The availability of financing is essential for the health of any trading system as it helps to target funds where they are needed, at the heart of a business. Global trade is a US$17 trillion industry[1], of which 80% is supported by some form of financing or insurance[2], making it one of the largest potential asset classes, dwarfing others such as the leveraged loan market.

Moreover, a strong trading system is essential for delivering the United Nations Sustainable Development Goals (UN SDGs). Trade finance has the potential to play a big role in creating that system. It can provide much-needed support to increase decent work opportunities, boost economic growth, foster industrialization & infrastructure and reduce inequalities.

The first trade finance funds appeared following the global financial crisis in 2008, when banks started reducing their trade finance exposure to meet Basel III capital requirements, although in recent years the asset class has gained increased interest from institutional investors, driven by demand for a scalable investment opportunity with low volatility and consistent return, as well as low correlation against the broader financial market. Additionally, borrower demand to diversify their sources of liquidity has increased, with significant demand coming from borrowers who cannot access the broader capital markets.

Moreover, with an increasing focus on ESG and Impact assets that go beyond the somewhat limited sustainable bond and equity markets, trade finance offers a potentially compelling opportunity – aiding socio-economic development in developed and emerging markets as well as SMEs – grassroots level impact. Although I must add, strictly speaking, I am of the view that whilst trade finance itself should not be classified as an impact investment, if specific sectors, countries and borrowers are targeted, investments can have significant positive impacts. For example, “essential” sectors – food & agriculture, consumer staples and pharmaceuticals. Not only have these sectors generally shown resilience over the past months (and years) they also support significant impact potential, both in markets were goods are sourced (& produced) as well as markets where they are consumed.

The World Trade Organisation (WTO) undertook a detailed study[3] of how global trade (and accordingly trade finance) impacts the UN SDGs, the results outlined trade’s unrivalled impact opportunity and clearly demonstrates why many consider trade finance as the socio-economic lifeblood and foundation for all other activities.

Some of the many UN SDGs positively impacted by targeted investments include:

SDG 1 - Poverty

Trade has already shown to be a very powerful engine for poverty reduction. By boosting growth and supporting development, it has been of great help to developing countries. It even led to an early achievement of the Millennium Goal to cut poverty in half by 2015. This extraordinary accomplishment is owed to a rapid and unprecedented economic development that took place in the last decade and a half.

SDG 2- Zero Hunger

Despite significant advances in farming & agriculture technology and practices, a large proportion of the food consumed in developed markets is still grown in emerging markets, e.g. rice and avocadoes. By extending trade finance to producers, secured on the offtake from importers (who typically have a significantly better credit risk profile), producers in emerging markets are able to access capital that can transform the lives of their workers whilst investors retain developed market credit risk.

SDG 5- Gender Equality

Growth offers opportunities for all. Trade-triggered economic growth directly brings more opportunities for women’s employment. Women constitute up to 90% of the workforce in export processing zones in most of developing countries such as Sri Lanka. One third of the world’s SMEs are women-owned. So empowering SMEs has a direct impact on women.

Also, WTO’s initiatives support the service sector, globally the largest source of employment for women. In 2015, 62% of women were reported to be in this sector. Also, this sector holds a large share of GDP in developing countries. Enhancing this sector will contribute to improving gender equality by providing education opportunities and decent work. Furthermore, it will reduce inequalities and not only within but also among countries. But, to be effective, trade efforts need to be supported by adequate gender-friendly policies.

SDG 8 - Decent Work and Economic Growth

Trade-triggered economic growth increases the income-generating capacity. This is a prerequisite for sustainable development. The WTO is making efforts to create a globally stable environment that allows economic activity to flourish. In such an open environment, businesses are safe and are given equal opportunities for growth and development.

SDG 9 - Industry, Innovation and Infrastructure

Encouraging trade opens doors for technology exchange, creates space for innovations and encourages sharing of knowledge. A win-win for all. Innovation is crucial for new economic opportunities, such as environmental goods and services that are considered essential to achieving SDGs. The global market for sustainable natural resource products has been estimated at US$ 50 billion by the International Trade Centre.

