkablestrength, withacompoundedannual growthrateof8.3%.

Thishighlightsitscritical roleinsupportingSMEsand corporatesbyprovidingliquidity, protectingagainstcustomer bankruptcies,andoffering globalcollectionsupport

WhileEuroperemainsthelargest contributor,accountingfor approximately68%oftheglobal volume,emergingmarketsin regionslikeAsia-Pacific,the Americas,andAfricaareshowing significantgrowth,presenting vastopportunitiesforexpansion.

Tolearnmoreaboutthe factoringmarket,including importantgrowthregions,and Islamicfinance,TradeFinance Global(TFG)spokewithFederico AvellánBorgmeyer,ChiefPartner Officeratefcom,Abdelrahman Elbeltagy,IslamicFactoring specialistatefcom,andVikram Nair,CEOofXilligence

Factoring’s

countercyclical importancefor tradefinance

Factoringinvolvesselling receivablesatadiscount toathirdparty,providing immediatecashflow tobusinesses

Thisfinancialtoolisessential

formanysmallandmedium enterprises(SMEs)thatmight otherwisestruggletosecure traditionalbankloans

Factoringalsotendsto growcounter-cyclically.

AvellánBorgmeyersaid, “Factoringorresidualfinance hasalwaysgrownwellwhen themarketsareuncertain,and wehavealotofthisrightnow. ”

Duringeconomicdownturns, businessesoftenface extendedpaymentterms fromtheirbuyers,increasing theneedforimmediatecash flowsolutions

Factoringensurescompanies cancontinuetooperate smoothlyevenwhenthe broadereconomic environmentisunstable, makingitindispensablefor SMEsinemergingeconomies

Strategicfocuson emergingmarkets,and thevalueofpartnership

WhileEuroperemainsa dominantplayerintheglobal factoringmarket,contributing toapproximately70%ofthe totalvolume,thefocusis graduallyshiftingtowards emergingmarkets

German-basedcompany efcom,operatinginemerging marketsworldwide,isuniquely positionedtoobservethese changes.

Importantly,implementing factoringstrategiesintonew marketslikeIndiaorMENA requiresengagingwith partners.

VikramNair,CEOofExilligence, said,“Thereasonwhywe partneredwithefcomwas because[theyare]aclear industryleaderinthefactoring spacewiththeirsoftwareand solutions Givenourpresence andexperienceinIndiaandin theMiddleEast,GCCcountries, wethoughtthattherewould beaseamlessfit. ”

AvellánBorgmeyeradded, “Whenwelookintomarketslike theIndianmarket,forinstance, ahugeanddynamicmarket, wedon’tsaythatefcomis goingtodoitalone,welook forpartnerslikeXilligence, andwetrytogrowthemarket together”

Thisstrategicpivot,using partnerstohelpenteremerging

markets,isdrivenbythe maturityofEuropeanmarkets, wherefactoringpenetration hasreachedsignificantlevels.

Forinstance,Germanyhas achievedafactoringvolume of10%ofitsGDP Incontrast, manyemergingmarketsstill exhibitlowpenetrationrates, presentingvastgrowth opportunities.

AvellánBorgmeyersaid,“If youtakeanycountryoutside Europe,likeIndia,African nations,ortheGulfregion,they allmoveinaverylowsingledigitrange Webelievethat withinthenext10years,all theseeconomieswillseea steepriseindevelopment”

Currently,theAfricancontinent onlyaccountsfor1.2%ofglobal volume,andtheMiddleEast accountsforjust0.3%of themarket.

Theattractiontotheseregions isnotjustaboutuntapped potential;itisalsoaboutthe intrinsiccharacteristicsof factoringthatalignwellwith theneedsofemergingmarkets.

Factoringprovidesimmediate workingcapital,crucialfor businessesindeveloping economieswhereaccessto traditionalfinanceisoften limited

Moreover,theemphasison risk-sharingandtheethical considerationsembeddedin certaintypesoffactoring,such asIslamicfactoring,resonates wellwiththeseregions’cultural andeconomiccontexts

Theonlineplatform,efcom’s efOnline,enhancesthe interactionbetweenfactors andclients.

Thisweb-basedapplication providesareal-time dashboard,livedatareports, andcomprehensivedebtor andinvoiceoverviews

Clientscanrequestlimits, reportdirectpayments,and manageoutpayments autonomously,reducingthe

workloadonfactoringstaff andincreasingoperational efficiency.

Adoptionand developmentof Islamicfactoring

Islamicfinance,governed bySharialaw,prohibitsthe chargingofinterestand emphasisesrisk-sharing, asset-backedtransactions, andethicalinvestments

Theseprinciplesformthe foundationofIslamicfactoring, anicheyetrapidlygrowing segmentwithinthebroader tradefinanceindustry.

efcom’sproduct,ifX,exemplifies theseprinciplesbyoffering aShariah-compliant factoringsolution

ifXcoverstheWakalahBi-Al Istithmarcontractandis designedforseamless integrationthrough numerousstandardAPIs.

Theproduct’scloud-based natureensuresaccessibility fromanywhere,enhancingits appealtofinancialinstitutions intheMEAandAPACregions

WhatisShariahfinance?

Shariahfinance,governedbyIslamiclaw,isafinancial systemthatadherestoprinciplespromotingethical, interest-free,andrisk-sharingtransactions.

Unlikeconventionalfinance,Shariahfinanceprohibits thechargingorpayingofinterest(riba)andemphasises asset-backedfinancing,profit-and-losssharing,and investmentsinsociallyresponsibleandeconomically productiveactivities

InShariahfinance,transactionsmustinvolvetangible assetsorservices,ensuringthatfinancialactivitiesare rootedinrealeconomicvalue

Thissystemalsoprohibitsspeculativebehaviourand investmentsinindustriesconsideredharmfulorunethical, suchasgambling,alcohol,andtobacco.

KeyprinciplesofShariahfinanceinclude:

Risk-sharing:Bothpartiesinafinancialtransaction sharetherisksandrewards,fosteringafair distributionofprofitsandlosses

Asset-backing:Transactionsmustbebackedby physicalassetsorservices,promotingstabilityand securityinfinancialdealings

Ethicalinvestments:Investmentsmustalignwith ethicalandsociallyresponsiblevalues,avoiding activitiesdeemedharmfultosociety

Byadheringtotheseprinciples,Shariahfinanceaimsto createamoreequitableandstablefinancialsystemthat supportssustainableeconomicgrowthandsocialwelfare Thisapproachisparticularlyrelevantinthecontextof factoring,asitprovidesacompliant,ethicalalternativefor businessesinMuslim-majorityregionsandbeyond.

Elbeltagysaid,“Ifyoulookat Islamicfinance,youfindthatit’s amoreethicalwayoffinancing thataimsformoreproductive financialactivitiesasitfocuses onrealeconomicactivitiesthat causeeconomicgrowth.”

Givenitsasset-backednature, factoringisparticularlywell

suitedforadaptationto complywithSharialaw

Thisadaptationinvolves structuringtransactionsto ensuretheydonotinvolve interestandadheretorisksharingandasset-backing requirements.

ThepotentialforIslamic factoringissignificant,given theeconomicgrowthand increasingsophisticationof financialmarketsintheGulf CooperationCouncil(GCC) andotherMuslim-majority regionsliketheMiddleEast andNorthAfrica(MENA)region

AvellánBorgmeyersaid, “Today,mostofthefinance doneinIslamiccountriesisstill intheWesternstyle,butthere isagrowingtendencytowards Islamicfinance Inthatrespect, thereisabigopportunityto provideaproductthatis appealingtotheregion.”

ImplementingIslamicfactoring involvesadaptingexisting technologiesandworkflows tomeetShariarequirements

Thisprocessincludes developingnewsoftware solutionsormodifyingexisting onestoaccommodatethe uniqueaspectsofIslamic finance.

Thegoalistocreateflexible, scalable,andcompliant productstailoredtothe specificneedsofdifferent clientsandmarkets

ByofferingSharia-compliant options,financialinstitutions tapintoagrowingmarket andcontributetotheoverall developmentandstabilityof thefinancialsysteminthese regions

onemergingmarkets,and thedevelopmentofIslamic factoringallpointtoa dynamicandevolving landscape

Asbusinessesworldwide navigateeconomic uncertainties,factoringwill playanincreasinglyvitalrolein ensuringfinancialstabilityand fosteringinternationaltrade

Theincreasingrecognitionof factoring’simportanceintrade finance,thestrategicfocus

YoussefAhouzi

Theroleofinnovative technologiesin transforming Moroccantrade 3.4

Recentevents,includingtheCOVIDpandemic andvariousglobaldisruptions,haveuncovered thevulnerabilitiesinmaritimetransportation, emphasisingtheneedforoperationsthatare moreefficient,transparent,andsustainable.

MohammedKabbaj

ShonaTatchell Founder CastermanAdvisory CEO Portnet ManagingDirector MSCMorocco

Director,HeadofTrade FacilitationProgramme EBRD

Thedigitisationoftrade processeshasbecome increasinglycrucialinthe modernglobaleconomy. Morocco,supportedbyvarious groupssuchastheEuropean BankforReconstructionand Development(EBRD),ismaking progressinthisarea,though moresupportisneeded

Totalkaboutthechallenges andopportunitiesofindustry-

widedigitalisationinitiatives, AndréCasterman,Founder, CastermanAdvisoryandChair FintechCommittee,ITFAspoke toYoussefAhouzi,CEO,Portnet, MohammedKabbaj,Managing DirectorMSCMoroccoand ShonaTatchell,Director, HeadofTradeFacilitation Programme,EBRDat EBRD’sConferenceonthe DigitalisationofInternational TradeinMorocco.

EBRD'srolein Morocco'sdigitaltrade eBLs:Thewayforward fortheshippingindustry

TheEBRDistakingaproactive roleinfacilitatingtheadoption ofMLETRinvariousmarkets, includingMorocco.Theinitiative beginswithanassessmentof thelocallegalenvironment, conductedincollaboration withpartnerslikeT3I,to evaluateitscompatibility withMLETR’srequirements.

Tatchellsaid,"Ourlegalteam willhelpindraftinglegislation tohelpprovidesomeguidelines toaligntheprinciplesandthe lawsofMLETR”

Capacitybuildingisacentral aspectofEBRD'sstrategy, encompassingtrainingsessions andworkshops forlegalprofessionals, policymakers,andother stakeholdersinMorocco

Theseeffortsaim tofamiliarisethem withMLETRandits broaderimplications.

Furthermore,EBRD emphasisestheimportance ofstakeholderengagement anddialoguetobuild consensusaround thenewdigitalframeworks.

Animportantcomponentof EBRD'sstrategyinvolvesthe practicalapplicationofthese initiativesthroughpilot projectsandcasestudies.

Tatchellsaid,"Implementing variouspilotsandsupporting thedevelopmentof electronicdocument providers,whetherthey arecarriersortradewindows, iscrucial.Doingthis throughcasestudiesand demonstratingtheirsuccess isgoingtobeverypowerful”

Asofearly2021,MSCwas thefirstcompanytoglobally launchitse-BillofLading(eBL) solution.

