On December 13, the Director-General of the World Trade Organization (WTO), Ngozi Okonjo-Iweala, and the Managing Director of the International Finance Corporation (IFC), Makhtar Diop, unveiled a jointly published report titled "Trade Finance in the Mekong Region." The report underscores the critical need to expand trade finance in the Mekong-3 countries, namely Cambodia, Lao People's Democratic Republic, and Vietnam, to enhance their participation in global trade.
The publication presents insights from surveys conducted among banks in the Mekong-3 countries, revealing the challenges faced by local businesses in accessing credit. It also offers strategic recommendations aimed at improving local producers' access to finance and their integration into global supply chains.
Director-General Okonjo-Iweala emphasized the significance of regional trade finance surveys in bridging the gap between demand and supply. She pointed out that the global trade finance gap, estimated at $2.5 trillion in 2023 by the Asian Development Bank, primarily affects developing countries and hinders trade and economic opportunities.
The report highlights regional disparities in trade finance gaps, with Vietnam experiencing a segmented market, where international and large local firms access trade finance more easily compared to small producers. Cambodia and Lao PDR face even greater challenges, where self-financing or expensive working capital lines remain common.
Okonjo-Iweala stressed the potential economic benefits of narrowing trade finance gaps, citing that, currently, only 20% of trade in both West Africa and the Mekong-3 countries is supported by trade finance, compared to 60% to 80% in advanced economies. She noted that increasing trade coverage from 25% to 40% could result in an average annual increase in trade flows by 8%.
Efforts to boost trade finance in developing economies should focus on supporting local producers, enhancing supply chain finance, and strengthening collaboration between multilateral development banks and development financial institutions, according to Okonjo-Iweala.
Makhtar Diop of the IFC commended the findings of the joint studies and stressed the importance of coordinated action by the private sector, policymakers, financial institutions, and international organizations to address constraints in trade finance and unlock its potential for emerging markets.
The collaborative effort between the WTO and IFC aims to facilitate economic growth, trade integration, and socioeconomic inclusion through trade finance, providing a pathway for developing economies to harness the transformative power of trade.
The report is a testament to the commitment of both organizations to enhance cooperation on trade finance studies, with the first joint publication covering West Africa launched in October 2022.