Credit Management March 2020

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INTERNATIONAL TRADE Monthly round-up of the latest stories in global trade by Andrea Kirkby. Cryptocurrencies make a show in international trade IT may still be a bit early to think about getting all your invoices paid in Bitcoin, but cryptocurrencies are beginning to make a showing in international trade. If you're trading with Venezuela, in fact, you could be asked to pay port fees in the local cryptocurrency, Petro, which was launched in 2017. It's rather controversial, though – some companies have refused to use it and are using swap or barter transactions instead. For SME exporters, there's now a crypto-based letter of credit service provided by escaroo with its 'KeylessEscrow' account. It doesn't yet have a corporate platform, though it's working on it. There are others, too – though currently, they're not regulated and don't have major banks investing, so they remain higher risk than standard escrow. Where they're going to make a big difference, though, is in frontier markets like Latin America and particularly Africa, where there's a huge unbanked population and capital controls can make exporting a red tape filled proposition. Mobile payments have taken off in countries like Kenya where MPesa has more customers than many banks – cryptocurrencies could be the next step forward. If the mobile payments experience is anything to go by, crypto could take off very fast indeed. And in countries where the central bank has low credibility or the currency is weak, getting paid in Ethereum or Bitcoin (or EOS, or Stellar, or Monero…) might give you more certainty than getting paid in local legal tender. I'm not sure 2020 will be the year of cryptocurrency – there are still some big issues to sort out – but this is certainly an area that corporate treasuries are going to need to know more about as we move into the next decade. BREXIT UNCERTAINTY SHOWS NO SIGN OF CERTAINTY! THE UK finally left the European Union at the end of January. But if things go according to plan, you won’t notice much change until the end of 2020 as the transitional period still applies. Of course, that’s not any consolation to exporters who have already lost business because EU customers prefer to source within the Single Market. And it still doesn’t mean we know what the eventual trading arrangements with the EU, or a number of other countries where the UK benefits from an EU trade deal, are going to be. But it does give you a bit more time to weatherproof your business. The one fly in the ointment is that it’s still possible, if negotiations break down, that the UK could leave without a deal at any time from now until the end of the year. So, keeping an eye on developments is going to be vital; and this is where trade associations are really going to have to step up and work hard for their members, both lobbying for a good result, and broadcasting information on what’s happening. Advancing the credit profession / www.cicm.com / March 2020 / PAGE 62
Too big to fail isn’t true IT'S sometimes difficult to believe it, but we’ve had a few golden years during which corporate insolvencies kept heading downwards all the time. But now, Atradius sees US insolvencies increasing at 3.9 percent, well above the global average of 2.6 percent. Corporate debt has risen to a record $10trn as companies binged on cheap credit and slowing trade could see some companies exposed. Meanwhile Euler Hermes says it expects insolvencies to rise in 80 percent of countries – with Brazil and France notable exceptions. It's particularly concerned that Q3 2019 saw 15 percent increase in large corporate failures – ‘too big to fail’ simply isn't true. China and India, in particular, could The funny world of insurance I don't like the look of the figures from the Berne Union for the second half of 2019. A declining volume of new commitments reflects lack of growth in underlying trade volumes since the end of 2018. And while short term credit was flat, medium and long-term export credits fell 27 percent. That's largely due to slackness in capital goods markets. be places where you want to be very careful how much credit you extend, and to which companies; insolvencies in both countries are expected to rise at a much higher rate than in Western Europe. Given that payment barometers for many countries are in any case showing longer payment terms, that adds up to some very nasty exposures for exporters who don't control their working capital properly. Getting paid isn't just about tightening up credit, but it will increasingly be about nimbleness – knowing what's happening on a daily basis in the countries where you trade and watching out for relevant news about major customers. Just doing spreadsheets isn't going to be a winning strategy. Lower corporate investment suggests corporate confidence is low, and that will feed through to lower growth in future. On the other hand, claims rose 21 percent. Now, insurance is a funny business and you do get blips, but I don't like the look of claims going up while new business goes down. It gives me a nasty feeling that an increase in premiums could be on the cards. THE GULF – BOTTLENECK OR FLASHPOINT? STOCK markets took the assassination of Qasem Soleimani and Iranian attacks on US bases very seriously. So did oil prices – up to levels last seen in April 2019. But I haven't seen any of the trade insurers rushing out advice or de-rating Gulf countries. And it didn't take long for international capital markets to shrug off the impact. That might reflect the fact that the whole region's been a difficult area for a while. Expecting shipping in the Gulf to go through trouble-free is like going on the M25 and thinking you won't get stuck in a traffic jam. But the events of early January do show that global markets – and global trade – are very much at the mercy of political events. The US-China standoff might have been stood down for the time being, and we might have avoided the third scale Gulf War, but you can't take anything for granted. FROM ZERO TO HERO ADDFIELD Environmental Systems had no export sales at all in 2012. But that's changed dramatically. It's just exported a medical waste incinerator to Tajikistan – the 101st country in its export roster – and 35 percent of its sales now come from exports, both direct and through international distributors. The firm has a few suggestions for new exporters. One is to start with the low hanging fruit – train yourselves up on the easiest markets. ‘Go where the money is,’ first – and go where it's easier to trade, and barriers to trade are lowest. Then, make sure you get the product out there. Customers need to see it, kick it, poke it, and generally feel confident that they know exactly what they're getting. To do that you'll need to invest in a good team – distributors, contacts, and in the case of Addfield, NGOs who in some countries are their lead customers. Investing in the brand through writing detailed case studies is another key component of success. Banking sector falls over in Lebanon LEBANON is currently a bad situation getting worse. PM Hariri quit in October, and now the banking sector is falling over. With a huge fiscal deficit, and banks heavily exposed to sovereign debt, the country doesn't have a stable foundation - and foreign exchange shortages are now making life difficult for import and export trade. Is a bailout on the cards? The country has already been bailed out once, in 2017, and none of the promised economic reforms have been made. So, it's difficult to see international financial institutions coming in for a second round. Meanwhile GDP per capita is about $9,000 and economic growth is flat or negative. No wonder Credendo just slapped its worst medium/long term political risk rating on. It's a pity, because Lebanon has one of the best developed consumer markets in the region, with a taste for western fashion brands and Scotch whisky. There's also high demand for imports from the private healthcare and education sectors. But with the Lebanese pound now trading on the black market at a steep discount to the official rate, it's difficult to see how the country can afford to import – and if you're exporting there you'll want to get paid in a stable currency. CURRENCY UK EXCHANGE RATES VISIT CURRENCYUK.CO.UK OR CALL 020 7738 0777 Currency UK is authorised and regulated by the Financial Conduct Authority (FCA). GBP/EUR GBP/USD GBP/CHF GBP/AUD GBP/CAD GBP/JPY HIGH LOW TREND 1.20691 1.17139 Up 1.32056 1.28546 Down 1.28193 1.25348 Flat 1.97443 1.89105 Up 1.74787 1.69649 Flat 144.52200 141.00378 Flat This data was taken on 21st February and refers to the month previous to/leading up to 21st February 2020. Advancing the credit profession / www.cicm.com / March 2020 / PAGE 63
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