Thecompanyhassince collaboratedwithvarious platformsandpartnerslike WaveBL,adheringtotheDigital ContainerShippingAssociation (DCSA)standardstoenhance thefunctionalityandreach oftheireBL.

MSC’seBLsolutionisnow offeredin110countries, celebratedforitspracticality andtheefficienciesit introduces.

Kabbajsaid,"Ourclientsfind itverypracticalandeasyto use,andtheyappreciatethe rapidityoftheprocessandalso

theeconomiesandthe savingsmadeorrealised byutilisingeBL.”

Theultimategoalforthe maritimeindustryisto achieveinteroperability betweendifferentplatforms tostreamlinetradeand commercialoperationsfor clientsandallpartiesinvolved.

Highlightingtheimpactof digitalisationatalocallevel, Kabbajsaid,"ForMSCMorocco, justasanexample,wecantell youthatwearealmost100% digitalisedsincetherequestof quotesuptothedeliveryorder andthepaymentoftheinvoice throughtheplatformPortnet"

Thisisjustoneexampleof thebroadershifttowards digitalisationinMorocco,but ithelpsprovidearoadmap forfutureendeavours

Portnet'simpacton tradeefficiency

Sinceitslaunchin2008and formalestablishmentin2012, Portnethasbeeninstrumental intransformingMorocco's approachtoforeigntrade Servingasthesolewindow forinternationaltradelogistics inthecountry,Portnethas significantlystreamlined processesatportsand airports,benefitingthe entiretradecommunity.

Ahouzisaid,"Portnethas playedacrucialroleasthe singlewindowforforeign tradeinMorocco,facilitating internationaltradeand logistics,imports,and operationsatairportsand

ports,therebysupportingall aspectsofforeigntrade inthecountry."

Theimplementationofthe TradeDigitalizationProjectby Portnethasnotablyenhanced efficiency,transparency,and agencyintradeoperations, involvingabroadspectrum ofstakeholders.

Portnet,Morocco'ssingle windowforforeigntrade,has beeninstrumentalindigitalising tradelogistics.Ahouzisaid, "Wehavereducedthecosts forallpartiesinvolved,allowing traderstousethisplatform 24/7andaccessallservices providedbyvarioustrade stakeholders"

Thesestakeholdersinclude traders,importers,exporters, freightforwarders,customs brokers,shippingagents,and relevantgovernmentalbodies suchascustomsandthe MinistryofForeignTrade " we 'vefosteredatrue communityamongall theseparties,"Ahouziadded.

Realisingthebenefits andchallengesof digitalisation

Recentevents,includingthe COVIDpandemicandvarious globaldisruptions,have uncoveredthevulnerabilities inmaritimetransportation, emphasisingtheneedfor operationsthataremore efficient,transparent,and sustainable

Recentdevelopmentshave shownthattheadoptionof eBLsareanimportantstep toaddressthefragilityofthe system

Kabbajsaid,"Theadvantages ofeBL...areverysimple.The exchangeisonline,secured, easier,canbedoneatany time,andthroughanydevice: PCs,tablets,smartphones,and especiallyfaster,inafew secondsinsteadofdays”

Encouragingly,theadoption ofeBLsisgainingmomentum.

In2023,leadingmaritime shippinglinessignedapledge withDCSAtoachieve100% digitalisationofBillsofLading by2030

Withthemomentumbuilding, thereisagrowingcallforall partieswithinthemaritime ecosystem,including governmentsandbanks,to jointhisdigitaltransformation Kabbajsaid,"It'stimethat everybody joinsthemove andengagesinthis operation.”

Whilesignificantdigitalisation progresshasbeenmade, challengesremain One majorissueistheadaptation ofthelegalframeworkto accommodatenewdigital solutions.TheEBRD'sefforts inlegislativedraftingand capacitybuildingarecrucial inthisregard

Thebankingsectoralsofaces challenges Despitetheir engagementindigitisation pilots,banksmustinvest significantlyinupgrading

theirtechnologyand trainingtheirstaff.

"Thebanksthemselvesarenot necessarilyfullyprepared they needtoinvestalotintheirown technology,"Tatchellexplained Furthermore,there'sa pressingneedforinternal trainingtobridgetheskillsgap withinbanks.Tatchellsuggests incorporatingtechspecialists intocustomer-facingroles andbuildingsecuresystems toensurerobustcybersecurity.

Sheemphasisedthe importanceofcollaboration withinthebankingsector

tofosteracooperative environmentratherthan competition

Tatchellsaid,"Thisisnot aboutcompetitionbetween thebankstoseewhocan adoptthecoolestsystem. It'sactuallyaboutsaying, howcanwemakethis betterforeverybody?”

Theprogressofdigitalisation isclear,butwhatisequally clearisthattheindustryisnot whereitneedstobe.Itwill takeadvocacy,cooperation andflexibilityfromallparties involvedintheinternational tradeindustry.

FinancialinstitutionsoperatinginMENAneedto formulateproperresponsestotheseriskswhile alsokeepingpacewithevolvingcompliance standardsunderUCPandISBParticles.

Internationaltradeisthe lifebloodoftheglobaleconomy servingasavitalcatalystfor economicgrowth,innovation, andprosperityacrossnations, includingintheMENAregion Itenablescountriestoyield returnsfromtheircomparative advantages,fosteringefficiency inproductionandconsumption.

Theefficientflowoftrade reliesheavilyonestablished frameworkssuchasthe UniformandPracticefor DocumentaryCredits(UCP) andInternationalStandard BankingPractice(ISBP).

Theseguidelines,established bytheInternationalChamber ofCommerce(ICC), standardisedocumentary creditprocessesandensure fairnessandefficiency While acknowledgingthevalueof theseframeworksinsecuring tradefinancialtransactions worldwide,globaltradeisstill significantlysusceptibleto criminalexploitationTradeBasedFinanceCrime(TBFC)

TBFCposessignificantrisksand challengestotheintegrityof internationaltradetransactions withtradefinanceinstruments

usedtodisguiseillicitactivities suchasmoneylaundering, terroristfinancing,andfraud onlytonameafew.

TheMENAregioncarriesunique TBFCrisksdrivenbygeopolitical instability,includingconflictproneareasaffecting neighbouringcountries.Iran andSyriacontinuetoface internationalsanctions,leading toincreasedexploitationof tradetoevadesanctions andcombatingproliferation financingprogrammes.

Financialinstitutionsoperating inMENAneedtoformulate properresponsestotheserisks whilealsokeepingpacewith evolvingcompliancestandards underUCPandISBParticles Fromatradeperspective, abank“complies”ifthe presentationisinaccordance withallthetermsand conditionsofthecredit,the applicableprovisionsofthese rules,andinternational standardbankingpractices.

However,abankmustalso haveinplaceaneffective programtoidentifyand mitigateunderlyingintrinsic TBFCrisks Inimplementingthis programwhilealsocomplying withtradestandards,banks faceanumberofchallenges, including:

1. Lackofstandardised tradedocumentation

Oneofthekeychallenges isthelackofastandardised approachtotrade documentation,including TransportDocumentssuch astheForwarder’sCertificate ofReceipt(FCR).

TheFCRwasdevelopedby theInternationalFederationof FreightForwardersAssociations (FIATA)in1955tofacilitate settlementsforgoodsunder theforwarder’scontrolby offeringshipperstheabilityto advancereceiptofpayment.

Despiteitswidespreaduseand valueinunravellingTBFC,FCR remainsanauxiliarydocument thatisnotregulatedinmany jurisdictions.Significantly,the intrinsicdeficienciesoftheFCR canleadtoabusiveandeven fraudulentbusinesspractices resultinginawidearrayofrisks wheretheFCRonlyindicates thedeliveryofgoodswithout actualgoodsdescription.

Examplesofillicitpractices includeissuingthe FCRbasedonshipment declarationswithoutactually possessingthegoods,issuing severalFCRsforthesame cargoorissuingFCRsfornoncompliantgoodsorforgoods thatarenotclearedforexport.

Conversely,ISBPdeclaredthat somedocumentscommonly usedinthetransportationof goodsincludingFCR,Delivery Note,DeliveryOrder,Cargo Receipt,etc arenot“transport” documentsasdefinedinUCP 600articles(19-25).These documentsareexaminedonly totheextentexpresslystatedin thecredit,otherwise,theyare examinedaccordingtoUCP 600sub-article14-f

Assuch,banksneedto navigateconflicting requirementsbyperforminga comparisonagainsttheactual shippingdetailswithinalimited timeframeuntilreceiptof originaltransportdocuments, suchasabilloflading(B/L). Thisincludesverifyingand cross-referencingshipping informationaccuratelyand promptlybeforefinalising tradetransactions

Theriskcanfurtherescalate whentheFCRisusedinopen accounttradetransactions wherethegoodsareshipped anddeliveredbeforepayment isdue

2. Documentsaccepted aspresented

Separately,ISBParticle “Expressionsnotdefined underUCP600–Documents acceptedaspresented”, introducesadditional complexitiesrequiring heightenedvigilancebytrade operationsprocessingunits.

Manylettersofcredit(LCs) areissuedunderthecondition “Documentsacceptedas presented”,makingthe transactionsevenmore vulnerabletoTBFC.

Financialinstitutionsare requiredtocheckpresented documentsagainsttheissued LCratherthanmerelypassing thedocumentstotheapplicant.

Attimes,LCapplicantsdonot provideanyjustificationfor usingthisconditionwithin theLCdocumentation.Insuch cases,financialinstitutions arerequiredtocontacttheir customertoaddsome protectiveexceptionstotheLC

Inessence,“Documents acceptedaspresented” conditionspresentsignificant TBFCrisks,includingsanctions evasionthatneedtobe diligentlytackled

3. Recognitionof asanctionsclause

Complyingwithinternational sanctionsisamajorchallenge forbanksinvolvedin internationaltrade.Several bankshavebeensubjectto draconianfinesincludingfrom USAuthoritiesforbreaching sanctionsregulations Once anewsanctionsregulationis issued,abankmustdetermine whetheritisobligedtocomply withtheregulationsbyceasing

businesswithcompaniesor individualsdesignatedunder theregulations.

Tomitigatetheriskof conductingbusinesswith asanctionableentityor individual,manybankshave introducedasanctionsclause withintheirdocumentary credits,standbylettersofcredit anddemandguarantees.

However,complexitiesariseas manybanksandbeneficiaries refusetheinclusionofa sanctionsclausedepending onthetext’scomplexity.In addition,insomecountries likeGermany,banksoften rejectincludingasanctions clauseinanytradeinstrument

Additionally,whiletheICCrules havenotaddressedsanctions clauses,theICCguidelines of2022(ConsolidatedICC GuidanceontheUseof SanctionsClauses) recommendedthatbanks refrainfromissuingtrade financeinstruments incorporatingsanctions clausesasitdeemedthey arerestrictingbanks’ability toperformtheirroleunder ICCrules.

Criminalorganisationsrely onaninterconnectedand internationalfinancialsystem tosupporttheirillegalschemes; theyexploitvariousmeansto movetheirill-gottengains withoutdetection Recognising thesizeofthechallenge,in January2024,theAmerican UniversityofBeirut(AUB) launchedtheCombating TBFCCertificateprogramin collaborationwiththeMENA FCCGandtheGlobalCoalition toFightFinancialCrime (GCFFC)–MENAChapter

CreditOman: AdvancingOman’s globaltradepresence

Throughofferingssuchasexportcredit insurance,insightfulmarketintelligence,and effectiveriskmitigationmeasures,CreditOman empowersOmanibusinessestoexpand theirglobalfootprint,therebysignificantly contributingtothenation’seconomic growthanddiversification.

