IFC, WTO report highlights trade finance hurdles
ALONG with its ASEAN neighbours Vietnam and Laos, Cambodia has been enhancing access to affordable trade finance, which could augment imports and exports by up to 9%. The combined annual increase in merchandise trade of the three countries has surpassed $58 billion, according to a new joint report from the International Finance Corporation (IFC) and the World Trade Organisation (WTO).
The analysis, the second in a series of regional trade finance surveys following West Africa, examines the regional funding ecosystem. It offers insights into how importers and exporters can boost international sales with better support from financial institutions.
The report emphasises that expanding coverage is more crucial than reducing the cost of financing.
The summary highlights that trade growth in the Mekong region has been inconsistent, with exports from foreign-owned firms outstripping those from locally owned supply chains. It reveals that local trade finance is not only underused but also costly, fragmented and traditional.
Domestic banks in Vietnam supported 21% of its exports and imports in 2022, while in Cambodia and Laos, the figure was below 3%. High collateral requirements and burdensome application processes are the main barriers cited by traders for not seeking support from local banks.
Makhtar Diop, managing director of IFC, commented in the report on the vital role of the effort in enhancing trade financing in developing economies.
“I would like to thank the WTO for the great collaboration in producing this report. We have seen time and again the transformative power of trade finance for developing economies,” he stated.
“But it requires coordinated efforts from the private sector, policymakers, financial institutions and international organisations to overcome trade finance constraints and realise its full potential in emerging markets,” he said.
WTO director-general Ngozi Okonjo-Iweala noted that the report provides valuable insights for governments, financial institutions and traders regarding capitalising on these opportunities to accelerate trade, growth and improvements in people’s lives.
“The joint research shows that bridging gaps in access to affordable trade finance would significantly enhance trade flows, aiding in job creation, poverty reduction and access to essential supplies like food and medicine,” she said.
According to recent data from the General Department of Customs and Excise (GDCE), from January to November 2023, Cambodia’s exports to international markets totalled $20.49 billion, a slight increase from $20.24 billion in the same period last year.
The Kingdom’s imports were valued at $22 billion for the period, marking a 5.4% decrease from $23.27 billion year-on-year. International trade volume reached $42.5 billion in the first 11 months of 2023, a 2.3% decline from $43.51 billion in the same interval of 2022.
The country’s deficit for the period stood at about $1.5 billion, an improvement from $3.02 billion year-on-year.
Lim Heng, vice-president of the Cambodia Chamber of Commerce (CCC), highlighted that the global crisis has impeded the country’s exports while people’s spending has also decreased.
“If the global economy improves, we will expand our exports. The economic downturn also affects people’s incomes, leading to a decrease in imported products,” he explained.
The value of the Kingdom’s international trade was $52.424 billion in 2022, up 9.2% compared to over $48 billion the previous year. Cambodia’s exports rose by 16.4% to $22.483 million, and imports were nearly $30 billion, an increase of 4.3%, as reported by the GDCE.
The joint report suggests developing tools like supply chain finance and innovative digital offerings to lower costs and improve access. This would necessitate more robust regulatory frameworks addressing collateral requirements, digital transactions, central bank conditions and accountability frameworks.
It also recommends increasing smaller firms’ and local suppliers’ awareness of how to access trade financing.