SPEECHES — DG ROBERTO AZEVÊDO
Remarks by DG Azevêdo
Philippe Le Houérou, CEO of the International Finance Corporation,
Ladies and gentlemen,
Good morning, and welcome to the launch of this new publication on trade finance. This is a joint effort between the WTO and the International Finance Corporation. So it's a great pleasure to have Philippe with us today.
I also want to thank everybody involved in this effort, including Marc Auboin – who leads on this work for the WTO.
A few years ago, our organizations decided to step up our collaboration on this issue. This publication is a very important step in that work, helping to bring the importance of trade finance into sharp focus.
Today, 80% of global trade requires a credit or a guarantee, mostly short-term.
This means that, to finance over USD 19 trillion in annual trade flows, there needs to be a well-functioning trade finance market supporting around USD 15 trillion of trade.
However, big gaps persist. According to a study by the Asian Development Bank, the current gap between supply and demand of trade finance is estimated at USD 1.5 trillion globally. So the gap currently stands at 10% of the potential market. This is huge.
Half of this gap is in developing Asia and Africa. And smaller enterprises are also hit the hardest.
This is very concerning. Without finance or guarantees, many entrepreneurs simply cannot trade.
This is a major obstacle to help people access global markets and ensure that trade plays its full role in promoting growth, development and job creation.
According to the World Economic Forum, for half of the countries in the world, trade finance represents one of the top three obstacles to exporting.
The monitoring and evaluation exercise for the current Global Review of Aid for Trade also confirms this diagnostic. More than two-thirds of respondents identified the access to trade finance as a major constraint to economic diversification. A fifth of respondents, mostly from Africa, the Western Hemisphere and the Pacific, described the situation as severe.
So it's clear that action is needed. And over recent years we have been building a coalition to that end.
Philippe and I joined forces and started reaching out to the heads of the regional development banks, the Chair of the Financial Stability Board and many others.
One of the priority areas we identified was increasing dialogue with regulators. That is for a key reason.
Since the end of the financial crisis, perceived regulatory risk, combined with the low capacity of the financial sector in some countries, has widened gaps in trade finance provision. This de-risking has mostly hit the banks in developing and least-developed countries.
This trickles down even further. Smaller banks are less inclined to provide trade finance to traders locally because they fear that by accepting to fund less established clients, international banks would no longer accept their proposed transactions.
De-risking also meant that international banks were often reluctant to do business in developing countries because of new regulations on anti-money laundering, anti-terrorism financing and so on.
And while banks in developing countries are being requested to implement tighter anti-money laundering and other related checks, these new requirements are often not fully harmonized.
Therefore, a renewed regulatory dialogue could help tackle these issues by building capacity in smaller, local banks. And it could help to encourage larger banks potentially to return to markets that they withdrew from after the financial crisis.
When Philippe and I met at the Annual Meetings of the IMF and World Bank in Bali last fall, along with senior representatives of the regional development banks, we agreed that our organizations should work together to see how we could address some of these aspects relating to regulatory compliance.
We have been conducting a new dialogue between the different partners to increase the understanding of the issues and seek potential solutions.
We also have stepped up our capacity building work in trade finance.
The results of this partnership are showcased in this publication we are launching today.
It highlights the capacity building activities we undertook with the IFC in Rwanda, Madagascar, Zimbabwe and Zambia. It looks at the issues dealt with, the insights of participants, as well as the lessons learned.
The publication also showcases similar capacity building activities undertaken:
- by the European Bank for Reconstruction and Development, in Morocco and Belarus,
- by the Asian Development Bank in Fiji,
- and by the Islamic Trade Finance Corporation in Uzbekistan.
The WTO stands ready to provide inputs to such activities, as we have already done for activities organized by the EBRD and Afreximbank.
Thanks to our partnership with the IFC and other organizations, the WTO has already helped to train more than 400 professionals.
We plan to continue this positive work.
The 2019 programme of on-site seminars and online training for multilateral development banks is likely to reach close to 1,000 participants.
This mobilization is crucial to help traders and their financial institutions to adapt to the new regulatory environment. We need to sustain these efforts to ensure that trade finance flows will return to countries which have been deserted, or de-risked, in recent years.
To conclude, I think this is a very good example of international cooperation in action, achieving real, practical results.
Of course, there is still a long way to go. The gaps I've described will not disappear overnight. They require the consistent efforts of our organisations and others, working together.
In the end, I think we all want global trade to be more open and inclusive, in order to spread the benefits as far and wide as possible. We simply can’t do that without proper financial inclusion.
So let's keep up this momentum.
Thank you. I wish you a great discussion today.