Mind the Trade Finance Gap

5 August 2020

B20 Partners with WTO and ICC to Provide Recommendations to Address the Growing Trade Finance Gap

Blog by: Lubna Olayan

The COVID-19 pandemic has disrupted the global trade and investment system in an unprecedented way, significantly impacting supply and demand. While the world seeks to recover from the shock of the pandemic, the virus’s impact on economies, trade and investment worldwide will likely continue to be felt for months and years to come.

The B20 recently partnered with the World Trade Organization (WTO) and International Chamber of Commerce (ICC) to issue a joint statement to the G20 regarding the negative impact of a growing trade financing gap in a post-COVID-19 global trade system. Specifically, this trade financing deficit will have a disproportionate effect on those hit hardest by the economic crisis, such as micro, small and medium-sized enterprises (MSMEs) and businesses in developing countries.

Around 90% of global trade is underpinned by financial instruments, including trade finance and credit insurance. Yet, data from the Asian Development Bank shows the global trade finance gap has not budged from approximately US$ 1.5 trillion since the 2008 financial crisis. There is concern that the unprecedented, though necessary, disruptions in the treatment of trade finance transactions in response to COVID-19 may widen this gap further, potentially disrupting global trade flows and supply chains for essential goods such as medical equipment and food staples. In fact, the ICC conservatively estimates that financing capacity between US$2 trillion to US$5 trillion will be needed to support an enabling trade environment in the future.

Through this joint statement, the B20, alongside the WTO and ICC seeks to encourage the collaboration of the private and public sectors on the following points:

  • Enable a rapid transition to paperless trading.
  • Exchange views on how regulatory authorities could help further the deployment of essential trade finance, especially to MSMEs and companies in developing economies.
  • Share risk to support trade finance during the COVID-19 period among credit agencies and banks.
  • Further scale development bank schemes to mitigate risk and provide liquidity, especially to developing economies.

These recommendations are in line with the policy priority areas of the Trade & Investment Taskforce, where our 133 business members have identified trade finance as a cornerstone for the continued flow of goods and services across borders.

The joint statement follows the B20’s Special Report to the G20 on Jump-Starting the Global Economy in a Post-COVID-19 Phase, which highlights the need to recapitalize global supply chains and ensure availability of trade finance. In the report, the B20 highlighted that MSMEs are particularly vulnerable to the economic downturn associated with COVID-19 as they often lack access to financing or digital tools necessary to participate in e-commerce and access international trade systems. The same concerns figured into the deliberation process of the B20-ICC-WTO joint statement, as MSMEs are continuously recognized as major economic engines of their respective communities and on a global scale.

As the business voice to the G20, the B20 recognizes the importance of a collaborative and coordinated approach between the public and private sectors. As we adapt to our “new normal,” it is critical we re-examine our past practices and plot a path for the future. Many parts of our lives and economies will continue to change as we reopen, and we must work together to ensure the challenges we face—from the trade financing gap to growing protectionism—are addressed in a meaningful and sustainable manner, in a way which creates opportunities for inclusive growth for all.

Lubna S. Olayan, Trade & Investment taskforce Chair

Lubna Olayan is Chair of the Trade & Investment Taskforce at B20 Saudi Arabia, Chairperson of the Saudi British Bank, Chair of the Executive Committee at Olayan Financing Company and Chair of Olayan Saudi Holding Company.

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