Keydriversofeconomic development

IntheSultanateofOman,the nationaleconomyhasbeen positivelyinfluencedbythe strategiceffortsofinstitutions likeCreditOman,which facilitatesinternationaltrade andmitigatesrisksassociated withexports Thisinstitution hasbeencrucialinaiding Omanibusinessestonavigate globalmarketseffectively,

therebycontributingto economicdiversification andgrowth

Throughofferingssuch asexportcreditinsurance, insightfulmarketintelligence, andeffectiveriskmitigation measures,CreditOman empowersOmanibusinesses toexpandtheirglobal footprint,therebysignificantly contributingtothenation’s economicgrowthand diversification.

Operational highlightsof2023

CreditOmancontinuesto amplifyitsimpactonOmani exportsanddomesticsales throughanextensivearray ofinsuranceservices These servicesarecrucialinhelping clientsnavigatebothlocal andinternationalmarkets, significantlyreducing commercialandnoncommercialrisks

Overthepastyear,the institutionhasachieved7% growthinthetotalinsured salesvolume,highlightingits successfulstrategiesand dedicationtoeconomic enhancement

Weplayedacrucialrolein drivingeconomicdevelopment intheSultanateofOmanand

increasingOmaniexportsto reachallcornersoftheworld. Theinsuredexportsales accountedfor6.62%ofOman’s totalnon-oilexportseligible forinsurance

Thetotalinsuredsalesvolume forthepreviousyearreached 356.9millionOmanirials,up from333.3millionOmanirials, markingsignificantprogress.

Expandingsupport andservices

However,insuranceisnotthe onlytoolusedtosupportOmani exporters

In2023,theinstitutionsawan increaseintotalinsurance premiums,whichsoared to117millionOmanirials, markingagrowthrateof17% fromthepreviousyear

Additionally,therewasa significantriseinthecredit limitsprovidedtobillholders forbothdomesticand internationalsales,which totalled2219millionOmani rials,upfrom1888million Omanirialsin2022

Thenumberofinsuredbuyers alsoroseby19%in2023, reachingatotalof3,407, comparedto2,855inthe previousyear Thesemetrics demonstrateCreditOman’s vitalroleinsupportingthe businesscommunityacross varioussectors.

Inrecentyears,CreditOman hassuccessfullydelivered innovativeinsuranceservices tailoredtokeysectorssuchas petrochemicals,mining,and constructionmaterials

Notably,thepetrochemicaland plasticssectorwitnesseda growthrateof90%ininsured Theconstructionmaterials sectoralsoexperiencedgrowth, albeitmodest,withinsured salesrisingby1%

Thereareseveralwaysinwhich Omaniexportsaresupported: Sector-specific achievements Keyservicesenhancing Omaniexports

1

2 Exportcreditinsurance: ProtectingOmaniexporters againstnon-paymentrisks fromoverseasbuyers,this insuranceboostsexporters’ confidencetoexplorenew marketsandexpandtheir businessoperations.

Marketinformationand intelligence:Offeringvital insightsintoglobalmarket trends,traderegulations, andtargetmarket dynamics,thisservice equipsOmaniexporters withtheknowledge neededtomakeinformed businessdecisionsand capitaliseongrowth opportunities.

3

Riskmitigationmeasures: Byassessingthe creditworthinessof internationalbuyers, providingguarantees, andfacilitatingpayment collections,CreditOman minimisestradingrisks, encouragingexportersto engageconfidentlyin internationaltrade.

CreditOmancontinues tobeacornerstoneinthe developmentofOman’s economiclandscape, promotingtrade,enhancing exportcapabilities,and securingthebusiness environmentthrough tailoredinsurancesolutions

Itseffortsnotonlysupport thediversificationofthe Omanieconomybutalso strengthenOman’sposition intheglobalmarketplace

Tradetransactions: Removethepaperkeeptheprocess

TheMiddleEastandAfricaregionstandsat thetippingpointofmassdigitaltransformation intrade.

TheMiddleEasthasrecently thrivedbycapitalisingon digitaladvancements acrossvarioussectors

TheUAE,forexample, hasachievednearly100% digitalisationofgovernment services,includingfreezones issuinglicenseswithoutthe needforone’sphysical presence

Similarly,SaudiArabiahas introducedsignificantreforms tomakelivingandworkingin thecountrymoreconvenient.. OtherGCCcountries,such asQatar,Oman,Kuwait,and Bahrainhaveaccelerated theirdigitalofferingsacross numeroussectorsandhave setambitioustargetsfor 2030,withdigitisation& digitalisationfeaturing prominentlyinmanyplans

Despitetheseadvancements, globaltradetransactions havenotyetfullyembraced digitalisation.Giventhe highcontributionoftrade

transactionstoa country'sGDP,thelag raisesthequestion:

‘Ifpaper-based processescanbe digitalised,whyhasn't thistransitionoccurred morebroadly?’

Theanswerliesinmultiple factors,includingbutnot limitedto:

Theneedforinteroperability ofdata,documentsand processes, Securedatastorage accessibleonlytothosewith permissions, Digitaldocumentsneedto betransferableand machine-readabletobe future-ready, Theabilitytoauthenticate andverifydocumentsas originalsorcopies, Amyriadofopen,closed andevennoplatformsto allowdocumentmovement.

Enigio' strace:originaloffersa solutionaddressingallthese needs

Enigio’stechnologyisdirectly alignedwiththeUnitedNation’s ModelLawonElectronic TransferableRecords(MLETR) framework,whichsupports digitalnegotiableinstruments Simplyput,anypartythat issuespaperdocumentstoday canissueadocumentdigitally, allowingittobeemailed, updated,containattachments, verified,invalidatedand transferredtoanotherparty whocancontinuetomanage itfreelywithoutfurthercost

Anaudittrailmarkedona distributedledgerprovides immediateauthentication

oforiginaldocumentson thepublicledger.

Enigio’strace:originalsolution alreadyhasvarioususe cases,including:

billsofexchange promissorynotes guarantees exportlettersofcredit documentarycredits accountopeningforms certificates

Enigioisoptimisticthatthe adoptionofitstechnology willexpandacrossvarious industriesthatcurrentlydepend onpaperdocumentation

Furthermore,governmentscan acceleratetheirdigitalagendas tomakeiteasiertodobusiness, createanenhancedsafe

andfinanciallyregulated environment,andsupport theglobalESGagenda.

Corporatescanconduct businesswithease,build amoreinclusivetrading ecosystem,accessfastand efficientfinancingsolutions, andreducethecostofdoing business,includingany financedtransactions

Bankscancreateinnovative waystomakeglobaltrade easierforcustomers,cut downonprocessingtimes byreducingmanual interventionsintransaction processingandintroduce technologythatallowscost reduction,fewererrors,and fasterturnaroundtimes, whilstupholdingbeing environment-friendly.

Variousdifferentlegal frameworksandregulations havehelpedincreasethe adoptionofdigitaltrade documents,including:

BahrainadoptedMLETRin 2017,settingaprecedentfor digitaltradeintheregion.

AbuDhabiGlobalMarket (ADGM)enactedElectronic TransactionsRegulationsin 2021

UK'sElectronicTrade DocumentsAct(ETDA)of 2023hasbeenagamechangerforglobaltrade, facilitatingtherecognitionof digitaldocumentsin jurisdictionsusingEnglish law WithEnglishlaw governingaround75%of internationaltrade transactions,thiswillhavea significantimpactonglobal trade Kenyahasalready pavedthewayforfully digitaltransactionsusing electronicbillsofexchange forexportstoBelgium,under theUKETDA.

InJune2024,France adoptedMLETR,showingthe growingglobalacceptance ofdigitaltradeframeworks.

DIFCinDubaiestablished theDigitalAssetLawin2024, permittingtherecognitionof digitaldocumentsasassets

TheInternationalChamber ofCommerce(ICC)Digital StandardsInitiative(DSI) promotesglobalstandards fordigitaltrade

Withlawsinplaceand technologytosupport digitalisation,ithasbeen encouragingtoseevarious Enigioclientsbenefitfrom adoptingearlyandatpace Herearesomeinsightsinto theirexperienceswithEnigio's trace:originalsolution:

Aleadingglobalbanknoted thatthesolutionhas boostedtheirtradefinance operations,significantly reducingprocessingtimes, transactionvolumes,and improvingsecurity.

Amultinationalcorporation reportedthatthe digitalisationoftrade documentshasstreamlined theirsupplychain,providing greatertransparencyand efficiency.

Amajorgovernmental agencyhighlightedthat implementingtrace:original alignswiththeirdigital transformationgoals, enhancingtheirregulatory frameworkandsupporting economicgrowth

TheMiddleEastandAfrica regionstandsatthetipping pointofmassdigital transformationintrade. Byembracingsolutionslike Enigio'strace:original,these regionscanalsoleadtheway inglobaltradedigitalisation, drivingeconomicgrowth, enhancingsecurity,and fosteringinnovation.

Onethingisforsure,the futureoftradeliesindigital documentsanddata,andthe MiddleEastandAfricaare well-positionedtocapitalise onthisopportunitynow.

Tailoringsuccess: Thecustomfitof exportfinanceinAfrica

Withtherightfinancingoptionsavailable, Africanexporterswillbereadytotakeon theworld.

Imagineshowinguptoa weddinginsomeoneelse’ssuit.

Itmightfitok,thereiseven achancethatitwillfitpretty welliftheotherpersonhasa similarfiguretoyou Butthereis achanceitwouldbetoobaggy ortootightortoolongandyou justwouldnotlookyourbest.

Ifyouwanttocutastriking figure,youneedasuitthat istailoredtoyou

Thesameistrueintheworld ofexportfinance;itisnot aone-size-fits-allsolution.

Whatworksfantastically wellinonemarket,might workinanother.

Thereisachance thatitmightevenbetheexact solutionthatthemarkethas beenlookingfor.Butoddsare whatthatothermarketneeds issomethingdifferent: asolutionspeciallytailored toitsownconditions

Forcingsolutionsthatwork inonecontextontoanother withoutconsideringtheunique situationsofeach,isarecipe fordisaster.

TakeAfricaforexample

OneoutofeverysixAfrican exportersfailstomeettheir exportsalestargetsduetoa lackoffunding,resultingina lossofapproximately$50,000 pertrade,persmalland medium-sizedenterprise (SME)peryear,accordingto theAfricanDevelopmentBank.

Thedeficiencyoffinancial supportultimatelyleadstothe tradefinancegapofmorethan $81billionthatthecontinent currentlyfaces,whichimpacts SMEsthemost.

Whenitcomestoexport finance,Africa–andeach ofthemanyuniquemarkets withinthecontinent–requires uniquelytailoredsolutions tobeabletothrive.

Exportfinanceinthe Africancontext

Africancountries,whicharerich innaturalresources,relyheavily onexportsasameansof generatingalternateforeign directinvestmentandcapital flows However,thecontinent isanetimporter.

