CHAIRMAN'S MESSAGE - Sean Edwards, ITFA Chairman / Head of Legal at SMBC

Dear Members and Friends,

On behalf of the ITFA Board, I would like to take this opportunity to wish you all a very Happy New Year and all the very best for 2018. May the year ahead bring good health and peace.

As I write this message, the ITFA team is compiling a list of scheduled events for 2018. The 2018 Events Calendar can be viewed on our ITFA website and will be updated on an ongoing basis. Click here to find out more information about the various events being organised during the course of the year.

How can I fail to mention our flagship annual event - the 45^th ITFA International Trade and Forfaiting Conference which will be held in Cape Town, South Africa between 4-6 September 2018. The conference itself will then take place over two full days on Wednesday and Thursday. Our unmissable Gala Dinner will take place on Wednesday night. The programme is being worked on and will include sessions on focused, relevant market issues including developments in fintech, documentation, supply chain finance and insurance, from both a regional and global perspective. So take advantage of our Super Early Bird price available until 15th April and register here.

Emerging markets registered a positive year in 2017, driven by a small rebound in commodity prices, the stabilisation of fundamentals, ongoing global and EM economic recovery, as well as a geopolitical environment whereby the US, led by the infamous Trump, North Korea, China have been market-friendly. It has been a struggle to find an asset class, an economy which surprised to the downside, but there have been 2 economies which struggled in particular for very different idiosyncratic factors, and these are Turkey and Venezuela.

Research suggests that economic data surprises in EM are moderating, meaning that the growth that has been registered in 2017 may be mostly priced-in by now. Additionally, the disinflation we have seen in several EM countries in 2017 (Brazil, Russia, Colombia, etc.) is unlikely to extend into 2018 as the base effects fade away and the bulk of policy rate easing in EM is behind us. All in all, it is difficult to have repeat of 2017, but in the absence of any tail risks, such as US economic policy and the Fed, China, geopolitical risks and EM elections, EM could well register decent economic flows in a year of consolidation.

In the very first edition of the 2018 ITFA Newsletter one can read an interesting article written  by Shannon Manders, GTR, titled ''ITFA sets up a Young Professionals Panel, Aims to address Skills Gap’’. Johanna Wissing from LiquidX contributed an exciting article titled ''Paving the way for the future of Trade and Working Capital Finance’’. One also finds the regular feature: Chart of the Month contributed by Dr. Rebecca Harding of Equant Analytics – ''Trade in 2018: where politics and economics collide''.

May I take the opportunity to thank all associates, partners and sponsors for their support in 2017. Should any of our members wish to contribute to our website, and become website sponsors, please send an email to alexiavella@itfa.org. Your contribution is highly valued.

We look forward to hearing from you with any feedback you may want to share with us by sending an email to myself, any of the Board Members or to our general email, info@itfa.org.  

Best wishes

Sean Edwards

ITFA SETS UP YOUNG PROFESSIONALS PANEL, AIMS TO ADDRESS SKILLS GAP by Shannon Manders, GTR

The International Trade and Forfaiting Association (ITFA) has expanded its Young Professionals network through the creation of an advisory panel, chaired by Johanna Wissing.

Wissing, together with Duarte Pedreira, who joined the ITFA board in September as head of its Young Professionals initiative, are now in the process of appointing the remaining members of the panel.

Wissing tells GTR that the panel will include a “good mix” of individuals from different institutions, bringing together people with a few years of experience in the trade finance industry and those who are newer to it.

The panel is an extension of the Young Professionals network, in that, as board member, Pedreira will drive the wider strategy for the initiative, but that the panel members will execute the finer details in relation to specific events, projects and programmes.

To begin with, the panel will focus on London-based educational and networking events – both of which will be aimed at career development.

The looming trade finance knowledge gap is at the heart of what ITFA – and the panel – are aspiring to address.

“The trade finance world is a mature sector, and therefore you deal with quite a lot of people that have been around for a long time. Eventually, at some point, they’re going to leave, and so we’re now edging towards there being a danger of a skills gap,” explains Wissing. “One of the reasons for that is because people in the trade finance sector have grown organically within it, because it’s a very enjoyable space to be in. There wasn’t really any room for new entrants for a while, because there were enough people with that specialist knowledge.”

Technological disruption within the trade finance industry is further necessitating the importance of driving more young people into the space. “I think it’s good to get fresh pairs of eyes who can work with the experienced people to see how change can be driven for the industry,” she says.

ITFA’s aim is to be at the forefront of championing this initiative for the industry. “We hope that the creation of the advisory panel will help to create sufficient critical mass and resources to really drive things forward,” says Wissing.

ITFA’s Young Professionals network has been a few years in the making, but the association’s commitment to the cause was cemented when it appointed a board member dedicated to the initiative at its 2016 annual conference in Dubai. Chris Hall, was initially drafted in to head the network, but became the head of regions in a recent board reshuffle, which saw Pedreira elected.

