Author Archives: Saksham Bhargava

The UAE is planning to launch a new Services Export Strategy to make it easier for the service sector leverage the country’s trading relationships, which continue to expand thanks to the success of the Comprehensive Economic Partnership Agreements (CEPA) programme, a top official says.

Dr Thani Al Zeyoudi, Minister of State for Foreign Trade, said new Services Export Strategy will be launched in partnership with the private sector.

“The aim of the Export Services Strategy is clear — to enhance the competitiveness of the UAE’s services sector and promote the growth of the country’s services exports. With our strong value proposition, we have established a distinct competitive edge,” Dr Thani told BTR.

In an exclusive interview, Dr Thani discusses how a new Services Exports Strategy is set to expand their contribution to UAE’s foreign trade, which is on track to hit Dh4 trillion ($1.09 trillion) by 2031. He said services exports constitute more than two thirds of the world’s economic output.

“We have an ambitious, holistic approach to trade. With the Services Exports strategy now underway, we are well positioned to achieve the targets set, and look ahead to leveraging a diversified trade mix to meet shifting global demand,” Dr Thani said.

Excerpts of the interview:

Firstly, why are services exports so important to the UAE?

The nature of trade is changing and services exports — the cross-border sale or supply of services rather than goods from one country to another — is flourishing. While trade in goods remains a bedrock of the global trading system, trade in services is becoming an ever-larger part of the trading mix, growing 60 per cent faster than trade in goods over the past decade. And the UAE’s performance is outstripping the global trend.

In the last eight years, as the nation’s economy has grown and diversified, services exports have increased four times faster than the rest of the world, which has helped to bolster our status as a knowledge-driven, service-based economy. Today, nearly 20 per cent of the UAE’s overall foreign trade comprises services trade – which equates to $250 billion.

Why the need for a services exports strategy?

In 2022, according to the World Trade Organisation (WTO), the UAE was the world’s 12th largest service exporter, with a total value of $154 billion accounting for 2.2 per cent of global services exports. While this is an enormous achievement, global services exports hit $7.2 trillion in 2022, representing 25 per cent of the value of total global exports and 11.8 per cent of the world’s GDP, which underlines the huge potential for us to diversify our economy in this direction.

This is why we are launching a new Services Export Strategy in partnership with the private sector: to make it easier for the service sector in the UAE to leverage our trading relationships, which continue to expand thanks to the success of the Comprehensive Economic Partnership Agreements (CEPA) programme.

What are the key sectors and areas of focus?

Travel and tourism, two key service exports driven by Emirates, Etihad and our unrivalled offering as a global travel destination, are prime examples of how the UAE has taken an increasing share of the global market in recent years. They also offer a template for success in a range of sectors, and our strategy is focused on nine industry verticals in which we have proven capabilities, namely: travel and tourism, ICT, professional services, financial services, education, medical tourism, Islamic financial services, the creative economy, and logistics.

The aim of the Export Services Strategy is clear: to enhance the competitiveness of the UAE’s services sector and promote the growth of the country’s services exports. With our strong value proposition, we have established a distinct competitive edge.

What are the pillars of the strategy?

We understand that, as a government, we are not the experts. Business knows what is best for business, and we see our role as establishing the framework to enable companies succeed both here and in new markets. To that end, we are setting up taskforces for each sector, which will be public-private collaborations charged with formulating a clear, sector-specific roadmap, creating data-backed targets, identifying new markets and in-demand products, developing new enhancement initiatives and working with different trade agencies and offices here and abroad to promote opportunities. We have already started the process of recruiting industry leaders to join these task forces.

What is your strategy to formulate data?

When it comes to formulating a strategy, having the right data is essential and we are making sure the data collection is best-in-class. This is being handled by the Federal Competitiveness and Statistics Centre (FCSC), which will harmonise data collection across all government entities and work with the WTO to ensure that the processes are fully aligned with global standards.