Beyond Socio-Economic Impact

Trade finance funds have managed to return 6.82% per annum, outperforming both their fixed income counterparts and the global investment grade bonds which returned 5.43% and 2.58% per annum respectively since the end of 2009. The high-yield bond markets generated a marginally lower annualised return of 6.58% over the same period, hampered slightly by the recent COVID-19 pandemic[4].

Given that trade finance is utilized at the heart of a business operations (i.e. where a business requires working capital to secure stock or accelerate receivables from sales already made) vs. general loans (e.g. revolving credit) where use of proceeds is not restricted it enables investors to track end to end where funds are being utilized, and where the risks lie. This triangulated alignment of interests from the key stakeholders, a buyer, a seller and the financier is largely why trade finance has consistently demonstrated low default rates (0.53% on an obligor weighted basis for import / export loans) and high recovery rates (62.30%), even in emerging markets[5].

Additionally, by virtue of the low volatilities associated with the trade finance strategies, fund managers comprising the Eurekahedge Trade Finance Hedge Fund Index have generated exceptional Sharpe ratios over the recent years, outperforming their benchmarks by a significant margin. Over the last five years, trade finance fund managers generated a Sharpe ratio of 6.12[6].

Apart from the risk-adjusted returns, trade finance hedge fund managers have also managed to provide downside protection. The Eurekahedge Trade Finance Hedge Fund Index has posted a maximum drawdown of 0.31% over the last five-year period ending May 2020[7].

In light of COVID-19, BCG expects global trade to fall sharply, however basic goods and commodity trade (representing circa 60% of total merchandise exports) should remain resilient, both from a volume perspective as well as default rates perspective, given their criticality[8].

[1] World Trade Organisation Report 2019 [2] World Trade Organisation - [3] World Trade Organisation - [4] Eurekahedge - [5] ICC Trade Register Report 2019 - [6] Eurekahedge - [7] Eurekahedge - [8] ICC Trade Register Report 2019 -

Author: Josh Vicary.

Immense climate challenges face the world, spurring many countries to join efforts to attempt to limit global warming to 1.5 degrees Celsius this century. The Indian Subcontinent represents an instrumental part of the global effort, with India, Pakistan and Sri Lanka setting ambitious renewable energy targets for 2030, off the back of strong commitments to minimise green-house gas emissions.

With a population of over 1.5 billion and total GDP of over $3 trillion, the Indian Subcontinent is experiencing strong economic and population growth, leading to sky-rocketing electricity demand. Last year the region reported energy consumption of 1,297 TWh and is forecast to grow at over 5.5% YoY over the next decade. The continued rise of these economies and their energy demands exhibit both an opportunity and a challenge for all stakeholders involved.

Installed Capacity

Most countries in the Indian Subcontinent have a significant reliance on fossil fuels, most notably coal and gas. The renewables segment is fast becoming a key part of the installed energy mix - albeit not yet significant enough to overtake conventional sources. Whilst this is proving challenging with strong demand and supply constraints, slowly nations are starting to shift away from greenfield fossil fuel capacity.

India’s Steady Growth Through Domestic Investment

India’s total installed generation capacity stood at 356 GW in 2018, with 81 GW of that made up by renewable sources (excluding large hydro). Renewables adoption is becoming increasingly advanced in India. With a fundamental drive to attract private sector and overseas investment into the market, we witnessed the domestic expansion of ReNew, Greenko and most recently, Total’s acquisition of Adani’s solar business.

Ownership of the generation segments is a mixture of public and private entities, with more recent solar tenders being heavily bid for by Domestic Independent Power Producers. The Government of India has set a target that by 2030, 175 GW of installed capacity will be renewable, displaying a commitment to a renewable lead future. It aims to achieve this through robust regulatory policy and PPA standardisation. Foreign investment in the sector has been strong, as the transparent, competitive and established tender processes have increased the bankability of renewable energy projects.

