Banks mitigate risk for global traders
Local lenders support importing and exporting clients, writes Alf James
SA banks continue to play an important role in mitigating the risks that the country’s importers and exporters face in the global trading environment.
Amish Shunker, head of Solutions Structuring Group at Standard Bank, says even with the payment and performance risk that buying and selling internationally presents, the global phenomenon continues to drive social and economic growth. The delivery of goods and services between markets and regions create employment and generates personal income which drives macroeconomic growth fundamentals.
The uncertainties that result from protectionism tariff increases, as is evident from the US-China trade war, can have a dampening effect on stimulating trade, and on the people and economies that trade supports. Importers and exporters alike require the basic risk management attached to payment certainty, and assurance that there will be a delivery of goods. In addition to that is their need for financial liquidity, and a cash release into their working capital cycle.
“SA banks are adept at helping their importing and exporting clients across their entire value chain, whether it is with regard to their purchase cycle, production cycle or sales cycle,” says Shunker.
“Our primary method of supporting importers and exporters is by leveraging off the conventional solution profiles that are available and combining a multitude of these supply chain finance techniques to derive the most appropriate solution to satisfy our clients’ needs. Our unique representation across Africa enables and empowers us with a lens of focus and understanding of the client, its value chain and its trading ecosystem and allows us to provide the appropriate construct of risk mitigation or liquidity which can change from one set of trading circumstances to the next.”
Shunker says one of the key risks that importers and exporters consistently highlight relates to currency volatility relative to hard currencies.
“Another clearly articulated risk is whether imports will be delivered on time, and to specification. We are able to assist with that risk using traditional documentary trade, which is still a highly utilised payment and risk-mitigation instrument in Africa. There is also a payment risk perception attached to African corporates by many large multinationals trading with the continent.
“On that basis we utilise documentary trade solutions by taking on the risk of the importer and local corporates, and securing the interests of the multinational corporates that have a risk aversion for Africa.
“Another key trend that we have seen is a move towards more open account trading terms, and open account trade finance solutions which we are able to deliver through the use of technology.”
Shunker contends that a current negative effect on African trade development is the China-US trade war.
“The macroeconomic point is that a trade war, especially on top of a challenging economic and trading environment, is likely to depress the global economy further. For example, the imposition of tariffs on China will affect some of our exports into the US, which could have a detrimental impact on employment in SA.”
Shunker says the danger of protectionist-type tariffs being imposed by the US is that countries affected by the tariffs could retaliate by imposing their own tariffs on US products.