JUNE 2013 TRADE FINANCE NEWSLETTER Dear Customer, Welcome to the first edition of our Trade Finance Newsletter. When we talk to our customers we understand that there is a need for a regular update on topics relevant to your business. With our network of Trade Finance experts across 12 countries we process and manage many transactions and through our relations with local and international banks across the globe we also understand the drivers and trends of international business. Ruth Graham Our newsletter shares with you how we believe you may be able to manoeuvre in this new normal. Danske Bank believes that the global economy is beginning to recover from the crisis which has dominated our lives in the past few years. A new normal is emerging, with a number of changes to how we view the world. With low or no growth in large parts of the OECD area and relatively high average growth rates in the BRICS and beyond, global trade patterns are shifting towards more south-south trade. There are indications that global trade will move towards open account at the same time as businesses are increasingly looking into risk mitigation. The supply chain is under review, with companies looking to optimize their supply chains, including the financing elements. These trends mean that we need to develop new products and solutions through our own initiatives or in partnership with customers and other institutions, such as UK Export Finance or other service providers. If you have any queries, please do not hesitate to contact myself or one of the Trade Finance team based in Belfast on 028 9004 8175. I hope that you will enjoy reading this newsletter and we would welcome your feedback. Ruth Graham Head of Trade Finance Sales Ireland 1
EMERGING MARKETS AND DEVELOPING COUNTRIES DRIVING FORCES OF GLOBAL TRADE 2013. GLOBAL TRADE PROSPECTS 2013 Global economic growth decelerated during 2012 and weakened the economy further. The key factors were the ongoing financial crisis in Europe, sharp fiscal tightening in the United States, the recession in Japan and a slowdown in some of the large developing countries, such as China, India and Brazil. Global growth will recover gradually in 2013, although at a relatively subdued pace. Growth is thus projected to strengthen to 3.6% in 2013 from 3.3% in 2012. In 2011 and 2010, growth rates were 3.9% and 5.1%, respectively. If we look at separate regions, the growth estimate for the advanced economies is 1.4% in 2013, while emerging markets and developing countries are likely to experience growth of 5.5%. The main drivers of global growth will be China, India, Sub-Saharan Africa and ASEAN-5 1. 1 Indonesia, Malaysia, Philippines, Thailand and Vietnam Shift in trade patterns The share of developing countries of global trade has doubled over the past two decades from around 16.0% to 31.5%. Following the same track in 2013, global trade will be increasingly influenced by the rapidly growing economies, whose exports and imports will continue to increase strongly. Continued productivity differentials, policy reform and investments in human and physical infrastructure are projected to permit developing countries to continue to grow their share of global trade. The import demand of emerging markets and developing countries (6.6% y/y in 2013) reflects relatively strong domestic economies and is projected to accelerate faster than that of developed countries (3.3% y/y) see figure 1. Trade among developing countries, south-south trade, will continue to be the fastest growing segment of global trade and will contribute to developing countries rising share of global trade. North-north trade has expanded on average only 7.3% over the past decade, whereas north-south trade, exports from developed economies to developing economies, has increased at an average annual rate of 11.8% over the past decade. Figure 1. Import volumes y/y percentage change 2008-2013 (2013 projection) Advanced economies World Emerging market & developing economies Source: Danske Bank Market and International Monetary Fund 2
The commodity composition of the goods traded in the first half of 2012 shows that the industrial goods trade was weaker than trade in agricultural goods. The industrial sector, which represents goods such as machinery, metals, minerals and chemicals, was among the hardest hit sectors, with global imports falling 3.4% from the first half of 2011. Companies and households alike cut down on large purchases of durable goods because of the periods of uncertainty and economic weakness. Imports of agricultural goods, however, increased 1.1% in the first half of 2012 compared with the same period in 2011. Given the limited growth, it is likely that the commodity composition of traded goods in 2013 will be much the same as in 2012, since consumers are still affected by the economic slowdown of the past few years. Despite the modest growth outlook, the global economic environment remains fragile and there are downside risks. The ECB s 2012 policy actions have eased the pressure on the financial system. Some major risks, such as the pressure for some countries to leave the euro zone, have been mitigated. The fundamentals of the debt crisis are far from resolved, however, and several vulnerabilities remain. In order to revert to pre-crisis growth rates, developing countries need to focus on domestic productivity-enhancing policies, and the advanced economies need sustained fiscal consolidation and financial sector reforms to mitigate economic risks going forward. AFRICA UNDERGOING TRANSFORMATION WITH AN INCREASING POTENTIAL FOR NEW BUSINESS AFRICA - THE NEXT STEP AFTER BRIC At a time when there are challenging local market conditions and exporting to new areas is a crucial part of driving business growth, it is important to know whether your bank can support you when you are looking to expand your business overseas. The Programme for Government encourages Northern Ireland companies to look for growth in the BRIC countries. As the article above explains, the possibilities for economic growth are best in the emerging markets generally and in Africa specifically. Although Africa is still a small market, it is one of the fastest growing areas with a booming economy (see figure 2). Real incomes have risen 30% over the past decade whereas only 20 years ago, real incomes were falling by almost 20%. Africa is today demanding everything from consumer products for the fast growing middle income groups to investment goods for building infrastructure and the production and extraction of the oil, mining and natural resources that are so abundant in Africa. Africa has changed dramatically in almost every aspect over the past 10 years. Famine, civil wars, dictatorships are perhaps what many would traditionally think of describing Africa. But that is no longer an accurate picture. The number of countries with a democratically elected government has increased to 25 (of 54), up from 3 two decades ago. The number of authoritarian states is falling and democracy is taking root in countries across the region something that has been particularly evident recently in Northern Africa. 3
