Title page
Contents
Foreword 5
Acknowledgements 6
Executive summary 7
Chapter 1. Trade profiles of the Mekong-3 10
Trade dynamics in the Mekong-3 12
The two-speed growth of trade 12
Product diversification 18
Trade of goods at different stages of processing 22
Competitiveness and trade costs 26
Participation in global value chains 29
Chapter 2. Trade finance in the Mekong-3 34
Local trade finance markets 36
Trade finance instruments 37
Trade finance across sectors 41
Trade finance for firms owned or led by women 42
Trade finance for climate-related activities 43
Trade finance constraints 45
Supply chain finance and reverse factoring 46
Trade finance rejection rates 46
Correspondent banking relationships 51
Trade finance prices 51
Chapter 3. The impact of closing the trade finance gap 54
The costs of financing international trade under different instruments 56
Five counterfactual scenarios 57
Projected trade cost reductions 57
Projected changes in aggregate exports and imports 60
Zooming in on trade patterns: detailed results for sectors and trading partners 62
Robustness checks 62
Conclusions 66
ANNEX I. Mekong-3 trade and global value chain performance 69
ANNEX II. Estimating total trade finance assets: methodology 73
ANNEX III. Counterfactual analysis 75
Abbreviations 91
Bibliography 92
Table 1.1. Top five HS2 sectors in the Mekong-3 as a share of new products exported, 2012-2021 21
Table 1.2. Share of trade in the Mekong-3 by stage of processing, 2020-2022 (including comparator economies and the world) 23
Table 2.1. Bank-intermediated trade finance in the Mekong-3 37
Table 2.2. Working capital for trade finance, 2022 41
Table 2.3. Distribution of trade finance across the surveyed banks' top three sectors, 2022 42
Table 2.4. Supply chain finance and reverse factoring, 2022 47
Table 2.5. Trade finance gaps and rejection rates in the Mekong-3, 2022 50
Table 2.6. All-in prices for confirmed letters of credit, 2022 53
Table 2.7. Average prices for selected trade finance instruments, 2022 53
Table 3.1. Projected increase in the volume of exports and imports, by trading partner and sector 64
Figure 1.1. Trade flows and GDP in the Mekong-3 13
Figure 1.2. Trade in value in the Mekong-3 as a share of total exports and imports, 2012 and 2021 16
Figure 1.3. Trade volume in the Mekong-3, 2012 and 2021 17
Figure 1.4. Net trade in the Mekong-3 and comparator countries, 2012-2021 19
Figure 1.5. Number of products traded by the Mekong-3 20
Figure 1.6. Index of Export Market Penetration, 2011 and 2021 22
Figure 1.7. Decomposition of change in export market share (trade values), period averages 2010-2021 27
Figure 1.8. WTO Trade Cost Index in the Mekong-3, 2008-2018 28
Figure 1.9. Forward and backward GVC participation in the Mekong-3, 2000 and 2021 31
Figure 1.10. Viet Nam: Share of exports and imports by ownership, industry and firm size, 2021 32
Figure 1.11. Viet Nam: Share of exports and imports in apparel and electronics industries by ownership and firm size, 2021 33
Figure 2.1. Trade finance instruments offered by banks in the Mekong-3, 2022 39
Figure 2.2. Trade finance instruments in the Mekong-3 for imports and exports, 2022 40
Figure 2.3. Bank-intermediated trade finance in the Mekong-3 by sector, 2022 43
Figure 2.4. Share of banks in the Mekong-3 providing trade finance to MSMEs owned or led by women, combined and by economy, 2022 44
Figure 2.5. Share of banks in the Mekong-3 providing trade finance to climate-related activities, combined and by economy, 2022 44
Figure 2.6. Main constraints to trade finance growth in the Mekong-3, 2022 45
Figure 2.7. Key constraints on banks in the Mekong-3 to meet trade finance demand, 2022 47
Figure 2.8. Trade finance technical and financial assistance needs of respondent banks, 2022 50
Figure 2.9. Main rejection reasons reported by banks in the Mekong-3, combined and by economy, 2022 52
Figure 2.10. Correspondent banking relationship constraints in the Mekong-3, 2022 52
Figure 3.1. Projected ad valorem trade cost reductions under the five scenarios 59
Figure 3.2. Projected increase in the volume of trade under the five scenarios 60
Figure 3.3. Projected increase in the volume of trade under the five scenarios 61
Figure 3.4. Projected increase in the volume of trade by trading partner, combined scenario 63
Boxes
Box 1.1. What is trade finance and why it matters? 14
Box 1.2. Trade finance instruments 24
Box 1.3. Forward and backward participation in global value chains 30
Box 2.1. The 2023 IFC survey of trade finance in the Mekong-3 38
Box 2.2. The 2023 IFC firm-level survey of trade finance: How firms in Viet Nam finance trade operations 48
Annex Tables
Table I.1. Measuring export competitiveness: decomposing the geographical effects 71
Table I.2. Measuring export competitiveness: decomposing the sectoral effects 72
Annex Figures
Figure I.1. Shares of products traded in the Mekong-3, 2021 69
Figure II.1. Power law distribution 73
Figure II.2. Proportional distribution 73
Figure III.1. Share of different trade finance instruments by domestic and partner banks for domestic and foreign-owned firms, by sector 85
Figure III.2. Share of trade covered by different trade finance instruments in baseline and counterfactual Scenarios 1 and 2 87
Figure III.3. Projected changes in trade costs by trading partner 88
Figure III.4. Projected increase in the volume of trade for different assumptions in Scenario 5 (combined) 89
Figure III.5. Projected increase in the volume of trade for different assumptions in Scenario 5 (combined) 90