Credit Management magazine October 2017

US BUDGET SQUABBLE CONTINUES
THE USA doesn't on the face of it look like
a failed economy. But Fitch has warned it
might have to downgrade US debt if it can't
get its budget in order. Last time there were
squabbles over the debt ceiling, S&P took
away the US' AAA rating – but the other
agencies stood firm.
If the debt ceiling isn't raised, the US
Government could actually run out of cash to
pay its bills. That could force it to default on
existing loans – and that could bring credit
crunch 2.0. It would certainly have a major
effect on global financial markets, as well
as potentially trashing the dollar. Watch out
if you have dollar-denominated contracts,
as political brinkmanship could lead to
volatility. Of course, it will never happen, but
didn't they say that about President Trump?
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HIGH LOW TREND
GBP/EUR 1.1435 1.0854 Down
GBP/USD 1.3589 1.2933 Up
GBP/CHF 1.3189 1.2700 Up
ELECTRIC CARS
The Frankfurt motor show this year has been dominated by electric cars, with BMW,
Mercedes, and Renault all pushing their products. Is it a flash in the pan? Probably not
– the UK and France are both banning petrol and diesel cars from 2040, and Hyundai
reckons more than half the models it sells in Europe will be electric or hybrid by 2020.
Even though electric cars so far represent just a couple of percent of European car sales,
things are changing rapidly. Renault is seeing its sales of electric cars rising by 40 percent
– even if that’s off a low base.
GLOBAL DOWNGRADE
THE whole world appears to be less creditworthy
than a decade or two ago if you
believe the ratings agencies. The number of
countries with AAA credit ratings is down
from 16 in 2009 to just 11 now, according to
Fitch, while of 99 AAA US corporates in 1992
only two are left according to S&P. What's
even more remarkable is that yields are at
all-time lows, so investors are getting a lower
return on a riskier investment.
Some of the downgrades may be due to
more caution on the part of the agencies –
they don't want to get caught out again
after the credit crunch. But I wonder
whether the statistics also reflect the fact
that a decade of sluggish global growth and
low returns hasn't allowed companies or
governments to rebuild their balance sheets
the way we might have expected them to.
With interest rates going up, that could mean
there's trouble ahead for some – so make
sure you know your customers' balance
sheets as well as you know their purchasing
managers.
GBP/AUD 1.7168 1.6479 Down
GBP/CAD 1.6776 1.6069 Down
GBP/JPY 152.801
145.502 Up
LEBANON DOWNGRADED
MOODY'S has downgraded Lebanon to B3, citing
weak government finances and a rising debt
burden. Years of political instability and a trade
deficit that represents a quarter of GDP already
weakened the country, and it now also has a large
population of Syrian refugees to support.
But reforms are finally being made and there
are good opportunities for exporters willing to
take a risk. Lebanon has always had a choosy
consumer market and food and luxury goods can
do well, as well as healthcare firms (Lebanon is
reputed to have the best healthcare in the region).
But machinery exporters can also find
interesting opportunities, particularly in the oil
and gas sector. And HSBC is active in the country,
making life a bit easier for Brits aiming to enter
the market.
WORLD DOMINATION THROUGH EXPORT
I’M travelling in the Caucasus at the
moment, and I've noticed a couple of
things. Mercedes has the minibus market
in Georgia sewn up, and the only coffee
you can get in Armenia is Segafreddo. You
can see where an exporter really took a
bit of a risk, and it paid off. (There’s also a
huge market in second-hand commercial
I also see Georgia has just been upgraded,
by Moody's from Ba3 to Ba2. The country
has probably the most stable economy
in the region, and it's been boosting its
competitiveness – not least through links
with the EU. Foreign direct investment is
piling in, amounting to ten percent of GDP,
and foreign trade has been liberalised,
so there are far fewer barriers facing
British exporters than used to be the case.
Meanwhile GDP is growing steadily at
around the three to four percent mark.
vehicles – I keep seeing trucks with French
or German signage but Georgian number
plates). Getting into a market early takes
guts. It might not pay off for a while, but
evidently it can be worth it if you get your
brand established – I think Lavazza could
have a hard time trying to convert Yerevan
yuppies to its version of espresso.
GEORGIA ON THE RISE
Can you take advantage? Well, the
construction industry seems to be going
gangbusters, while tourism is advancing
steadily – two sectors that need investment
and expertise. The market for consumer
goods is also developing fast in the main
cities. And though the older generation still
tends to have Russian as a second language,
youngsters are learning English – I’ve met a
number of serious little 12-year old girls who
speak as if they'd been to Roedean – so Brits
should be in with a good chance.
MINE’S A PINT
ON my travels this summer I've found that while
local beers differ, I can get Velkopopovichky
Kozel just about everywhere! Perhaps it's been
helped by previous COMECON contacts, but
kudos to this Czech brewery (for getting its
product out to Ukraine, Armenia and Georgia).
UK beer is also doing well in export markets,
with one billion pints sold abroad – £600 million
worth of beer. That's growing fast, too, with
new breweries, new brands, and new styles of
craft beer. And some of that may be down to
the efforts of Sovereign Beverage which helps
brewers to export; it represents 700 brands and
is seeing double-digit growth.
The Recognised Standard / www.cicm.com / November 2017 / PAGE 31