UK corporates are increasingly looking outside the UK and Western Europe for growth – with the Central and Eastern European (CEE) region attracting particular attention. However, higher counterparty risk and local-market complexities present barriers to tapping the region’s potential. David Vials, Head of Corporate Coverage for UK and Ireland at UniCredit, explains how moving from traditional trade finance instruments to digital tools such as the Bank Payment Obligation (BPO) can help mitigate these risks, while local market expertise will enable them to navigate the complexities of the territory.
UK exports to the CEE region are currently worth around GBP 16bn and have doubled over the past decade. Yet there remains considerable untapped potential for UK corporates looking for regional opportunities that strike a balance between growth, risk and cost efficiency. The CEE region, which has over 100 million consumers and a combined GDP of over GBP 1tr, is one such market.
Indeed, UK Trade & Investment is targeting a doubling of CEE trade to GBP 30bn by 2020, and it’s easy to see why. For one, growth rates in the region have consistently outpaced the rest of Europe – Slovakia, for example, averaged 3.6% GDP growth in the decade to 2016 compared with an EU average of 0.8%. The region also has a more competitive cost base than established EU markets and a level of growth sustainability equalling that of the emerging markets – an attractive mix. Low public debt levels and GBP 170bn of EU funding to boost investment in infrastructure, energy and innovation between 2014 and 2020 further strengthen its appeal.
Avoiding common pitfalls in the region
But while the door is open to CEE trade, a number of risks and challenges must be carefully negotiated. For one, dealing with new partners in unfamiliar markets leads to a higher risk of buyers not meeting payment obligations in a timely manner, and UK corporates will be looking for ways to mitigate such risks in their activities abroad. Traditionally, documentary methods such as letters of credit and letters of guarantee are used for this purpose, but digital innovations are now offering ways of not only protecting corporates from settlement risk more quickly and more efficiently than paper-based methods, but are also giving access to innovative financial solutions for both buyer and seller.