diagnostic short term finance constraints in turkey · 2016-03-03 · total world factoring total...

Short term finance constraints in

Turkey Diagnostic

Short term finance instruments and methods

Banks have long provided trade finance and working capital services

processing information, managing documents, providing financing, and

facilitating payments related to trade transactions through various

products:

Traditional short term

finance instruments

• Commercial Letters of Credit

• Standby Letters of Credit

• Bank guarantees

• Collections

Short term financing

methods

• Trade loan (import and export)

• L/C financing (A loan covering post delivery cycle)

• Purchase order financing

Other working capital

solution

• Factoring

• Invoice discounting

• Forfaiting

Open account

• Purchase Order Commitment to Pay

• Pre-Shipment Finance

• Warehouse Finance

• Post-Shipment Finance

• Payables Finance

• Receivables Purchase

THE ICC TRADE REGISTER

Short term finance is the critical lubricant for trade and the real

economy (80%+ of trade flows require financing at least at one point

along the chain):

Short term finance overview

2008–2011 Trade Finance market revenues by

product (in USD billion)

NII

Trade services

Structured Trade

Adv. Elec. & Other

Standbys and Guarantees

FX

Trade Flows

USD 16 trillion 12 trillion 15 trillion 18 trillion

6 8 9

10

8.8

9.2 8.2

11.8 5.2

5.8 6.4

7.9

2

2 2

1

1

1 1

1

2

2 2

2

2008 2009 2010 2011

27

25

28

34

Still the geographical split of world merchandise

exports is uneven

World trade is an upward trend and Turkey needs to

leverage on it

a Figures for 2012 and 2013 are pro jections.

Source: WTO Secretariat.

50

100

150

200

250

300

350

400

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

P

2013

P

Export volume

Forecast

Trend (1990-2008)

Source: WTO

• World trade is on the recovery and export countries are leading the

way, in particular the ones in Asia (China, South Korea, Bangladesh,

Hong Kong, Singapore, India)

• World merchandise exports are estimated at about USD 26.5 trillion (or

USD18.5 trillion for manufacturing)

• Global trade is expected to reach USD 48.5 trillion by 2025

a Figures for 2012 and 2013 are projections.

Source: WTO Secretariat.

-15

-10

-5

0

5

10

15

2005 2006 2007 2008 2009 2010 2011 2012P 2013P

Exports

GDP

Average export growth 1991-2011 = 5.4%

Average GDP growth 1991-2011 = 2.8%

Growth in volume of world merchandise

trade and GDP (2005-13, Annual % change)

Volume of world merchandise exports

1990-2013 (Index, 1990=100)

Trade will continue to grow!

Global trade is expected to reach USD 48.5 trillion by 2025

Payment systems in international trade, 2001–2010 (indexed)

0

20

40

60

80

100

120

140

160

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Letters of Credit Open Account

Source: ICC Survey 2013

A two-speed trading system? Developing countries % of global imports

Mixed messages


South-South trade 1990 = about 10% of global trade

2020 = > 30% of global trade

2022 = 50% of developing country exports

Mixed messages


Export growth in developing regions

Mixed messages


Issue of documentary credits (Swift MT 700)

Mixed messages


Average value of L/C issued

Mixed messages


A return to normal trading conditions?

Trade measures

Documents refused on

1st presentation Court injunctions Fraud allegations

Trade finance gaps

Still, a major gap persists in trade finance

• ADB study identifying the trade finance gap in Asia (and globally)

• Proposing a method for calculating impacts on production and jobs

Trade finance gaps

Total gap: 55–68 percent of formal SMEs (13.8–20.4 million) in

developing economies are unserved or underserved

Total value gap in credit financing of formal SMEs is $1.5–1.8 trillion,

including high-income OECD countries


Total world factoring

Total international cross-border factoring

4-Year Growth = 18.5%

4-Year Growth = 29%

Increase in OA and away from L/Cs for many countries • In many countries, invoice discounting is the way to get working capital

(against L/Cs and loans)

• Shift from from overdraft/unsecured credit facilities to receivables-based

factoring/invoice discounting

Factoring


ST Export Credit Insurance

• Turnover of insured ST exports increased by 2.3% in 2012 to over 1.5T

• Demand for risk mitigation products is still high

• Total short-term claims paid by Berne Union members increased more

than expected in 2012 Claims paid by Berne Union members to exporters to indemnify them for

defaults on trade receivables rose by 58% to USD 2.1 billion in 2012.

This remained below the peak level of claims paid during the financial

crisis, when claims paid rose 114% year on year, but indicates continuing

volatile market conditions for credit insurers.

Credit insurance


MLT Export Credit Insurance

• Medium and long-term Cover by Berne Union ECAs

• New business remained high at USD 181 billion of insured

transactions.

Credit insurance


MDB’s trade facilitation programs

MDBs

Compounding effects of regulations

Source:World Bank, Ecobank Research

Intra-regional trade (USD billion)

Intra-regional trade & opportunities

• Africa’s share of world trade is just

3.1%, a proportion that has been

stable for years

• Intra-regional trade totalled

US$133bn in 2011, just 11.8% of

Africa’s trade with world

• Although it has grown from just

4% in 1960, it is still below peak of

15% in 1997

Source: ITC (2011)

Top 20 African traders

Source: Ecobank Research; Afreximbank

• Few countries have well developed intra-regional

trade links

In USD

billion,

2011