Part of our overall economic diversification strategy rests on increasing digitisation across government services and the wider economy. This also applies to trade, and data analytics is in line with our wider goals of building a new era of technology-led, evidence-driven, positively disrupted trade — which is a message we will be taking into the discussions as host of the WTO’s MC13 in February 2024.

Can you talk a little more about how this initiative fits with broader national objectives?

We have an ambitious, holistic approach to trade. Our Comprehensive Economic Partnership Agreement programme, which is opening up important new markets for our exporters by removing tariffs and boosting investment flows, is supported by our re-exports strategy, which is consolidating our status as a global supply-chain hub, and our NextGenFDI programme, which is bringing some of the most exciting and dynamic digital businesses to our rapidly expanding ecosystem. In time, these companies will become future export success stories.

These are all critical pillars our long-term diversification ambitions. With the Services Exports strategy now underway, we are well positioned to achieve the targets set, and look ahead to leveraging a diversified trade mix to meet shifting global demand.

Courtesy: khaleejtimes.com

The Government has announced the new rates of duty drawback and a few products have had a significant increase in rates.

Cotton T-shirts now have a drawback rate of 3.1 per cent compared to 2.1 per cent of earlier, rates for man-made T-shirts also increased by 0.5 per cent, babies garments (blended and cotton) do have a little increase.

Regarding drawback value cap per unit, there is a significant revision, as for babies garments, now the cap is Rs. 29.4 which was earlier Rs. 13, similarly in blended babies garments, earlier the cap was of Rs. 6 which is now Rs. 12.5.

This revision has come more than after three years as prior to this, the last revision was done on 28th January 2020.

The Department of Revenue, Ministry of Finance, Government of India has issued a Notification recently by revising the Drawback schedule. This notification shall come into effect from 30th October 2023.

The notification also says that in  respect  of  the  tariff  items  in  Chapters  60,  61,  62  and  63  of  the  said  schedule,  the  blend containing cotton and man-made fibre shall mean that content of man-made fibre in it shall be more than 15 per cent but less than 85 per cent by weight and the blend containing wool and man-made fibre shall mean that  content  of  man-made  fibre  in  it  shall  be  more  than  15 per cent  but  less  than  85 per cent  by  weight.  The garment or made-up of cotton or wool or man-made fibre or silk shall mean that the content in it of the respective fibre is 85 per cent or more by weight.

K.M. Subramanian, President, Tirupur Exporters Association (TEA) said, “We are happy with this decision as we have appealed for the revision of drawback rates and value cap upwards for knitwear garments.”

Courtesy: apparelresources.com

The European Union has begun the rollout of a world-first carbon border tariff that will tax importers of emissions-intensive goods, but fears have been raised over the scheme’s impact on global supply chains.

On October 1, the EU initiated the transition phase of the new carbon border adjustment mechanism (CBAM) which is aimed at imports of iron and steel, cement, aluminium, fertilisers, electricity and hydrogen.

Companies importing these products have been told to collect import volume data and calculate emissions released during the production process – with the first quarterly report due by the end of January 2024.

Once the permanent system enters into force in 2026, the EU will begin taxing imports based on their CO2 emissions profile, partly to prevent so-called “carbon leakage”, where companies based in the bloc relocate carbon-intensive production to countries with lower environmental standards.

Experts say the move will have far-reaching supply chain consequences for major trading partners, such as the UK, China and Turkey.

In the metals market, for example, the tariff covers upstream ores as well as downstream goods including screws, bolts and nuts.

“CBAM could be devastating to the sector,” a British steel industry representative tells GTR, flagging the impending impact of administration barriers and financial penalties on exporters.

The EU is the largest export market for UK steel and accounts for about three-quarters of foreign sales, they note.

China and India have also raised concerns over CBAM and the damage it could inflict on their domestic metals producers who often rely on heavy emitting blast and basic oxygen furnaces.

