Trade Finance
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Tricks of the Trade

by Dino Sani, Head of Treasury Services for Latin America, BNY Mellon

Intra-emerging market (or ‘south-south’) trade – having grown at a compound annual growth rate (CAGR) of 19.4% since 2002 to account for 23% of world trade in 2010 – has stepped firmly into the spotlight. And of the growing network of trade between emerging economies, it is the relationship between Brazil and China that has risen to pre-eminence, with bilateral trade between the two economies now worth approximately US$100bn.

The importance of this trade corridor in particular – and its reputation as the flag-bearer of south-south trade – was underlined in June this year by the signing of a landmark trade agreement between the two economies. This agreement detailed an agenda of mutual investment and established a currency swap facility designed to facilitate future trade – thereby not only demonstrating the significance of the trade connection but also taking steps to safeguard its continued success.

As intra-emerging market trade continues its advance – indeed, recent reports suggest trade to the value of US$2.82tr is now bypassing the west – it is vital that corporates in emerging markets are equally proactive in preparing for the future. Safeguarding their business – and optimising cash and trade flows – will entail both a comprehensive understanding of the economic developments and trade finance trends occurring on a macro level, and a detailed awareness of the capabilities and technological tools that they will increasingly rely on.

Open account trend to continue

First and foremost, corporates are likely to follow the trend – well-established in developed markets – for trading on open account terms. Already over 80% of global trade is processed via open account, and the flexibility, efficiency and cost-effectiveness of this form of trade will inevitably see it gain greater traction in emerging markets.