Thiscreatesachallengefor mostcountriesinthatthe demandforforeigncapital ismuchlargerthanindustry exports

Toaddressthischallenge, thereisagrowingrecognition thatexportersneedsupport throughgrantschemesortax incentivesinspecialeconomic zonesifcountrieswantto increasetheirexports

ExportfinanceinAfricais typicallyprovidedbyexport

creditagencies,development financeinstitutions,multilateral developmentbanks,and governmentbodies Commercialbanksand privateinvestorsalsoplaya role,supplementingaccessto exportfinancingwithtraditional tradefinancefacilities.

However,thelattercategory oftradefinanciersmayface challengesinservingthe magnitudeoftheexport fundingrequirementina marketduetoregulatory prescriptionandrisk appetitecalibration.

ExportfinanceinAfrica canaddresstheneedfor technologicaladvancement byprovidingfundingtoacquire advancedtechnologies, machinery,andequipment, allowingbusinessesto modernisetheiroperations, improveefficiency,and enhanceproductivity

Itcanalsobecustomisedto supporttechnology-related projectsandinnovationin keysectors

Exportcreditagencies andfinancialinstitutions cancollaboratetooffer favourablefinancingtermsfor technology-focusedexports, makingitmoreaccessiblefor Africanbusinessestoadopt andimplementinnovative technologies Thishelps bridgethetechnological gapandbooststhe competitivenessofAfrican productsandservices intheglobalmarket

Byfacilitatingaccessto financefortechnology-driven initiatives,exportfinanceplays asignificantroleinempowering Africanbusinessesto embraceinnovationand staycompetitive Thesemay alsoplayaroleinfacilitating tradewithinAfrica

Intra-Africantrade

TheAfricanContinentalFree TradeArea(AfCFTA)aims toenhancetradebetween Africancountriesandincrease theirglobaltradingpositionby establishingtheworld’sbiggest freetradearea.Thegoalis toimprovethelowlevelsof intra-Africantrade,boostlocal businesses,driveGDPgrowth, andreducepovertylevels.

Oncefullyimplemented,it willeliminatetariffson90% ofgoodsandreducetrade barriersinservices,potentially increasingAfrica’sincome by$450billionby2035

AfCFTAisexpectedtogrow intra-Africantradeby3.9% perannum

However,tosupportincreased intra-Africantradeand provideeasieraccessibility, thecontinentneedscapital investmentininfrastructure–suchasroads,railways,and bridges–andintechnology

Digitalisationnotonlybenefits smallerbusinessesbutalso offersdigitalsupplychain financesolutionsthatmake iteasierandmoreaffordable forsmallandemerging businessestoaccess tradefinancesolutions

Theseinvestmentscanalso openthedoorforincreased sustainablefinancepractices withinexportvaluechains, whichisparticularlyimportant amidgrowingawarenessand emphasisonincorporating environmental,social, andgovernance(ESG) considerations.

Africancountriesincreasingly recognisetheimportanceof sustainabledevelopment, whichextendstoexportorientedindustries Adopting eco-friendlyandsocially responsiblepracticescan enhancethecompetitiveness ofAfricanexportsinglobal markets.

Internationalinvestorsand consumersalsoprefer productsmadewith sustainableandethical sourcing.Thisencourages Africanbusinessestointegrate sustainablepracticesinto theirexportvaluechains

TheconvergenceofintraAfricantradeeffortsand adoptingsustainable financepracticespositionsthe continentforamoreresilient andenvironmentallyconscious economicfuturebutwilltake acollaborativeeffort.

Public-private collaboration

Public-privatecollaboration canplayapivotalrolein promotingAfricantrade, includingintra-Africantrade, throughasynergythattaps intothestrengthsand

resourcesofbothsectors. Suchcollaborationaddresses theinherentgapsleftby eachsector,craftinga robustecosystemfor economicgrowthand tradeenhancement

Thepublicsector,comprised ofgovernmentsandtheir agencies,setsthestageby developingandenforcing policies,regulations,and infrastructuresthatare vitalfortradefacilitation.

Theseincludestreamlining customsprocedures,investing incriticaltransportationand

logisticsinfrastructure,and negotiatingfavourabletrade agreementsthatbroaden marketaccess.Additionally, publicinstitutionsofferessential servicessuchasexportcredit guarantees,insurance,and financingprograms,whichare crucialforbusinesseslooking toventureintointernational markets.

Ontheotherhand,theprivate sector,representedbybanks, financialinstitutions,and businesses,bringstothetable tailoredfinancialproductsand servicesthatmeetthespecific needsofexporters.

Theseentitiesareinstrumental inprovidingthecapital,risk managementsolutions,and marketexpertisenecessary fornavigatingglobaltrade.

Together,thepublicand privatesectorsengagein public-privatepartnerships thatenhancecoordination, shareexpertise,andleverage resourceseffectively.This collaborativeeffortnotonly bridgesthefundingand informationgapsbutalso facilitatesriskmitigationand marketaccess,makingthe exportprocessmoreefficient andlessdauntingfor businesses.

Byfosteringaconducive environmentfortrade,these partnershipscatalysethe growthofAfricanexports,both withinthecontinentand beyond,therebycontributing totheoveralleconomic developmentandglobal competitivenessofAfrican countries

Throughsuchsynergies, Africannationscanharness thefullpotentialoftheirtrade capacities,promoting sustainablegrowthand developmentacrossthe continent

Exportfinancecapacityplays acriticalroleinenhancingthe resilienceofAfricaneconomies duringtimesofcrisis.Itdoesso byprovidingaccesstocapital, diversifyingrevenuesources, andpromotingeconomic stabilitythroughsustained tradeactivities

Thisfinancialstrength enablescountriestonavigate challenges,mitigateshocks, andmaintainessentialservices, fosteringeconomicresilience

Bypausingtounderstandthe uniqueAfricancontextand thechallengesthatitbrings, financeprovidersand governmentscantaperand hemthesolutionstheyoffer toensurethateveryAfrican exportmarketlooksandfeels asdashingaspossibleinits newsuit.

Withtherightfinancingoptions available,Africanexporterswill bereadytotakeontheworld

SindisoNdlovu

HeadofthePolitical,Economic, Analysis&Research(PEAR)Unit ECIC

AddressingAfrica’sdebt dilemma:TheroleofECAs andnewstrategies 4.2

TheWorldBankindicatesthatthelastthree yearshaveseenmoredefaultsthantheentire lasttwodecadesbefore;with18sovereign defaultsindevelopingcountries.

TheAfricaneconomyhas sufferedthreemajorshocksin quicksuccession,namely,the COVID-19pandemic,spillovers fromgeopoliticaltensionsand supplychaindisruptions This, coupledwithwideningfiscal deficits,exchangeratevolatility andnaturaldisastershave erodedthefiscalspaceof Africaneconomiesand increaseddebtlevels

Morerecently,themonetary tighteningpolicies,particularly inadvancedeconomieshas madeitexpensiveforAfrican

governmentstoservice theirexistingdebts.With approximately40%ofAfrica’s debtdenominatedinforeign currency,theriskofsovereign defaultremainselevated

TheWorldBankindicatesthat thelastthreeyearshaveseen moredefaultsthantheentire lasttwodecadesbefore; with18sovereigndefaultsin developingcountries African countriesarethereforeunder immensepressuretoreview andrenegotiatetheirdebtsin ordertoavoidfurtherdefaults

ontheirobligations

TheadventoftheCreation oftheGlobalSovereignDebt Roundtable,whichalso includestheprivatesectorand borrowingcountries,marked anotherstepforward.However, theIMFhasindicatedthatit willadoptacountry-focused approachindealingwith sovereigndebtissueswhile preparingforasystematic approachshouldtheneed arise.

Debtandfinancing: Achangingenvironment

Thecontinentstillfacesabig financinggap.Multilaterals havebemoanedincreasing debtservicingcostswhichare crowdingoutinvestmentin infrastructure,healthandgreen projects,amongstothers

Countrydebtprofilesare increasinglycomprisedof non-concessionalborrowing, complicatingdebtrestructuring incaseofdefaultsand increasingriskaversion

Someofthecountrieshave madeeffortstorestructuretheir debtstoreducetheburdens; forexample,theIMFhas approvedanExtendedCredit FacilityofUS$3billiontosupport Ghana’seffortsinrestoring macroeconomicstability, ensuringdebtsustainability andpromotingmoreinclusive growth.

TherisingdebtinAfrica andthehighriskofsovereign defaulthamperstheactivities

ofexportcreditagencies(ECAs) onthecontinent However,this challengehasalsopresented opportunitiesforflexibility, forexample,coverfordown payments,higherpercentages ofcoverforbothpoliticaland commercialrisks,aswellas longertenors

Thecontinentfacingdebtissues, continuestobeamajorplaying fieldforExportCreditInsurance CorporationofSouthAfrica (ECICSA),withGhana

accountingfor514%of totalexposure,followedby ZimbabweandEthiopiaat 23.0%and7.7%,respectively.

Fromanindustryviewpoint, theECICportfoliohasshifted awayfromitstraditional miningfocus.Currently,power generationleadsasthetop sector,accountingfor45.8% oftotalexposure,with constructionfollowingclosely at40%

Adjustmentsaimedat providingsecurityand cushioningtolendersandECAs thataremorestringentinthe eventofdefaultarebeing workedintocontracts

Creditenhancementsin sovereigncontractsarenowa focalpointandincludeamong others,

Thecorporationcontinues toengagewithgovernments andmultilateralinstitutions tofindsolutions,particularly creditenhancementstoenable prudentlendingincountries facingpaymentdifficulties,or thosecurrentlyathigh-risk ofdebtdistress.

Frailmacroeconomic fundamentals,including highdebtlevels,weakfiscal balances,anuncertain economicgrowthoutlookand anacutefundingsqueezeare allatplayandcreatinga challengingenvironmentfor ECAstounderwritesovereign projectsintheSub-Saharan Africa(SSA)region.

Eventhosewhichdisplayed darlingeconomicprospects, areriddledwithdebtdefault contagionfears Meanwhile, prudentfiscalpolicyisnot supportedbystimuluspolicies thatboosteconomicgrowthin themediumterm.Thecurrent risk-averseenvironment,with anacutefundingsqueezeasa resultoftightenedfinancial conditions,hasresultedinSSA countrieshavinglimitedaccess toaffordableexternalfinancing.

Despitetheprecarious economicbackdropinthe region,lendersandECAsstill havesomeappetitetocontinue underwritingsovereignprojects inSSA,insteadofamplifying thefundingsqueeze.

Assetspledgedassecurity foranobligation; Contingentequity commitments; Revenuesintheformof royaltiesorhardcurrency; Revenuelinkedtoa wealthfundorlevies; Fundskeptin offshoreaccountsand incorporatingdebtservice reserveaccount,toname afew.

Thisencouragescontinued investmentintheregionwhile ensuringlendersandtheECA’s arealsosufficientlyprotected ECICSAcontinuestohave appetite,withasolidpipelineon thecontinentdespitetherisks associatedwiththerisingdebt levels.TheavailabilityofECIC SAproductsonthecontinentis criticalinachievingintra-Africa tradeandacceleratingthe paceofindustrialisation.