The power market in India isn’t without its challenges, with persistent difficulties being faced, including off-taker risk, transmission losses and a negative perception of many State Owned Utilities. A national liquidity squeeze in the Indian banking sector led to increased borrowing costs and flight to quality, thus adding pressure on domestic private capital and foreign investors to support the renewable transition. The issue was magnified by the rupee depreciation against the dollar, inflating the costs of fixed dollar denominated PPA auction tariffs. Such challenges are likely going to continue to hamper the Indian power market in the short to medium term.

The renewables potential of India’s power market is significant for its people and the worlds battle against climate change. The gap India is attempting to bridge with its ambitious 175 GW renewables target will need persistent support from the national and global community. This can only be achieved by continued government policy support, competitive renewables tariffs and transformation of the value chain.

Pakistan’s Measured Adoption of Renewables

Excluding large hydro, Pakistan has an installed capacity of 36 GW, with 2 GW of renewable installed capacity. The generation market is split between state entities and Independent Power Producers, with solar captive power solutions becoming increasingly popular with the commercial and industrial sector.

The power market in Pakistan is becoming more advanced and supportive of renewable energy developments. This has been encouraged by improved governance and transparency in its energy regulatory body, the Pakistan National Electric Power Regulatory Authority (NEPRA). However, the markets struggle in rationalising electricity tariffs, coupled with the rise in circular debt, has caused obstruction in the adoption of clean energy technologies.

Pakistan’s power sector will continue to face challenges in its adoption of clean energy sources. Inefficiencies across the value chain, supported by high off-taker risk, has presented consistent difficulties for generators, highlighting the need for investment in the power transmission and distribution chain. China’s belt and road initiative has hampered the uptake for renewable energy in Pakistan. China has been assisting Pakistan through the financing and construction of coal power plants, turning the focus away from adding capacity through renewable sources, crystalizing fossil fuels as a significant proportion of the future power mix.

The 2030 target of 30% renewable installed capacity is ambitious. Lack of currency stability, policy perception and progress, specifically on project tendering has been mirrored in the uptake of renewable developments. That said, with substantial renewables potential and with further progress towards renewables bankability, Pakistan can continue to build on its success, attracting further investment and support for its energy ambitions.

Sri Lanka’s Bright Renewable Future

Sri Lanka has made significant progress in meeting its energy needs, with electricity access increasing from 50% in 1990 to 100% in 2016. The resilience of Sri Lanka, alongside development support, has started the turning point in delivering a zero-carbon future.

Adoption of the Paris climate agreement accelerated the focus on building renewable power capacity in Sri Lanka. It is estimated that by 2050 Sri Lanka could save up to $19 billion by substituting fossil fuel imports. The Ministry of Power and Renewable Energy has been tendering solar developments for Independent Power Producers through “Soorya Bala Sangramaya solar programme”, which is currently undergoing third competitive tender, in an effort to drive this change.

Sri Lanka’s long-term generation plan does include new coal power additions to balance the grid but has also reviewed gas capacity additions to limit coal reliance. Historically droughts have caused hydropower generation to fall, causing rolling blackouts in 2019. However, Considerable progress is required to meet its target of 100% clean energy generation by 2050.

Impact of Covid-19

The global pandemic has seen project deadlines extended, shipping of equipment delayed, construction postponed and borrowers put under stress. India has seen around 3 GW of renewables projects delayed and has extended project commissioning to accommodate delays. Economic repercussions of the lockdowns are pressing utilities payment collections with the Indian government ensuring the financial stability of utilities as a top priority. Given the importance of the renewables industry in the Indian Subcontinent’s economy, many have deemed operation and maintenance of renewables an essential service.

A trying construction and supply chain environment should be short-lived as the world learns to mitigate the effects of the outbreak. However, in the medium term, it is expected to have lasting effects on the creditworthiness of businesses in the renewables sector.

Ambitious Investment Requirements Needed to Fund the Transition

A global effort is required to support these countries transitions to cleaner energy generation. Support from development institutions, governments and private sector players is all vital in tackling the climate crisis. Renewables financing required for the Indian Subcontinent to meet its renewables target is estimated to be at $425 billion over the next decade.

