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Regional Updates | 2020 Figures
FCI Annual Review article highlight - Regional Updates

Regional updates provided by:

Nassourou Aminou, FCI Regional Manager Africa

Alberto Wyderka, FCI Regional Director Americas

Lin Hui, FCI Regional Director North East Asia

Thompson Lui, FCI Regional Manager South and South East Asia

Betül Kurtulus, FCI Regional Director Central, Eastern and South-Eastern Europe and the Middle East

Françoise Palle-Guillabert, Chair of the EU Federation

Regional Updates | 2020 Figures Main Takeaways

AFRICA

Despite the Covid-19 crisis, factoring volumes continued to grow in Africa in 2020. It increased from EUR 24 billion in 2019 to over EUR 25 billion in 2020, representing 2,8% growth. Countries that led this growth included Egypt, South Africa, and Botswana, with 2.5%, 2.8%, and 100% growth, respectively. Mauritius’s volume declined by -11.9%, followed by Tunisia’s -23.7%, mainly due to the impact of Covid-19. Nassourou Aminou

AMERICAS

Americas were not spared by the storm that hit the world in 2020. The appreciation of the Euro vs the local currencies generated an overall decline of around 30% YOY since 2019, to EUR 150 billion down from EUR 218 billion. North Americas Sub-region showed a negative growth of -23%, where Canada declined by -18%, and the US recorded a fall of around -23%. These figures are due to the fact that the reported US volume is 26 times greater than Canada, making it difficult to balance a drop in US volumes.

Additionally, the LA&C Sub-region also reflected a decline of around -37%. Brazil, while in 2019 had the highest volume in the Sub-region, experienced the highest drop of close to -60% in 2020 (currency wise depreciation of Brazilian Real vs. Euro was at -42%). Argentina showed a decline of -35.6%, Chile declined by -19.6%, Peru with just -1.8% and Mexico had a decline of -43%. Alberto Wyderka

NORTH EAST ASIA

The outbreak of pandemic had a severe negative impact on the economies of the North-East Asia region during the first half of 2020. But during the second half of the year, most North-East Asian economies had shown a significant recovery in economic momentum. This upturn was driven both by strengthening global export demand and the rebound in domestic consumption spending due to the easing of pandemic-related restrictions in many countries.

Under such challenging circumstances, the North East Asia region achieved remarkable growth of 3.8% to 598.2 billion, with the global market share rose slightly to 22% accordingly. China achieved a 7% increase to 433 billion. With 72% of the regional market share and 16% of the global market share, China continues to be a major market and an important engine of growth for the factoring industry. Lin Hui

SOUTH AND SOUTH EAST ASIA

There is no question about how our world was affected by the Covid-19 pandemic in 2020, however, while different parts of the world had their own timelines in stages of development, the SSEA region began to experience similar sufferings that North Asia had seen during earlier months of 2020. Overall, in terms of business activities, slowdowns in member countries were obvious, especially in EDI volume, pointing towards a downward trend starting from 2018.

In 2020, the drop showed even more magnitude, as both import and export figures reduced from nine figures to eight, where both sides saw drops in double-digit territory. This drop calls for a deep-dive analysis, with our members in the region, to identify the causes and a possible reengineering of the development and growth strategies. We also witnessed the credit response and collection time shortened, but the export/ import disputes frequency increased during 2020. Thompson Lui

CEE, SEE AND THE MIDDLE EAST

CEE & SEE is representing around 9% of the total volume of Europe, with EUR 173 billion shows an overall decline of close to 7%. The top five players show a decline in volume with, Poland (-5%), Russia (-6.3%), Turkey (-13%), and Greece (-4.1%) which makes up 76% of the market.

Turkey is the leading country in SEE, in terms of FCI turnover. However, due to economic shrinkage, the country has been experiencing a significant decline in another year, by -13%. It affects the entire region’s growth rate, but there are a few positive exceptions in the region with a positive growth. Coming to the emerging markets of the Balkans, they have a very high sensitivity to falling developed markets’ demand for manufactured goods and commodities, but factoring is growing in the region.

