surveyed in 14 developing countries across five regions<sup>3</sup> . In sum, the survey findings confirmed that the global financial crisis has constrained trade finance for exporters and importers in developing countries. Yet, drop in demand has emerged as the top concern of firms. The lack of export revenues was putting pressure on firms’ cash flow and, therefore, their capacity to fund their export and import transactions. The survey revealed some stylized facts at the firm, bank, and income levels.

At the firm level, firms that rely to a large extent on the banking system for trade finance have suffered from more risk averse and selective local banks. On the contrary, firms that mostly rely on inter-firm financing and self-financing have been mostly affected by the slowing global economy, the lack and cancellation of orders, delays in buyers’ payments, and shorter maturity imposed by suppliers. SMEs have been more affected than large firms because of a weaker capital base and bargaining power vis-à-vis global buyers as well banks. Also, SMEs have been more subject to high increases in the cost of trade finance instruments. A large number of SMEs operating in global supply-chains and/or in sectors that have been most affected by the slow global economy such as in the auto industry have reported as being constrained both through the banking system and the drop in export revenues and buyers’ liquidity. Moreover, firms indicated being constrained by the need to provide more guarantees and insurance in times of crisis mainly due to lack of affordable supply of these products.

At the regional level, the three low-income African countries where our survey was conducted (Ghana, Kenya, and Sierra Leone), seem to have been relatively more insulated by the financial crisis as of March-April 2009. Their primary trade finance constraints originate from more structural problems such as poorly developed banking system and trade finance institutions, and macroeconomic imbalances. Many of these exporters have traditionally relied on self-financing and cash-in-advance; therefore, they have also been affected by the drop in commodity prices and global demand from their main export market (US and the EU). The drop in their cash reserves has further constrained their trade finance. The financial crisis has also added strains on the domestic financial systems and is unfavorable to SMEs and new firms that are seeking to diversify away from commodity exports. In South Africa, as in other middle-income countries in the other regions, trade finance constraints did not seem to have a regional dimension, but rather dependent on the nature of the business relationship with clients and industry.

At the bank level, the drastic reduction in global financial liquidity and in the number of intermediary players has pushed banks in developing countries to become more cautious, risk averse and selective, tightening trade finance conditions. Interviews with banks confirmed the increase in pricing and drop in volume of trade credit. Yet, the drop in volume seems to reflect lack of demand due to the global recession rather than a consequence of the increase in pricing. Moreover, lack of liquidity in local currency did not appear to be an issue.

In terms of governments’ response, the survey revealed that most governments have taken actions to mitigate the impact of the financial crisis mainly through two channels: (i) Most

> 3 The 14 countries are: Indonesia and the Philippines in East Asia; Turkey and Ukraine in Europe and Central Asia; Brazil, Chile and Peru in Latin America, Egypt and Tunisia in Middle East and North Africa, India in South Asia; and Ghana, Kenya, Sierra Leone, and South Africa in Sub Saharan Africa.

6