Diagnostic. Short term finance constraints in Turkey

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1 Diagnostic Short term finance constraints in Turkey

2 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 Short term financing methods Other working capital solution Open account Commercial Letters of Credit Standby Letters of Credit Bank guarantees Collections Trade loan (import and export) L/C financing (A loan covering post delivery cycle) Purchase order financing Factoring Invoice discounting Forfaiting Purchase Order Commitment to Pay Pre-Shipment Finance Warehouse Finance Post-Shipment Finance Payables Finance Receivables Purchase

3 THE ICC TRADE REGISTER

4 THE ICC TRADE REGISTER

5 Short term finance overview 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):

6 Trade Finance market revenues by product (in USD billion) 34 FX Adv. Elec. & Other Structured Trade Standbys and Guarantees Trade services NII Trade Flows USD 16 trillion 12 trillion 15 trillion 18 trillion

7 Still the geographical split of world merchandise exports is uneven

8 P 2013P World trade is an upward trend and Turkey needs to leverage on it 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 Growth in volume of world merchandise trade and GDP ( , Annual % change) 400 Volume of world merchandise exports (Index, 1990=100) 10 5 Average export growth = 5.4% Export volume Forecast Trend ( ) Average GDP growth = 2.8% Source: WTO Exports P 2013P GDP

9 Trade will continue to grow! Payment systems in international trade, (indexed) Global trade is expected to reach USD 48.5 trillion by Letters of Credit Open Account

10 Mixed messages A two-speed trading system? Developing countries % of global imports Source: ICC Survey 2013

11 Mixed messages South-South trade 1990 = about 10% of global trade 2020 = > 30% of global trade 2022 = 50% of developing country exports Source: ICC Survey 2013

12 Mixed messages Export growth in developing regions Source: ICC Survey 2013

13 Mixed messages Issue of documentary credits (Swift MT 700) Source: ICC Survey 2013

14 Mixed messages Average value of L/C issued Source: ICC Survey 2013

15 Trade measures A return to normal trading conditions? Fraud allegations Court injunctions Documents refused on 1 st presentation Source: ICC Survey 2013

16 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

17 Trade finance gaps Total gap: percent of formal SMEs ( million) in developing economies are unserved or underserved Total value gap in credit financing of formal SMEs is $ trillion, including high-income OECD countries

18 Factoring 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 Total world factoring 4-Year Growth = 18.5% Total international cross-border factoring 4-Year Growth = 29% Source: ICC Survey 2013

19 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 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. ST Export Credit Insurance Source: ICC Survey 2013

20 Credit insurance Medium and long-term Cover by Berne Union ECAs New business remained high at USD 181 billion of insured transactions. MLT Export Credit Insurance Source: ICC Survey 2013

21 MDBs MDB s trade facilitation programs Source: ICC Survey 2013

22 Compounding effects of regulations

23 Intra-regional trade (USD billion) Source:World Bank, Ecobank Research

24 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)

25 Top 20 African traders In USD billion, 2011 Few countries have well developed intra-regional trade links Source: Ecobank Research; Afreximbank

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