The Middle East represents 0.3% of the FCI turnover. The Middle East also declined by – 4.2%, to reach a figure close to 9.5 billion, mainly thanks to Israel, which experienced a 37% growth during this tough year. We are expecting this growth rate to affect the total turnover positively in the coming years. Betül Kurtulus

EUROPEAN UNION

The data collated by the EUF show the impact of the sudden shutdown of the economy with the lockdowns and the absence of invoices to finance. Indeed, provisional figures for 2020 have shown a decrease of 5.4% year on year in factoring turnover in EU countries. It is the first decrease in factoring turnover in 11 years.

Total factoring turnover in the EU reached EUR 1.78 trillion comparing to EUR 1.91 trillion in 2019. A decrease in factoring turnover (-5.4%) was in line with the decrease of GDP of EU countries (-6.4%). The GDP penetration ratio for 2020 was slightly lower than in 2019 (11.1% comparing to 11.3%). The biggest EU countries in terms of factoring turnover were hit the most. Funding of EUR 245Bn (11% lower than in 2019) supports around 259,000 European clients in 2020 (7% decrease YOY). Firms still perceive factoring as a source of funding that also provides additional values, which clients appreciated in this year of uncertainty. Françoise Palle-Guillabert

Regional Updates | Legal, Regulatory & Advocacy

AFRICA

The initiatives undertaken in previous years by FCI and Afreximbank to support regulatory reforms with promoting the Factoring Model Law in Africa are starting to show success. Some countries are in the process of finalising laws in this direction, notably in Nigeria, Kenya, and Egypt. Notable progress has been made in West Africa with the adoption by the Central Bank of West Africa (BCEAO) of a uniform factoring law based on the Afreximbank factoring model law for eight countries (Ivory Coast, Benin, Senegal, Niger, Togo, Burkina-Faso, Mali, Guinea Bissau). Nassourou Aminou

AMERICAS

All the region’s countries have a factoring law. However, not all of them have the same degree of ease in their application and not uniformity. In any case, they contribute to the growth of the industry.

Nor is it simple to access controllers and regulators with recommendations to improve existing laws. It is a region with an idiosyncrasy that often makes this objective difficult, as does the lack of deep knowledge on the part of regulators. In any case, both banks and factoring companies strive to make the laws practical, obviously without violating them. Alberto Wyderka

NORTH EAST ASIA

The new Civil Code of China was promulgated on 28 May 2020 and came into force on 1 January 2021. Factoring contract is included in the Civil Code as a separate chapter in the contract part. This indicates that factoring is becoming an important part of China’s socio-economic landscape. It is no doubt that it will further promote the healthy and prosperous factoring market in China.

In terms of regulation, various local governments in China have promulgated regulatory measures for commercial factoring companies and have carried out a large-scale clean-up of commercial factoring companies in their jurisdictions. The number of commercial factoring companies will be significantly reduced.

In terms of policy, the Chinese government attaches great importance to the role of supply chain finance in the real economy and has formulated a series of guidelines that will be the milestone for the development of supply chain finance in China. Lin Hui

SOUTH AND SOUTH EAST ASIA

The most important development of the SSEA region in 2020 would most likely go to the release of circular allowing factoring and supply chain finance-related products to develop in Bangladesh. Although most emerging markets in the region have room for improvement in this arena, the Central Bank of Bangladesh has made a huge effort in taking the industry and stakeholders forward. This is no coincidence that FCI has worked with local policymakers and her affiliates for years to achieve this first step after various seminars, workshops in Dhaka, and work visits to FCI headquarter to discuss best practices in the industry and share knowledge and experience from other nations having similar paths. Nonetheless, another emerging market, Thailand, has also announced “Digital Factoring” and called for gathering thoughts and advice from industry leaders to map out development paths ahead as the name itself suggested. Thompson Lui

CEE, SEE AND THE MIDDLE EAST

FCI working with EBRD continued to support legal and regulatory reforms to enable factoring throughout 2020 in regional countries. There were several developments as well as engagements with regulators and lawmakers in different countries:

Joint FCI - EBRD online meeting with the Deputy Minister of Economic and Finance Of Ukraine and National Bank of Ukraine: FCI will be working closely with the UATFF task force to build the country’s factoring infrastructure and law.

Joint FCI - EBRD online meeting in Jordan, with the participation of the Central Bank of Jordan: FCI will be working closely with the Central bank, EBRD, and the local banks to build the country’s factoring infrastructure and law.