According to research from ING, CBAM could drive up the cost of importing Chinese aluminium products into the European bloc by around 17%, unless Beijing manages to decarbonise the sector in the coming years.

ING says the outlook for Indian flows is a “bit more worrisome” and predicts the total cost of India-produced aluminium products will leap by over 40%.

Brussels has argued the carbon tariff is compliant with World Trade Organization (WTO) rules and is necessary to ensure its climate objectives – part of a push to be climate neutral by 2050 – are not undermined.

The bloc’s trade commissioner, Valdis Dombrovskis, said in a speech in late September that the EU would be “encouraging global industry to embrace greener and more sustainable technologies”, and added that CBAM will “contribute to the wider discussion about greater use of carbon pricing globally”.

Exporters in developing countries are likely to be harder hit.

Analysis by the African Climate Foundation and the London School of Economics and Political Science (LSE), finds that African states with a greater share of their exports destined for Europe will ultimately be the worst affected by the tariff.

In a report published in May, they say that – at current carbon prices – CBAM could reduce Africa’s exports to the EU by up to 5.7%, knocking off 0.91% from the continent’s gross domestic product, or around US$25bn, as compared to 2021 levels.

Courtesy: gtreview.com

September 20, 2023 is a landmark date for the digitisation of trade. The UK’s Electronic Trade Documents Act is now in effect, giving paperless versions of documents such as bills of lading (BLs) the same legal standing as their physical counterparts. 

After decades of slow progress – just 2.1% of BLs and waybills were issued electronically last year in containerised trade – the reforms have been hailed as a transformational opportunity to move away from paper, improve efficiency, cut costs and reduce trade’s carbon footprint. 

A survey published this week by the Institute of Export and International Trade (IOE&IT) finds that 75% of businesses surveyed believe the Act will have a positive or very positive impact on their business. None said it would affect them negatively. 

Lloyds Bank announced in the early hours of September 20 it had already completed what it believed was the first transaction under the Act, issuing a digital promissory note to retailer Matalan to facilitate the purchase of garments from a supplier. 

However, uncertainties remain. The Act is deliberately technologically neutral and does not offer prescriptive definitions of the systems that can be used to issue electronic trade documents. The IOE&IT finds that a quarter of business owners are concerned about data security, and nearly a third worry about IT skills and implementation. 

And despite substantial industry efforts to encourage adoption, the survey finds that 36% of respondents cite the biggest barrier to progress as “ensuring partners are on board”. 

Courtesy: gtreview.com

Prime Minister Shri Narendra Modi along with the leaders of UAE, Singapore, Bangladesh, Italy, USA, Brazil, Argentina and Mauritius, launched the Global Biofuel Alliance on 9 September 2023, on the sidelines of the G20 Summit in New Delhi.

The Global Biofuel Alliance (GBA) is an initiative by India as the G20 Chair. The Alliance intends to expedite the global uptake of biofuels through facilitating technology advancements, intensifying utilization of sustainable biofuels, shaping robust standard setting and certification through the participation of a wide spectrum of stakeholders.

The alliance will also act as a central repository of knowledge and an expert hub. GBA aims to serve as a catalytic platform, fostering global collaboration for the advancement and widespread adoption of biofuels.

Additionally, at the G20 Summit, India, the US, UAE, Saudi Arabia, France, Germany, Italy and the European Union signed a Memorandum of Understanding (MoU) to establish the India-Middle East-Europe Economic Corridor. Biden called it a “game-changing” regional investment. The economic corridor of rail and shipping links aims to bolster trade between India, the Middle East and Europe, a modern-day SpiceRoute to bind regions that account for about a third of the global economy.

Courtesy: LinkedIn – UAE-India Business Council (UIBC)

The African Union became a permanent member of the G20 on Saturday at a summit of leaders of the world’s largest economies in New Delhi, marking the first expansion of the bloc since it was created in 1999 to cope with a series of financial crises.