Clearly it is critical to the global climate crisis that the Indian Subcontinent region is fully supported in its clean energy aspirations. The region has vast untapped renewables resources and it is vital that these dominate the newly installed capacity in these countries. This will take both national and international involvement in building environments that allow renewable energy investment to flourish.











In 2009 Mozambique was touted as the next Liquified Natural Gas (LNG) success story on the back of having one of Africa’s largest LNG reserves, alongside Nigeria and Algeria. Since then, the country has faced a myriad of difficulties; from hidden debt scandals, domestic armed conflict, increased security concerns over potential insurgents and catastrophic cyclones. All of which have cast a shadow on the viability and timing of the LNG projects. Fast forward to 2019, and Mozambique has begun showing signs that its LNG potential has finally begun to materialise with accelerated tempo and a sense of revived optimism.

Mozambique has officially proven gas reserves of 2.83 trillion cubic feet (Tcf) placing Mozambique firmly as having the world’s 14th largest proven reserves (according to the US Energy Information Agency data). The gas finds have attracted three major LNG projects—two onshore and one offshore—with a total capacity of more than 30 million metric tonnes/year (MTPA) and US$50 billion in capex development, and commissioning expected between 2022 and 2025.

Two major consortiums of international oil companies (IOCs)—each led by America’s Anadarko and Italy’s Eni—are at the forefront of the gas exploration projects in Mozambique. Anadarko made several natural gas discoveries in Area 1 (Prosperidade and Golfinho/Atum complexes) and Eni’s natural gas discoveries are in Area 4 (Mamba complex and the Coral site).

As LNG exports increase, Mozambique is expected to monetise much more of its natural resource endowment and move into the mainstream of natural gas-producing countries.

Ongoing Projects

The Prosperidade and Mamba Complexes straddle the boundaries of Areas 1 and 4. A unitisation agreement (joint development of reserves that are under separate licenses) was reached in December 2015, which stipulated that Anadarko and Eni both independently commercialise 12 Tcf of natural gas in the overlapping area and jointly develop the remainder of the resources. However, both companies have prioritised developing independent projects using natural gas resources on their respective acreage. The respective projects and their stages of development are outlined below.

Located more than 1,500 metres underwater and 40 kilometres off the northern coast of Mozambique, the first project, offshore Coral South Floating Liquified Natural Gas (FLNG), covers the Mamba South and North 1 discovery in Offshore Area 4. This project is a joint venture led by Eni (25%), in conjunction with its Area 4 partners ExxonMobil (25%) China National Petroleum Company (20%) Empresa Nacional de Hidrocarbonetos E.P. (10%), Kogas (10%) and Galp Energia (10%).

The second project, Mozambique Rovuma Venture S.p.A (MRV) operates in the Offshore Area 4 and is led by the same consortium as the Coral South Floating project.

The third and last project, Anadarko Moçambique Área 1, Lda, covers Rovuma Offshore Area 1. This project is led by a subsidiary of Anadarko Petroleum Corporation which operates Offshore Area 1 with a 26.5% working interest. Co-venturers include ENH Rovuma Área Um, S.A. (15%), Mitsui E&P Mozambique Area1 Ltd. (20%), ONGC Videsh Ltd. (10%), Beas Rovuma Energy Mozambique Limited (10%), BPRL Ventures Mozambique B.V. (10%), and PTTEP Mozambique Area 1 Limited (8.5%).

Progress Update

Coral South FLNG is the most advanced LNG project in Mozambique and is currently under construction in the offshore Area 4 Rovuma basin of Mozambique. Once completed, Coral South FLNG will be one of the first deepwater gas field developments in Africa and the third such development in the world with an expected annual capacity of 3.4MTPA of LNG per year. Gas production is expected to start in 2022.

Development capex cost was estimated at US$7 billion and about 60% of the capex cost was financed using debt. Debt facilities will be used to cover the initial construction period and are expected to be paid back in 15 years. In 2017, the Area 4 consortium signed a US$5 billion project financing package with a syndicate of international financial institutions and leading export credit agencies.

