G20: leverage trade finance to safeguard SMEs and power global recovery

The co-chairs of a high-level advisory group to the International Chamber of Commerce (ICC) have issued an urgent call to G20 leaders to take action to avert the risk of widespread insolvencies amongst small- and medium-sized enterprises (SMEs) globally, due to the Covid-19 pandemic.

In an open letter, Victor K. Fung (Chairman, Fung Group) and Marcus Wallenberg (Chair, SEB) have urged G20 leaders to make coordinated interventions to increase the availability of trade-related finance – given that this is a proven low-risk means of providing fresh stimulus to increasingly stretched SMEs.

Trade finance underpins somewhere between 80 – 90% of global trade and acts as a vital source of working capital for many SMEs. Recent signals suggest that supply of trade credit to SMEs and emerging markets is at significant risk in response to growing corporate, sovereign and currency risks.

In their capacities as the co-chairs of the ICC Advisory Group on Trade Finance, Mr Fung and Mr Wallenberg appeal to world leaders to act before it is too late.

Mr Fung said: “There is a clear business case to keep the supply of trade finance flowing across supply chains globally and especially for small- and medium-sized enterprises and the millions of jobs that they support.  The real economy –whether we speak of manufacturing and production, or retail and services — relies on this form of working capital, and it needs your support now.”

Marcus Wallenberg added: “Based on our experience leading multinational firms through previous economic shocks, we strongly believe that coordinated action to increase the availability and accessibility of trade-related finance could help avert a widespread SME solvency crisis in the coming months—while laying the foundations for a faster recovery from the COVID-19 pandemic.”

The call from the two prominent business leaders in advance of the G20 Leaders’ Summit later this month emphasises that trade-related finance is an ideal vehicle through which to deploy fresh stimulus to the real economy – offering an opportunity for governments to target available support to the immediate liquidity needs of SMEs. The low-risk profile of trade financing should also assuage growing government concerns about possibly adding more public debt.

ICC has further outlined additional measures that could be implemented by G20 governments to prime the supply of trade financing globally –including a scaling of publicly backed credit guarantee schemes, regulatory interventions and export credit insurance to incentivize the provision of trade credit by commercial banks.

ICC Secretary General John W.H. Denton AO said:

“Continued uncertainty in the global economy could create a perfect storm for widespread retrenchment in the trade credit market in the coming months. With many small businesses operating on dwindling reserves in the wake of the pandemic, this presents an acute risk of accelerating already worrying rates of business failures.

“Major interventions to prime the supply of trade finance should be viewed by G20 governments as not only means of mitigating downside risks to the economy, but as low- or no-cost means to fuel a rapid and resilient recovery from the crisis. It’s vital that the leaders of the world’s leading economies seize the narrow window of opportunity to save our SMEs.”

The ICC Advisory on Trade Finance provides strategic insights to shape global discussions on the trade financing ecosystem in the context of Covid-19.

In addition to the two co-chairs, members of the group include: Anabel Gonzalez, Former Minister of Trade of Costa Rica and Senior Fellow at the Peterson Institute for International Economics; Amy Jadesimi, Chief Executive Officer of Lagos Deep Offshore Logistics Base (LADOL); Flora Mutahi, Chief Executive Officer of Melvin Marsh; Takeshi Niinami, President and Chief Executive Officer of Suntory Holdings; Samuel Palmisano, Chairman of the Center for Global Enterprise; and Mark Tucker, Group Chairman of HSBC Holdings; Jeremy Weir, CEO, Trafigura; and Zhu Min, Chairman of the National Institute of Financial Research at Tsinghua University.