BD Export & Import Insights (Nov 10 2022)

INSIGHTS

Solutions to promote economic growth

have grown by 10.1% year on year over the same period, according to Sars. Standard Bank, a leading provider of letters of credit and LC confirmations in the African market, plays an active role in facilitating these transactions on behalf of businesses. Its large network of institutional relationships and the adoption of digital technologies have enhanced the speed and accuracy of the documentchecking process required to complete these transactions. Milo says the bank was the first in SA to implement the Traydstream platform, which uses optical character recognition (OCR) and machine learning (ML) technologies to review documentation

presented under letters of credit and other trade finance transaction types. To help businesses meet their ESG targets, financial institutions have rolled out a number of ESG solutions including green bonds, funds underpinned by ESG principles and ESG linked loans. These solutions, explains Milo, typically adopt one of two approaches: first, use of proceeds, where the ESG merits of the transaction are evaluated based on the counterparties and the nature of the underlying project or type of goods purchased. Examples include project financing loans, guarantees for renewable energy projects or LCs issued to support the importation of solar panels. The second approach is an ESG overlay known as a sustainability linked solution where businesses specify their ESG key performance indicators and have their loan financing rates linked to the attainment of these KPIs after an independent verification.

Hampering ESG adoption in Africa are challenges such as supply chain disruptions, a lack of foreign exchange reserves, electricity supply issues and infrastructural constraints. At the same time, supply chains are under scrutiny from regulators, investors and customers: regulators are requiring companies to monitor and mitigate environmental and social risks in their supply chains; investors are asking companies to address social justice and sustainability through their operations; and customers and employees have bigger expectations of companies to address ESG

warned it could take until 2023 for backlogs to clear and normal functioning to be restored.

Virusha Subban, a partner specialising in customs and trade at Baker McKenzie Johannesburg, reveals that businesses are looking at ways to best protect their supply chains from further disruption. Measures to strengthen and heal ailing supply chains include digitising parts of the supply chain, increasing manufacturing capacity in low-cost markets, reducing reliance on singlesource suppliers, implementing new business strategies such as increasing capacity to hold more stock, improving supply chain infrastructure, integrating sustainable practices into supply chain management and carefully monitoring changes in government policy across multiple

Protecting supply chains from further disruption

Citrus industry faces hurdles

Britain and the US are being split apart by growing extremism

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Icandidates for office in Tuesday s elections are Trumpists in both style and substance celebrities and political neophytes who want to burn the establishment down. The Washington Post calculates that 291 Republican candidates, more than half of the total, have questioned the result of the 2020 presidential election, with the majority of them favoured to win. Britain looks relatively stable by comparison. Sunak is a technocrat (and former banker) who believes in sound finance and balancing the books. At the COP27 meeting in Sharm ElSheikh, Egypt, for example, he seems to have established a cordial relationship with his fellow technocrat (and former banker), French President Emmanuel Macron. Thanks partly to Trump s intemperance, and partly to the radical left s growing strength and self-confidence, the Democratic Party under Joe Biden has abandoned the middle ground, pursuing an expansionary economic policy despite rising inflation and misinterpreting civil-rights protests as a signal to go soft on crime.

In the UK, by contrast, Labour Party leader Keir Starmer has expelled his extremist predecessor, Jeremy

Corbyn, and is doing his best to choose moderate candidates for the next election. He is focused on winning back the white working class rather than tickling the erogenous zones of woke activists.

TRUMPIST POLITICS But look again and British politics is not quite so reassuring. The Trump wing of the Conservative Party is both bigger and more entrenched than Sunak s rise might suggest. He lost badly toTruss in the last leadership election though his track record as a minister was more impressive than hers. Truss enacted a wishlist of policies that had been cooked up in think-tanks such as the Institute of Economic Affairs (IEA) and the Taxpayer s Alliance, and discussed at Tory Party socials. Tory papers such as the Daily Mail and the Daily Telegraph first backed her campaign against Sunak, ridiculing his warnings about the consequences of her policies, and then greeted her budget as if it were the economic equivalent of the Second Coming of Christ. Sunak has included several people in his cabinet who have a distinctly Trumpist feel to them. Suella Braverman, the home secretary, has dubbed the arrival of refugees on small boats an invasion and proclaimed that her dearest wish is to see refugees transported to Rwanda. Kemi Badenoch is waging a war on woke. Leading Conservative ministers seem to have a Trump-like contempt for both good practice and the civil service: Gavin Williamson, who was once sacked as secretary of defence for leaking, has now resigned from his new job as minister without portfolio over, among other things, an accusation that he told a public servant to slit his throat

This might read like small beer compared with Trump and the Trumpists. Former prime minister Boris Johnson s presence at Sharm el-Sheik demonstrates that he is a very different figure from Trump. Johnson merely flirted with the idea of ignoring the 1922 Committee s decision to unseat him. Trump instigated a violent assault on Congress that included several people who ran for office this November. But in two important ways,

INSIGHTS: IMPORT & EXPORT

Importers still facing significant challenges

Brexit has caused more longterm damage. The most obvious is economic. Trump s combination of tax cuts and deregulation were widely welcomed by business, whatever it felt about his cultural policies. Brexit was solidly opposed by the British business establishment, and for good reasons. There seems to be no doubt that Brexit has caused significant damage despite the difficulties of disentangling the

effects of Covid-19 and the Ukraine war from the effects of leaving the EU. Brexiteers have all but given up arguing that the divorce is an economic boom and resorted instead to saying it is too early to tell. In June 2022,

of the usual 30 or 60 days.” This, he adds, has increased the demand for working capital to fund stock. At the same time, debtors days are starting to creep, finance costs are rising and stock days are moving out. In this environment, companies need to increase their funding levels with a banking partner that allows for a higher collaterised position. The good news for importers is that sailing schedules and on-time reliability globally is improving, port congestions are easing and sea freight rates are coming down. In SA, more than half of Transnet s workers are back at work after an 11-day strike in October.

Transnet s October strike, it may be a different story for Black Friday trade unless logistics are able to normalise quickly. Another challenge for importers is rising inflation and interest rate hikes. Importing has become an exponentially more expensive exercise in recent years and importers are either having to compress their margins or pass on these higher costs to the end consumer, concedes Cline.

Cline says that while it will take some weeks still for port operations to completely normalise, there are ways to prioritise and fast-track urgent imports, including by redirecting to alternative ports in neighbouring countries, albeit this may prove a more expensive route. While festive season trade is not expected to be impacted by

RAND VOLATILITY Currency fluctuations and rand volatility don t help. Some importers try to hedge the rand with forward contracts for supplier payments. The other consideration for high duty categories is the option to hedge the customs duty portion where the rate of exchange for custom duties is only determined at ship on-board date. This is often weeks after the order is placed with the supplier due to production lead times. The current rand-dollar exchange rate adds to the cost of importing and, given that inflation is not yet under control, importers need to brace for further rate increases. There are numerous risks a business takes when they are importing products and it s almost impossible to factor in all the unknowns, says Cline. The supply chain is made up of many components including ports, roads and transporters, among others. As has become clearly evident, weather can significantly disrupt business operations. The political climate also has a material impact on currency fluctuations. There are strategies to mitigate currency volatility, says Cline, advising importers to talk to their banks.