FCI organised informative meetings within the scope of digitalisation support works, where Turkey’s factoring technology infrastructure was examined in detail.

FCI organised a Preliminary Islamic Factoring Chapter Meeting with the participation of Islamic members of FCI including ITFC. The purpose of an Islamic Chapter, past projects, supplementary Agreement for Islamic International Factoring, approval by Sharia boards, and current activities were discussed. Betül Kurtulus

EUROPEAN UNION

Since the beginning of this crisis, the EUF keeps working hard and is in close contact with the European economic authorities to monitor, review and seek appropriate business support. Indeed, in 2020, the EUF has worked on numerous issues, the more important of which are prudential.

Concerning the EBA Guidelines on loan origination and monitoring published on 6 May, 2020, we obtained a postponement in the entry into force (30 June 2021), more proportionality, and a less prescriptive character. But not all national delegations of factoring are satisfied with the final text. On the new Definition of Default, another crucial issue, the EUF has warned on the specificities of factoring for a very long time, as a delay in trade receivable does not mean a default as in bank loans. High-level representations have been held with the EBA to avoid unattended side effects throughout the entry into force of the new regime. Françoise Palle-Guillabert

Regional Updates | Promotion and Awareness

AFRICA

FCI, in collaboration with Afreximbank, held a series of factoring promotion and awareness campaigns in 2020. These included:

Nairobi, Kenya, February 2020: Regional Conference on Factoring & Receivables Finance in East Africa; brought together more than 140 participants from Africa.

Online E-vent, July 2020: Factoring and Receivable finance in Africa amidst Covid-19: A wake-up call. A webinar is part of the FCI webinar series organised to benefit our members and all industry stakeholders during these difficult days. The Factoring Industry Overview and the Impact of Covid-19. We had around 260 participants.

Africa Chapter Online Factoring Workshop to discuss the regional situation of the industry. It was followed by the 10th Africa Chapter Annual General Meeting & Annual General Assembly. Nassourou Aminou

AMERICAS

With the pandemic causing lockdowns, requirements imposed not only complicated the way we were used to performing our work but undermined our methodology. However, during the first quarter of the year, we had the opportunity to organise together with Ms. Monica Martin, our SCF Consultant, a business trip visiting five countries and 18 banks to promote our FCIreverse solution including, Chile, Peru, Colombia, the Dominican Republic, and Mexico.

As of April, everything changed. Thus, meetings were held with prospects and members virtually. Translated into figures, 45 virtual meetings were held with members, and 33 with prospects. In addition, progress was made in meetings with organisations, such as IDB Invest, to reach cooperation agreements focused mainly on education and promoting and consolidating factoring in the region. Alberto Wyderka

NORTH EAST ASIA

Mongolia is one of the few emerging markets in North-East Asia. Two of Mongolia’s leading banks are FCI members. In early 2020, prior to the outbreak, FCI and IFC jointly organised a seminar in Ulaanbaatar to introduce the best practice of factoring and supply chain finance.

The Greater China area accounts for 87% market share of the region. Numerous fraud cases have accompanied the rapid growth of the market during the past few years. In May, we held a webinar on commercial fraud, inviting three experts to share their practical experience on fraud. Over 300 participants attended this event, which provided a renewed awareness of the importance of a rigorous two-factor mechanism in practice in the anti-fraud context. Lin Hui

SOUTH AND SOUTH EAST ASIA

We had no physical events in 2020, due to the spreading of Covid-19 in the SSEA region, in fact, part of Asia had already been affected prior to my joining in February. FCI adapted immediately and switched to organising events online, representing the best alternative to meeting members, potential members and industry associates but reduced the effectiveness of promoting FCI and warming up relationships.

Regardless of the constraints, FCI has participated in and organised events together with ADB, IFC, and various local trade bodies and regulatory bodies in seminars, workshops, training programmes, and conferences to raise awareness towards FCI and related product offerings. Most importantly, these cooperation events deepen our tides to take our partnerships to the next level. Thompson Lui

CEE, SEE AND THE MIDDLE EAST

In 2020, we organised various promotional, educational & sales events, as well as workshops with many of our business partners, promoting international factoring, reverse factoring and Islamic international factoring.

