Credibility key to SA’s trade outlook
• Many factors play a role in the import/export game
International trade finance is a product offered by select financial services providers and is crafted to assist and enable businesses — from SMEs to large corporations — to facilitate imports and exports.
As vital as importing and exporting is to the growth of our economy, it can often be a confusing process for businesses trying to manage on their own.
Rob Pedder, who heads up Business Finance at Sasfin — a division that assists businesses with navigating these complex challenges and providing the necessary finance for trade — says “this is only made more complex by constantly changing market conditions, an uncertain political landscape and regulatory changes”.
Pedder believes future trade prospects in SA will depend on its credibility from a credit rating perspective and steps taken by the new leadership within the ruling party.
He says he is cautiously optimistic that this vital component of our economy will fare better in 2018, although local conditions such as drought and the world economy are factors that play a critical role the import and export game.
“In any trade balance, exports are important to maintain a positive balance. We are fortunate to have abundant mineral resources; however, we have room to improve in terms of exporting manufactured goods.
“Then there are natural factors that impact businesses, such as the current drought conditions in the Cape, which will impact our fruit exports to some extent but on the other hand may create opportunities for suppliers of water saving equipment, for example.
“Imports have also slowed down naturally with the weak economy fluctuations in the rand/dollar exchange rates. This appears to have stabilised for the time being, but we keep a steady eye on conditions and advise our clients accordingly.”
Pedder believes that half the challenge of managing imports and exports successfully is the ability for business to have access to experts who make solid decisions based on their analysis of economic landscape and the factors that influence it — environmental, political or It is vital to have insurance cover in all trade transactions, such as goods in a warehouse.
exchange-rate related.
He says that just as China became a major player in the market, there are opportunities for South African companies, particularly in Africa.
There are, however, global trends that indicate international trade is impacted by a number of factors. The International Chamber of Commerce (ICC) report Rethinking Trade & Finance 2017 says that prior to 2008, global trade had been growing at about 1.5 times the rate of global GDP thanks to the expansion of global supply chains and associated cost reductions. However, the ICC reports that since 2008, trade has suffered a significant slowdown in investment. The decline of trade as a share of economic activity is paradoxical in a world where connectivity
is on the rise and transportation costs are falling.
The hurdles to international trade globally are mirrored here where Pedder says the biggest challenges for local exporters and importers within the international trading arena relate to exchange rates and being suitably hedged for this purpose.
“In addition, the increased regulatory compliance adds to any business’s administrative and managerial load.”
That said, Pedder believes such compliance is necessary to ensure the long-term health of international trade.
“Trade finance by the nature of its function is naturally a high risk product and the checks and balances required are onerous but necessary. This may hamper volumes that were experienced previously but good governance will
prevail and ultimately lead to successful trading, especially in current economic conditions.”
Pedder explains that with the many challenges facing businesses that import and export, Sasfin has adapted a client-centred approach to trade finance to ensure that businesses benefit comprehensively from advice and finance from the bank.
“This approach enables us not only to provide a working capital solution for imports and exports, but post shipment finance and debtor finance too. Of course, there is also a full range of services which we provide including insurance, shipping and clearing, as well as all our clients’ foreign exchange requirements.
“Our approach is to provide a complete start-to-finish range of services with the option for clients to select the appropriate products suitable for their particular requirements.”
Pedder says while a basic trade finance product may get the job done, there are elements that businesses must consider and are just as important.
“It is vital to have insurance cover in all trade transactions, for example whether it is for marine cover for goods shipped, fire and flood cover for goods in transit or in a warehouse, and for those unexpected events which can lead to loss through decreased production or sales.
“There are weather conditions that cannot be anticipated and can put businesses at serious risk if their goods are not covered correctly. KwaZulu-Natal and Gauteng experienced abnormal flooding recently with many factories having excessive water damage to machinery, equipment and stock. Naturally, if these areas are not covered with suitable insurance, huge losses can be incurred.”
It is for these reasons Sasfin always ensures clients have adequate cover for equipment and goods that it has financed.
“We are fortunate that we have our own in-house brokers who provide the necessary expertise in these areas.”
Another area of growing importance in international trade is the rise of technology.
Blockchain finance is on the rise and many find that such tech advancement makes trade and payments seamless across borders and internationally.
According to the ICC report, digitalisation is influencing business models and strategies for corporates and banks, primarily due to its power to simplify and to reduce costs, while also allowing banks to better serve SMEs and stimulate trade flows.
The report says the benefits of digitalisation include its capacity for reduced risks, increase speed, improve working capital management, efficiency, transparency and operational improvements.
In fact, the World Trade Organisation (WTO) estimated that technological progress will have the largest impact on GDP levels by 2035, accounting for 9% higher or lower GDP levels in developed countries.
The ICC says when the cost of processing a letter of credit decreases, so too does the entire cost of trade finance – which enables financial inclusion. “The ease of process facilitates customs clearance procedures — allowing goods to move through supply chains more easily and reach consumers faster,” says the ICC.
Pedder believes tech plays a great role in growing business and making processes more seamless. However, he cautions that it should never eliminate the role that service or years of experience plays.
“While Sasfin is looking at various tech advancements to ensure efficiencies for our clients, we believe this should always be with the purpose of making it easier for our clients to do business — both out there and with us.”
JUST AS CHINA BECAME A MAJOR PLAYER IN THE MARKET, THERE ARE OPPORTUNITIES FOR SOUTH AFRICAN COMPANIES