Insight archive for Alex Manson | Standard Chartered

Banking the Ecosystem™

Alex Manson — Thu, 22 Sep 2016 12:39:20 +0000

Typically, when a bank serves a large company, it focuses on that particular client, rather than how it can support the wider supply chain of businesses on which the company depends. The evolution in global trade, however, suggests this approach to banking may be missing a trick.

In recent years, corporate supply chains have become significantly more complex. Every connection in an industry supply chain – whether it’s a small or medium-sized supplier, a large international distributor or a local ‘mom and pop’ retailer – is critical. A delay or break at any point could interrupt production or result in a short term funding gap.

Consequently, corporates have begun to look beyond their organisational boundaries to assess whether their supply chain ecosystem is equipped to help them grow and compete in a challenging business environment.

What banks must do

Banks – if they truly want to support global trade – should do the same, adjusting their lens to focus on whole communities, rather than single clients.

A number of banks have introduced supply chain financing, but still focus on the needs of large corporate clients. Take supplier financing for example: banks’ engagement with suppliers is typically to onboard them to the programme, rather than working with them to understand their supply chain and financing needs – including how their growth is linked to that of their customer – and devising solutions accordingly.

"Treasurers and finance managers are increasingly demanding solutions from their banks"

But this will have to change. Treasurers and finance managers are now increasingly demanding solutions from their banks that integrate financing, automated processes, and efficient, data-rich transaction and information flows. They also need banks that have the footprint, capacity and appetite which matches the needs of their suppliers and buyers.

These supplier and buyers are typically small and medium-sized enterprises – a segment that is under-served. Why? Most global banks restrict their target customer base outside their home market to multinational corporations, while banks that support a wider spectrum of business customers, such as regional and local banks, typically lack the network to serve a global supply chain. Also, banks are often organised into silos to support different customer segments, blocking a more holistic approach.

How does our Banking the Ecosystem approach to banking services work?

To take an example, a large manufacturer looking to expand production may be hindered by constraints in key suppliers’ capacity. It is more difficult and costly for some of these suppliers to access financing, than it is for the large corporate they supply to. As such, the solutions available to these suppliers are typically plain vanilla post shipment finance.

However, if the manufacturer’s bank took an ecosystem approach (not only to financing, but also to services such as payments and collections), it would overcome these obstacles and offer best fit rather than single-product solutions.

Positioning for growth

As each market, and industry, continue on their economic journeys, and commercial models evolve in line with new technologies and customer expectations, clients’ ecosystems will need to adapt. And for banks like Standard Chartered, this means delivering services to all customer segments in a client’s ecosystem and co-developing solutions for not just large corporates, but for their supply chains partners too, ultimately to facilitate trade and connect business communities.

Singapore: evolving to stay ahead

Alex Manson — Mon, 12 Oct 2015 08:00:18 +0000

As business leaders and bankers meet at Sibos this week to shape the future of the world’s financial industry, the venue – Singapore – could hardly be more appropriate.

As an international hub for finance and trade, Singapore has already demonstrated its ability to reinvent itself.

In the past, it was Singapore’s geographic location and trading heritage that attracted multinational companies. More recently, its strengths in commodities and renminbi (RMB) clearing have been key differentiators.

It’s no wonder Singapore is one of the preferred location for regional treasury centres, for companies headquartered in North America and Europe, as well as fast-growing Asian companies.

While some of the first companies to open regional treasury centres in Singapore were attracted by tax and business incentives, a wide range of factors now contribute to Singapore’s appeal – including its time zone, talent pool, double taxation agreements, ease of doing business, technology innovation, physical and digital infrastructure, and international connections.

Next steps

While Singapore’s appeal is indisputable, others are not standing still, and the city state cannot rely on reputation and past success alone. Hong Kong and Kuala Lumpur, for example, recently announced new measures to attract regional treasury centres. It is vital for Singapore that it maintain its advantage by adapting to changing economic, technology and cultural trends.

First, Singapore needs to continue to make it easy to do business and support the international business community through good governance.

Second, while companies are attracted to the skills and expertise that exist in Singapore today, the competencies they are looking for will continue to evolve. If Singapore is not proactive in nurturing home-grown talent and attracting the best people in their field from around the world – Hong Kong, Shanghai or Kuala Lumpur may also be able to provide the concentration of skills that corporations will be seeking in the future.

"Singapore needs to develop unique competencies that will help it remain an attractive hub for investment"

Third, for Singapore to remain the foremost trading hub in Asia and more widely, it needs to develop unique competencies that will help it remain an attractive hub for investment, trading and RMB, building on its strengths in areas such as trade, commodities and technology.

In particular, Singapore’s position as an Asian hub, and therefore the centre of a trading ecosystem across Asia and beyond should not be underestimated. It needs to use this position in new ways to facilitate growth.