FCI joined the Euromoney conference in Vienna and visited the country members at the beginning of the year. FCI participated in the GTR meeting in MENA, followed by an FCI workshop for two days in Dubai for our members in the region. We organised online conferences with EBRD and educational activities with the UATFF task force to develop factoring activities and infrastructure in Ukraine.

We attended the Worldwide Expert Conferences in Uzbekistan to promote awareness of factoring. We organised a joint event with the SME Banking Club to factoring market innovations review for the CEE and SEE regions and we joined the 6th Annual SME Banking Club Conference 2020 and the ITFA Middle East Trade Finance Dialogues. Betül Kurtulus

EUROPEAN UNION

During this very special period, the EUF has organised several online events.

A workshop named “Building bridges between Finance and SMEs” was held on 13 October. Stephanie Yon-Courtin, Member of the European Parliament and Vice-Chair of the Economic and monetary affairs committee (ECON), chaired this webinar dedicated to SMEs’ funding. The event gathered Andrea Beltramello, cabinet member of Executive Vice-President Valdis Dombrovskis; Patrick de Villepin, Chairman of FCI; Alban Maggiar, President of SMEunited, and national SMEs’ representatives from France, Germany, and Italy.

On 6 November, the EUF and FCI held their first online EU Factoring Summit in the Covid world. The successful webinar, attended by over 200 participants worldwide, witnessed vibrant discussions, especially on the impact of Covid-19. It took place simultaneously as the 2020 Council. Meetings took place in October and November with the German presidency of the EU and the Portuguese future presidency, which has started in January 2021. Françoise Palle-Guillabert

Regional Updates | Membership Mobilisation

AFRICA

We have 41 members in the Africa region, representing 10% of the total FCI membership. Four (4) new members joined FCI during the past year. These were Woodhall Capital (Nigeria), Mamlaka Capital Partners (Kenya), Avuna (Nigeria), Ziada Credit Solutions (Mauritius), and there are currently prospects from North and West Africa in the pipeline. We have the overall of 13 Banks' potential prospects in Africa, mostly in West and Central Africa who do Factoring Business. Nassourou Aminou

AMERICAS

The region accounts for 41 members at the end of 2020. During the year, only three members of the region withdrew: one bank and two factoring companies, and we got three new members, all in Peru: Banco Santander, Primus Capital and Euro capital. The actions carried out in the year, despite having been virtual, augur good future expectations, some of which will occur in the next year, despite the consequences of the scourge that is punishing the world and the region, especially Latin America and Carribean. Alberto Wyderka

NORTH EAST ASIA

By the end of 2020, the number of members in the region is 82. The Greater China region accounts for 91%. And bank members account for 73%. A high concentration of members from the Greater China region and bank members characterises the membership composition of the region. As the global manufacturing hub, the region is also one of the most active trade finance centres for global banks. In transforming traditional trade finance into supply chain finance, banks in the region are clearly at the forefront of this trend. It’s the strategic priority for the region to establish a new mechanism for enhancing collaboration under the two-factor model to achieve synergistic efficiencies in supply chain finance. Lin Hui

SOUTH AND SOUTH EAST ASIA

We have seen both additions and terminations of memberships within the year 2020, summing to two net additions to a total number of memberships. Furthermore, FCI approved one membership upgrade from the affiliate category to associate ranking. Due to the wide range of lockdowns, the pace and effectiveness of membership applications and processing were abruptly affected. Business activities of existing members were also heavily disrupted, causing a higher number of memberships applying for exits due to lack of sustaining business transactions and uncertain outlook of economic profitability. Thompson Lui

CEE, SEE AND THE MIDDLE EAST

The CEE region represents 15% of the total FCI membership. Poland and Russia are the two biggest markets in CEE. The SEE region represents 15% of the total FCI membership. Turkey is the leading country in SEE in terms of the number of FCI members. In the Balkans, we have new banking chains in FCI, which will also affect the region’s growth. And although their turnover is small yet, we see that Belarus differs positively in terms of the increase in the number of members in the FCI and their turnover.