Furthermore,thecorporation willcontinuetodiversifyits exposuretominimise vulnerabilitytosinglemarkets andfurtherincrease collaborationwithotherECAsto limittherisksassociatedwith fullexposureindebt-distressed countries.

Notingtheshift,ECICSA launchedanewproductwithin itslineofbusinesscalledTrade CreditInsurance,andalso reviveditsbondandworking capitalproductofferingsin effortstoclosethegapasmost insurershadlimitedappetite forshort-termtransactions onthecontinent

Thiswillbeamajorboostto tradeandenableSouthAfrican companiestoexpandtheir footprintonthecontinent,with theimplementationofAfrican ContinentalFreeTrade AreaAgreement(AfCFTA).

Editor’sNote:Thisarticle waswrittenbythePolitical, Economic,Analysis&Research (PEAR)UniteatECICSA

RedSeatradediversions drivefreshinvestments inAfricanports

Whatarethetoppolitical,security,and economictrendsandrisksshapingAfrica andtheMiddleEastin2024?

AsofJune2024,Houthiattacks intheRedSeaandWestern IndianOceanhaveescalated, withover150reportedincidents sinceNovember2023 These attackshavetargetedboth commercialandnavalvessels, disruptingmaritimetrafficand globaltraderoutes.

Theheightenedsecurity andpoliticalengagements haveresultedinevident repercussionsonportsand themaritimeshippingsector, leadingtoamajordownturn ininternationalnavigationin thisregion.Asstakeholders seekalternativeroutes, circumnavigatingtheAfrican continenthasbecomea prominentconsideration.The redirectionofglobalshipping hasgreatlyincreaseddemand forbunkeringandrestocking servicesatsomeAfricanports, especiallythosestrategically locatedonthemaritimeroute aroundtheCapeofGoodHope

Whilethediversionofmaritime trafficfromtheRedSeaand SuezCanaltoalternative

routeshascreatedexceptional opportunitiesforAfricanports, ithasalsorevealedthestark realitiesofinfrastructural inadequaciesandoperational inefficiencies MostofAfrica’s harboursstruggletohandle theincreasedfreightvolume, causingcongestionas reroutingnecessitatesmore vesselscallingatAfricanports, includingforbunkeringservices

Portsintheregionare congested,andaveragewait timesextendbeyondtheglobal averageofthreedaystoas manyassixdaysormore Theinabilitytoswiftlyadaptto theincreaseddemandhasled tocongestionanddelays, impactingtheeconomic benefitsthattheseportscould potentiallyharness.PANGEARISKassessestherepercussions ofmaritimedisruptionson Africanports,theopportunities andchallengesamong differentports,andthe growingglobalcompetition forinvestmentinAfrica's portinfrastructure.

TheCapeofGoodHope diversionshaveaffected approximately90%ofthe containershiptrafficthat previouslypassedthroughthe RedSeaandtheSuezCanal. Eachdiversionadds approximatelyUSD1million infuelcostsand1-2weeksof voyagetimeyetsavesthe shipowneruptoonepercent ofthevessel'svalueinwarrisk

Source:ONS

insurancecosts Inareport releasedinJune,theUS DefenceIntelligenceAgency (DIA)statedthattheHouthi campaignofanti-shipmissile strikeshasimpactedthe interestsofatleast65 countries Duetotheserisks, atleast29majorenergyand maritimecompanieshave divertedfromtheRedSea.

InadditiontoEgypt,which experienceda643percent decreaseinSuezCanal revenuesinMay2024,Djibouti isoneoftheAfricancountries mostaffectedbythedisruption ofmaritimeshipping Overthe pastdecade,Djiboutiandits internationalpartnershave investedoverUSD4billionto supportthedevelopmentof thecountry’sports,avital componentofitsstrategic “Djibouti2035”development plan

Thisplanaimstobuildseveral newportsandenhancethe capabilitiesofexistingones. Additionally,Djiboutihas allocatedsubstantial investmentstoinfrastructure projectslinkingportswithother partsofthecountryandlandlockedEthiopiatoboost revenues.However,thedecline inshippingthroughtheBabAl MandebStraitandtheSuez Canalhasdirectlyimpacted Djibouti’seconomy,which heavilydependsonportsfor revenue,giventhecountry’s

limitedlandareaand resources Despiteabrief increaseof5%incontainer handlingatDoralehPortin early2024,continuousattacks intheBabAlMandebStrait threatentounderminethe strategicadvancementsmade byDjiboutiintheportssector Majorinternationalshipping lines,suchastheDanish companyMaersk,have implementedprecautionary measures,includingavoiding bookingstoDjibouti’sports, furtherexacerbatingthe situation

ElsewhereintheRedSeaarea, AfricanportsinSudan,Eritrea, andSomalilandmustcontend withreducedvesselavailability, muchhigherfreightcosts,and insurancepremiumstothe detrimentoftheirmaritime trade.TheShippersCouncilof EastAfrica(SCEA)hasalso reportedincreasedinsurance

costsforcommercialvessels transitingthroughSomaliand Kenyanterritorialwaters

Thisriseininsuranceexpenses hassubsequentlyelevatedthe costsassociatedwithexporting andimportinggoodstoand fromKenya Thisdevelopment marksareversalfroma2022 decisiontoremoveKenyafrom thelistofhigh-riskareas.Asa result,fivemajorcarriershave withdrawntheirvesselsfrom operatinginSomaliand Kenyanterritorialwaters

Thedecreaseinnavigation throughtheRedSeaandthe SuezCanalhaspresented notableopportunitiesfor severalAfricanports, particularlyintheeastern andsouthernregionsofthe continent However,thissudden shiftindemandforAfrican ports’serviceshasalso precipitatednumerous

collateralimpacts,reshaping themaritimelandscape

Mauritius,Madagascar, andNamibiaareamongthe countriesbenefitingfromtheir strategiclocationsalongthe maritimeroutebetweenAsia andEurope,makingthem idealservicingstations

CountriesalongtheIndian Oceancoastline,suchas Kenya,Tanzania,andAngola, arebetterendowedwith resourcesthanMauritius, Madagascar,andNamibia

Yet,theylieoutsidethe traditionalshippinglanes aroundtheCapeofGoodHope. Mozambiqueisarguablybetter positionedtobenefitfromthe shiftinglobaltradepatterns, butthisopportunitycoincides withthecommencementof itsportrevamps.

SouthAfricanports,among others,haveexperienceda dramaticsurgeinseaborne traffic Overthreemonths, maritimeactivityaroundSouth Africahasincreasedby53% Thisunexpectedinfluxhas transformedportssuchas Durban,PortElizabeth,and CapeTownintokeylogistical hubsandrefuellingstationsfor thegrowingnumberof commercialvesselsnavigating themainAsia-Europeroute. SouthAfricaexpandeditsatsearefuellingservices, deployingshipsspecifically designedtoservelarge commercialvesselsin AlgoaBay

Despitetheseopportunities,the surgeindemandhasexposed andexacerbatedexisting infrastructuraldeficiencies Outdatedequipmentandpoor managementoffundshave hinderedthecompetitiveness ofSouthAfricanseafreight.

Theinabilitytoupgradeport facilitiesduetofinancial constraintshassloweddown operations,causingextended berthingdelays,particularly atDurban'sPier2terminal

Additionally,shortagesof crucialmarineresources, suchastugboats,pilotboats, helicopters,andpilots,have particularlyaffectedDurban andRichardsBayports,further strainingtheircapacityto handleincreasedtraffic

ThefirstmonthoftheRedSea crisissawbacklogsatthePort ofDurbanescalatetocrisis levels,withapproximately 79vesselsandover61,000 containersforcedtoremain atouteranchorageforweeks duetolimitedlogistical capacity.Similardelayshave beenreportedatthecontainer terminalofthePortofCape Town

AccordingtotheWorld Bank’s2022ContainerPort PerformanceIndex(CPPI),the PortofDurbanranks341stout of348ports,closelyfollowedby thePortofCapeTownat344th Theserankingsarebasedon theaverageporthoursperport

Source:IMFPortwatch

call,withporthours representingthetotaltime elapsedfromavessel’sarrival inporttoitsdeparturefromthe berth

TheinabilityofSouthAfrican portstocopewiththe increaseddemandhasled vesselstoseekservicesin neighbouringcountries Ports suchasToamasinain Madagascar,PortLouisin Mauritius,andWalvisBayin Namibiahaveseenincreased activityastheystepintofillthe gap MajorportsinEastAfrica, includingMombasa(Kenya), Dar-es-Salaam(Tanzania),and Beira(Mozambique),havealso experiencedincreasedtrafficas partoftheAsia-Europe maritimeroute.

However,thesuddensurgehas highlightedtheunpreparedness ofthesealternativeportsto accommodatethenew demandeffectively.However, theseEastAfricancountries themselvesrelyupontheSuez Canalasanimportantrouteto keysuppliersandmarketsin NorthAfricaandespecially Europe–whichimplieshigher costs,longerdelaysand disruptionforshipping companiesandportoperators.

Overthepastfewmonths, Africahasbeguntowitness growingcompetitionamong globalinvestorsforafootholdin Africa'sportsector Thistrend ischaracterisedbyashift towardsprivatisationand extensiveinfrastructural upgradesaimedatenhancing capacityandhandlinghigher

cargovolumes Countries suchasTanzania,Kenya, Mozambique,andSouthAfrica areattheforefrontofthis transformation,drivenbyboth domesticinitiativesandforeign investments Accordingto aPumaEnergyreporton theinvestmentinAfrica, Investmentinportdredging, 24-hourberthing,highcapacitydischargepumps,and dedicatedmarineloadingarms withautomatedequipment willgiverisetofasterdischarge ratesandannualdemurrage savingsofaroundUSD300 millionacrosskeyEastern andSouthernAfricancorridors.

Inboundefficiencyand debottleneckingacrossberth capacityandportinfrastructure canpotentiallydeliverUSD 5.3billionintotalsavings.

DPWorld,aUAE-based multinational,hasbeen particularlyactiveinexpanding itsAfricanportsportfolio.The companyplanstoinvestUSD3 billionoverthenextthreetofive yearstodevelopnewportand logisticsinfrastructureinAfrica, cateringtothelong-term growthdrivenbytherising demandforcriticalmineral exports.

Despitelosingabidtopartner withSouthAfrica’sTransnet SOCLtd.todevelopDurban PorttoInternationalContainer TerminalServicesInc.(ICTSI), DPWorldremainscommitted toitsexpansionplans The companycontinuestoexpress interestinopportunitiesarising fromthepartialprivatisation ofTransnetandisalsolooking attheportofLamuinKenya, whereaprivatisation processisunderway

InOctober2023,DPWorld signeda30-yearconcession agreementwiththeTanzania PortsAuthoritytooperateand modernisetheportofDar-esSalaam Simultaneously,the KenyaPortsAuthorityhas issuedtendersinvitingglobal companiestopartnerwith Kenyanfirmstomanagethe portofLamuandsections ofMombasaport.Indian multinationalportoperator Adanihasalsoenteredthe Africanportsmarket,securing a30-yearconcessiondeal withtheTanzaniaPorts Authoritytooperateand manageContainerTerminal2 attheDaresSalaamPort.

