Trade Services
Transaction banking needs to change to accommodate shifting trade flows
Mauritius, Johannesburg and Dubai are likely to be new locations for regional treasury centres as global trade flows shift towards developing countries forcing companies to rethink how they structure their treasury operations.As global trade patterns change to reflect an increasing bias towards developing countries, corporates will have to change the way they look at their treasury operations. The rapid growth in emerging markets leading to rise of new "trade corridors" such as China-Africa, China-Latin America (LatAm) or Middle East and North Africa (MENA)-India, will force treasurers to rethink where their regional headquarters are located, says Standard Chartered Bank.
According to data provided by Standard Chartered, key developing market corridors will grow at 13% to 18% per annum, while developing-to-developed market corridors, such as China-US will grow at 13% per annum. The EU-US trade corridor is expected to show the fastest decline in global importance from 2010 to 2030.
The change in the relative importance of the various regions is striking,says George Nast, global head, Product Management, Transaction Banking, Standard Chartered Bank."In 2008, the US and EU were at the centre of the most important trade corridors. But by 2030, developing market trade will represent 40% of global trade versus 18% today and only 7% in 1990."
While the "unfolding super-cycle" presents opportunities for banks and corporates looking to do business in new markets, it also presents challenges for companies' treasury operations, says Nast, whose transaction banking and working capital needs will need to change in order to accommodate shifting trade flows and demographics. Nast predicts tha treasury functions will need to evolve in three ways:
- As supply chains extend into new markets as well as span existing ones, treasury functions must have multiple-currency capabilities in terms of liquidity management and payables/receivables.
- Corporate treasuries operating these expanded supply chains must ensure they deal with banking counterparties that understand the local credit and business operating environment.
- Treasury functions should not neglect the potential case for locations such as Mauritius, Johannesburg or Dubai that sit on some of the newer, rapidly evolving corridors, or even Mumbai or Shanghai, which combine large domestic markets and corridor flows. The traditional western locations of treasury functions such as London and New York will almost certainly start to cede precedence to developed Asian locations such as Singapore and Hong Kong.
This obviously plays to the advantage of global banks that enjoy a local presence in key developing markets, as well as regional providers that are able to combine local market knowledge and distribution networks that span a number of countries within South East Asia, sub-Saharan Africa or the Middle East.
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Date Posted:27th April 2011