The Middle East represents 3% of the FCI membership. The foregoing developments translated into six new members in 2020: five in CEE (Belarus, Cyprus, and Romania), one in the Middle East (Saudi Arabia). We expect to see an increase in the turnover of FCI’s product Islamic International Factoring, especially in Turkey and in the Middle East. Betül Kurtulus

EUROPEAN UNION

The EUF Excom has been enlarged to Portugal with the election during the last Council on the 6 November 2020, of Vitor Graca, Secretary General of the Portuguese association. We will keep on recruiting new members as far as possible in the current situation to build an even more representative federation of the European factoring industry. Croatia and Norway joined in 2020. Françoise Palle-Guillabert

Regional Updates | Challenges

AFRICA

Despite the growth in factoring volumes, there remain several challenges which include:

Insufficient Knowledge about the product, Education, Skills, and Experience in the Factoring industry;

Legal environment & Regulation: Lack of Legal Framework in the different countries, capital requirements,

Economical environment and access to working capital in some countries: inflation, high-interest rate, cost of lending, securities;

Difficulties in getting reliable Credit information and Credit insurance covers in some countries and buyers;

IT system and software to manage properly Factoring transactions;

Long and costly implementation of factoring business process, training, capacity building, and IT platform. Nassourou Aminou

AMERICAS

The challenges are multiple and come from the markets because they have different idiosyncrasies, realities, and reasons. The challenges vary in each market. However, I am encouraged to find a common denominator in these challenges.

On the one hand, the rate of concentration of members is one of them. The US, Chile, and Peru concentrate approximately 56% of the total members of the region. It is necessary to grow in the US, Canada, Mexico, and Brazil and the countries where we do not have a presence, which is seven.

On the other hand, education is a permanent challenge. Fortunately, we found in the webinars a tool that allowed us to reach approximately 770 participants. We will apply the same methodology in 2021, where we hope to have the same success. Alberto Wyderka

NORTH EAST ASIA

The global economy is in a post-pandemic recovery phase, and the region has started to see a significant pick-up in international trade volumes in the second half of 2020.

However, we also note that the rapid rise in commodity and raw material prices puts much pressure on the supply chains, especially SMEs. Meanwhile, trade policy uncertainty will continue for some time. As a supply chain financial service provider, Factor must shift its focus from SME financing to the overall goal of maximising the efficiency and resilience of the supply chain.

In response to the current complex economic environment, inter-institutional cooperation must be strengthened to improve efficiency and reduce friction. A return to the two-factor model is the inevitable direction of the industry’s development. Lin Hui

SOUTH AND SOUTH EAST ASIA

Needless to stress, here is the level of disruptions our global economy collectively faced in 2020. In this regard, developing and emerging markets were among the hardest hit compared to wealthier developed markets. SSEA region, composed of mainly the former, heavily relied on international trade and investment activities, as impacts were evidenced by EDI trade volume reduced to nearly 50% in a few member countries. To a certain degree, SSEA has not been able to put on an optimistic hat yet, for a pandemic is not yet contained, vaccination has just begun, and recovery remains on paper. Wile post-pandemic impacts may begin to emerge, and this is a topic for another day. Thompson Lui

CEE, SEE AND THE MIDDLE EAST

Almost all governments, European central banks, and countries central banks all brought COVID 19 relief measures during 2020 to prevent social and economic effects. With all these support programmes, it is still inevitable to see that the impact on earnings and balance sheets is likely to intensify in the coming quarters. It is necessary to evaluate credit risks, sectoral risks for both buyer and seller. It is essential to analyse the balance sheet and cash flow. I think we will see these effects more in the developing countries of Europe like in the Balkans.

Despite its volatility, the effect of Covid-19 on digitalisation is massive. Digital developments such as blockchain-based central invoice registration systems, central supply chain platforms supported by government banks are promising. Betül Kurtulus

EUROPEAN UNION

We have, beyond the crisis, to think about the factoring of tomorrow. Indeed, factoring has a role to play in the economic recovery and in promoting sustainable growth. On that account, EUF’s attention has been drawn to EC’s request for technical advice to the ESAs (including EBA) regarding digital finance and related issues. The reports to be issued by the EBA (October 2021 and March 2022) could impact factoring providers in Europe, among which Fin / Big Techs.

