Access and availability of Finance in the SEMED region
EBRD mandated FINANCE FOR IMPACT to investigate constraints on trade finance / SME finance in the SEMED region (Egypt, Jordan, Morocco, and Tunisia). Kamola Makhmudova, EBRD Senior Bank and Project Leader, provides insights on this project.
Access to finance is recognized to be key to the future outlook of the new countries of operations in the SEMED region, in particular for SMEs engaged in cross-border trade.
The EBRD’s Trade Facilitation Programme (TFP) was developed to promote and facilitate international trade to, from and within central and Eastern Europe, the Commonwealth of Independent States (CIS) and the southern and eastern Mediterranean (SEMED) region.
Under the TFP, guarantees are provided to international commercial banks, thereby covering the political and commercial payment risk of transactions undertaken by participating banks (issuing banks) in the EBRD’s countries of operations (COOs). At present there are 100+ issuing banks in 27 countries participating in the Programme, working with over 800 confirming banks and their subsidiaries throughout the world. Since its inception in 1999, TFP has facilitated more than 19,600 foreign trade transactions worth a total of EUR 14.7 billion. In 2016, TFP supported 1,359 trade finance transactions totaling EUR 1,543 million. Activities started in the SEMED region in 2013 and significantly increased in recent years (See below).
Development of EBRD TFP Activity in SEMED, 2013-2016
Still, more efforts are needed to strengthen COOs’ capacity to finance their trade. According to recent surveys, the estimation for the value of unmet demand for trade finance in Africa was US$ 90 billion in 2016 (one-third of the continent’s trade finance market). Small and medium-sized enterprises (SMEs) face the greatest hurdles in accessing affordable trade financing. Globally, over half of trade finance requests by SMEs are rejected. Gaps in trade finance provision are highest in new “frontier” countries for trade, where trade opportunities are increasing as global production patterns evolve. This is the case in the SEMED region in which trade plays an important development role. However, the absence of an adequate trade finance infrastructure is, in effect, equivalent to a barrier to trade. Limited access to trade finance and a lack of guarantees are likely to hinder the cross-border trade potential of these economies.
In 2017, EBRD initiated a series of market assessments in the SEMED region to study the limitations in existing trade finance coverage, with a focus on Jordan, Tunisia, Morocco and Egypt. The immediate impetus for carrying out this regional assessment is to inform and assist EBRD in understanding the needs and constraints of trade finance in the four countries.
The firm Finance for Impact is currently providing a detailed analysis of market conditions in the SEMED region. In particular, the consultant are conducting the following tasks:
a. Review the demand for trade finance in the SEMED region (e.g. assess the potential of Jordan, Tunisia, Morocco and Egypt for imports and exports). Finance for Impact will highlight key characteristics of those firms involved in cross-border trade in Jordan, Tunisia, Morocco and Egypt (size of transactions, sectors, target countries for import-export, etc.).
b. Undertake in-depth interviews with financial providers, e.g. commercial banks, to assess the availability and affordability of trade finance. Finance for Impact is now reviewing the diversity of the currently available trade finance instruments and assess the market dynamics behind the availability of these instruments.
c. Examine the effect of financial exclusion. In particular, Finance for Impact is assessing the impact of ‘de-risking’, whereby in response to perceived global regulatory requirements (particularly anti-money laundering, counter terrorist financing and sanctions), regulatory penalties and decreasing risk appetite, international banks are withdrawing from offering financial services to certain sectors and individuals.
d. Assess the extent to which transit trade is important in the region. Finance for Impact is collecting evidence on the scope the volume of transit trade in each of the four countries and providing specific case studies. Specific attention will be paid to issues of economic development, private sector growth, finance sector stabilization and poverty reduction for those countries facing major challenges (e.g. how does the use of inclusive trade contribute to alleviate the pain and suffering of the displaced populations of Iraq and the refugees in Jordan).
e. Assess the extent to which EBRD guarantee facilities can facilitate the financing of cross-border trade in the four countries, with particular attention paid to the financing of transit trade and operations with sub-borrowers outside of EBRD COOs.
f. Propose recommendations on the role of EBRD to support cross-border trade in the region.
The analysis is based on a combination of document review, key informant interviews, group discussions with SMEs and selected case studies in the four countries.
Finance for Impact will produce individual country assessment for Egypt, Jordan, Morocco and Tunisia by the end of 2017. A series of workshops will be organized in the four countries to discuss the findings and recommendations. The full analysis will also be published towards the beginning of 2018.