Mind!the!$2!trillion!Gap"

Transcription

1 Mindthe$2trillionGap $2trillionofmissingtradeintheworldcannotbeignored EquantAnalytics2016 Keymessages Wehavefound$2.1trillionmoretradeintheworldthanofficialreportedstatisticssuggest. This comes about from under3reporting which Equant Analytics corrects by the process of mirroring* tradedataforover200countriesandtradingjurisdictionsaswellas12,800productsandsectors. We developed the EADR (Equant Analytics Divergence Ratio) which measures the extent of the difference between officially published and mirrored data. It is a warning light indicating where a country stradedatashouldbeinterrogatedmorecloselyfor'hidden'dataorimpactsfromsanctionsand tariffs. An average of 11% of global trade over the past 15 years has been unaccounted for. This makes it invisibletothebroaderglobaleconomy,financiersandgovernments. WefoundthatSwitzerland had the largest numerical discrepancy in 2014 with the top 10 countries making up $873bn of the $2.1 trillion difference. Switzerland s mirrored trade divergence from its published trade has been particularly acute since 2013 and more specifically in 2014, with a significant increaseinoilandgastradebetweenrussiaandswitzerland. Chinahasthesecondlargestdivergenceinitstradestatisticsbyvalueatsome$123.9bnin2014,while HongKonghasthethirdlargestat$123.2bn.Since2003China simporttradehasdivergedprogressively lessinpercentagetermscomparedtohongkong swherethedivergencehasincreased. Thekeydriverofthehealthoftheglobaleconomyasweknowisgrowthoftotalworldtrade.Achieving trulyaccurateandcomprehensivedataonthisandsobeingabletolookforwardandassessfuturegrowth isacentralgoalformanykeydecisionmakers. We aim to make global trade data more reliable. Unreliable global trade data weakens the quality of decision making by banks, investors and governments which may deter decisions to invest, finance or trade. 1 *Amirroringapproachreversesthetradeflowfortwocountriesandcreatesaweightedaverageofthetwosothatimportandexportvaluesare consistent.theapproachisusedbytheworldtradeorganisation(wto)andtheorganisationforeconomiccooperationanddevelopment(oecd) andappliedtothelargerunitednationscomtradedatasetforover200countriesandtradingjurisdictionsand12,800productsandsectors.

2 1.0 ExecutiveSummary 1.1EquantAnalyticshascalculatedworldtradeat$21.22trillioncomparedwithWTO's$19.09trillion,a difference of $2.1 trillion, or 11% more trade in the world than reported statistics suggest for the latestavailabledatain2014.theequantanalyticsmirroringapproachtocalculatingtherealvalueof tradeflowsintheworldcoversover200countriesandtradingjurisdictionsand12,800productsand sectors. 1.2 EquantAnalyticsforecastsworldtradetogrowby1.5%annuallyto$21.5trillionin2015and$22.1 trillion by This is more conservative than the WTO's forecast of 2.8% for 2015 and 3.9% in Despiteourmoreconservativeforecast,weexpectglobaltradetobe$1.9trillionmorein2015 and$1.7trillionmorein2016thanthewtoforecasts. 1.3 Theextra$527bnoftradeweexpectbetween2015and2016meansthattotalworldtradefinance will increase by $448 billion, of which $148 billion isthrough bank intermediated finance via $77 billioninloansand$71billioninadditionallettersofcredit 2.Italsosuggestsafurther$2.2billionof additionalyieldforthebankingsector Theunreliabilityofreportedstatisticsmakesithardforanyoneinvolvedintradeortradefinanceas anadvisor,financier,analystorofficial,toknowexactlywhatisbeingtradedatanyparticularpointin time.thiscreatesriskfortheregulatoryandfinancialsysteminparticularwhichmaydeterdecisions toinvest,financeortrade. 1.5WehavedevelopedtheEquantAnalyticsDivergenceRatio(EADR)whichprovidesameasureofhow differentacountry smirroreddataisfromitsreporteddata.wheretheeadrisconsistentlyhighover time it suggests that there are risks from systematic under3reporting of trade. Where the EADR is sporadically high it suggests that a country s trade is responsive to changes in the geo3economic or geo3politicalclimatefortrade.theeadrprovidesameasureoftradedivergenceandtradevolatility. Itisawarninglightindicatingwhereacountry'stradedatashouldbeinterrogatedmoreclosely. 1.6Switzerland smirroredtradedivergesby68%fromitspublishedtrade.switzerland sdivergencehas beenparticularlyacutesince2013,andmorespecificallyin2014withasignificantincreaseinoiland gastradebetweenrussiaandswitzerland. 1.7 Thetop10countrieswiththelargestnumericaldeviationbetweentheirofficiallypublishedtradedata andtheequantanalyticsdataare:switzerland,china,hongkong,uae,france,uk,russia,singapore, Philippines and Malaysia. In total these 10 countries account for $873 billion of the $2.1 trillion differenceinglobaltradefor Assumes,asdoestheIMF,that85%ofthevalueofworldtradeissupportedbytradefinanceandinsurancesandthat33%ofthisisbank intermediated. 3 Assumesayieldof1.5%ofthevalueofbankintermediatedtradefinance. 2