Thismoveintroducespotential competitionwithDPWorld, whichalreadyoperatespart oftheport.Thepresenceof

multipleglobaloperators isanticipatedtorevamp thebusiness,improve infrastructure,andboostthe port'sgeneralefficiency

TheDar-es-SalaamPort servesnotonlyTanzaniabut alsolandlockedcountriesinthe region,includingZambia,the DemocraticRepublicofCongo, Burundi,Rwanda,Malawi, Uganda,andZimbabwe However,theportfaces challengessuchaslimited capacitytohandlehigher volumesandlargerships.

andRailwaysandRotterdambasedCornelderHoldings–has undergonemajorinfrastructural improvementsoverthepast 25years Accordingtothe WorldBank,theseeffortshave positionedBeiraasthemost efficientportinsouthernAfrica

TheMaputoPortDevelopment Company’s(MPDC)strategic investmentofUSD600million toenhanceterminalfacilitiesby 2026ispartofabroaderUSD2 billionplantoexpandtheport's capacityandinfrastructure.In SouthAfrica,ICTSIhasentered

Currently,thewaitingperiod forshipstooffloadcargoat Dar-esSalaamcanextendto fivedays,comparedtojust1.25 daysattheneighbouringport ofMombasainKenya.The port'sannualcapacityis14.1 milliontonnesfordrycargo and6milliontonnesforbulk liquidcargo,withamaximum shiphandlingcapacityof 8,000containers,whichis relativelylowcompared toneighbouringports.

Mozambique'sportshave alsoattractedsubstantial investments TheportofBeira, operatedbyCornelderde Moçambique–ajointventure betweenMozambiquePorts

a25-yearjointventurewith Transnet,takingoveroperations atDurban’scontainerterminal Thispartnershipbrings optimismforresolvingthe longstandingissuesatDurban's ports,whichhavebeenlosing businesstoMozambiquedueto congestionandinefficiencies

TransnetPortTerminals isleveragingexisting infrastructuretoimprove operations,includingusinga raillinkbetweenback-of-port facilitiesandtheterminalfor loadingimportcontainers The strategicinvolvementofICTSI isexpectedtoaddressthese challengesandenhancethe port'scompetitiveness.

UnderstandingLetters ofCredit&TheUCP600 RulesinNigeria

Lettersofcreditremainacorepartof documentationininternationaltrade.Despite theeaseincross-borderpaymentsfacilitated byfintechcompanies,lettersofcreditcontinue topresentthemselvesasindispensable documentsintradefinance.

Lettersofcreditremain acorepartofdocumentation ininternationaltrade Despitetheeaseincrossborderpaymentsfacilitated byfintechcompanies,letters ofcreditcontinuetopresent themselvesasindispensable documentsintradefinance

Itisagainstthisbackground thatthisessayexaminesthe legalintricaciesinvolvedin theuseoflettersofcredit.

ApplicabilityoftheICC UniformCustomsand PracticeforDocumentary Credits(UCP600)

InitscirculardatedJune25, 2007,theCentralBankof Nigeria(CBN)informed importersthattheUCP600was tobecomeoperationalthenext monthandalllettersofcredit aresubjecttotheUCP600.

AkinkunmiAbolade Lawyer

Hence,itseemsthatevenif partiesdonotincorporatethe UCP600intheircontract,it wouldapplyallthesameifthe goodsarebeingimportedto Nigeria Asaresult,itis advisablethatimporterswho intendtoshipgoodstoNigeria ensurethatthelettersofcredit meetthestandardsstipulated intheUCP600.

IssuingBanksituatedin Nigeriaisresponsiblefor errorsofConfirming Bankabroad

Caselawsrevealthatthe confirmingbankabroadis consideredanagentofthe issuingbankinNigeria.Hence, theissuingbankinNigeriacan beliableforerrorsornegligence oftheconfirmingbankabroad Thiswasthepositionofthe courtinthecaseof

NASARALAIENTERPRISESLTD.v. ARABBANKNIGERIALTD.(1986) LPELR-SC.138/1985.

Similarly,inthecaseof Akinsanyav UnitedBank forAfricaLTD.(1986)LPELRSC.95/1985,thecourtheldthat wheretheconfirmingbank abroadactsondefective documentswhichoccasions lossforthebuyer,thebuyer couldmakeaclaimagainst theissuingbankandtheissuing bankcanrefusetoreimburse theconfirmingbankabroad.

Inthecase,thecourtrepeatedly notedthattheconfirmingbank abroadisanagentofthe issuingbank Thesedecisions solidifythepointthatthe confirmingbankisanagent oftheissuingbank.

AnerrorbytheBank canbewaivedbythe Importerimpliedly

InthecaseofNASARALAI ENTERPRISESLTD v ARABBANK NIGERIALTD (1986)LPELRSC138/1985,theSupreme CourtofNigeriaheldthatthe respondentbankinthesuit wasnegligentonthebasisthat inconsistenciesintheletterof creditwerenotdetected

However,thecourtheldthat theimporterwasnotentitledto aremedy.Thecourtmadethis decisiononthebasisthatthe importerhadwaivedhisright whenheorderedthatthebank shoulddebithisaccountafter heconfirmedthattheshiphad leftthedockintheexporting country.

TheappropriateCourt withjurisdictionon disputesrelatingto LettersofCredit

InNigeria,thejurisdictionofthe courtisofutmostimportance inthepursuitofacourtaction. Withoutjurisdiction,an appellatecourtwouldnullify thedecisionofatrialcourtno

matterthedecision.Asaresult, itisimportantthatanimporter orbankinstitutesasuitatthe appropriatecourtconferred withjurisdiction

Section251(1)(d)ofthe NigerianConstitutionprovides thattheFederalHighCourthas exclusivejurisdictiononmatters thatrelatetobanking.However, thesectionfurtherprovidesthat ‘’thisparagraphshallnotapply toanydisputebetweenan individualcustomerandhis bankinrespectoftransactions betweentheindividual customerandthebank’’.

Inaddition,section251(1)(g) oftheNigerianConstitution furtherprovidesthatthe FederalHighCourthas exclusivejurisdictionon admiraltymattersandmatters thatborderoncarriagebysea. Theseprovisionsseemtoconfer jurisdictionontheFederalHigh Courtinlightofthefactthat lettersofcreditseemtofall withinthescopeofbanking, admiraltyandcarriagebysea

However,Nigeriancourtshave heldthatStateHighCourtsare thecourtswithjurisdictionon mattersthatborderonletters ofcredit.

InthecaseofNASARALAI ENTERPRISESLTD.V.ARAB BANKNIGERIALTD.(1986)LPELRSC.138/1985,thecourtheldthat theStateHighCourtandnot theFederalHighCourtisthe courtwithjurisdictiononissues thatborderonletterofcredit Assuch,itwouldbewrong toinstitutesuchanaction beforetheFederalHighCourt. Inreachingitsconclusion,the courtnotedthatlettersof creditarenotwithinthescope ofadmiraltymatters.Thecourt notedthatpartiesinaletterof creditdealindocumentsand notgoods.Assuch,aStateHigh Courtistheappropriatecourt toinstituteanactioninwhich aletterofcreditisthesubject ofdispute

However,thisrecommendation shouldbeadoptedwithcaution asthereareafewcasesin whichthefederalhighcourt hasadjudicatedondisputes thatborderonlettersofcredit Particularly,inthecaseofFBN PLCV.J.O.IMASUENANDSONS NIGERIALTD(2013)LPELRCA/B/151/2006,theCourtof Appealadjudicatedonan appealwhichemanatedfrom thefederalhighcourtanda letterofcreditwasthemain subjectofdispute.

Whiletheissueofjurisdiction wasnotraisedbytheparties andnotdiscussedbythecourt, thefactthatthecasewasnot upturnedonthebasisoflack ofjurisdictionspeakstothe factthatthefederalhighcourt couldhavejurisdictiononthe matter

WhetheraLetterofCredit canbecancelled

Asaresultofanumberof factors,partiesmaydesireto cancelaletterofcredit.Inthe caseofU.B.N.LtdvOkwara (1998)1NWLR(Pt 532)pg118 @126ParaH,thecourtheld thataletterofcreditcanand maybecancelledatthestage ofprocessing.

However,itcannotbe cancelledwhenthecredithas beenissuedandforwardedto theconfirmingbank Hence,it isadvisedthatanimporter thatseekstocancelaletterof creditshoulddosobeforeitis issuedforwardedtothe confirmingbank.

Howtodetermine whetheraLetterofCredit isconfirmedor unconfirmed

InthecaseofFBNPLCV.J.O. IMASUENANDSONSNIGERIALTD (2013)LPELR-CA/B/151/2006, theCourtofAppealheldthat aletterofcreditisconfirmed orunconfirmeddependingon theroleplayedbythe correspondentbank.Wherethe issuingbankmerelyinstructs thecorrespondentbankto notifythesellerthattheletterof credithasbeenopenedand thatthecorrespondentbank shouldacceptdocumentson behalfoftheissuingbank,the letterofcreditisunconfirmed andthecorrespondentbank

isanadvisingbanker. However,ifthecorrespondent bankproceedstoconfirmthe creditie“addstothepromise oftheissuingbankeran undertakingofitsownto acceptornegotiateadraftor topaytheamountofcreditto theselleragainstconforming documents,thecorrespondent bankerbecomesaconfirming bankerandthecommercial creditisaconfirmedcredit”

Confirmation andstamping

ThecaseofFBNPLCV JO IMASUENANDSONSNIGERIALTD (2013)LPELR-CA/B/151/2006 revealsthatitisimportantthat aletterofcreditisconfirmedby

thecorrespondentbankin orderthatitisenforceable. Hence,whereaNigerianexports goodsandaletterofcredit isissuedbyabankonthe instructionoftheimporter,it isadvisedthattheNigerian exporterinsiststhattheletter ofcreditisconfirmedbythe correspondentNigerianbank.

Thecourtfurtherheldthat stampingofaletterofcredit bytheNigerianbankdoesnot amounttoconfirmationofthe letterofcredit.Thecourtheld thatthestampingonlyshowed thattheconfirmingbankhad receivedtheletterofcredit. Moreso,thecourtheldthatFirst Bank–whichwastheNigerian bankagainstwhomtheletter ofcreditwassoughttobe enforced–wasonlynotifying therespondentthattheletter ofcredithasbeenissued.

Thefactthattheappellant forwardedtheletterofcreditto therespondentandstamped samedoesnotimplythatthe letterofcreditwasconfirmed.

Inaddition,amendmentmade toaletterofcreditbythe importershouldbeforwarded totheconfirmingbankandnot totheexporteralone.Assuch, thisessayadvisesthata Nigerianexportershouldensure thatthecorrespondentNigerian bankhasreceivedthe amendmentmadetotheletter ofcreditinordertohavethe provisionsoftheamended versionenforceable.

Furthermore,lettersofcredit mustberoutedthroughthe bankandmustcomplywithall relevantguidelines In paragraph15ofitscircular dated30April,2014,

theCentralBankofNigeriahas directedthatbanksmustnot endorseorpayondocuments thatdonotcomplywiththe routingrequirement

Stampduties:Letters ofCredittobestamped beforeexecution

Section12oftheStampDuties Actprovidesthatevery instrumentfirstexecutedin Nigeriashallbestampedon orbeforeitsfirstexecution Furthermore,section44ofthe StampDutiesActprovides thatabilloflading–which isdefinedtoincludeletters ofcredit–mustbestamped beforeexecution.

