Credit Management magazine October 2017

CURRENCY UK
BREXIT GLOOM
WE'RE not out of the EU yet but looking at
the economic stats we might as well be.
Exports of goods fell nearly five percent
in June, the biggest monthly fall so far; a
devalued currency isn't giving exporters
any more help, and customers are fighting
shy of what they see as a very uncertain
situation.
The biggest difficulty is that no-one
knows what trade terms will look like after
Brexit. Will we hit a cliff edge or simply the
top of a gentle but slippery slope? I'm afraid
when I look at what the banks are doing,
it suggests to me that they've made the
cliff edge favourite in the betting. No-one
has upped sticks and moved completely to
Frankfurt, Paris, or Dublin, but every week
I'm hearing about a bank that moved its
currency trading operations, its equity back
office, its fund management centre or its IT
department abroad. The City is starting to
die the death of a thousand cuts. What can
you do? First of all realise that tariffs are
the last thing you should worry about.
Make sure you know if you depend
on country of origin rules or other EU
ALL GREEK TO ME
regulations, and plan a way forward – even
if that means moving final assembly or
quality control into the EU, or setting up
service companies abroad and transferring
employees there. And don't just look at your
exports to the EU – many exports to third
countries will be affected when we leave
EU-wide deals.
And secondly, sketch out your exposures
and possible plans of action, even though
everything is still unclear. You need
to have at least some idea of what you
may need to do in the result of different
eventualities – soft Brexit, hard Brexit,
sector-specific deals, no deal at all. Lloyds
Bank said recently that almost half of
British exporters haven't reviewed their
plans since Brexit – ‘wait-and-see is not
an adequate strategy,’ the bank said. That
sounds like the voice of reason to me!
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HIGH LOW TREND
GBP/EUR 1.1989 1.0745 Up
GBP/USD 1.333 1.279 Up
GBP/CHF 1.279 1.223 Up
GBP/AUD 1.660 1.618 Up
GBP/CAD 1.651 1.585 Down
GBP/JPY 139.452
146.628 Up
EASY TEASY EXPORTING
THERE'S a perception that exporting is for
companies that already have a track record in
the UK. But Newcastle-based Easy Teasy doesn't
think so. The firm only got started – by a couple
of Northumbria University students – in 2014 and
already it's exporting its loose-leaf teas, and more
recently its tea-infused chocolate, to Paris retailer
Thé Bon Thé Bio. Now it's launching the Estate Tea
Co which brings single estate tea to the mix. Proof
that you can start exporting very quickly – it's not
just for big companies with a long history.
GREECE is doing better than it was. Moody's
has increased its rating to Caa2 with a
positive outlook, while S&P upgraded
the outlook to positive while keeping the
rating unchanged at B-. That's still in
junk territory, but at least now the ratings
agencies can see a way out; S&P gives a one
in three chance of an upgrade in the next
year.
It will be tough to get there, though. The
Government still has to cut the debt to GDP
ratio from 179 to 158 percent in three years.
Meanwhile the $1.8 billion conditional loan
the IMF has granted gives the Government
a window to get reforms through and the
economy growing again, but no more than
that.
Still, the future looks brighter than it
has done for some time. British exports to
Greece were worth £2.2 billion in 2015, well
over half of that in services – consultancy
to the energy sector, education, and
shipping related services such as brokerage
and marine insurance. This might not
be the worst time to move into the Greek
market – if you're brave enough.
NAMIBIAN DOWNGRADE
MOODY'S just downgraded Namibian debt to
junk status, with a negative outlook, citing an
increasing burden of government debt, lack
of adequate policies to stabilise the fiscal
situation, and a risk of liquidity pressures
emerging again. GDP is stagnant, and arrears
to the private sector are increasing.
The Government's response was to
dismiss the downgrade as 'speculation'.
Somehow that doesn't convince me that
Moody's has got things wrong – rather
the opposite.
South Africa was already downgraded
to junk status in April; Botswana's status
remained unchanged at A- but with a
negative outlook. It looks as if the whole
of southern Africa is facing a credit
crunch – so watch out if you're trading
there. And remember that governments
which argue with credit rating agencies
often have something to hide – and
might not be the most reliable payers in
town.
WHISKY IN THE JAR
COULD Scotch whisky be another victim of
Brexit? Scotch is responsible for £4 billion of
exports and 20,000 jobs – but the industry body
points out that English law contains no legal
definition of Scotch, which is protected only by
EU legislation (among other things, demanding
that it's been matured for three years before
bottling).
A big worry is that the US would love the
definition to be relaxed, allowing cheaper
volume products to compete with 'real' Scotch.
Would a British Government trade the future
of Scotch whisky for a good US trade deal? No
wonder so many Scots want independence!
The Recognised Standard / www.cicm.com / October 2017 / PAGE 29