3 2.0 Mindthegap EquantAnalyticshasfoundthatthereisnearly$2.1trillionmoretradebetweencountriesintheworldthan theworldtradeorganisation(wto)estimates.theequantanalyticsfigureforthetotalofworldtradein 2014is$21.22trillionwhiletheWTO sfigureis$19.09trillion.thisrepresents11%moretradeintheworld thancurrentlyavailablestatisticssuggest.wehavecalculatedthisonthebasisofamirroringmethodology applied to the Comtrade international goods trade statistics covering over 200 countries and trading jurisdictionsand12,800productsandsectors. Thekeydriverofthehealthoftheglobaleconomyasweknowisgrowthoftotalworldtrade.Achieving trulyaccurateandcomprehensivedataonthisandsobeingabletolookforwardandassessfuturegrowth is a key goal for many key decision makers. We aim to make global trade data more reliable. Unreliable globaltradedataweakensthequalityofdecisionmakingbybanks,investorsandgovernmentswhichmay deterdecisionstoinvest,financeortrade. Further: Worldtradegrowth,evenatEquantAnalytics'conservativeforecastof1.5%between2015and2016, willyieldanadditional$527billionintradevalue Total world trade finance will account for $448 billion, of which $148 billion extra in bank intermediatedfinancevia$77billioninloansand$71billioninadditionallettersofcredit 4 Thisrepresentssome$2.2billiongloballyinpotentialadditionalyieldforthebankingsector 5 The differences in the data come about through the mirroring process and a few examples serve to illustratethepoint: Afghanistan:rawdatafromComtradeismissingdatabetween1996and2007.Afterthat,exports arebarelyreportedand,asaresultafghanistan srawdatatradewiththeworldwas$10.1billion by2015.themirroringprocessreturnsavalueforafghanistan stradeof$14.4billion. Kenya:rawdataismissingin2012and2014.In2015therawdatasuggestsafigurefortotaltrade with the world of just over $11 billion. The refinement and mirroring process, however, yields a figureof$27.6billion. Theseexamplesalonerepresentaround$21billionintradebut,multipliedacross200countriesand12,800 productsandsectors,itiseasytoseewhereagapof$2trillionmightcomefrom. 4 Assumes,asdoestheIMF,that85%ofthevalueofworldtradeissupportedbytradefinanceandinsurancesandthat33%ofthisisbank intermediated. 5 Assumesayieldof1.5%ofthevalueofbankintermediatedtradefinance. 3

4 Methodologicalnote The$2.1trillionistheproductofthemethodweusetocleanandharmoniseinternationaltradedata.The approachwehavetakenisthesametechniqueastheoecdandthewtousetomirrordatabetweentwo tradingpartnerstomakethevalueofimportsandexportsconsistent.wherethereislittleornotradedata foronecountry,wecapturetheirtradebylookingattheirpartners tradewiththem. Ouraimwastocreateasymmetricdatasetwhereimportsequalexports.Todealwithallthediscrepancies, whereatradeflowbetweentwocountriesisasymmetric,thedataisweightedtowardsthestrongerdata; where there is no data for one country, the data for the partner is used. This ensures that imports and exports have the same value between countries and also uncovers trade between countries as well as systematicunder/over3reportingbycountries. This is not a new phenomenon. The gap has remained reasonably consistent across the world, but as emergingeconomieshaveimprovedtheirdatacollectionprocesses,thegapbetweenwhatispublishedby theunitednationsinitscomtradedatabaseandindividualemergingeconomieshasnarrowed.wheregaps persist,theyareoftensystematic inotherwords,countriesprovidedifferenttradenumberstothosethat arereporteddirectlytointernationalauthorities. Thisisclearlyaconcernasithidesmoretrade,andthereforemorebusiness,thanwhatisaccountedforin theglobaleconomy.italsosuggeststhatthefluidityofthetradesystemisitselfapotentialrisktoinvestors, analysts, advisers and traders who need a precise picture of what is happening in order to manage risk appropriately. Analysts,investors,tradersandevengovernmentsaremissingthetruevalueoftrade.Thismeansthat: Potentialopportunitiesarebeingmissed,particularlyinemergingregions Publiclyavailabledataisconsideredreliableleadingtopotentiallyerroneousdecisions Risksfromtrendsthatareembeddedinthedataarenotunderstoodandthereforenotmanaged Assumptionsaremadeaboutgeopoliticalorregulatoryeffectiveness(e.g.onsanctions) 4