Staying ahead

As a trading hub, Singapore brings together buyers and sellers across Asia and beyond, from tiny producers to the world’s largest corporations. Making it easier for these counterparties to do business will fuel growth across such this ecosystem, from producer to distributor, retailer and customer.

"Singapore is poised to become a world leader by investing in, and incubating, fledgling technology businesses"

Singapore has the potential not only to be a hub for the physical economy, but also the digital one. While technology skills and investment levels are already major strengths, Singapore is poised to become a world leader by investing in, and incubating, fledgling technology businesses and using its global connections to disseminate transformational technology worldwide.

Singapore will remain attractive as a regional, and increasingly global hub, if it can demonstrate that companies doing business here can achieve sustainable growth: international trade is not longer facilitated by the physical movement of goods alone, but by the joining up of increasingly complex networks of supply-chain participants. Singapore is ideally equipped to harness these changing trends and consolidate its role in this new economy.

Building for the future

In its ‘Doing Business 2015’ report, the World Bank once again ranked Singapore as the easiest place in the world to do business. This validation of the country’s success in encouraging and facilitating international trade and investment is very positive, but it cannot afford to be complacent.

Rather – much like the delegates from the world finance industry descending on the city state for Sibos week – Singapore needs to look at what has contributed to its success in the past, what is changing, and how it can build for the future.

Read more insights from Sibos here

Trade is changing – time for the WTO to catch up

Alex Manson — Tue, 21 Apr 2015 14:36:52 +0000

Global trade isn’t what it used to be, and neither is the World Trade Organization (WTO). As the WTO marks its 20th anniversary this year, it has to adapt if it wants to stay relevant.

We’re all familiar with goods labelled ‘Made in China’ or ‘Made in the US’, but today supply chains overwhelmingly cross borders. Goods are now ‘Made in the world’, so trade is no longer about one country manufacturing a product and exporting it to another. Instead we have complex, global supply chains, with many different markets collaborating together, and emerging markets in particular are at the forefront of driving world trade.

"Tariffs, the traditional preoccupation of the WTO, are hardly the only barriers to trade that need to be identified and eliminated"

Multilateralism and bilateralism are making way for plurilateralism, where small groups of nations set up mutually beneficial trade policy based on their shared interests.

The world’s regional agreements – like the Association of South East Asian Nations (ASEAN) – are already driving new patterns of trade. Other agreements are likely to continue that trend, with groups like the East African Community demonstrating how the potential of intra-Africa trade could be greater than that between Africa and the rest of world.

Corporate supply chains are also changing, with small and medium-sized enterprises (SMEs) collectively playing a far bigger role in global value chains previously only associated with multinational companies. One result: tariffs, the traditional preoccupation of the WTO, are hardly the only barriers to trade that need to be identified and eliminated.

Private standards are an issue

Smaller companies can’t typically deal with the complexity created by local regulations such as consumer-protection laws. The emergence of ‘private standards’ – market requirements set by the private sector targeting issues like food safety or environmental impact – are also an issue.

Financing is equally critical: small and mid-sized firms need working capital but they also rely on banks to provide trade finance in cases where exporters and importers don’t know each other, yet require timely payments, risk mitigation or seamless transfer of information. Trade finance, where banks confirm or discount letters of credit or finance trade receivables also requires linking such financial institutions in emerging markets to the global financial system.

However, as well-intended anti-money laundering and know-your-customer regulations are implemented across the banking industry, we’re seeing an increasing number of trade and correspondent banks exit emerging markets (recent surveys by the Asian Development Bank (ADB) and the Banker’s Association for Finance and Trade suggest a correlation between compliance requirements and such retrenchment).

This leads to higher costs of financing for small and mid-sized firms and could even cause financial exclusion in certain markets – the opposite of what is needed for global trade to flourish.

"A drastic drop in trade and activity would have enormous implications for global growth"

Even more worrying is the strong correlation between a squeeze on the availability of trade financing and a drop in output and job creation.

ADB studies indicate that a 25 per cent increase in trade finance would result in a 33 per cent increase in production and a 22 per cent increase in jobs, whilst a 25 per cent reduction in trade finance would result in reductions of 12 per cent and 9 per cent in production and jobs, respectively.

Such a drastic drop in trade and activity would have enormous implications for global growth. Trade agreements can play a crucial part in making sure that doesn’t happen.

While it’s difficult to predict the feasibility of broad multilateral agreements, more countries could join plurilateral agreements. The pending Transatlantic Trade and Investment Partnership, between the US and the European Union, could be extended to more countries, such as parts of Africa.

WTO needs to address all barriers to trade

China, the central player in many global supply chains, has expressed interest in joining negotiations for the 12-nation Trans-Pacific Partnership. Such accords, once settled, could become starting points for global trade deals.

Advocacy is also part of the job. At first glance, world trade has made much progress, and most people now understand and accept the benefits of free trade. As old barriers have come down, however, new local regulations have appeared.