Credit agencies which provided covered loans to the consortium include the BPI Export Credit Agency, KEXIM Export Credit Agency, Ksure Export Credit Agency, Sace Export Credit Agency, and the Sinosure Export Credit Agency. Additionally, the consortium received direct loans from Commercial Bank and KEXIM. Over the next 20 years, 100% of the LNG produced will be sold to BP.

Anadarko-led Area 1 reached Final Investment Decision (FID) status in 2019 after the consortium was satisfied with the project viability, allowing the project to proceed. Area 1 will also be responsible for constructing the support facilities to be shared between Area 1 and Area 4 projects, which will include the Materials Offloading Facility and the LNG Marine Terminal. The expectation is for construction of the facility to begin soon with “first gas” expected in Q4 2023.

With a sanctioned US$20 billion capex cost, this will be the first onshore LNG facility in Mozambique's Cabo Delgado province, consisting of two initial LNG trains with a total nameplate capacity of 12.88 MTPA to support the development of the Golfinho/Atum field located entirely within Offshore Area 1.

The Golfinho/Atum Project will supply initial volumes of approximately 100 million cubic feet of natural gas per day (MMcf/d) with 50 MMcf/d per train allocated for domestic use in Mozambique.

The project has successfully secured an aggregate 11.1 MTPA of long-term LNG sales (representing 86% of the plant's nameplate capacity) with key LNG buyers in Asia and in Europe such as CNOOC (China’s largest LNG importer, for a term of 13 years, 1.5MTPA), Tokyo Gas & Centrica (combined 2.6 MTPA, from start-up of production until 2040), Shell International Trading Middle East Ltd (2 MTPA for a term of 13 years), Japan’s Tohoku Electric Power company (0.28 MTPA for 15 years), and French Électricité de France, S.A., (EDF) (1.2 MTPA for a term of 15 years).

The MRV project, will produce, liquefy and market natural gas from three reservoirs of the Mamba complex located in the Area 4 block in the Rovuma basin. Two of the reservoirs straddle the boundary with neighbouring Area 1. The project is intended to have a production capacity of 15.2MTPA and includes the world’s first “Mega-Trains’’ outside the State of Qatar. ExxonMobil will lead construction and operation of natural gas liquefaction and related facilities on behalf of MRV, while Eni will lead construction and operation efforts.

The Mozambique government approved its development plan for the Rovuma LNG project with final FID expected later in 2019. Furthermore, construction is assumed to start in 2019 until 2025 and extraction from 2024 to 2049.

Impact Assessment—Sectors poised to benefit from LNG production in Mozambique

MRV, the consortium responsible for exploring Area 4, released details on the project’s expected impact to the fiscus and GDP. The project is expected to add US$4.3-US$5 billion p.a. in fiscal proceeds. Its contributions to GDP, are envisaged to annually increase by US$15.4-US$18.5 billion.

The overarching policy framework determining the direct financial benefits of the LNG projects in Mozambique are:

· Royalty rates which are fixed at 2% and 3% of gross revenues for natural gas and condensate respectively (for production below 500m depth).

· R-factor (a cost recovery parameter that determines the distribution of the profit petroleum between the government and the concessionaries) of between 10% and 15%.

· Corporate income tax—24% for the first 8 years, 32% (or standard corporate tax rate) thereafter.

Broad-based economic benefits: Ideally projects of this magnitude should result in a windfall for the whole economy. Recognising this, the Mozambican government has introduced a plan to ensure that the monetisation of gas discoveries directly benefit the local economy.

Mozambique's Gas Master Plan (MGMP) has identified potential domestic industries besides LNG and power generation that also stand to benefit from developments in the sector. One such example is that of major planned industrial projects (such as fertiliser plants—Norway’s Yara International was granted an allocation of 80-90 thousand cubic feet per day (MCF/d) of gas to produce 1.2-1.3million tonnes/yr of fertilisers) that would take advantage of gas as feedstock.

Beyond MGMP, the Mozambique government has agreed that the various LNG projects will allocate a portion of their production output towards domestic consumption. Domestic gas (Domgas) and Small-Scale LNG (SSLNG) companies are positioned to expand their local marketing and distribution activities. The heightened security concerns driven by reported attacks in the LNG region will result in a need for safety and security equipment and services. Linked to this is the need for maritime transportation and security equipment and services. The large workforce needed for construction and operation of the LNG facilities will rely on car rental firms to provide transportation services.

