The Financial Express

Export market exploration by account trade arrangement

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Export market exploration by account trade arrangement

It is said Bangladesh is trying to explore untapped export markets from Central Asia to Euro Asia, from Western Asia to Africa, from the Caribbean to South America and many more. It means that export focus will be wider without limiting basically to Europe and North America. Different initiatives are on run, like multilateral or bilateral free trade arrangements, duty free market initiatives and so on.

In theory, trade will survive on the basis of competitive advantages. But in practice, it is observed that current industrial revolution focuses on service sectors, higher income countries are phasing out manufacturing activities. Least developed countries and lower income developing countries are focusing on manufacturing activities including export of goods to higher income countries. Trade being sweat shop brings huge employment. It is said that exports ship goods with imports of employment from export destinations. It is true partially since high income countries do not do the work as exporting countries or export houses do in their countries. There is high competition among exporting countries, hence survival is a question. Exporters will be on business provided they can provide quality goods at suppressed prices on credit terms. Exporting countries try to keep export industries afloat to retain employment. In this context, export oriented countries adopt different stimulus programmes to support exporters. They are duty free input contents, financing supports at reduced cost, cash incentives, tax rebates, and so on.

In practical situation, the small try their level best to survive in the market. Small sellers always work in buyers' market, they do what buyers want. For production process, they invest working capital to produce outputs. They sell goods on credit terms. The bills are being financed from third party at their own expenses. From the point of cash conversion cycle, they need to bear costs at every steps. Survival processes give few to stay in the market. The few are lucky enough. But question arises where the problem for survival lies. Cash conversion cycle is the survival factor in export trade. In short, liquidity is the main factor for smooth functioning of export operations.

Competitive advantage in practical situation does not work, as said earlier. Bangladesh exports goods to upper income countries which depend on service sectors. Banking is a part of service industries. The banking industries in our current export destinations of Europe and North America are very strong. Despite non-availability of duty free access to US market, this country is enjoying the status of first position for our exports. How it is possible is a question. The answer is that our exporters interalia enjoy easy export bill encashment facilities from US banks at reasonable costs. This facilities exporters to export to US market at reasonable FOB price though net margin is very thin. But something is better than nothing. Along with EU market, there are around 50 countries from where Bangladesh is being benefited with easy market access. Is the demand from the untapped countries low? Or we cannot do what they need? Second question may be the reality since we cannot easily receive payment against export bill before it matures as per our needs. This is due to non-availability of export bill financing facilities there.

It is easy for banks in Bangladesh to extend post shipment financing to exporters. They have also been doing the same since long. But such financing is just like loan based on credit limit. Exporters need to repay the loan in case they do not receive payment from importers abroad on time. Moreover financing from local sources is costly compared to financing from external ones. But financing facilities seem to be rarely available for the unexplored countries we are talking about. In this case, there comes a question how competitive countries are doing export trade with them. This may be a challenge but possible.

There are many export destinations facing transactional restrictions. Our banks in such cases cannot establish relationship with the counterparts there. Establishment of relationship management with them leads our banks to face problems in international financial markets like New York, City of London and few other places. Bangladesh is reported to be included into a messaging system with a country having embargo from a powerful country to increase banking relations. But the issue seems to be in stagnant position due to risks associated with vulnerability for relationships with major players. In recent times, China is found maintaining swap line in local currency in many neighbours to make their currency internationalised for avoiding the king currencies. Swap line can be a solution for settlement of payment to countries having problems in traditional banking transactions.

Before establishment of monetary system in the globe, cross border transactions were executed through exchange of goods - barter system. This is still operational in many cases. It is observed that a neighbouring country allows her international trade to execute transactions in currency having no direct exchange rate. They are also allowing to adjust export proceeds with import payments. In this way, they are doing trading with non-traditional markets by way of settlements by goods to goods.

Under the arrangement, cross border payment is settled by periodical net-off between international trading agencies operating as settlement platform of home country and counterpart countries. In this system, settlement accounts are maintained in the names of trading agencies with designated banks. Importers import goods under contracts in accordance with trade regulations and make payments locally to settlement accounts maintained in the names of trade agencies. The payment so credited in the accounts is in local currency though invoice is issued in convertible currencies. The invoice currency is converted into local currency for the settlements. Payments to exporters against their exports under the arrangement are settled by debit to settlement accounts of trading agencies. Exporters receive equivalent local currency against their invoice currency after conversion by prevailing exchange rates. In the same way, counterparts maintain such accounts in their countries and the accounts receive payments against their imports and make payments for their exports. The challenge of the transactions is to settle imbalances between them. There are different models as solutions such as cross country settlements of deficits and surpluses - payables to country 'A' is settled with receivables from country 'B'. Alternatively, merchanting trades can help to settle the imbalances. Under the merchanting arrangement, imbalances are settled with counterparts by imports to them through third countries with payments.

There are many untapped countries where Bangladeshi goods can be exported. But inherent problems exist with regard to payments, and bank to bank settlements are rarely possible. As such, duty free market access to the destinations or free trade arrangements with them can do what is rarely measurable. We need alternative mechanism to explore Bangladeshi exports markets to a wider extent in respect of destinations. The better alternative without going back to barter system may be account trade arrangement under which trading agencies will work as facilitators to settle payments arising from trade transactions with the unexplored destinations. The imbalances may be adjusted through cross country traders by set-off arrangements between surpluses and deficits. Another option is to make settlements of imbalances by way of merchanting trades to export goods to receivable countries from third countries. In case of receivable position at our end, counterparts will arrange exports to us from third countries. This may help explore untapped export markets abroad. It will help to expand export trade with substantial employment. On the other hand, this may bring additional support for essential imports at reasonable prices.


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