5 3.0 TheEquantAnalyticsDivergenceRatio(EADR) Measuringthegap To provide a regular indicator of data reliability, we developed the Equant Analytics Divergence Ratio (EADR).ThisratioisthedivergencebetweenEquantAnalytics comprehensivedatasetandwhatiscurrently publicly available through Comtrade, the World Trade Organisation and country statistics. This ratio has averaged 11% over the past 15 years, as depicted in Figure 1 below, suggesting that there is always a significantamountofglobaltradewhichisnotvisibleandthusunaccountedforintheglobaleconomy. 15 %divergenceofwtoandequantanalygcsglobal tradedata Figure1:TheEADRforglobaltrade,2000X2014 TheEADRforglobaltrademaybeconsistentovertimewithanaverageof11%overthepast15years,but thatisnotthecasewhenanalysingtheeadrforspecificcountries.forexample,theeadrforirelandis over30%todayyetpriortotheintroductionoftheeuroitwasjust7%.similarly,malta stradehasbecome oneofthemostdivergentofallcountries,particularlysincethefinancialcrisis.theretendtobespikesin theratiolastingacoupleofyears,particularlyaroundsanctionsandtradeagreements. The EADR provides an alert for countries that are suddenly and substantially diverging from published statistics. As such it provides the trade, trade finance and trading community with a red flag where the divergenceissignificantenoughtowarrantfurtherinvestigation. 5

6 OurEADRindicatorhelpsmeasuretwothings: The divergence between a country s published trade data and the mirrored trade data over time. Thissuggeststhatthecountryinquestionhasapoorrecordoftradereporting.Thisappliestosome emergingeconomies,particularlyinthemiddleeast,northafricaandsub3saharanafrica.thistradeis missed or hidden not just from the governments but also from regulators and financiers.. The volatility of a country s published trade data and the mirrored trade data over time. This is indicative of a country s sensitivity to national economic, geo3economic or geo3political events. High volatility could highlight distinct trends against sanctions policies or trade agreements. This often reflectsacountry strade,taxorfinancialstatus. Figures 2 and 3 below highlight a selection of emerging and developed countries with their respective EADRsfor2014.Asexpected,theratioismainlyhigherforemergingeconomies.Interestingly,however, amongstthedevelopedcountriessomelikeswitzerland,irelandandluxembourgstandoutashavinghigh discrepancieswiththeirpublishedstatisticsandhenceraisequestions EADR2014(%) Angola Ghana SouthAfrica SaudiArabia Brazil Peru Zambia Colombia Chile India Rep.ofKorea Argengna Thailand Armenia China Kenya Mexico Qatar Turkey VietNam Singapore Ukraine Oman Indonesia Paraguay Malaysia Kuwait Georgia Kazakhstan RussianFederagon China,HongKongSAR SriLanka Ethiopia Uruguay Iran Egypt PapuaNewGuinea Cameroon Myanmar UnitedArabEmirates Senegal Philippines China,MacaoSAR Mozambique Zimbabwe Afghanistan Bahrain Kyrgyzstan Figure2:TheEADRforselectedemergingeconomiesin2014 6

7 7 FurtheranalysisintothesequestionsonFigure3shows: Switzerland simportsfromrussiagrewfrom$23billionin2013to$169billionin2014;ofwhich$117bn wasaccountedforbyoilandgas Ireland stradeinaerospacegrewby261%between2013and2014whileitsimportsofoilgrewby102% Figure3:TheEADRforselecteddevelopedeconomiesin2014 Withafewexceptions,themajorityoftheG20countriesfallwithintheaverageEADRof11%,ascanbe seeninfigure4.russia,hongkongandindonesiastandoutbutallothercountriesfallinlinewithorbelow theglobalaverageof11%.infact,evenchinawhichissooftencriticisedbythemarketsfortheunreliability ofitsdata,hasaratioof6.3%whichislowerandthusmorereliablethanbothfranceandtheuk.worth notingthatduetothesizeofthechineseeconomy,this6.3%isasmallerratiothanfortheukandfrance, butstillrepresentsahighervalueoftradediscrepancy Netherlands USA Hungary Japan Belgium Germany Australia Slovenia Sweden Spain Denmark Canada Croaga NewZealand Italy Greece Portugal Austria CzechRep. UnitedKingdom France Finland Iceland Poland Norway Israel Latvia Estonia Luxembourg Ireland Switzerland EADR2014(%)

