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Its central persona, of a girl who “feels like herself but maybe also has a breakdown, but […] parties through it”, has reinvigorated the US presidential race (and found its way into the British Green Party’s campaigning), recaptured high fashion, been used by Sadiq Khan in London’s Ultra Low Emission Zone (ULEZ) marketing, and defined the zeitgeist of social media.

On 2 September, Charli posted to social media to say “goodbye forever brat summer”. In doing so, Charli has written in stone how the phenomenon has defined summer 2024.

This warrants consideration as to whether the ‘brat’ aesthetic has permeated into somewhere truly unexpected: trade finance.

That is to say, can we call trade finance “that girl who is a bit messy and loves to party and maybe says dumb things sometimes”? Is it “honest, blunt, and a little bit volatile”?

Mind the gap

If one is ‘brat’, one is unforgivingly frank. And nothing is more unforgiving than cold, hard stats. Study after study points to disproportionate trade finance provisions, a harsh reality which speaks volumes.

It’s a line committed to memory at this point, repeated to the point of numbness: the trade finance gap has risen to $2.5 trillion. But its adverse impact should be noted: trade finance is more readily available in developed regions.

The World Trade Organisation’s (WTO) 2024 World Trade Report finds that the share of trade supported by trade finance in developed economies is at least 60%.

In contrast, the average share of trade supported by trade finance in the African continent was 40%, despite the inclusion of economies as large as Egypt, Morocco, and South Africa. In Senegal, Nigeria, and Vietnam, around 15-20% of trade is supported by trade finance, while in Cambodia and Laos, it’s only 3%.

The gap is not due to a lack of want. Rejection rates in low-income areas are staggering, reaching 25% of the value of requests in West Africa (and 12% for the continent as a whole).

There’s a gap between trade finance availability for Micro, Small and Medium Enterprises (MSMEs) and Multinational Enterprises (MNEs). The former faces significant credit restraints – approximately 50% of their applications are declined, compared to a 7% rejection rate for the latter.

The World Trade Report points to higher gaps regionally. In Côte d’Ivoire and Senegal, large companies may be charged a 4-5% premium over refinancing rates, while MSMEs pay 7-9%.

Finally, the technology gap. An interesting figure in e-commerce is 75%: the top ten advanced economies make up 75% of global e-commerce trade; in contrast, 75% of the world’s adult population has no access to e-commerce. 

Mainly, technology was promised to make trade cheaper and faster. However, inchoate technological developments, which have been rolled out with vigour, have yet to see much success. 

It’s been almost exactly one year since the British government passed the Electronic Trade Documents Act, but progress towards its adoption–digitisation (let alone digitalisation)–still seems to be moving glacially.

The uptake of the Model Law on Electronic Transferable Records (MLETR), for one, has been sluggish. An interoperable and harmonised standardised network is not inevitable, but it certainly seems a while away.

But, ‘brat’ isn’t defined by chaos – it’s about pride, and deliberation within an ostensible mess. The question is whether trade finance is too.

A ‘party’?

The most ‘brat’ thing about this summer in trade finance is that, overall, world trade growth is expected to remain stable and positive; output gaps are closing; and inflation is receding. 

For many countries, first-quarter growth came as a pleasant surprise. As activity and potential grow more aligned, output divergences across economies have reduced. For one, improving service activity resulted in interjections of economic recovery across Europe. In China, a belated surge in exports responded to 2023’s rise in global demand.

The forecast for growth in emerging markets and developing economies is projected upward – in China to 5%, and in India to 7%.

Research has also set encouraging precedents. A WTO study showed that in theory, increasing the coverage of trade by local trade finance by 20 percentage points (combined with reducing financing costs for export and import loans and letter of credit fees) to levels seen in more advanced economies could raise imports by over 5% in Cambodia and 6% in Vietnam while boosting exports by over 8% and 9%, respectively.

Another factor making this a particularly volatile summer for trade finance was uncertainty from a regulatory perspective. Many banks were waiting with bated breath for new rules to be announced by the Prudential Regulation Authority (PRA) around how capital treatment for trade finance products is likely to change. But banks breathed a sigh of relief with the announcement on Thursday, 12 September, announcing that thresholds will remain “virtually unchanged”. Now the party – that is, planning – can resume.

In the tech scape, developments require communication and concerted effort to roll out. Patience is a virtue, and attitudes towards digitalisation appear to be an exercise in vice.

Yet, most causes for celebration appear to be merely promises that on this trajectory, situations will improve. But that doesn’t make this current ‘party’ any better – a ‘brat’ girl would leave without bothering to make an excuse.

A summer defined by risk aversion

However, the summer of 2024 has largely been characterised by political unrest and violence. This has dampened the risk appetite of private investors in these regions, which consist almost entirely of developing economies that need trade finance support the most.

Eyes have been on the Middle East. The Israeli military’s killing of Hamas leader Ismail Haniyeh in Tehran in late July, and Israel and Lebanon’s Iran-backed Hezbollah exchanging fire, portend full-out Iranian involvement in regional conflict. In this event, spillovers of violence into the Strait of Hormuz pose a serious threat to global energy supplies.

Events in Africa have gone largely unnoticed despite their capacity for trade disruption. The civil war in Sudan, for instance, between the Sudanese Armed Forces (SAF) and the paramilitary Royal Support Forces (RSF), has been described as the world’s most devastating war. Sudan’s economy has shrunk by 40% since last year, jeopardising its ability to repay creditors.

By nature, humans are risk-averse. Economic disparities will likely persist unless institutions and firms start providing adequate incentives for the individual trade financier, to take strides towards democratising trade finance.

And in all of this, the loss of civilian life and mass displacement are a heavy cloud hanging over.

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Trade finance is a capricious industry in which shocks encourage innovation and demand resilience, lest global trade networks crumble. This ‘brat’ aspect of trade finance is certainly not limited to summer 2024—it has always been an intrinsic part of the industry and inevitably will persist. 

But the industry is producing a lot of white noise, identifying a myriad of problems while taking tentative steps to close gaps, increase funding, and so forth. And a summer of geopolitical turmoil, likely only to escalate, poses no natural solution to the perennial issue of risk aversion.

Imagine a child sitting in a messy room, crying about the mess but refusing to obey instructions to tidy up. A distinction must be drawn between ‘brat’ and just bratty.

Perhaps, as autumn knocks, the trade finance industry should lean more towards the empowerment which ‘brat’ encourages rather than remaining uncomfortably stagnant in a volatile mess.