The African Union will have the same status as the 27-member European Union (EU), the only regional bloc with full membership of the G20. The move was in line with the Indian G20 presidency’s efforts to put the concerns and interests of the Global South at the centre of its agenda for the summit.

In a brief televised inaugural session, Prime Minister Narendra Modi announced the move to make the 55-member African bloc the new member of the G20. “In keeping with the sentiment of sabka saath (with everyone), India proposed that the African Union should be given permanent membership of the G20. I believe we all are in agreement on this proposal,” Modi said, speaking in Hindi.

After saying “with your agreement”, Modi banged a gavel thrice to mark the entry of the African Union into the grouping. “Before we start our work, I invite the African Union president to take his position as a permanent member,” he said.

External affairs minister S Jaishankar escorted the current chairperson of the African Union, Comoros President Azali Assoumani, to a seat at the table for permanent members of the G20. Modi greeted Assoumani with a hug before the G20 leaders began their deliberations behind closed doors.

Addressing the opening session of the summit, Modi called for the G20 to work together to find solutions to pressing challenges such as a turbulent global economy, the North-South divide, management of food, fuel and fertilisers and ensuring health, energy, and water security. “India’s G-20 presidency has become a symbol of inclusion, both within the country and beyond, representing the spirit of ‘Sabka Saath’ (with everyone),” he said.

Africa was also in spotlight as the delegates gathered in New Delhi because of an earthquake in Morocco. Modi offered condolences and support for the victims. “The entire world community is with Morocco in this difficult time and we are ready to provide them all possible assistance,” he said.

The inclusion of the African Union will also add to the clout of the G20, which already accounts for about 85% of global GDP, more than 75% of global trade and about two-thirds of the world population.

In June, Modi wrote to his counterparts among G20 members that the African Union should be given full membership of the grouping. The proposal was also backed by key members of the European Union (EU), China and Russia, albeit for different reasons.

Besides the EU, members of the G7 such as Japan backed the move to give African countries, which are part of the Global South, a greater say in the global governance architecture. China was reluctant to be seen as going against the move in view of its large investments in Africa through the Belt and Road Initiative, while Russia has been keen to woo more African states to its side to counter its isolation by the West over the Ukraine conflict.

“India is elated to welcome @_AfricanUnion as a permanent member of the G20. Together, let us foster global unity and progress. Let us also do whatever we can for the development of the Global South,” Modi posted on X.

In response to a message in French posted on X by Assoumani, Modi said India believes in a collaborative future and “this step further solidifies our collective commitment to global progress”. Modi also responded to a congratulatory message from South African President Cyril Ramaphosa by saying: “With the @_AfricanUnion strengthening the G20 family, we will cement partnerships that prioritise all-round development, leading to a better planet.”

Ramaphosa said the global reconstruction in the wake of Covid-19 presents an opportunity to accelerate the transition to low-carbon, climate resilient, sustainable societies at a time when developing economies are bearing the brunt of climate change.

Diplomats of G20 member states have said the African Union’s inclusion would not lead to a change in the name of the grouping.

Courtesy: hindustantimes.com

ADB’s flagship Trade Finance Gaps Survey returns for its eighth edition, confirming expectations that the global trade finance gap – unmet demand for trade financing – has worsened, reaching  $2.5 trillion, an increase of 47% since the last stock-taking which pegged the gap at $1.7 trillion in 2020. 

The gap now represents about 10% of global merchandise trade and continues to adversely affect small and medium-sized businesses around the world.

Geopolitical and trade tensions, the Russian invasion of Ukraine, and factors such as inflationary pressure coupled with interest rate increases all combine to contribute to the worsening of the trade finance gap. Familiar factors such as financial crime (anti-money laundering and countering the financing of terrorism) compliance, along with customer and counterparty due diligence (Know Your Customer or KYC) requirements continue to be reported as obstacles to the provision of trade financing for SMEs.

