- When the big fish is the export market
When the big fish is the export market
With its ability to create jobs, generate export earnings and boost economic sustainability, trade is becoming a growing priority for an increasing number of developing countries. Nowhere more, perhaps, than in Peru, world mining superpower and leading fishmeal producer.
Although more than one-quarter of its 30 million population still lives in poverty, Peru has the fastest growing economy in Latin America, with an annual GDP increase of 5.75 percent over the decade to 2011. Much of this success is down to the country’s great mineral wealth and growing trade with partners such as the United States, China, Brazil and Chile.
However, it is not just Peru’s land that contains treasure, but also its oceans. The country is the largest producer of fishmeal in the world, contributing 30 percent of global production. Peru does not feature at all, however, in the list of top ten fish exporting countries, an anomaly OFID is seeking to correct through a trade finance initiative that is providing support to small and medium enterprises (SMEs) across the fisheries value chain.
Crucial role of SMEs
A report from the OECD notes that SMEs play a central role in unleashing Latin America’s growth potential and in creating higher quality jobs. These SMEs represent an overwhelming majority of private enterprises in the region, accounting for 90 percent of businesses and employing 67 percent of the available workforce.
Access to financing, however, is one of the main obstacles facing SMEs: only 12 percent of total available credit in the region goes to these firms, compared to 25 percent in OECD countries. Around one-third of small businesses in Latin America consider access to financing a serious constraint. In light of these challenges and recognizing that commercial banks often charge SMEs much higher interest rates than large firms for preexport and post-export financing, OFID approved in 2010 a US$15 million line of credit to the Latin American Export Finance Fund (LAEFF).
The loan to LAEFF supports projects that promote the development, diversification and competitiveness of SME trade companies across the region, with the goal of generating jobs in rural communities existing below the poverty line.
A sector with growing needs
Over the past decades, according to FAO, global markets for fish and fish products have changed considerably. It is expected that the fish sector will enter a decade of higher prices and higher production, but also of higher production costs. The operators along the fisheries value chain (fishers, fish farmers, traders, processors and retailers) are seeking new opportunities to reduce production costs and to make profitable investments in an increasingly internationalized business environment.
Due to growing demand, the average per capita fish consumption worldwide reached 18.8 kg (live weight equivalent) in 2011. This figure is expected to reach 19.6 kg in 2021, 16 percent more than the average of 2009-11. By providing financing to the fisheries sector in Peru, LAEFF is making a sizeable contribution to the development of the fishing industry. In terms of jobs, it is estimated that for every person employed, there are approximately three related jobs.
Saud Al-Rajhi, OFID private sector operations officer in charge of the agreement with LAEFF, stated that the resources provided by OFID have been channeled to several SMEs in Peru, making it possible for many firms in the fishing industry to expand into the international market. “OFID recognized the importance of building a partners’ network and fusing their efforts to meet the financing needs of the region’s SMEs,” said Al-Rajhi, adding “this transaction has enabled OFID and its partners to expand their geographical footprint in LAC and reach thousands of fisheries and families.”
Since 2006, when OFID launched its Trade Finance Facility to facilitate import and export activities and to address working capital requirements in developing countries, the institution has supported over 2,000 transactions, generating incremental trade in excess of US$4 billion.