Section44(2)furtherprovides thatitisanoffencetomakeor executeabillofladingnot dulystamped.Assuch,itis advisablethatanexporterthat intendstoshipgoodstoNigeria insiststhatitisstampedbefore itisexecuted Nevertheless, section23providesthatan unstampedorinsufficiently stampeddocumentmaybe stampedwithin40daysof thefirstexecution.Ifbeyond 40days,thestampdutyand apenaltyshallbepaid

Furthermore,section40 providesthatabillofexchange –whichisdefinedtoinclude aletterofcredit–whichis madeoutsideofNigeria shallbestampedbeforeit ispresentedforpayment inNigeria

NealHarm

DoaaHafez

Levellingtheplayingfield forfactoringaroundthe world,wherewillfuture growthcomefrom?

Partoftheprocesstobringfactoringto domesticmarketsandproperlycustomisethe marketexperienceisutilisingthecorrect technology.

Despitevolatilityacross muchoftheworld,the globalfactoringindustryhas continuedtogrowforthree straightyears.Infact, accordingtotheFCI2024 annualreview,theestimated volumeforglobalfactoringin 2023reached€379trillion

Whatistheindustrydoingto continuetopromotegrowth, whatroledoesFCIplayinthese initiatives,andwherearethe furthermarketopportunities?

Regionalsimilarities anddifferences

Atthe56thannualFCIevent inSeoul,NealHarm,Secretary General,FCI,wasjoinedby DoaaHafez,Executive CommitteeMember,FCI,to divedeeperintothesetopics. Whenitcomestofactoring, therearemanyregional differences,aswellasmany commonalitiesacrossmarkets.

OneexamplefromEgypt isfromthebeginningofthe adoptionofinternational standards

Regulatorsandstakeholders inEgyptrealisedearlyon theimportanceofadopting internationalstandardsin thefactoringindustry.

Thisrequiredextensive customisationtosuitthe market Hafezsaid,“Itdepends onthereadinessofthemarket, theinfrastructure,thelegal andregulatoryframework, theculture,theeconomic andfinancialcircumstances”

Bytakinglessonslearned frominternationalexperiences, theindustrycantailorspecific needsforthedomesticmarket, regardlessofhowuniquethe needsmaybe

Technologyandfactoring growthgohand-in-hand

Partoftheprocesstobring factoringtodomesticmarkets andproperlycustomisethe marketexperienceisutilising thecorrecttechnology

AndFCIwasoneofthefirst fintechsinthetradefinance spacetohelpwiththis,dating backtonearly50yearsago. Hafezsaid,“Itisavery goodsellingpoint,evenin developingmarkets WhenIam approachingnewprospects,I saythatweareanFCImember, andFCIhasinvestedalotina brilliantplatform,Edifactoring. ”

EdifactoringistheFCI members-onlyplatform, operatingformorethan20 years ButEdifactoring20was releasedin2022,creatinga two-factorplatformthathelps bridgetheforeignlanguages

localfactorstocommunicate witheachotherinonesafe andtransparentplace

Inordertostayuptodate,FCI investedafurther€1million intotheEdifactoringplatformto incorporateothersupplychain financesolutions.Thishasbeen verysuccessfulastheplatform isabletocaterformulticurrencytransactionsacross manycompliancelandscapes

Hafezsaid,“Thisisoneofthe sellingpointsofwhatweare doinginsideEgypt.Wewant toofferthistypeofproduct toSMEs,corporatesandother stakeholderstohelpthem betterunderstand”

Withsupplychainfinance beingsoubiquitous, Edifactoring’sintegrationwith newandtraditionalfactoring productsiscrucial Because ofthis,thereisahighdemand fromFCImembersfor

Low Medium High

ITsolutionsfocusedonrisk preventionandfraud,aswell asthedevelopmentof ecosystemsthatconnect sellers,buyers,funders,banks, andnon-bankfinancial institutions

Hafezsaid,“Thefuturewill begoinginthisdirection. Combiningtraditionalways ofdoingbusinesswithnew technology”

Linkingfactoring andsupplychain transactions

Opportunitiesforfactoring insupplychainfinanceare significant,particularlyinterms ofopenaccountfinance. Increasingly,therearecases ofbanksintegratingfactoring transactionsintosupplychain financialtransactions

Nevertheless,manycontinue toseethemasseparate products.Butthatisnotthe case,andthereneedstobe anefforttoexplainthistoall partiesinvolved

Harmsaid,“Manybanksand financialinstitutionsviewthe productsasseparate,that factoringisseparatefromthe supplychain ButhereatFCI’s annualconference,we’re startingtohearthatintegration canwork,andhowafactoring transactionbecomesasupply chaintransaction. ”

Havingtheflexibilityto understandwhatthemarket needs,andhowtoutiliseall availablesolutionsisthekey togainingmoresupportwith banks,bothdomestically andinternationally.

Hafezsaid,“Wecando theserviceside,theycan dothefundingside,orwe canevenhavethistype ofcollaborationwiththe corporatebuyerbecause nowthetechnologyispart oftheirsystem”Thisis movingtowardsastateof “embeddedfinance”that isparticularlybeneficialfor smallandmediumsized enterprises(SMEs)

Hafezsaid,“Wehave tobesoenergetic,smart, understanding,andhavethe expertisetoprovidetailored solutions.Becauseofour relationshipwithFCI,Egypt Factorsdevelopedagreat andearlyunderstandingof themarket Thishasgivenus theleveragetodowhatwe aredoingrightnow. ”

Thiseducationalperspective isoneofthekeyvalue propositionsFCIoffersits members,enablingthem totrulyunderstandmarket opportunities

Areal-lifeexampleofthis isdeep-tiersupplychain finance.Whilstdeep-tier supplychainfinancingisnot yetawidespreadconcept,its growthpresentsanimportant opportunityforthesector

However,duetothebuyerdrivenmarket,anincreasing numberofEgyptianexporters arebecomingawareofdeeptierandembeddedfinancing andtheassociatedbenefits

Byintegratingelementsacross ITplatformsinenterprise resourceplanning(ERP) solutions,companieshave

beenabletoprovidedeep-tier financinginacompletesolution acrosssupplychainfinanceto greateffect.

Fosteringpartnerships onagloballevel

AccordingtoHarm,Africaisone ofthemostexcitingmarkets fortheuseofdeep-tiersupply chainfinance Harmsaid, “Whenconsideringdeep-tier financing,Africaofferssome ofthelargestopportunities.”

Hafezsaid,“TheAfricanmarket isthepotentialofthegrowthof factoring”However,toleverage thisopportunity,more stakeholdersmustactively engagewithoneanother.

Thiseffortrequiresthe collaborationofsupranational banks,regulators,financial supervisors,andcommercial banks,giventhebroadand variedopportunitiesand challengesacrossthe continent.

Hafezsaid,“Forustobe abletodobusinessinAfrica andtogrowthefactoring business,wehavetoconnect withsupranationalbanks, regulators,andother commercialbanks,toget onebigsolutionacrossthe board Andthis,ofcourse, willbesupportedbyadigital platform Digitalisationhere iskey”

Morespecifically,FCI ispositionedforgreat opportunitiesintermsof bringingpartners–whether

banksornon-banks–together attheglobalmarketlevel

Hafezsaid,“Becausethe legalandregulatoryframework andcreditinsurancearestill difficulttofindinmostofthe Africanmarkets,havingthe ModelofLawcomingfrom asupranationalbankwill help,theadoptionofthe Afreximbankmodeloflaw isaleadingexample,aswell bankguarantees.Byleveraging theAfreximbankorEBRDTrade FacilitationProgrammes,the dealbecomesmuchmore comfortable”

NassourouAminou

RegionalManager

FCI

DeepeshPatel

Breakingdownthegrowth offactoringandcollateral registriesinAfrica 4.6

IfcompaniesinAfricacanleverage technologiesinfactoringprocesses,thiswill leadtoasignificantdevelopmentoftrading activityintheregion.

EditorialDirector

TradeFinanceGlobal(TFG)

TheAfricancontinentisoneof themostintriguingregionsfor thefactoringindustryin2024 AccordingtotheFCIAnnual Review,whileAfricaonly representeda1.25%shareofthe globalfactoringvolumein2023, itexperienceda135%increase fromthepreviousyear

Thecontinentisreadyforeven moregrowth,andthereare reasonstobeoptimistic regardingthemarket.

However,activeparticipation andinnovativesolutionsare requiredtocreatearobust factoringindustry.

AtFCI’s56thAnnualMeeting inSeoul,TradeFinanceGlobal (TFG)spokewithNeilShonhard, CEOatMonetaGo,and NassourouAminou,Regional DirectorforAfricaatFCI,tolearn moreaboutcollateralregistries andthekeystofactoring growthontheAfricancontinent.

Promotingcollateral registriestodrivegrowth

Collateralregistries (acentraliseddatabasewhere tradefinancetransactionsare registeredforvariousreasons) andothercriticaltradefinance instrumentstohelpgrow factoringvolumeswerehighon theagendaattheFCImeeting inSeoul.

Shonhardsaid,“Thecollateral registryisaregistrationofthe securityorownershipofa transaction Thiswouldallow greatertransparencyby,for example,allowingyoutosee whohasalienonatransaction soyoucanusethatinformation forthingslikefraudprevention analytics”

Aminousaid,“InAfrica,we lackreliableinformationand becauseofthis,thereisalack oftrustinternationally.

Weneedtodevelopreliable information,andweneed creditinsurance Theseare vitaltothegrowthofthe Africanfactoringmarket. ”

Collateralregistriescanhelp addressthisatbothdomestic andinternationallevels

Whensuppliersprovide servicestobuyers,itisoften notpossibletoknowwhether paymenthasbeenmade ontime,particularlyin jurisdictionswithoutlaws onlatepayments Tohave collateral,itiscriticaltohave real-timedataavailableto boththesupplierandbuyer.

Thisiswherecollateral registries,whichcan enabletradecreditinsurers toparticipatemorefreely infactoring,couldprove keyforfactoringinregional marketsandimproving intra-Africantrade.

Shonhardsaid,“Thelack ofdataforatradecredit insurancecompanyoran underwritermeansalackof trust.Theyneedahistoryof goodandbadactors,good andbadtradecorridors,and ahistoryofpaymentterms”

Suchstandardisedand automatedinformation wouldincreaseunderwriting andliquidity,promoting transparencyandcreating greaterconfidencefor lendersandunderwriters

Thisisanareawhere technologywillmakea majorcontribution,but notalltechnologiesare createdequally.

Whenitcomesto implementation,technology isakeypartofanyfuture factoringdevelopments While blockchainretainspotentialfor theindustry,itsdescentfrom theGartnerHypeCycle’sPeak ofInflatedExpectationmeansit isnolongerbeingtoutedasthe catchallsolutiontoallofthe industry’schallenges

Shonhardsaid,“Speaking frankly,therehasneverbeen asuccessfulregistrywith blockchainastheunderlying technology Ifwearetalking aboutacollateralregistryon acontinentalscale,blockchain isnottheanswer.”