This year’s survey sheds light on novel aspects that hold special relevance given the present market conditions. These include the emergence of innovative financing methods like Deep Tier Supply Chain Finance (DTSCF), designed to extend liquidity to the most distant parts of global supply chains. The report also highlights the potential of green, eco-friendly, and sustainable finance to reduce the trade finance gap.  76% of responding firms expressed interest in exploring such innovations.

In its inaugural examination of sustainable trade, financing, and Environmental, Social and Governance (ESG) factors, the ADB’s survey unveiled the following statistics:

• 82% of respondent banks consider ESG and sustainability as strategic imperatives.
• 74% of these banks have plans to transition towards ESG-aligned and sustainable financing.
• In a similar vein, 70% of firms participating in the survey believe that aligning with ESG criteria could enhance their access to trade financing.

This data reflects a broad sense of priority and optimism regarding ESG considerations within the trade financing landscape.

The digitalisation of trade, including through digital documents and improved processes and interoperability, is likewise seen as a potentially important factor shaping the market, with 73% of firms expressing optimism that meaningful digitalisation can enable significant improvements in efficiency. 

Over 63% of banks see significant value in digitalisation, particularly around regulatory compliance and improved understanding of and engagement with SME clients. Both groups, however, acknowledge that the cost and complexity of digitising trade pose a significant challenge.

At the same time, key findings from survey respondents signal that awareness-raising and advocacy efforts may be generating a positive impact, with linkages between trade, financing, digitisation, sustainability, and sustainable finance presenting a series of areas that have the potential to narrow the trade financing gap, particularly given alignment in perspective on these issues between banks and their clients.

The 2023 survey indicates that there may be some notable developments in the views of businesses around the state of their supply chains. While policymakers, multilateral institutions and others remain concerned about supply chain resilience and transparency, survey respondents seem to be indicating that their supply chains have rebounded well from recent crises. Approximately 12% of responding firms indicated that they are concerned about visibility in supply chain operations and only 14% of firms are concerned about supply chain resiliency. This finding is notable and bears monitoring.

A blueprint for better trade financing

As with past editions of the ADB survey, some consideration is given to potential solutions aimed at narrowing the trade financing gap.

This edition focuses on a few categories of solutions, proposing that we collectively work to create more financing capacity by developing trade finance further as an investable asset class. Additionally, the significant interest in – and potential of – DTSCF should motivate focus on developing this form of financing, including all necessary enabling conditions such as legal frameworks and the actions of various stakeholder groups. 

The transformative attention around ESG and sustainability should also be the subject of proactive attention, in particular, to assure that ESG and sustainable trade, and all related market and regulatory requirements serve to attract more capital in support of trade finance – and not evolve to become an exacerbating factor to the gap because appropriate measures were not taken to align trade and financing with ESG and sustainability requirements.

Digitalisation, in particular, support of the ADB-funded Digital Standards Initiative (DSI), can also help narrow the trade financing gap. Furthermore, progress has been made in several regions towards adopting digital trade practices. This is notably due to governments aligning with the UNCITRAL Model Law on Electronic Transferable Records (MLETR), a trend that should be both encouraged and accelerated..

Finally, trade financing has proven its efficacy in times of crisis, including during COVID-19, and in country-specific crises such as the recent one which erupted in Sri Lanka. The imperative to assure adequate access to timely trade financing in times of local, regional, or global crisis is clear, and its value in maintaining control of the trade finance gap is clear.

In the end, the importance of tracking – and mitigating – the global unmet demand for trade financing hopefully helps ensure we do not lose economic value, are able to continue to drive trade-based international development, and can regain ground in trade-based poverty reduction from the progress reversed by COVID-19.

Trade is a powerful tool of economic growth, development, poverty reduction and prosperity. Much of it cannot happen without adequate, timely, and affordable financing. The ADB Trade Finance Gap Survey provides a barometer of the state of the market and explores solutions as well as emerging developments that can help drive trade financing to where it is most needed.

