Business Forum • 6 March, 2024 at 11:59 AM
Over the last two years, geopolitical tensions have escalated across the world, fragmenting the global trade landscape. This period has exposed the vulnerabilities of global economic interdependence, with disruptions in supply chains, soaring costs, and raw material shortages becoming daily realities. These challenges have not only strained trade relations between countries but have also accelerated a trend towards deglobalization, changing global trade dynamics.
iBanFirst, a leading provider of foreign exchange and international payment services for businesses, which transacted over €1 billion in Romania in 2023, released a study showing the impact of recent geopolitical shifts on Romanian SMEs and mid-cap companies operating internationally and how they have adapted their strategies to navigate the challenges faced.
Reconfiguring and diversifying trade partnerships
After the pandemic crisis, recent geopolitical tensions have triggered major disruptions in the supply chain. Romanian companies relying on raw materials or intermediate goods from Ukraine or Russia, particularly from industries such as agriculture, the steel industry, and construction, were faced with logistical problems such as transport restrictions and rising shipping costs. These companies had to rapidly reconfigure their trade partnerships and seek new suppliers. This shift propelled Turkey and several other non-European nations to the forefront as viable substitutes for imports. Additionally, trade relations with China have experienced significant growth.
One of the main shifts occurred within the energy sector, where EU Member States, including Romania, took measures to reduce their dependence on Russian gas. This strategic approach not only underscores the importance of diversifying energy sources to enhance energy security but also reflects a broader move towards reducing dependency on single suppliers, thereby mitigating supply risks associated with geopolitical tensions.
Embracing digital financial solutions over traditional banking services
In today's dynamic and unpredictable global business environment, access to fast, affordable, and secure financial services has become critical for Romanian SMEs and mid-cap companies operating internationally. This pressing need has led many Romanian businesses to choose digital financial solutions offered by fintech companies over traditional banking services. Fintechs enhance agility and efficiency in trade operations, by offering multi-currency payments, foreign exchange services and personalized hedging strategies.
iBanFirst's results in Romania underscore this shift towards digital financial services. Over the past two years, the fintech has seen its monthly clientele nearly double, now serving over 400 companies. iBanFirst's platform, which provides access to transactions in over 30 currencies, has enabled international transactions surpassing the 1 billion euros threshold for its Romanian clients.
Increasing demand for currency hedging services
The ongoing geopolitical tensions have amplified currency volatility in the forex market, leading Romanian companies engaged in international trade to adopt a more cautious business approach. With a heightened sense of risk, import-export firms have increasingly turned to currency hedging tools, particularly forward contracts, as essential mechanisms for managing costs and safeguarding their profit margins. These financial instruments allow businesses to secure exchange rates for future international transactions, offering protection against the unpredictability of currency fluctuations.
In 2023, the demand for hedging services provided by iBanFirst witnessed a remarkable 97% increase, highlighting a growing awareness among Romanian companies of the critical role financial risk management plays within their trade operations. Businesses across various industries such as agriculture, retail, and information technology are now integrating hedging strategies into their trade relations with partners across the European Union, Turkey, the United States, and China. By prioritizing stability in their financial operations, Romanian companies are better equipped to navigate the challenges posed by currency volatility, ensuring sustained growth and resilience in a fluctuating economic landscape.
The rise of the yuan and decline of the dollar in international transactions
The process of de-dollarization is gaining momentum, challenging the U.S. dollar's long-standing supremacy in international trade and finance, where it holds a 42% share of international payments. This shift towards minimizing reliance on the dollar has been catalyzed by the BRICS consortium (Brazil, Russia, India, China, and South Africa). These nations, which have been striving for over a decade to decrease their dollar dependency, are increasingly embracing local currencies for cross-border transactions.
SWIFT data shows that in January 2024, the Chinese yuan retained the fourth most active currency for global payments by value, with a share of 4.51%. The rise of the yuan was prompted by the strategic currency swap agreements between China and the central banks of its trade partners. In response to these global monetary shifts, Romanian companies are starting to analyze and leverage the benefits of transacting in yuan. However, while the yuan's internationalization is a clear trend, it's important to temper expectations regarding its potential to dethrone the dollar soon. iBanFirst analysts argue that it will take decades before the yuan can compete with the dollar.
„In this changing geopolitical and economic context, Romanian businesses have showcased remarkable resilience, agility, and innovation, skillfully transforming obstacles into opportunities for growth. Their adaptability in the face of adversity highlights a positive dynamic within the Romanian economy. Throughout this period, iBanFirst has steadfastly supported local import-export companies in their plans to expand their regional and international footprint. By providing streamlined access to global markets and facilitating efficient cross-border transactions, we have unlocked new business opportunities and strengthened their ability to operate in a fast-changing global environment,” said Alin Latu, Country Manager iBanFirst Romania.
With 13 operational offices in 10 European countries (France, Belgium, the Netherlands, Germany, Romania, Bulgaria, Hungary, Italy, Spain, and the UK) iBanFirst has a monthly transaction volume of €1.5 billion. The fintech is listed for the 5th consecutive year in the 'FT1000', the Financial Times' ranking of the fastest-growing European companies.