“It’s the kind of initiative that needs that level of involvement,” says Wissing, who herself had set the ball rolling the year before at the Barcelona conference.

“Having Duarte take it on combines his passion for the mentorship scheme [Pedreira helped set up the Martin Ashurst Trade Finance Mentorship Forum] and the fact that he is now a board member.”

Wissing explains that when the network was first launched, it was difficult to get ITFA’s membership institutions to devote enough thought to it. “It took a little bit of time for institutions to really look at it,” she says.

But, she believes that because ITFA has found its feet in the broader trade remit – beyond its original scope of a forfaiting and secondary market organisation, it is now the “right time” to revamp the initiative and “go further and wider and put some more pressure on members to nominate their youngsters”.

What these membership institutions stand to gain is development of their younger staff members, without excessive investment requirements. “It opens up training and networking opportunities for their staff: this leads to career development, which ultimately the institution will benefit from,” Wissing says, adding that individuals will in turn be greatly appreciative of their institutions for their support.

PAVING THE WAY FOR THE FUTURE OF TRADE AND WORKING CAPITAL FINANCE by Johanna Wissing, LiquidX

Today, much is being talked about the role of Fintech companies in the financial services sector and phrases such as “digital banking”, “technology disruption” and “Fintech revolution” are commonplace. New start-up businesses are emerging almost daily and the Fintech sector has by now become a major part to the overall size of the digital economy and is attracting significant investment from VC firms. Key drivers behind that development are the increasing adoption of smart-phone technology, changes in consumer preferences demanding the development of ever quicker and simpler ways to transact and an increasing need for alternative financing facilities. New digital developments such as cloud banking, the emergence of crypto currencies and of course blockchain technology (ultimately a component of the crypto currencies, but with the potential to be used for many other applications) are rapidly changing the industry.

The majority of the Fintech evolution so far has taken place in the payment, peer-to-peer lending and crowd-funding space with companies like Transferwise, iZettle and Funding Circle having acquired a significant customer base. The trade finance world on the flipside has been left largely untapped by technology companies, something which is changing right now and which will help to transform the way in which trade and working capital finance will be provided in future.

Having access to trade and working capital finance is key for companies worldwide whether they are trading globally or within their domestic home markets, yet the ICC 2016 Global Trade and Finance Survey concludes that next to slower growth of key emerging market economies, declining commodity prices and protectionist movements the shortage of supply of trade finance presents one of the biggest risks to global economic growth. Amongst other factors that shortage has to be attributed to a lack of bank financing with particularly the SME market suffering from the consequences of the same. But it would be too easy to simply blame the banks for that shortage, as the overall environment for banks active in trade is difficult to say the least: trade finance is generally regarded as a high-risk asset class by regulators despite its historic low default rates and therefore banks are holding significant balance sheet to support their trade book which becomes ever more difficult against the backdrop of tight market pricing. On top of the capital requirements many banks’ abilities to provide trade facilities – be it for risk mitigation purposes in, for example, the form of confirmed LCs, guarantees, indemnities etc. or for financing purposes such as supply-chain finance, receivables finance, trade loans etc. – is impacted by legacy operating systems which are out-dated thus significantly adding to the operational risks and costs of transactions.

But it is not all doom and gloom! Thanks to the emergence of Fintechs and the application of new technologies within the trade and working capital context there are numerous opportunities to improve on the current situation and help increase global trade volumes over the years to come. There are numerous ways in which Fintechs can add value by improving operational efficiencies through leaner and faster systems, minimising risk through more secure processing, providing access to additional sources of financing, enhancing corporates’ ability to forecast trade and working capital needs, enabling better regulatory reporting for banks by generally enhancing reporting capabilities and by offering systems capable of capturing the benefit of risk mitigation techniques such as credit insurance. Better reporting will also enable banks to finally capture and report historic low default rates of trade finance to regulators and could therefore eventually lead to a more preferential treatment of trade finance. All these advantages will lead to banks reducing costs and increasing profitability thus enhancing overall returns of their trade books.

Technology intermediaries are a lot better positioned than banks to drive change in the trade and working capital space. Due to their adaptability digital start-up companies are quick to innovate and even quicker to respond to customer demands. Ultimately, as with any technology solution Fintech innovation in the trade and working capital space should not be an art for art’s sake, but it must be relevant for corporates and financial institutions alike. Therefore, not surprisingly an increasing number of trade finance professionals are joining Fintechs coming from banks – including myself.

From a personal experience perspective I have had a great start into the Fintech world at LiquidX, which I joined two months ago after seven and a bit years in Corporate Banking. It is a very fast-paced, innovative and vibrant environment and there is something new to learn every day and no day is the same. But the one most amazing aspect of the role is being at the forefront of change in the industry and of being able to drive the creation of new and more efficient working capital and trade finance solutions. It is exciting to spot an opportunity that could massively support either a bank or other financial institution or a corporate and then actually being able to implement such new opportunity as well. People who know me closely enough would wonder when I became a technology expert and I am not, but a lot of the technology out there isn’t only made for rocket scientists, but can be adopted for multiple uses rather easily, although I would never be able to build the underlying technology myself. But then again I didn’t build my car and I am still able to drive it.

