On how trade agreements and supportive strategies are allowing the country’s exporters to expandHow is Africa’s Continental Free Trade Area (CFTA) likely to affect opportunities for domestic exporters?
MERVAT SOLTAN: The CFTA will create a single continental market for goods and services across the African continent. This market is expected to cover over 1bn people, so in this sense it greatly expands the opportunities for Egyptian exporters. At the same time, more opportunities will also increase competition levels. In the end, the price of goods and services will almost always be the deciding factor, and domestic exporters will be under considerable pressure to meet the demand for lower prices. There is only so much a company can do to cut costs internally, so companies will have to turn to financial institutions to absorb some of these pressures.
Well-equipped financial institutions can tip the balance in favour of national exporters by providing reduced costs for finance and services. Therefore, we would expect increased demand for such institutions, especially if they can also help exporters deal with marketing and risk issues. Usually, import-export banks focus on providing financing to private sector exporters, with special financing programmes tailored to target whichever sector the country is trying to boost.
In addition to tailored finance programmes for pre- and post-shipments, these institutions can provide expert know-how and marketing services, which can enable exporters to more effectively take advantage of their access to finance and export opportunities. This assistance can also help exporters mitigate political risk and the commercial issue of non-payment, as these areas can be difficult for exporters, especially early on in their expansion. I can safely say that Egypt’s financial institutions that specialise in trade are in a position to be able to support the country’s exporters, and it is expected that they will be able to do this even more effectively as the economy continues to recover.
As Egypt aims to increase financial inclusion, what hurdles do small and medium-sized enterprises (SMEs) face when looking to export?
SOLTAN: The most prominent hurdle that SMEs face when looking to export is their lack of experience. Much of what is perceived as challenging is merely symptomatic of this. SMEs are subject to poor choice of targeted markets, difficulties in negotiations, and technical and quality issues. Even problems pertaining to the company's financial position can usually be traced back to a lack of experience.
Due to this underlying issue, foreign markets can be made more easily accessible for SMEs by three parallel efforts: first, we need to fill these experience gaps, and expert guidance is crucial at this stage; second, we need to provide easy access to financing, both in terms of processes and costs; lastly, we need to provide practical tools to mitigate risks.
From a regulatory standpoint, the authorities may consider strategies that directly affect the financial position of the lending institution. For instance, one strategy that has proven effective is targeted initiatives that alleviate reserve requirements for resources used to finance exports for certain groups, such as SMEs, or for exports from a specific sector or to a particular destination, such as Africa. Regulatory authorities may also consider strategies that improve the financial position of the exporter, thus indirectly minimising the risk of the financial institution, such as increasing tax rebates for exporters to Africa. They can of course enforce the use of export credit guarantee systems, but this would require higher demand to counter the higher costs of raising the tax rebate.
How can technologies help increase the efficiency and accessibility of import and export financing?
SOLTAN: Any technology that improves processing speeds or lowers costs without sacrificing the necessary security will certainly boost the efficiency of import and export financing. Until now, the focus has been on digitising trade documentation, and according to a 2017 report from the International Chamber of Commerce, it is projected that 350m more businesses could begin exporting as a result of digitisation, adding an extra $29trn in revenue to the digital economy over the next 10 years. Such a projection is made possible by the significant gap between demand for trade finance and the availability of solutions.
I believe different forces are at work right now. Some are pushing towards the introduction of a new level of technologies, such as blockchain, while others are still investing in improving optical character recognition technologies, which means that it might be some time before we see completely paperless trade on a global level.
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