Themainreasonsarethe technology’slackofscalability andhighcosts

Shonhardadded,“Forany solutiontogaintruescale, itneedstobeascheapas possible,especiallyintrade.

OntheAfricancontinent,we wantasolutionthatischeap (ifnotfree)foralltouseso thatitwillhavemassadoption and,therefore,effect”

Theselimitationsofthe technologypairedwithAfrica’s uniquerequirementsmean thatprovidersareturningto otherpossibletechnological infrastructurestotapintothe continent’sgrowthpotential

Africaisthekeygrowth regionforfactoring

Collateralregistriesandcredit insurancewillinfluenceAfrica’s factoringgrowth Ifcompanies onthecontinentcanleverage technologiesinfactoring processes,thiswillleadtoa significantdevelopmentof tradingactivityintheregion.

Aminousaid,“Itisvery importanttousethosetools becausewecangainapart ofthemarketsharewiththe technology.Theycanhelpus toseethegrowthoffactoring andgivemorecomfortto

underwriterstogivemore coveroncreditinsurance.” Currentlystandingat1.25% ofglobalfactoringactivity, Africa’sgrowthpotentialis vast Shonhardsaid,“Thereis probablynowhereonEarth thathasthepotentialfor growthlikethecontinent ofAfrica.Implementing technologywouldhaveagreat dealofeconomicbenefithere.

“Thingslikecollateral registriesanddeployments ofothertechnologieswould alsobeagreatcatalyst fortradedigitalisationto driveharmonisationor standardisationoftradedata, furtherimpactingAfricantrade

Thegrowthpotentialwould affecthundredsofmillions oflives.”

Withrapidgrowthandcreative technologyusecasesonthe horizonthathavethepotential toraisethelivingstandards ofcountlesspeople,itisno wonderthatAfricaisoneofthe mostintriguingregionsforthe factoringindustryin2024

Nigeria,Ghana,and SouthAfrica:Challenges andopportunitiesforthe Sub-Saharangiants

Recentleadershipchangesorupcoming electionsinNigeria,Ghana,andSouthAfrica willimpacteconomicandtradepolicy.This couldbeatippingpointforthesecountries, eitherstrengtheningtheirtradepositionor creatingnewchallenges.

Sub-SaharanAfrica’smost importantcountriesfortrade standatapoliticaland economiccrossroads.Nigeria, Ghana,andSouthAfricacould becomecrucialplayersinthe globaleconomy:theirtrade opportunitiesinoil,minerals, andmaritimehubs,alongwith quicklygrowingeconomiesand longstandingpeace,allmake themattractivetradepartners inAfrica

However,challengessuchas crumblinginfrastructure, inflation,corruption,and internalunrestcouldhave wide-rangingeffectsonsupply chainsandexportcapabilities, impactingtradeflows worldwide NigeriaandSouth Africahavejustelectednew leadersinhotlycontested elections,whileGhanaisset todosoinDecember2024.

Thenewpresidentspromise ambitiousinfrastructure investmentsandreformbut mustbalanceitwithacautious economicpolicytoreduce inflationandcomplywith IMFloanterms

Acrucialtriofortrade

Macroeconomicchangesin

Sub-SaharanAfricawillbe consequentialtoglobaltrade Nigeriaisoneofthemost populouscountriesonearth, withapopulationsettosurpass thatoftheUSby2050;itisan importantcrudeoilexporter, withexportsthathavegrownin recentyearsandareprojected tokeepdoingso

SouthAfricaiscrucialforglobal tradebecauseofitsstrategic positionandlongcoastline;itis alsotheworld’slargestexporter ofpreciousmetalslikeplatinum andvanadium,inhighdemand tofuelthegreenenergy transition.Ghana,longhailedas oneofthebest-runcountriesin Africa,isahubofstabilityon thestrategicallyimportantGulf ofGuinea,animportantcocoa exporter,andlargeAfrican importmarketforWestern goods.

Allthreecountrieshavesolid economicgrowthratesof around2to3%annually, democraticgovernments,

andahighlyeducatedand growingpopulation,making themattractivetradepartners andinvestmentopportunities.

Crumblinginfrastructure andenergysystemsin

SouthAfrica

However,challengesabound. SouthAfricahasbeen experiencingserious infrastructuralissues,among themenergyshortagesandthe breakdownoftransportation. Frequentplannedblackouts, locallycalled“loadshedding,” leavethecountrywithoutpower forhoursonend,forarecord totalof280daysin2023

Mediumandlargebusinesses makedowithexpensivediesel generatorsandsolarpanels, butsmallenterprisesare forcedtoshutdownuntilpower returns SouthAfricanstate energycompany,Eskom,has beenbattlingcrumbling infrastructure,corruption, criminalactivity,andan antiquatedmodelalmost entirelyreliantoncoal.

Ifthiscontinues,itcouldhave adevastatingeffectonSouth Africanexports,asmany countriesintheEUandbeyond enactregulationstoensure importedgoodsmeeta minimumenvironmental threshold SouthAfrican portsandrailwaysarepoorly maintainedandcrumbling underyearsofuse,which hasledtoanincreaseinroad transportation,causingtraffic anddelays

Thisnotonlyworsensthe energycrisis,astransporting coalintrucksismuchless efficientandleavestrucks vulnerabletotheft;italso directlyaffectsexportmarkets, causinglongdelaysand disruptingsupplychains globally AttacksbytheHouthi militiaintheRedSeahaveled tothediversionoftradetothe southernAfricancape,

withmanyportsreporting a50%increaseintraffic.

IntheDurbancontainer terminal,79vesselshavebeen forcedtowaitatseafor months,andaveragedelays are10daysormore Imported andtransitinggoodsarefurther delayedbythebreakdownin railwaytransportation,creating largebacklogs.

Corruptiononmanylevels ofgovernmentmakesoil productionmuchlowerthan itcouldbeandhasdistorted exchangerates

Thearrestofaformer CentralBankchiefaccused ofcorruptionaswellasrecent monetarypolicychangesled toamassivedevaluationof thelocalcurrency.

Effectonexports

worthofotherfuellikenatural gasinordertomakeupforthe shortfall,whichaddedtothe alreadyexistingalmost£1billion debttovariousenergysuppliers couldspelltroubleforthe state’scoffers Arecently announcedIMFbailoutmay carrytermsthatwouldfurther disrupttheeconomy. Intheshortterm,the transportationbreakdownin SouthAfricawillmeandelays andsupplychaindisruptions becomemorecommon, especiallyifmoregoodsare divertedfromtheRedSea The NigerianandGhanaianenergy crisesarelikelytoaffectoil pricesandmayreduceexports fromtheregionasfactories scalebackproductiondueto blackouts

Intheshorttomediumterm, theeconomiceffectofthese issueswillfurtheraffecttrade: risinginflationmightmean astrugglingeconomyisless opentotrade,whilethe currencydevaluations happeninginNigeriamay boostexportsbutwillmake manyimportedgoods unaffordable.

InNigeria,double-digitinflation, soaringfoodandfuelprices, andcorruptionhaveaffected productionandexports,leading todisappointinggrowthinthe lastfewyears.Fuelsubsidies, whichmadeNigerianoilamong thecheapestintheworldbut wereasignificantburdento statefinances,wereremoved inMay2023,causingaspikein transportationcostswhich snowballedintohighinflation.

Ghana,whoseeconomy iscloselytiedtotherestof Africa’s,hasbeenfeelingthe impactofNigeria’seconomic troubles.Thecountryimports muchofitsenergyfrom Nigerianpowerstationsand hasrecentlyannounced aroundofblackoutsreportedly causedbyinfrastructural issuesonNigeria’sside

Thegovernmentwillneedto importaround£400million

Thehigher-leveleffectofall thismaybepopularunrest: iftheKenyanprotestsofthe pastmonthareanythingto goby,anymeaningful responsefromthegovernment toendinflationorpromote austeritycouldleadto widespreaddisorder

Adifficulteconomy inNigeria
EnergyanddebtinGhana

Newpoliciesand developments

Thismomentofcrisiscould spelltheregion'sdemise oraccelerateitsriseasan importanthubfortradeand industry.SouthAfricaand Nigeria’snewleadersare fightingforthelatteroutcome, aswillthewinnerofthe GhanaianDecember2024 elections.

Nigeria’spresidentTinubu,who tookontheroleinMay2023, hasbeenenactingaseriesof economicpoliciestodiversify theeconomyawayfromoil anddrivedowninflation

Whilecriticssaytheshort-term effectsofhisso-called

“Tinubunomics”are unbearableforthepopulation, themeasuresarelikelyto attractforeigninvestment andleadtomoreeconomic stabilityinthelongterm

SouthAfrica’snewlyelected coalitioncongresshas promisedconcretemeasuresto endtheenergycrisis,including substantiveinvestmentsin greenenergysourcesandan endtotheEskommonopoly ontheelectricitymarket.

Foreigninvestmentsinport infrastructure,includinga recentlyannounced£23billion projectfinancedbyanEmirati firm,maymakeSouthAfrica anewtradehub,itsstability awelcomechangefromthe turmoilintheRedSea.

Ghana’selectionswillusher inanewpresident,whowill havetotacklehighinflation andanIMFbailoutaswellas significanttradechallenges

Thesechanges,ifsuccessful, couldcementNigeria,Ghana, andSouthAfricaasregional leadersandplacethemat thecentreofglobalenergy andcommoditiestrade

Theultimatedriveroftheir successwillbethedirection theirnewlyelectedpolitical leaderstake,andwhether thereformstheyenactcan deliveronpromisesof growthandincreasedtrade

PartnerEvents1

TradeFinanceGlobal(TFG)istheleadingB2Bfintechintradefinance.

TFG’sdata-ledoriginationplatformconnectscompanieswithinnovativetrade andreceivablesfinancesolutionsfromover300financialinstitutions

Weassistspecialistcompaniestoscaletheirtradevolumes,bymatching themwithappropriatefinancingstructures–basedongeographies,products, sectorandtradecycles.Contactustofindoutmore.

TFGisaleadingproviderofeducationalresourcesoninternationaltrade andtradefinance-acrossapp,podcasts,videos,magazinesandresearch.

Attractingaround170kmonthlyreaders,ourpublicationshaveaglobal audiencein187countries.

Ourspecialistcontenthubsprovidefreeguides,thoughtleadershiparticles andfeaturesonInternationalTrade,LettersofCredit,Shipping&Logistics, Risk&Insurance,Treasury&FX,Blockchain&DLT,Legal,Receivablesand ExportFinance

TFGarestrategicmediapartnersfortradeconferenceproviders aroundtheworld.

TFGalsohoststheInternationalTradeProfessionalsProgrammewithLIBF, andfundstheAccelerateScholarship,agranttohelpstudentstopursue acareerintrade.OthersknowusthroughourAnnualInternationalTrade Awards,celebratingoutstandingplayersandcontributorsinthetrade ecosystem

Throughtheseactivities,TFGisdemocratisingtradefinance.

Turn static files into dynamic content formats.

Create a flipbook
Issuu converts static files into: digital portfolios, online yearbooks, online catalogs, digital photo albums and more. Sign up and create your flipbook.