Following a series of highs in 2015, global volumes of trade and export finance have returned to relative normalcy in recent years – with steady volumes witnessed in 2017 and 2018. Yet, with the ECB now reining in its quantitative easing programme, geopolitical tensions ramping up demand for protection against default risk, and a whole host of major ongoing projects requiring financing, the market for this kind of support is set to surge once again.
For the last four years, corporates have had relatively easy access to large amounts of cash through capital markets – capitalising on the ECB’s Corporate Sector Purchase Programme. As quantitative easing begins to wind down, however, corporates are beginning to look elsewhere for their funding.
Meanwhile, the pipeline of projects requiring funding is well-stocked, with a number of major ongoing projects expected to require the large-scale capital expenditure in the coming months and years. For instance, in the telecoms industry, the implementation of 5G infrastructure will require significant capital backing – with Accenture Strategy estimating the cost to US companies alone at USD 275 bn. Meanwhile, the cruise tourism industry continues to boom. Currently operating with a largely ageing fleet, the industry will be looking to invest in a new generation of craft to meet the growing demand.
Even perceived concerns for trade are creating new needs for capital expenditure. For example, protectionism in the US is ramping up the demand for domestic production. As a result, a number of steel mills are set to spring up across America – each with significant capital requirements.
Concurrently, geopolitical volatility continues to bite – pushing security of payment up corporate priority lists. From frayed US-China relations, trouble in Turkey, and taking in Britain’s plans to leave the European Union, the road for prolonged periods of volatility has been paved, making the security of payment an increasingly important topic for corporates across the world.
From ECB to ECA
This leaves corporates with two key problems to solve: they need a new source of funding and protection against geopolitical volatility and default risk. This is making export finance a natural port of call. Offering well-priced, long-term financing against major deals, and security of payment as soon as their commercial terms are met, ECA-backed export finance ticks the key boxes.
Meanwhile, banks are benefiting from special funding mechanisms tied to ECA financing from various sources – with innovative new means of refinancing expanding their capacity to provide borrowers support with attractive cost of funding for their investments.
All this is good news for the structured trade & export finance business. After a relative decline in volume from 2015, 2019 looks to hold real promise for another uptick – driven by investors looking to secure attractively priced, long-term and certain financing.
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