For the WTO to continue to boost trade, it needs to broaden its scope to address not only tariffs and trade facilitation – as remains the focus in the Bali package – but other areas that impede trade.

From advising emerging regional trade blocs to prevent the formation of ‘trade islands’, to harmonising regulations to reduce trade costs and turnaround times, the WTO can play a vital role in supporting emerging countries’ integration into the global trade system. As for the advocacy realm, it needs to gather the broad political support necessary for preventing new barriers from emerging.

Trade is changing. It’s time for the WTO to catch up.

A version of this article appeared in the Wall Street Journal on 21 April 2015

How Africa can make the next quantum leap in trade

Alex Manson — Mon, 17 Nov 2014 17:04:19 +0000

In 2010, Kenyan and Chinese archaeologists digging on the Indian Ocean coast found a haul of brass coins that have rewritten Africa’s trade history. Minted in the early 15th century, the coins show that Chinese missions were reaching the African continent 100 years before Europeans arrived.

In the 1950s, newly-independent economies across Asia and Africa began to revive this ancient shipping route, but progress was slow. Trade between China and Africa only reached the one-billion US dollar mark in the 1980s, with India-Africa trade following in 1991.

This century, however, Asia-Africa trade has hit the fast lane. Trade between China and Africa has ballooned nearly seventeen-fold to USD135 billion, with trade between Africa and India surging six-fold to USD55 billion

This means more markets for African exports and access for Africans to a wider variety of consumer goods – often cheaper and better adapted to local conditions.

Africa’s developing

Meanwhile, imports of more affordable industrial goods – from 3G phone masts to efficient machine tools – have accelerated Africa’s own growth and development.

Global Asian companies spanning agriculture, telecommunications and infrastructure, such as Samsung and China Communications Construction Corp have made Africa-based enterprises a focal point for their foreign investments.

Africa has also begun, slowly, to trade with itself. Companies like the Nigerian conglomerate Dangote Group are leading the way, expanding across the continent, whilst MTN’s telecoms presence across the continent continues to grow – where trade and connectivity are inextricably linked.

Trade between Africa countries has doubled since 1990, in part jump-started by the formation of three regional trading blocs – the Southern African Development Community, the Common Market for Eastern and Southern Africa and the East African Community.

Continent can do more

Yet, intra-regional trade still accounts for just 12 per cent of Africa’s total exports and imports. This despite the fact that Africa has a population of more than 500 million people, most of them young, a combined GDP of USD625 billion, bountiful natural resources and large areas of uncultivated farmland.

"The opportunities for further growth in Africa’s trade – with itself and with other regions such as Asia – are huge"

If the three African trading blocs were to combine, Africa could easily be one of the largest economic unions in the world today.

The opportunities for further growth in Africa’s trade – with itself and with other regions such as Asia – are huge, but will only be unlocked if several structural issues can be overcome.

First, credit in general – whether in the form of trade finance or to support capital investment – is scarce across Africa. With the exception of South Africa and Mauritius, credit-to-GDP ratios remain low. Kenya has the next-highest ratio, at 37 per cent, compared to Nigeria at about 12 per cent.

The lack of credit affects companies of all sizes and acts as a brake on growth and development. An additional dimension of this issue is financial inclusion – the extent to which populations have access to financial services.

"Not enough ports, roads, airports, power stations are being built. This has a knock-on-effect on the competitiveness of African companies"

Second, lack of infrastructure is massive barrier. The World Bank and African Development Bank put the funding gap in infrastructure at USD45 billion per year, meaning not enough ports, roads, airports, power stations are being built. This has a knock-on-effect on the competitiveness of African companies, adding cost and complexity to their business.

Third, governance – both corporate and public – remains a challenge in many countries. Despite huge improvements across the continent, this plays into a perception amongst some investors that the continent’s risks outweigh its benefits.

Tackling the headwinds

How to tackle these headwinds? As I see it, there is a huge opportunity for international banks such as ours to support the next stage of the continent’s growth, by providing trade finance, facilitating cross-border investment and bringing much needed innovation in areas such as risk management and corporate governance.

But we can, and should, go significantly further. Partnering with governments in Africa to support financial deepening can have a dramatic effect: deeper markets afford lower transaction costs – whether in credit markets or in goods and services. Lower transaction costs benefit all market participants and contribute to sustainable economic growth.

Banks can help reduce these costs through the services they offer in their branches, by supporting mobile payment technologies, or facilitating liquidity in local government bonds and helping local companies access international bond markets.

Another way banks can support growth is by joining initiatives that support trade and investment in Africa, such as the US government’s Power Africa initiative, which aims to add more than 10,000 megawatts of cleaner, more efficient electricity generation across six African countries by 2018. Recently, we more than doubled our commitment to this commitment, to USD5 billion.

More power will be a catalyst for further investment and infrastructure development in African markets – bringing Africa’s next quantum leap in trade within reach.