8 Figure4:TheEADRfortheG20in2014 %Difference,betweenWTOandEquantAnalygcstrade data AswellasusingEADRasacomparisonacrosscountries,wecanalsouseittoanalysethereliabilityofa country s data over time. For example, Figure 5 shows the UK s data to The UK EADR was 10% versusthewtodataand9%versustheuncomtradedatain2014.ifwelookatthetimeperiodfrom 1996forexportsandimports,thereareactuallyonlyfouroccasionswheretradehasdivergedfromthe officialstatisticsbymorethan6%since1996.hence,theukhasaloweadrovertimewithsomeperiodic divergencesandhasalwaysremainedwithintheaverage11%ofglobaleadr

9 UKEADR(%) Imports Exports Figure5:UKExportandImportEADR,1996X Whydivergenceisinteresting Unlike the UK where the divergence is sporadic, and marginal, over time there are many emerging economies,particularlywithinsub3saharanafrica,wherethedifferencescanbelargeandsignificant.the gapforliberia,forexample,isover1000%,whilstthetop10countries(whichincludebermuda,benin, Gambia, Togo and Aruba) all have gaps of over 225% accounted for largely by poor reporting of trade statisticsinthosecountries. TheselargeandpersistentEADRdivergenceshighlightthatthereisscopefortradethatislesscompliant withglobalregulations.hence,veryhighdivergenceratiosareanautomaticwarningsignforlawyersand financiers. 6 Note,in2002EADRoftheUKforExportswaszero(0),thesamewasthecaseforimportsin

10 4.0HowreliableisChina sdata?hongkongholdstheanswer Chinahasthesecondlargestdivergenceinitstradestatisticsbyvalueatsome$123.9bnin2014,while HongKonghasthethirdlargestat$123.2bn.Since2003China simporttradehasdivergedprogressively lessinpercentagetermscomparedtohongkong swherethedivergencehasincreased.thisisbecauseof the changing nature of trade between the two countries following the Closer Economic Partnership Agreementsignedin2003andimplementedin2004. The goal of the Closer Economic Partnership Arrangement (CEPA), was to achieve the status of two countries3onesystem, creating rulesoforigin wherebygoodoriginatinginhongkongcanbetreatedas Chinese in origin, as with other Chinese semi3autonomous regions. All import duties between the two countriesareremovedgivinghongkongbusinessestariff3freeaccesstothechinesemarketandremoving all tariff barriers to trade in goods and services between the two countries. China does not report its importsfromhongkong,buthongkongreportsitsexportstochina. There is a common external tariff in some sectors (such as whisky) but because the agreement is a commoneconomicpartnershipagreement asopposedtoafreetradearea,theobjectiveofacommon externaltariffacrossallsectorsisanobjectiveratherthanspecificgoal.thisappearstoaffecthongkong s EADRmorethanChina s ChinaandHongKongimportEADR ChinaImports HKimports Figure6:HongKongandChina seadrovertime(imports) 10

11 5.0Conclusion Trade flows are fascinating, not least because of their association with geo3politics and geo3economics. Waywardtradedataisevenmoreinterestingbecauseithasthepotentialtoprovesuspicionsabouttrade diversion and data manipulation and the EADR approach is intended to create a mechanism whereby divergences can be identified and flagged for further investigation. The EADR does not substitute for publishedtradedata,itsimplyaddsariskmeasuretothatdataassessingitsdivergencefromwhatequant Analyticsseesinitsdata. We believe that our analysis and development of EADR is helpful for all those involved in international trade,whetherasanadviser,financierorinvestor.theeadrandthedataitencompassesgivesamore accuratepictureofthe$2.1trillionoftradethatishiddenfromtheofficialstatisticsatanypointintime. As a key constituent of the health of the global economy, it is essential for decision3makers to have accurate and comprehensive trade data; our core aim is to make global trade data more reliable. Unreliableglobaltradedataweakensthequalityofdecisionmakingbybanks,investorsandgovernments whichmaydeterdecisionstoinvest,financeortrade. DrRebeccaHarding ThanosPapasavvas CoXFounder&CEOCoXFounder&CIO +44(0) (0) rh@equant3analytics.com tp@equant3analytics.com 3rdFebruary