We also have to think of factoring beyond Europe. Consistently, works have started between EUF and FCI on the governance of their relations and articulating the representations of the two entities vis-a-vis public bodies. Françoise Palle-Guillabert

Regional Updates | Outlook 2021

AFRICA

With the Covid-19 crisis, most economies in Africa have been impacted as well as all factoring projects underway in 2019 in several countries have been slowed down or frozen. Some countries have shown the resilience of their economy in the face of this crisis. At the end of 2020, we noted a significant enthusiasm for the launch of factoring activities by banking groups, local banks, and independent companies in several countries such as Senegal, Cote d'Ivoire, Nigeria, and Kenya. And this, for classic factoring and SCF-reverse factoring programme, emphasises the digitisation of processes and innovation.

Faced with the challenges raised, these turn out to be opportunities to be exploited for the next years in all areas related to the industry to allow all stakeholders to benefit from factoring as an innovative instrument for financing economies and SMEs of African countries. Nassourou Aminou

AMERICAS

Any forecast contemplates this pandemic, the acceleration of vaccinations, mobilisation, subsidised financing granted by governments, all of which impact GDP growth and consequently our business. Any forecast must help us understand where factoring is going with Covid.

Our international factoring volumes growth in the first four months of 2021 has not been seen for a long time. Members in the region are true believers of the two-factor model for international factoring business, and then the growth expectation is there.

The domestic factoring volumes of the region fell significantly in 2020. In some countries like Brazil, the drop was 50%, rebounding in the last quarter. Likewise, we could talk about other countries in the region. I am observing in the region that members are constantly changing and adapting themselves for a better service, focusing on best practices and proper KYC. I believe that within all the difficulties, the members also find an opportunity to be better, more efficient, more valued. Alberto Wyderka

NORTH EAST ASIA

After the global pandemic, the digital wave will have a more profound impact on the factoring industry. The use of technology to enrich and enhance factoring services has become an industry consensus. As the first region to recover after the pandemic and one of the most active regions globally in terms of financial innovation, Northeast Asia is expected to make a breakthrough in the localisation of international rules and digitalisation of the platforms. China has proposed its dual circulation strategy. The huge consumer and supply chain markets provide an impetus for the continued development of the region’s factoring and supply chain finance industry. FCI will be committed to strengthening synergies among our members and promoting the development of the two-factor system in the region on all fronts. Lin Hui

SOUTH AND SOUTH EAST ASIA

We very much like to think optimistically towards how the world and commercial activities shall recover in 2021, and we need to look at the facts cautiously. All pandemics shall pass but the impacts and marks such left behind may require all of us to adapt. Many businesses will remain conservative in investing in new products and education. Due to lockdowns, supply chain of goods and finance are still at not back to pre-pandemic levels.

Many members are operating in contingency mode where a fraction of workforce is on duty alternatively and this puts lots of stress on response time, decision making turnaround time to crucial business activities. These being said, this pandemic we may regard as a wake-up call to how the industry can raise awareness of a more diverse supply chain to mitigate risks, an opportunity for the industry to embrace and adapt more quickly to how technology can help us raise efficiency. Most of all, central banks and policy makers alike can realise how FCI can work with them in improving SCF industry and securing their nations’ export driven receivables as the ultimate goal. Thompson Lui

CEE, SEE AND THE MIDDLE EAST

Coming to 2021, the risks to growth come from a more widespread resurgence of new Covid strains. The pace of vaccination is also another risk of the economies going back to normal. But the expectation for the GDP growth for most of the countries in the region is very positive. It seems that GDP in almost all countries will bounce back, and factoring will benefit from this growth.

Covid-19 pandemic also accelerates the digitalisation of all regions. We are still in the early days of such initiatives, but as commerce increasingly digitises and the new digital receivables, finance opportunities will flourish.

The next challenge is how regulations and policies will adapt globally accepted digital innovations. Betül Kurtulus

EUROPEAN UNION

The Covid-19 pandemic continues to affect all of us. The impact is significant on the activity of factors, and the coming months will be decisive for our economy.

In 2021, EUF actively works to avoid any damage to factoring of the new Definition of Default. Another issue is the EU Late Payments Observatory. EUF wishes to take part in the Observatory. The Federation joined the preparatory work. As far as late payments are concerned, EUF strongly advocates for the prohibition of the ban on assignment, which helps the undertaking in finding funding. And we are still working on implementing Basel III in the Union, with adapted and proportionate measures for factoring. More than ever, the Factoring and Commercial Finance Industry has a crucial role in supporting economic growth, employment, and wealth creation in Europe, especially with the end of government supporting measures. Françoise Palle-Guillabert