“Only up to 25 per cent of trade is supported by trade finance in these regions, compared to 60-80 per cent in advanced economies.”
The Director-General of the World Trade Organisation (WTO), Dr. Ngozi Okonjo-Iweala has highlighted the importance of increasing access to trade finance for small businesses to assist their integration into global supply chains.
Speaking at a session at the just concluded annual meetings of the International Monetary Fund and the World Bank in Marrakech, Morocco, the former Nigeria’s Minister of Finance, emphasised that trade finance plays a vital role in supporting inclusive participation in world trade and urged multilateral development banks to intensify efforts to reduce the finance gap between demand and supply.
The event was co-hosted by International Finance Corporation (IFC) Managing Director Makhtar Diop.
The Director-General outlined the key findings of recent joint WTO-IFC studies on the West African and Mekong regions. These studies had revealed significant trade finance difficulties faced by small traders and women-led businesses when seeking to participate in global trade.
Rejection rates of over 40 per cent and high costs for making requests discourage traders from seeking financial assistance from banks, she said.
“Only up to 25 per cent of trade is supported by trade finance in these regions, compared to 60-80 per cent in advanced economies,” Okonjo-Iweala stated.
However, according to calculations by WTO economists, “raising the trade coverage from 25 per cent to 40 per cent would increase annual trade flows by an average of eight per cent, reaching 80 per cent in 10 years,” she added.
The Director-General underlined the need to dismantle trade finance barriers to make global supply chains more inclusive and diverse. She applauded the efforts of development banks to support small traders during the COVID-19 pandemic and urged them to harness their financial resources to further empower traders.
“Collectively, you represent a significant counter-cyclical force accounting for $40 billion in trade finance,” she noted.
Highlighting that 50 per cent of global trade was conducted via supply chains, the DG underscored the urgent need to improve the availability of supply chain finance.
She noted that WTO-IFC studies on trade finance, including one conducted in West Africa and an upcoming one on the Mekong region (Cambodia, Lao People’s Democratic Republic, and Viet Nam), have observed a lack of local supply chain finance.
“This implies that lower-tier, local producers face substantial financial pressure in their trading activities,” she noted.
On his part, Diop praised the strong partnership built between the WTO and IFC on trade finance over the past two years and the outcomes achieved in a short time. He reiterated that the IFC was committed to addressing the critical challenges and would continue to scale up its trade and supply chain finance.
“Trade financing has the same impact, and sometimes even more impact, than direct financial investment. It is as noble as any type of investment because companies in low-income countries need working capital and access to funds,” he said.
Senior officials from leading MDBs, including the African Development Bank, the African Export–Import Bank, the Asian Development Bank, the Bank for International Settlements, the European Bank for Reconstruction and Development and the Islamic Development Bank’s International Islamic Trade Finance Corporation, participated in the high-level discussion. They exchanged insights into trade finance and discussed ongoing initiatives aimed at capacity building, narrowing trade finance gaps and bolstering financing for local supply chains.
In conclusion, DG Okonjo-Iweala expressed her appreciation for the activities undertaken by the trade finance communities. She called for increased efforts to strengthen collaboration within the existing informal WTO–MDB network, urging it to extend its focus to supporting supply chain finance, green finance and capacity building.