BANKING

Catering for retail trends

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There is currently an increase in demand in trade finance from retailers. How did this come about and what are the implications of it for trade and investment in South Africa in general?

Meagan Rabe, Business Banking Strategy and Solutions Manager at Sasfin Bank, says: “The increase in demand for trade finance from retailers has a lot to do with their choice to rather import than buy locally-manufactured goods, particularly clothing, footwear and accessories. This is due to the current electricity crisis, the possible labour strikes and high manufacturing costs.

“Another major factor is that retailers’ working capital has diminished due to the weak rand, increased costs, relatively flat turnover and the fact that foreign suppliers are not as accommodating on credit to South Africa as they used to be. All of this is compounded by the fact that the banks are also less accommodating due to the banks’ need to improve their capital adequacy and liquidity ratios in terms of Basel lll, as well as their stricter credit approvals in view of the weaker economy.”

Looking at more structured products

Rabe says that in the past, financial institutions only offered vanilla trade finance, but financial institutions are now having to look at more structured products which are streamlined and not admin-intensive for the client. This enables the client to buy just-in-time. The focus for Sasfin is to offer a start-to-finish solution with an off balance sheet offering, where the client can draw goods as required from a local warehouse. Another factor impacting trade, in certain sectors, is that with BEE status being an important focus for procurement at many companies, clients would rather purchase goods from a local BEE entity than import the items themselves.

According to Rabe “a lot of clients, particularly retailers, have a strong Africa strategy and are importing with a view to export into Africa. For most, this strategy still needs to materialise, however, we are positioning new finance products to facilitate exports. The key focus needs to be on how to make exporting into Africa, particularly to the SADC region, as painless as possible while still taking due consideration of the risk.

“The lower oil price does have an impact on freight and transport costs for imports, however, we don’t often see this result in a reduction in cost for the consumer due to the weak rand.

A start-to-finish solution

To offer solutions to clients, many service providers in the trade arena are offering to finance trade. Rabe points out that a number of service providers are beginning to offer trade finance, and some logistics service providers are now partnering with banks. Sasfin acquired Sasfin Premier Logistics some time ago and this allows them to offer a complete start-to-finish solution for importers.

“The wonderful benefit of the offering a start-to-finish solution is that our clients do not need to have in-house skills around shipping, currency risk or customs clearing as this is all taken care of by Sasfin. This ranges from confirming and tracking orders to financing both foreign and local purchases, hedging of foreign exchange risk to marine insurance cover, logistic services to final delivery. It really offers an end-to-end solution to our clients and they don’t have to focus on becoming international trade experts - they simply have to focus on their core business,” says Rabe.

These solutions allow South African businesses to retain their relationships with their international suppliers, negotiate the supply cost, but have the peace of mind that every other aspect is taken care of.

“A further benefit is the reduced financial administration as the client receives a single invoice from our BEE associate, Sunlyn (Pty)Ltd. This invoice includes all the costs of the international trade transaction - from freight forwarding, clearing, customs duty, trade finance, forex, as well as warehousing and distribution - all on one invoice,” she says.

Export debtor finance

Rabe says that a lot of companies are focusing on exports based on agriculture and commodity trade products in the SADC region. “We are also seeing an increasing number of clients looking for export debtor finance,” she says.

Back at home, Rabe says that even the Eskom crisis has brought with it opportunities, and a number of their clients require energy-efficiency equipment. “As a strategic imperative, Sasfin has designed solutions particularly focused on offering finance for energy efficiency equipment for which we see a strong growth opportunity,” she says.

Rabe says that it is important that anyone offering trade finance is able to understand local and global markets and influences and respond to these. “What differentiates Sasfin is that we are not only able to respond to our clients’ needs with agility, but we are also able to tailor our solutions to suit our clients’ requirements as we don’t adapt a one-size-fits-all approach. Our Hong Kong office is able to assist clients by negotiating with suppliers in the Far East accessing low cost funding.”

Ralph Staniforth

 

 

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