The global super-cycle, a significant and extended boom phase of the traditional economic cycle, is going to impact corporate treasuries in a number of ways, as fast growing developing market trade corridors require supply chains to extend into new markets, says Standard Chartered.
In the The Super-Cycle Report, Standard Chartered Global Research November 2010, Standard Chartered says the growth in these trade corridors was already a well established trend before the global financial crisis, but the rate of growth along these corridors is escalating.
Over the next 20 years exceptional growth is expected in these trade corridors, which will be instrumental in driving overall global trade growth in the same period, says the bank.
Key developing market corridors such as China-Africa, China-Latin America (LatAm) or Middle East and North Africa (MENA)-India will grow at 13% to 18% per annum, while developing-to-developed market corridors, such as China-US will grow at 13% per annum.
The EU-US trade corridor expected to show the fastest decline in global importance from 2010 to 2030.
The change in the relative importance of the various regions is striking, says George Nast, Global Head, Product Management, Transaction Banking at Standard Chartered Bank. In 2008, the US and EU were at the centre of the most important trade corridors. But by 2030, developing market trade will represent 40% of global trade versus 18% today and only 7% in 1990.
While the unfolding super-cycle is clearly positive in terms of opportunity, it throws up a variety of challenges for corporate treasury strategy.
In order to accommodate all the changes in demand demographics and trade flows, the transaction banking and working capital needs of companies will clearly need to change, say Standard Chartered.
In the report, the bank says that treasury functions will need to evolve in three ways.
For corporates to keep ahead of the pack as the current super-cycle plays out, they must react to the changes coming with local expertise, breadth and depth of networks within their markets and trade corridor flows, and global grade products and services, says Nast.
The group says that firstly, as supply chains extend into new markets as well as span existing ones, treasury functions must have multiple-currency capabilities in terms of liquidity management and payables/receivables.
In terms of corporate treasuries operating these expanded supply chains, these products must ensure they deal with banking counterparties that understand the local credit and business operating environment.
Treasury functions should not neglect the potential case for locations such as Mauritius, Johannesburg or Dubai that sit on some of the newer, rapidly evolving corridors, or even Mumbai or Shanghai, which combine large domestic markets and corridor flows, says the Standard Chartered report. The traditional western locations of treasury functions such as London and New York will almost certainly start to cede precedence to developed Asian locations such as Singapore and Hong Kong.
(LB)