The global super-cycle is going to impact corporate treasuries in a number of ways, as fast growing developing market trade corridors require supply chains to extend into new markets, according to Standard Chartered. The growth in these trade corridors was already a well-established trend before the global financial crisis, but the rate of growth along these corridors is escalating. Over the next 20 years exceptional growth is expected in these trade corridors, which will be instrumental in driving overall global trade growth in the same period.
Key developing market corridors such as China-Africa, China-Latin America or Middle East and North Africa (MENA)-India will grow at 13% to 18% per annum, while developing-to-developed market corridors, such as China-US will grow at 13% per annum. The EU-US trade corridor expected to show the fastest decline in global importance from 2010 to 2030.
George Nast, global head, product management, transaction banking, Standard Chartered Bank, said: “The change in the relative importance of the various regions is striking. In 2008, the EU and US were at the centre of the most important trade corridors. But by 2030, developing market trade will represent 40% of global trade versus 18% today and only 7% in 1990.”
While the unfolding super-cycle is clearly positive in terms of opportunity, it throws up a variety of challenges for corporate treasury strategy. In order to accommodate all the changes in demand demographics and trade flows, the transaction banking and working capital needs of companies will clearly need to change. Thus treasury functions will need to evolve in three ways:
- As supply chains extend into new markets as well as span existing ones, treasury functions must have multiple-currency capabilities in terms of liquidity management and payables/receivables.
- Corporate treasuries operating these expanded supply chains must ensure they deal with banking counterparties that understand the local credit and business operating environment.
- Treasury functions should not neglect the potential case for locations such as Mauritius, Johannesburg or Dubai that sit on some of the newer, rapidly evolving corridors, or even Mumbai or Shanghai, which combine large domestic markets and corridor flows. The traditional western locations of treasury functions, such as London and New York, will almost certainly start to cede precedence to developed Asian locations such as Singapore and Hong Kong.
Nast concluded: “For corporates to keep ahead of the pack as the current super-cycle plays out, they must react to the changes coming with local expertise, breadth and depth of networks within their markets and trade corridor flows, and global grade products and services.”
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