Courtesy: tradefinanceglobal.com

Keeping the policy rate unchanged is important for industry, as it will further boost growth.

The Reserve Bank of India’s decision to keep the repo rate unchanged at 6.5 per cent on August 10, 2023, marking the third consecutive pause on policy rates by the Central Bank, has been welcomed as a pragmatic approach by India Inc., businesses, and policy experts who view it as a further step towards building up on the growth momentum, providing impetus to industry, and staying committed to bringing inflation within the target band. While being largely viewed as an expected line of action, the retention of the policy repo rate to 6.5 per cent importantly signals a focus on ensuring sustainable growth of 6.5 per cent or more for the economy while navigating challenges of inflation related more to weather conditions, headwinds from weak global demand, volatility in global financial markets, geopolitical tensions, and geo-economic fragmentation, which pose risks to the growth outlook.

For exporters, the stable monetary policy followed by the RBI comes at a crucial time when trade and businesses are exploring new markets and need stability in finance costs amidst the daunting challenges faced by the global economy and its impact on India, agrees Arun Kumar Garodia, Chairman of the Engineering Export Promotion Council. The slowdown in the world economy and tepid demand in major advanced markets have significantly impacted the engineering exports sector, which has reflected in a sharp decline in shipments. “Engineering exports from India conceded a year-on-year decline for the seventh month in a row in June this year, starting in December 2022,” says Garodia.

With both the US Fed and European Central Bank increasing the interest rate by a quarter percentage point, a section of trade and industry was of the view that the RBI would continue to follow the same path of maintaining the status quo on policy rates. “While most central banks have given more weight to inflation as compared to growth, the RBI has struck a nice balance between the two, giving primacy to growth, thereby maintaining the GDP growth forecast for FY24 at 6.5 per cent,” says A. Sathivel, president of the Federation of Indian Export Organisations (FIEO). The status quo in rates will also help the exporting community, whose cost of credit has gone up substantially due to upward revisions in rates during the last one and a half years, leading to the demand to increase the interest subvention from 2 percent and 3 percent to 3 per cent and 5 per cent, respectively.

The decision to keep the policy rate unchanged is also important for industry, as it will further boost growth through increased investments, which in turn will further enhance manufacturing and production, thus easing supply and reducing inflation in the coming months, according to Sakthivel. The RBI move also comes as a timely incentive when the recovery in kharif sowing and rural incomes, along with the positive momentum in services and consumer confidence, are expected to bolster household consumption. The FIEO Chief, however, feels exporters could add some more momentum to the external sector by extending the Emergency Credit Line Guarantee Scheme by one more year until March 31, 2024. “The resilient external sector growth backed by the financial sector push will help give more thrust to the economy,” says Sakthivel.

The automotive retail sector, currently on a commendable growth trajectory, is upbeat about the RBI’s focus on anchoring inflation at 4 per cent, much needed as a bolstering force for the industry ahead of the festive season, often seen as a turning point in India’s consumer market. “The consistent repo rate is poised to benefit consumers significantly,” says Manish Raj Singhania, President of the Federation of Automotive Dealers Association. “Such stability in rates reinforces confidence, particularly among entry-level customers in both the passenger vehicle and two-wheeler segments. It’s worth noting that the recovery in the entry-level two-wheeler segment, in particular, still lingers below pre-COVID benchmarks,” points out Singhania.

Deepak Sood, ASSOCHAM Secretary General, who is optimistic that the RBI would ensure adequate liquidity in the banking system for additional momentum to the India growth story, points out several positive macro takeaways from the RBI-Monetary Policy Committee (MPC) intervention, like an uptick in capacity utilisation in the manufacturing sector and revival of private sector investment in key sectors of the economy. “This is despite challenges emanating from the global economy. Excluding food and fuel, core inflation is declining while the weather conditions should play out in a few months. We share such an assessment by the RBI,’’ says Sood. Besides, he points out, there is an assurance of enough liquidity in the system that should give comfort.