The long and short is that there is some amazing technology available, it just all comes down to putting it to best use. The most revolutionary of it all has to be the blockchain – a buzz word everyone would have heard by now and I bet some people might roll their eyes as soon as they hear it, but the matter of fact is that there are numerous potential uses for blockchain along the entire trade supply chain from sourcing raw materials and all the way to post-trade settlement. So, Fintechs do not only help banks of course, but also corporates by creating better treasury management systems and therefore allowing better forecasts of financing needs and faster processing of orders, invoices and payments.

The digital evolution of trade and working capital has just begun and there are some exciting tools out there, such as blockchain, to drive it. As such it is not surprising that ITFA has newly created a Fintech Committee that will engage closely with all ITFA members to educate and inform about the on-going digital evolution of the trade and working capital space and to work with ITFA members to bring technology to its best use and develop the solutions our members require. Much has been said about Fintech companies disrupting markets and taking business from traditional banks – I couldn’t disagree more with such statements. Fintechs aren’t here to “eat banks’ lunch” – in fact Fintechs help banks to run smoother, more secure and efficient operations and to originate additional business by being able to leverage off business generated by technology intermediaries. Particularly in the trade finance context digital change is all about collaboration for everyone’s benefit: the banks, the Fintechs, the corporates and therefore benefiting the growth of global trade volumes as a whole. There is much change ahead – watch this space, it will be very exciting!

UPCOMING EVENTS - SAVE THE DATE

May we take the opportunity to remind our readers that ITFA will once again partner with GTR at the GTR Mena Trade Finance Week 2018, which will be held between 19th and 20th February 2018 at the Jumeirah Emirates Towers, Dubai.

The GTR Mena Trade Finance Week 2018 will take stock of recent global developments, while focusing on key issues in regional hotspots and sectors. With unrivalled links to a huge number of movers and shakers in the industry, this event provides access to hundreds of companies engaged in international trade, acting as an ideal forum at which to learn about the latest trade, export and infrastructure financing tools and opportunities.

Another upcoming event is the ICC 2018 Annual Meeting which will be held between the 3rd-6th April 2018. The Banking Commission of the International Chamber of Commerce (ICC) is pleased to announce, in collaboration with the Florida International Bankers Association (FIBA), the 2018 Annual Meeting, to be held for the first time in Miami. Under the theme “Navigating Trade in a World of Disruption”, the Banking Commission’s flagship event will focus on thriving in an environment where the “new normal” is very much one of uncertainty.

The Annual Meeting will gather 500+ trade experts, banking professionals, business leaders, lawyers and government officials from over 65 countries, featuring a series of informative and interactive plenary and breakout sessions, as well as roundtable discussions addressing global challenges and financing trends.

NEW ITFA MEMBER

ITFA is pleased to announce one new member has joined ITFA during the month of January.

Zenith Bank UK Ltd is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority and is a member bank of the UK’s Financial Services Compensation Scheme.

Their corporate banking services include: offshore corporate and trade finance, international private banking, investment management and brokerage facilities. They help businesses transact efficiently, quickly and profitably throughout West Africa, Africa, The United Kingdom and the rest of the world.

Natalia Sokolova will be the main contact person for all ITFA related matters.

CHART OF THE MONTH by Dr Rebecca Harding, Equant Analytics

Trade in 2018: where politics and economics collide

The difficult environment for trade in value terms is likely to continue during 2018. Although oil prices are likely to rise, and inflationary pressures set to build in Europe and the UK, this will still be insufficient to create a strong increase in the value of world trade during the course of the coming year. We expect world trade value growth to be flat or negative and for many countries to follow this pattern. (Figure 1). The only exception is the UAE which may show substantially increased trade in 2018 on the back of the oil price recovery and a diversion of trade from riskier countries in the region.

Figure 1: World trade growth by country, 2017-18 (%) and CAGR, 2017-21 (%)

Source:   Coriolis Technologies 2018

NOTE:    Projections are based on long and short term momentum and do not make assumptions about GDP, freight costs, or any future trade negotiations

This picture of trade is very much more negative than that of the World Trade Organisation (WTO). There are two reasons for this. First, the WTO bases its forecasts on volumes rather than values. Thus, while we may see volumes of trade increase, its real value may not increase – either because of inflationary pressures or because the US dollar remains comparatively weak. Second, the WTO picture is often over-optimistic, and its estimates of global volume growth of 3.6% in 2017 made last July already look awry in the light of flat trade towards the end of the year. The WTO is itself forecasting slower trade growth globally in 2018 of 3.2% and the value projections show a similar decline on last year.