Thursday, July 1, 2010

Third Party Involvement in Trade Between Thailand & Africa

Ok here is the state of affairs up till now!

There has been trade between Thailand and Africa for decades now. Thailand is the largest exporter of rice in the world and it exports more than 42% of the rice to Africa. That makes it a cool 2.3 billion dollars. But the concern here is that there are no direct links between Thai and African banks.

Let’s comprehend the situation better. Assume that Thailand exports rice to Africa, and the African banks issue a LOC to the exporters back in Thailand. The Thai bank will merely reject the LOC is as it does not accept any letter of credit from any African bank. So there is a third bank in the picture i.e. a foreign bank. The foreign bank will have to issue a LOC on behalf of the African importers. Sine there is no direct links between Thai and African banks all payment from Africa will have to be made through a third party broker, in this case the foreign bank. The commission that will be charged by the third party broker will be about 1% of the entire trade amount. For a $ 2.3 billion trade, the third party broker will earn $ 23 million.

Dr. W Wongsurawat, a Thai economist opines that many non-economists fall prey to the erroneous belief that creating direct links between the Thai and African banks will improve the efficiency. In most situations he says it is a simple lack information and trust between the two transacting parties. The transactions being highly risky the middle men actually act as the risk bearers in this unique situation.

On the other hand Dr. R. Amoussou-Guenou an African lawyer states the reasons for creating direct links between the two parties. Africa is an emerging market. Countries like India and china already have direct relationships with Africa.

In 2009 the world economic forum has rated many African countries above USA and Singapore for the soundness of their banking system. No global crisis has ever originated from Africa.

Post 1973 Thailand has struggled to mark its political contours for a long time now and it will take sometime for Prime Minister Abhisit Vejjaviya to stabilize the situation. Thailand has seen a difficult and sometimes bloody transition from military to civilian rule, with several reversals along the way. In 2006 there had been the dissolution of the parliament and a provisional body was formed. In 2007 Thailand saw a civilian government and in 2008 many after a small revolution many parties joined hands to form a new government.

Now that you have heard both sides of the argument; darty o you think that Thailand should establish direct relations with Africa and save on the third party payments?


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