Sood looks at other spillovers of the RBI policy review, which encompasses a wider spectrum, including a boost to infrastructure funding, transparency in the EMI resetting for the borrowers, and an innovative technology interface for frictionless credit delivery through end-to-end digital platforms. “Enabling UPI with artificial intelligence under the supervision of the RBI is a leap frog not only for the financial sector but also for the wider usage of AI for the common good of the people,” says Sood.

Industry body FICCI, however, voices a clouded outlook due to possible El Niño conditions amidst the fine balancing act and diligent approach to steer the economy through a challenging phase. “A tough global outlook calls for careful monitoring even as the policy stance remains withdrawal of accommodation while allowing previous interventions to flow through the system,” says Subhrakant Panda, President, FICCI. “The FICCI manufacturing survey indicated a revival of private capital on the back of the government’s significant outlay and business optimism, which has been reiterated by the Governor,” adds Panda, lauding the RBI’s innovative measures such as conversational payments on UPI, which will expand the scope of digital payments.

Chief Policy Advisor, Ernst & Young India, DK Srivastava, views the RBI decision to have kept the repo rate unchanged at 6.5 per cent with continued monitoring of the liquidity situation as being led by reliance on domestic demand to take care of growth in spite of the continued supply-side challenges.

Srivastava finds that the fiscal landscape provides considerable reassurance for maintaining investment momentum. “The central government has demonstrated proactive measures by front-loading its capital expenditure, resulting in a remarkable growth of 59.1 per cent during the first quarter of 2023–24. This prudent fiscal approach contributes significantly to the overall environment for sustainable investment,” says the EY Advisor.

Radhika Rao, Executive Director and Senior Economist, DBS Bank, views the RBI’s hold on the repo rate as a pause with hawkish underpinnings. The RBI MPC move reflects vigilance on inflation while highlighting the supply-driven nature of the recent run-up in food segments. Rao underlines the RBI’s emphasis that further action will be warranted on signs of unanchoring inflationary expectations as well as if inflation stays above the mid-point target of 4 per cent on
a durable basis.

CRISIL Market Intelligence and Analytics views the RBI move as a sign that the MPC is comforted by continued resilience in economic growth even as exports remain a drag on growth and the MPC sees global demand and geopolitical tensions as risks to the growth outlook. On the upside, Crisil research observes that among demand segments, investment is gaining steam, led by government capital expenditure. Private capex, too, is seeing signs of revival, with capacity utilisation in the manufacturing sector at 76.3 per cent in Q1—aabove the long-term average of 73.7 per cent. The urban economy continues to lead consumption demand, while rural demand is seeing a nascent recovery.

Courtesy: sundayguardianlive.com

In the geographically dispersed world of international trade finance, efficient communication is crucial. 

This is why the Society for Worldwide Interbank Financial Telecommunication – better known as SWIFT – created its messaging types, which have long served as a means for banks around the globe to communicate and facilitate transactions. 

Among these messaging types, the MT760 messages – recently updated to enhance efficiency, compliance, and fraud prevention – are significant in issuing standby letters of credit and bank guarantees. 

To learn more about this vital message type, explore the implications of these changes, and see how they will impact standby letters of credit, Trade Finance Global (TFG) spoke with Ledia Dervishaj, assistant manager of trade finance operations, standby letters of credits and global wholesale operations at Scotiabank Global Banking and Markets.

Swift messaging types for trade finance

There are nine different SWIFT message types (MT), each serving a specific purpose, categorising various interactions among financial institutions. For trade finance, category seven messages, specifically MT760, are the most common. 

MT760 messages are used to issue standby letters of credit and bank guarantees for beneficiaries outside their institution or country. They serve as a means of communication and to establish payment obligations between the parties involved in a transaction.

