040: Rebecca Harding on Trade Finance and How Delta Economics Can Help Identify Growth Opportunities World-wide

Dr Rebecca Harding is CEO of Delta Economics, which specialises in the area of Trade Finance. Rebecca is an independent economist with an extensive background in modelling economic growth, trade, productivity, innovation and enterprise.

Rebecca is the author of nine books and has written over 250 articles on economic issues. She has held senior positions in leading academic, think-tank and corporate organisations, including roles at the London Business School, Deloitte and the Work Foundation.

Rebecca has advised the European Union and regional governments and agencies in the UK and Germany on innovation and enterprise policy.

Rebecca is a Board Member of the Society of Business Economists and a Board Member and Trustee of the German British Forum. In 2013, she was elected as a national representative of the European Movement UK.

Rebecca holds a BA in Economics and German and an MSc and PhD in the economics of Science and Innovation from the University of Sussex and writes on her blog rebeccanomics.com.

How Rebecca First Discovered Economics:

Rebecca was taught economics as a kid by her father who was a sociologist. “An economist who’s taught by a sociologist is quite an unusual thing. He started off with the fundamental principle that economics is wrong because people aren’t rational. So the first lesson in economics I had was my father telling me that the subject was wrong”.

I have a very eclectic background. I was taught by a sociologist. Some of my big influences when I was in university were in geopolitics and international relations. I’ve done a lot of political science and a lot of philosophy as well. And then, of course, I have an economics, mathematics and language background. So I’m a bit weird. I call myself a hybrid.

Find Out:

• about Dr Harding’s company DeltaEconomics.

• about the data used by DeltaEconomics and why it has developed its database of statistics.

• what is Trade Finance and how it has experienced phenomenal growth in recent years.

• how companies bridge the finance gap between the time they export goods to the time they receive payment.

• what the challenges are with long-term growth in trade.

• if there are inherent risks associated with the trade finance market as more sophisticated derivative and credit markets emerge.

• about the inherent risks that may appear in the derivatives markets for trade finance.

• if a market collapse could be the outcome of a non-compliant and unregulated trade finance securities market.

• if could an implosion in trade finance is possible with large defaults in payments due mainly to the development of a derivatives and securities market.

• if sovereign risk will become prominent if trade finance risk increases.

• if enough data exists for trade finance to allow it to mature into a fully functioning wholesale and derivatives market.

• about some risks to the global supply chain.

• about the pioneers of innovation and productivity in economic theory.

• how productivity and trade finance could be correlated.

Economics:

In this interview, Rebecca mentions and discusses: trade finance, credit, exports, growth, derivatives, securitisation, risk aversion, sovereign risk, business risk, contagion, commodities, inflation, fiscal policy, monetary policy, foreign direct investment, demographics, innovation and total factor productivity.

Economists:

In this interview, Rebecca mentions and discusses: Joseph Schumpeter, Christopher Freeman, Carlota Perez, J. K. Galbraith and Frances Coppola.

Influencers:

Karl Marx, Christopher Freeman, Carlota Perez, Joseph Schumpeter, J. K. Galbraith,

On Delta Economics:

“For trade data, it’s the best platform in the world – it’s corrected, it’s clean, it’s comprehensive and it covers continents like Africa all on one platform. It gives clients information on what the trading opportunities are” – Rebecca Harding, CEO of Delta Economics.

“We view the world from a trade perspective. Trade is important because it’s how businesses interact with one another.”

What is Trade Finance?

Trade Finance is everything that drives trade itself. From a financial perspective, if you look at the value of world trade, about 80% of that is financed by banks or backed up by big insurance companies or finance through export credit agencies. It’s a huge market and grew very quickly in the from 2000 to 2007. The reason being was due to emerging markets entering into global trade in a very much aggressive way. Banks saw huge opportunities for financing trade.

Essentially, if you are trading with another company in another country, then what you need is some kind of bridging finance between the gap from when you put your goods onto a ship or an aeroplane and when it’s received by the person in the other country and paid for. So what this company needs is some kind of financing gap between those two points. That’s what trade finance is.

By including trade finance data into forecasting, you get much more accurate forecasts as to what’s going to happen to trade. In 2007, there was a tightening of credit available to businesses since the credit in the financial markets of developed countries had locked up. Subsequently, much of the trade finance went to emerging Asia and emerging Latin America and financed huge growth there.

The whole Trade Finance market is largely driven through very large finance houses such as JP Morgan, HSBC, Barclays, Bank of America, Merrill Lynch and BNP Paribas. These very big global banks are the ones that are involved on a day-to-day basis with the trade-receivables, the credit lines, the letters of credit, the open account and the working capital.

What’s also interesting about Trade Finance is that you also have quasi-government agencies and export credit agencies, which are part of the private sector and which are sometimes supported by the public sector. There is also a massive insurance market and legal sector attached to it. With such growth in the Trade Finance market, there is interest now coming from private sector private equity companies who see an opportunity to buy the debt and securitise it and actually use it as an asset class. What Delta Economics also do is it allows the data user to understand trade finance as an asset class. Companies can securitise the debt and trade that securitisation. The derivatives market will be an important component of this.

The Trade Finance market is estimated to be worth $7.4 trillion annually. There are many companies , like Lloyds, who will be putting security behind the money they are backing up.

It was seen as a way of fuelling long-term economic growth through trade.

Data Sources Mentioned in this Episode:

• Delta Economics
• UN Comtrade
• IMF Direction of Trade Statistics

Recommended Books:

• As Time Goes by: From the Industrial Revolutions to the Information Revolution by Christopher Freeman

Where to Find Rebecca Harding:

• Twitter: @RebeccaDelta
• LinkedIn: Rebecca Harding
• Blog: www.rebeccanomics.com
• Website: www.deltaeconomics.com

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