Africa is a vast continent and should be looked at country by country as there are significant differences. However, if you look at countries from Senegal in the west to Kenya in the east, from Libya in the North to Angola in the south, they, and a large number of other countries, have all developed both democratically and in terms of their economies. If you are looking for important and vibrant economies in Africa right now, we suggest you start with Nigeria, South Africa, Mozambique, Kenya and Angola. An increasing number of countries are developing, making the continent interesting not only for the big multinational players, but also for smaller businesses. Danske Bank is actively engaged with banks in the mentioned countries as well as in most other African countries. We can assist exporters and importers with our relations with local banks and our capacity to take credit risk when covering traderelated business there. Figure 2. GDP growth y/y percentage change 2007-2013 (2013 projections) Business ebanking Business ebanking is our banking system for businesses. It is a web-based system that enables companies to conduct trade finance related business and routine banking transactions, to use international cash management facilities and more. Towards the end of 2013, we will launch an improved version of Business ebanking with new trade finance functionality. 4
INTERNATIONAL CHAMBER OF COMMERCE BANKING RULES FOR INTERNATIONAL TRADE INTRODUCING THE INTERNATIONAL CHAMBER OF COMMERCE - THE ICC HAS REGULATED INTERNATIONAL TRADE FOR MORE THAN 80 YEARS The International Chamber of Commerce (ICC) is regarded as the world s essential rule-making body for the banking industry with 80 years experience and more than 600 members in over 120 countries. The ICC Banking Commission has rightly gained a reputation as the most authoritative voice in the field of Trade Finance. Danske Bank has three Trade Finance specialists who are members of the ICC Banking Commission. The ICC Banking Commission issues universally accepted rules and guidelines for international banking practice. The ICC rules on documentary credits, UCP600 (current edition), are the most successful privately drafted rules for trade ever developed. The pioneers who drafted the first Uniform Customs and Practice for Documentary Credits ( UCP) in 1933 were hopeful that the rules would be an opportunity for the ICC to perform a real service to international business in securing international uniformity of commercial letter of credit regulations. That vision has been realized many times over, as the UCP, now in its sixth edition, and is recognised worldwide as the set of rules governing more than a trillion dollars of trade per year. A Drafting Group under the Banking Commission has been working on the revision of the International Banking Practice for the Examination of Documents under Documentary Letters of Credit, more commonly known as the ISBP. The ISBP is a supplement to the UCP600, which explains in detail how the rules are to be applied on a day-to-day basis. Danske Bank believes that the ISBP fills a gap between the general principles of the rules and the daily work of the documentary credit practitioner. First and foremost, you must comply with the terms and conditions of the letter of credit, secondly, you must comply with the UCP600, and finally, you can seek guidance in the ISBP. For instance, if you need to know whether a certificate should be dated, a draft should be endorsed or a certificate in Spanish would be accepted. Furthermore, the ISBP provides an interpretation according to international standard banking practice of expressions not defined in the UCP600, even though the ISBP emphasises that such an expression should not be used. The number of expressions not defined in the UCP will increase from four to seven in the new ISBP, and in this connection, we would like to highlight the expression Documents acceptable as presented. When this expression is stated in a letter of credit without giving a definition, the meaning would be a presentation of one or more of the stipulated documents provided they are presented within the expiry date of the credit and the drawing amount is within that which is available under the credit. Apart from using the ISBP in our daily work, we try to raise awareness of the ISBP by recommending it to our customers. During the past ten years, we have also used the ISBP actively in our trade finance seminars. We regard the ISBP as a fantastic tool for all parties involved in a documentary credit transaction. The final draft of the ISBP has been accepted by the members of the Banking Commission meeting which was held in Lisbon, Portugal Meeting in April of this year. 5
Disclaimer The content of this newsletter is for information purposes only. It has been prepared by Northern Bank Limited ( the Bank or we ) which is a wholly owned subsidiary of Danske Bank A/S. So far as the law or regulation allow, we disclaim any warranty or representation as to the accuracy or reliability of the information and statements in this newsletter. We will not be liable for any loss or damage suffered from relying on the information in this newsletter. This newsletter does not purport to contain all relevant information which you may need to take into account before making a decision concerning your business. You should not rely on its contents but should make your own assessment and seek professional advice relevant to your circumstances. We may have proprietary positions in the products described in this newsletter. This newsletter is for information purposes only. It is not intended as an offer or solicitation, nor is it the intention of the Bank to create legal relations on the basis of the information contained in it. This newsletter is protected by copyright and no part of it may be reproduced or distributed for any purpose without our prior permission. Danske Bank is a trading name of Northern Bank Limited which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Credit facilities other than regulated mortgages are not regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in Northern Ireland (registered number R568). Registered Office: Donegall Square West Belfast BT1 6JS. Northern Bank Limited is a member of the Danske Bank Group. We welcome your feedback and suggestions to our Newsletter as we strive to publish relevant and valuable information for our clients and potential customers. If you have any comments or suggestions to our Newsletter please feel free to contact Trade Finance at tradefinance@danskebank.co.uk We may record or monitor calls for your protection, to train our staff and to maintain the quality of our ongoing service. Danske Bank is a trading name of Northern Bank Limited. Registered in Northern Ireland R568. Registered Office: Donegall Square West, Belfast BT1 6JS. Northern Bank Limited is a member of the Danske Bank Group. www.danskebank.co.uk 6