The impact of the pandemic on global trade has been significant: forecasts predict a drop in trade volumes of as much as 9% in 2020, according to the United Nations Conference on Trade and Development. And while Asia may have fared better than many regions during the pandemic, there have nevertheless been many challenges to overcome where trade is concerned, as Steven Beck, Head of Trade & Supply Chain Finance at the Asian Development Bank (ADB), explains.
“There have been periods when difficulties in logistics and transport have stemmed the flow of goods, when workers have been impeded from getting to fields and factories and many other challenges,” says Beck. “And many Asians, particularly the poor who are most vulnerable, continue to suffer.” He adds that ADB has been “actively supporting its developing member countries through a $20 billion package announced in April, with budgetary and other support to meet the challenges they face.”
Another impact has been on the availability of trade finance to SMEs. “In our 2019 Trade Finance Gaps Growth and Jobs study we estimated that there was already a global market gap for trade finance of about US$1.5trn,” says Beck. “Through the pandemic, although we have no empirical data, that gap must have grown. We know anecdotally that market gaps for trade finance have grown, especially among small- and medium-sized businesses.”
He adds that ADB’s Trade and Supply Chain Finance Programme (TSCFP) “is doing what it can to plug those gaps,” with the programme seeing an increase of over 50% in transaction volumes in 2020.
Rise of intra-regional trade in APAC
Also significant is the continued growth of intra-regional trend in the region. The latest HSBC Navigator survey found that APAC firms are increasingly focusing on intra-regional trade in the post-COVID world: 71% of the companies that participated in the survey are trading within Asia-Pacific, up from 67% in 2019.
As Beck comments: “The trend of rising intra-regional trade has been happening for more than a decade.
This has been fuelled by a variety of factors including rising labour costs in the PRC and increased manufacturing capacity in neighbouring countries such as Bangladesh, Viet Nam, Pakistan and Cambodia, as well as trade tensions.”
One important catalyst for intra-regional trade is the recently-signed Regional Comprehensive Economic Partnership (RCEP), a free trade agreement spanning 15 countries in the region. In a press release, Stuart Tait, Regional Head of Commercial Banking, Asia-Pacific at HSBC, noted that intra-regional trade “already accounts for some 60% of Asia’s overall trade, and it’s a figure that will only grow when RCEP comes into effect.”
Beck, likewise, expects the RCEP to drive the trend for rising intra-regional trade. “Signatories represent 40% of global trade and 40% of the world’s population,” he comments. “RCEP brings Asia one step closer to becoming a cohesive trading zone.”
From DLT to ESG
Beyond these drivers, Beck also points out that the pandemic has shown “how critical and yet vulnerable global trade and supply chains can be” – and that technology has a role to play in making those supply chains more robust.
“ADB’s TSCFP has been actively engaged to advance tech in trade and supply chains,” he says. “We helped create the Digital Trade Standards Initiative, which aims to harmonise digital systems to modernise what has historically been a paper-based trade finance system reliant on face-to-face document transfer.” He adds that TSCFP executed the first pilot trade finance transaction using distributed ledger technology (DLT) by a multilateral development bank, which was successfully completed in August.
Last but not least, Beck says the region is paying closer attention to issues like environmental and social risks, although more work needs to be done. “ADB’s TSCFP has conducted training for banks along these lines, both educating them on the issues and helping to put what they learn into practice,” he concludes. “We are in the process of helping to implement automated environmental and social safety systems in banks.”