Dubai: Global trade flows and supply chains have just bout managed to emerge from the long shadow of the Covid crisis. Even now, key commodities are still some months away from heading back to normalcy. (For confirmation, just ask carmakers about semiconductor supplies they need for all their fancy models.)
But chances of a smooth ride for global trade in 2023 will hinge more on whether a recession will show up, in full force or even partially. Plus, recent floods and nature-linked crises will have their own bearing on commodity movements and, by extension, on their prices.
Vivek Ramachandran is HSBC bank’s Head of Global Trade and Receivables Finance. As such, he’s got a pulse on likely trends that will play out in the months ahead, and what this could mean for individual economies and businesses operating within them.
Are your projections for a serious tailing off in trade volumes for 2023 worldwide? If yes, with a simultaneous dip in trade financing possibilities?
Globally, we have seen a decline on some of the leading indicators for trade, and demand for goods has slowed somewhat. Despite this, some markets have proven to be more resilient than others - the UAE is one of them.
During my recent visit, it was apparent how agile the government is in enabling businesses to rapidly adapt to the macroeconomic environment. The high oil prices, solid logistic capabilities and the strengths of intra-regional trade flows – especially with Saudi Arabia – coupled with a healthy local demand, have helped support the economy.
As a result, the UAE market remains upbeat and most businesses I spoke to expect to see growth over the next year despite global economic challenges. HSBC Global Research’s forecasts predict UAE exports (and imports) growing by 4 per cent in 2023, slightly slower than in 2022.
Global trade is expected to slow more sharply, down to 1.1 per cent in 2023 – so the UAE is a very positive market for us.
Suppliers facing intense financing shortfalls is being talked about as a real concern. Are you hearing the same?
I believe global trade is now at a critical inflection point. Global supply chains have been under significant stress in the last two years, businesses have been impacted and these disruptions have resulted in a rethink of the relationship between clients and suppliers, including the need for nearshoring – or even in-country value creation – in an effort to ease the access to finance between clients and suppliers.
The market is accelerating towards more structured trade, especially on supply chain finance. We have seen increased interest from governments, public sector entities, multinationals and large corporates to leverage their balance-sheets’ strengths to allow financing for the benefit of the economy and within their supply chains.
Supply Chains Finance (SCF) will continue to gain in popularity during this period of uncertainty.
Within the expanded trade financing, do you reckon supplier and allied credit could be something lenders would look at?
Financial institutions can play a pivotal role in facilitating trade, with around 40 per cent of global goods traded being supported by bank-intermediated trade finance.
For HSBC, supporting international trade has been at the heart of our business model since we were founded in 1865. Today, we facilitate approximately $740 billion of trade each year. And trade remains key to our future ambitions.
Blockchain entering trade space - you reckon that will bring about more transparency and even cost savings for all in the supply chain?
Trade finance has for centuries been paper-based, but blockchain provides a way to boost efficiency, increase transparency and streamline supply chains. Broader usage of technology to track shipments has taken hold, and blockchain is one among a number of underpinning technologies that are helping global trade evolve.
When blockchain technology is adapted at a large scale, it will have the power to transform the world of trade by improving speed of processes, customer experience and providing a paperless experience.
As the world’s largest trade bank, we have a key role to play in the wider transformation of global trade. We act as a catalyst to allow the most successful and disruptive technologies to energise the market, as well as provide an opportunity to unlock the future of trade.
Technology-driven efficiencies and the expansion to new digital platforms and channels are two of the major drivers of growth, and we have a responsibility to take such solutions to our clients by commercialising them and scaling things at pace.
If a recession does happen in early 2023, would it be a more regional issue for trade financing?
We are seeing different regional trends. HSBC Global Research’s forecasts are for a slowed pace of global trade growth out to 2024 (3 per cent), given the subdued demand outlook, particularly for goods in the West.
A rebound in China could potentially boost global trade and things could be more positive, but if there is weakness in the second-half of 2023 or early 2024, trade could slow again.
The GCC nonetheless enters 2023 from a position of strength. The region is probably the fastest-growing economic bloc in the world today, there is substantial investment in large scale infrastructure projects, and tourism is booming thanks to some of the best COVID-19 management policies seen during the pandemic, all of which support robust local demand.
Looking at the UAE specifically, the domestic economy continued to rebound in 2022, mostly driven by high oil prices and tourism. Expo 2020 in Dubai and the 2022 FIFA World Cup in Qatar have assisted in driving a sharp rebound of visitor numbers to the region.
The budgetary performance has improved significantly this year, which clearly creates a supportive environment for governments in the UAE and across the GCC to deliver on their strategic visions. In MENA, it is estimated that about $4.3 trillion of projects are planned or are underway across the region, which will help diversify the economy further. The investments across infrastructure, power and energy, transport as well as real estate and social services are continuing with a sense of urgency.
Additionally, in Saudi Arabia, 15 mega-projects are ongoing and acting as a further catalyst to an already dynamic GCC economy.