The recent shift in both economic and geopolitical winds in Latin America have, in a way, created significant opportunities, opened new markets and trade lanes, and facilitated the growth of innovative trade finance solutions for multinational corporations in the region.
With the economy in Brazil cooling off, it is critical for treasurers at multinationals to seek out opportunities abroad. Banks are providing loans for much-needed infrastructure projects in regions like West Africa, using a guarantee issued by the Brazilian Government specifically to support domestic exports.
Outside of Brazil, activity remains robust in certain countries and industry verticals. Soft commodities exporters in Argentina in particular have benefited from innovative trade finance solutions that allow them to meet that demand. Despite substantial export taxes, the grain industry in Argentina is one of the most vibrant parts of the country’s crucial export base.
Deutsche Bank recently closed a $25 million, 2-year financing for a privately-owned grain originator and exporter with substantial investments in warehousing, port, and other logistical infrastructure. The company boasts a 30-year track record of capacity and volume growth. The bank-provided funds are used to purchase grain in the producing regions, store it, and transport it to port for export. The financing takes place under the supervision and regulations governing such financings promulgated by the Argentine government.
More broadly, as Latin America’s importance and influence in international trade continue to grow, new trade corridors have opened and Asia´s trade with Latin America, and Mexico specifically, have highly contributed to that growth. Mexico has quickly become an emerging market heavyweight and is currently the largest exporter in Latin America. The automotive industry, with Mexico as the top producer of vehicles in LatAm, is leading the way. Recognizing the quality of Mexico´s automotive manufacturing, several Asian OEM´s have chosen Mexico as a unique manufacturing platform for all of their destinations. As a result, trade finance, including financial supply chain, has become a key source of finance for the automotive industry and others.
Treasurers looking to reduce risks while expanding into new markets should consider implementing a distributor finance program. Distributor finance aims to support a corporation’s growing number of distributors by offering companies a revolving line of credit specifically allocated to finance inventory purchases from the anchor supplier. Distributor finance gives small distributors access to much-needed credit that they otherwise would not have access to via traditional banking or lending relationships.
If we look beyond just the supply chain challenges that treasurers face, today’s interest rate environment has required treasurers to also put their cash management activities under a microscope. Many treasurers have achieved success in this regard by implementing accounts receivable financing programs. Accounts receivable financing is a tool that allows corporates to access short-term trade financing and an opportunity to get a stable source of financing supported by the organization’s underlying business.
Trade finance continues to add tremendous benefits for multinational treasurers in Latin America. In particular, more sophisticated trade finance solutions have provided greater liquidity to Latin American entities, given them increased visibility and control over their cash flow, reduced days sales outstanding, and helped to mitigate risks created by non-payment. Changes in the regulatory environment and rising costs in the region will continue to put the focus on both traditional trade finance solutions as well as more innovative strategies.
Treasurers that embrace new approaches to trade finance will find their organizations to be more nimble, and successful, in the face of ongoing change.
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