By using these authenticated messages, banks can securely communicate payment obligations and facilitate trade finance transactions with confidence.

In recent years, the rules that govern this messaging type have received an update.

New rules for MT760

The recent changes to the MT760 rules were not driven by any inherent flaws in the previous system but rather by the need to improve and enhance the process based on the collective experience of industry specialists. 

SWIFT, in collaboration with trade finance colleagues, gathered suggestions and opinions to identify areas for improvement. The primary focus was to simplify and streamline the transaction process, enhance authentication, and effectively detect fraudulent messages. 

Previously, all transaction details were contained within a single field, requiring extensive reading and analysis. The revised rules have separated many of these transaction elements into their own message structure, making it easier to verify, authenticate, and identify any discrepancies or compliance issues. 

Dervishaj said, “Now that everything is separated, it makes our lives very easy in terms of authentication and checking for fraudulent messages. We can notice anything that goes wrong with the transaction regarding compliance and the sanctions that are in place, which has enhanced and improved our processes.”

Another notable aspect of the MT760 rule changes is the introduction of additional mandatory fields, which are essential for the message to pass through the system successfully. If any mandatory fields are missing, it acts as a red flag, indicating a potential issue with the transaction.

Previously, five fields were mandatory for an MT760 message to be processed, but the new rules have increased this number to 13. This addition simplifies the transaction structuring and makes it easier for banks to ensure all necessary information is included.

Ultimately these changes serve to enhance the efficiency and accuracy of trade finance processes for all involved.

Continual evolution for a changing future

While the MT760 rule changes have significantly improved efficiency and brought about positive transformations in issuing standby letters of credit and bank guarantees, more changes are expected on the horizon. 

SWIFT is currently evaluating potential modifications to the messaging types 798 and 761, which are primarily used by customers requesting the issuance of letters of credit. 

The organisation aims to gather feedback and input from banks to identify areas for improvement, reduce errors, and enhance the overall transaction structure and procedure.

The separation of transaction details into specific message structures and the expansion of mandatory fields have improved efficiency, compliance, and fraud prevention in trade finance operations.  

Dervishaj said, “SWIFT’s work adding in more fields with constricted data entry points is quite important in preparing the world for the bigger aim of digitalising trade.”

By embracing these changes, banks can enhance communication capabilities, ensure secure payment obligations, and facilitate smoother trade finance transactions. 

SWIFT’s commitment to gathering feedback and continuously refining the messaging types reflects the industry’s dedication to advancing digitalisation and strengthening international trade finance processes.

As we move forward, the world of trade finance will continue to evolve, and staying abreast of these changes will be crucial for professionals in the field.

Courtesy: tradefinanceglobal.com

In a boost to bilateral trade and investments, Prime Minister Narendra Modi, who is in Abu Dhabi today holding talks with UAE President Sheikh Mohamed bin Zayed Al Nahyan, announced that India and the United Arab Emirates have agreed to start trade settlement in local currencies. PM Modi said that he hopes that bilateral trade between the two countries goes past the $100 billion mark soon, as it currently stands at $85 billion.

“The India-UAE comprehensive strategic partnership has been steadily strengthening and the Prime Minister’s visit will be an opportunity to identify ways to take this forward in various domains such as energy, education, healthcare, food security, fintech, defence and culture,” the Ministry of External Affairs (MEA) said. It will also be an opportunity to discuss cooperation on global issues, particularly in the context of the UAE’s Presidency of COP-28 and India’s G-20 Presidency in which the UAE is a “special invitee”, it added.

PM Modi is visiting UAE as he returns from France, where he held bilateral discussions with French President Emmanuel Macron. The two countries agreed on a slew of new initiatives and agreements and drew a roadmap for ties which has three pillars: partnership for security and sovereignty; partnership for the planet; partnership for the people.

Courtesy: indianexpress.com