Export trade: Third party needed

 

Potatoes are sold by a seller selling through a van. We buy the goods without bothering where they were produced. From footpaths, we are shopping regularly without knowing where they come from. We may work in a manufacturing company and may buy their products from street vendors but do not think of how they reach street sellers. This is the reality.

In international trade deals, two parties are in a process to execute the transactions under which goods are moved from one to another. The parties may not be real producers or sellers. It is known that fuels are produced by OPEC plus countries, but trade deals are executed in some trading zones and in commodity exchange houses located in countries other than fuel producers. In the same way, it is observed major imports for commodities are executed in trade hubs like Singapore, Dubai which sell goods as facilitators. In many cases, the traders buy commodities through commodities exchange houses for onward sales. With regards to exports, it is observed that our major destinations of exports are North America and European Union. In reality, we are getting orders from Hong Kong, Singapore, Dubai and many other facility centers. Interesting point is that exporters are receiving payments from these locations also. Exports data are compiled on the basis of destinations. If it would be done by remitter-countries, different pictures would be visible. It is observed that during the last fiscal, export to a neighboring country was sound. Insider information shows that our exporters shipped goods there against orders received from other countries. In this context, there comes a question whether our neighbor is a real importer. Foreign exchange regulation of the country requires exports payments to be received either in convertible currency or in Taka from non-resident Taka account (vostro) maintained in Bangladesh by foreign banks. On the other hand, import payment needs to be executed in freely convertible foreign currency. The regulations allow payment settlements in the currency of the country of the beneficiary or of the country of origin/shipment of goods, or by way of credit to the vostro account maintained in Bangladesh. The regulations provide flexibility in payment settlement.

As we know that Bangladesh is a member of Asian Clearing Union (ACU). Nine participating countries are to settle current payments among themselves under the platform. Iran is one of them but it is out of ACU due to restrictions imposed by global power politics. Transactions for Iran by our banks may lead the global transactions of our banks in jeopardize. As such, banking relations are not working for trading with Iran. But interesting point is that Bangladesh is exporting goods to Iran as per available information.  How it is possible during the stage of no-banking link. The answer is simple - payment has been received from third country.

Bangladesh Government formulates Export Policy in every three years. The current policy wishes to accelerate banking relations with CIS countries including Russia, inter alia. Do we face banking problems with Russia? If it happens so, the underlying reason is global politics; economic model does not work as a solution in this context. Despite, official data show that Bangladesh has a good number of exports to Russia. This indicates banking problems are not a bar to ship goods to Moscow.

In global transactions, banks work as facilitators. But they do not establish one to one relation considering cost factors. As such, they maintain relations with counterpart banks in globally recognized financial hubs. Only few relations help global transactions; no need is required for one to one relation, other than relationship management arrangement (RMA).

We all know that there is a dilemma between exporters and importers. Exporters want cash payment, while importers want to make delayed payments. But always mismatch exists with regards to payments for which a matching arrangement is needed. This is basically done by third party financiers which work as facilitators to materialize the trade deals. We know that Bangladesh is not in a good position with regards to international trade. We work, being exporters, in buyers’ market; in sellers’ market in case of import trades. Bangladesh is exporting goods on usance terms meaning that exporters are get paid on maturity date depending on agreed upon credit period for more than at least 90 days. But how it is possible on the part of exporters to manage working capital needs during the period? At pre-shipment stage, exporters are in support by local banks. But another 90 days’ finance is tough by banks to extend to exporters. Really it is rarely possible, rather it will, if extended, be excessive finance to exporters in the name of trade transactions out of credit norms by banks. The solution for usance period is extended by external financiers in the name of supply chain finance or open account finance. As a result, exporters get paid from external sources at a reasonable cost before maturity of bills. But if such facilities are not available, exporters will not go for export transactions in spite of potential buyers or markets.

Let us go to the text of export policy articulating to accelerate banking relations with CIS countries including Russia. It indicates that our banks do not have desired relations with these countries. As stated earlier, Bangladesh is sending goods to these countries. So, nothing needs special arrangements to make banking relations other than RMA. Such arrangement is also available, as per inside information. Hence, there should not have problems to make payment settlement. But reality is that there are embargoes on the country imposed by politically powerful countries for which our banks are not in comfort to execute transactions with banks there. Doing such activities will result in problems to be faced for global transactions, avoidance is better option for our banks. But they facilitate transactions of exports to these countries from global banks.

It is true that CIS and Russia are potential markets for Bangladesh. If so, there comes a question why our exporters are not exploring these destinations. Inside information shows that buyers of these countries require imports under open account for longer term usance period. No third party payment supports like supply chain finance and open account finance are available against such exports. Global banks operating therein do not take exposure on the buyers of these countries. Payment risk is a major bar to explore these markets. Government to government understanding for banking issues is reported to have reached. Despite, banks in Bangladesh are reluctant to tie up relations with them with adoption of their payment system. We need better option to explore these markets.

Central bank to central bank payment settlement option can be one of them if the transactions are out of red eyes from global political powers. But central bank may not take such risk for avoidance of red eyes. If it would arrange such payment mechanism, exporters would come forward? Definitely not, since central bank will not assure payment risk. Alternatively, Government may sign bilateral trade deals with their counterparts, specifying goods with quantities. Under the arrangements, central bank will select a transactional bank which will maintain settlement accounts to which import payments will be credited and export proceeds will be debited. Disequilibrium may to be settled in acceptable regional currency under the arrangements. Another option may be explored by allowing local trade agents to make bilateral settlements through goods to goods. In this case, banks need to be  allowed to maintain settlement accounts to net off the deals periodically with permissible interest payments. However, there should have options for settlement of unsettled amount between trade agents through merchanting trade from other countries. This may work but it may take time to onboard exporters and importers. The arrangements, if adopted, will keep banks out of red eyes from global political powers. Trade authorities may look into it and implement the programs by the support of trade agents under settlement accounts to be maintained by respective banks with the guidance note from central bank. We should bear in mind that trade is a part of global politics. Considering this view in mind, we should keep trade at upward path, with avoidance of red eyes of global politics tactfully.


Mehdi Rahman works in the development sector.