The construction of these LNG facilities will be undertaken by local and international construction and related companies. Underpinning this sector will be local drivers such as: (1) the absence of infrastructure, namely a lack of roads, adequate power, ports, amenities for the workforce and (2) the government’s own reinvestment in infrastructure and low-cost housing. Additionally, there are other LNG connected infrastructure projects such as oil and gas terminal expansion in the Port of Pemba, and the urbanisation of the district of Palma, where the Area 1 and 4 natural gas business activities will be concentrated. Lastly, Kogas and ENH are in partnership to operate a gas distribution network to provide households and industry with piped gas in the south of Mozambique.

Potential challenges

As the Mozambique LNG story begins to materialise there are potential difficulties on the horizon which need to be considered.

· The Mozambique government is faced with the consequences of hidden debt scandal (Ematum SA—state-run tuna-fishing company—Mozambique Asset Management (MAM) and ProIndicus scandal dubbed the “Tuna Bonds”). Chief concern being, whether the current government handling these multibillion-dollar LNG projects is the same government which miss-handled the “Tuna Bonds”. Media sources report that the then President Armando Guebuza and Finance Minister Manuel Changue are believed to have been the principal government heads at the centre of the scandal. Both are no longer in power and legal steps are being taken over the matter. Additionally, the scandal brought increased scrutiny and suspension of international aid and financing in Mozambique. Since the scandal emerged, government approvals related to sovereign debt have become more rigorous, requiring additional endorsements from lawmakers and the attorney general. This has left the LNG projects as the only avenue left for the Frelimo-led Mozambique government to repay the bonds, stabilise the currency and resume much needed projects. Therefore, it is reasonable to believe the government has vested interests in seeing these projects succeed sooner rather than later.

· Possible policy reversal, if there is a change of government. The potential for this is very real, given what has been observed elsewhere on the continent (Ghana for instance). We draw comfort from the current incumbent, President of Mozambique and leader of the Frelimo party, Filipe Nyusi, having overseen the various policies and government bodies put in place to guide the LNG story from a legal framework perspective. President Nyusi will run again in the October 2019 general elections and given the record number of party affiliated registrations, Frelimo remains a favourite to win; therefore, guaranteeing policy continuity beyond the “first gas” phase of the various projects.

· Concerns regarding the capacity of the state-owned oil company, ENH, to meet its project equity obligations. This is against the backdrop of redirected government spending following the recent cyclone disasters. Comfort is drawn from International donors who have pledged over US$1.2 billion in aid, reducing the reconstruction burden on the domestic budget. Total financing commitment from ENH is US$7.5 billion and whilst US$1 billion has already been spent by partners on behalf of ENH, this risk of a funding shortfall affects the lenders’ ability to raise the US$30 billion project financing. ENH has chosen an advisory firm to advise on raising the required finance and the Mozambican government has approved a guarantee for ENH which now awaits additional endorsements from lawmakers and the attorney general.

Closing remarks

10 years on and Mozambique continues to make significant strides towards strengthening its position as a key LNG player on the global stage. Despite recent macro-economic and political challenges, the rapid pace with which Mozambique has been able to capitalise on its natural resources points towards a very positive macroeconomic outlook going forward. With one LNG project that has already broken ground, a second project which has reached FID status and a third project in the initial stages of approval, Mozambique is well positioned to become a major player in the global LNG industry.






5. U.S. Energy Information Administration, International Energy Statistics, accessed 17 Jan. 2019.

Qbera Capital LLP, 2 Conduit Street, London, W1S 2XE, United Kingdom.

Disclaimer: Qbera Capital LLP is a Limited liability partnership, registered in England and Wales. Company number OC418666. Registered Office: 2 Conduit Street, London, W1S 2XE, United Kingdom. Qbera Capital LLP is an Appointed Representative of G10 Capital Limited, a firm which is authorised and regulated by the Financial Conduct Authority (Firm Reference Number 648953)

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