Week in Review
What We're Reading:
March 8, 2021
A deep dive on the post-COVID global economy. With the election behind us, savvy investors are looking for new growth opportunities for a new administration. It’s never been more important to have good ‘court vision’. (HSN)
Brexit antagonism escalates as EU, UK go another round. When the U.K. and European Union shook hands on a trade deal late last year, few expected the new relationship to be plain sailing. And as with many divorces, antagonism between the sides has refused to fade. (AJOT)
Argentina's banks face a tough year: bad loans, inflation and regulations. Rising inflation plus bad loans and government regulations anticipate a tough 2021, according to the CEO of Argentina's biggest private bank by market capitalization. (MercoPress)
US suspends tariffs on UK goods to resolve aircraft dispute. On March 4, the U.S. agreed to suspend millions of dollars’ worth of tariffs on U.K. exports, including Scotch whisky, as part of an effort to resolve a long-running trans-Atlantic trade dispute over aerospace subsidies. (AP News)
UN: 38 died on deadliest day for Myanmar coup opposition. Myanmar security forces were seen firing slingshots at protesters, chasing them down and even brutally beating an ambulance crew in video showing a dramatic escalation of violence against opponents of last month’s military coup. (Business Mirror)
Greensill collapse rooted in insurance dispute, court documents show. The sudden downfall of supply chain finance (SCF) heavyweight Greensill was triggered after $4.6 billion USD in insurance cover fell away overnight, court documents reveal. (Global Trade Review)
Brexit triggers 30% slump in German exports to UK in January. Already curtailed by the economic impact of the coronavirus, Brexit helped trigger a nearly 30% slump in German exports to the U.K. in the first month of the year, according to a preliminary estimate published on March 2 by the Federal Statistics Office. (AJOT)
COVID: Is working from home really here to stay? Remote working will not remain standard for Goldman Sachs staff once the pandemic is over, the bank's CEO has said. With many companies saying the opposite, the future of office work could come down to a compromise. (DW)
US calls on Saudis to give up special status at WTO. The U.S. has called on Saudi Arabia to give up its status as a "developing" country at the World Trade Organisation (WTO), which confers upon the Kingdom special treatment in economic negotiations. (MEMO)
US matches EU, UK sanctions on Russia for Navalny attack. The penalties—like those adopted by the European Union—target senior Russian law enforcement officials, as well as matching sanctions the EU and the U.K. imposed earlier on other Russians allied with President Vladimir Putin as punishment for the attempted murder of Navalny. (AJOT)
Cracks beginning to appear in the Russia-India relationship. But Washington’s interests might actually be served by New Delhi and Moscow muddling through. (Interpreter)
The economics driving Canada’s “buttergate”. Dairy farmers across Canada have been asked to stop feeding cattle palm oil in response to complaints from consumers who complained about the hardness of their butter. The situation exposed a complicated quota system in Canada that protects dairy producers from price fluctuations but also incentivized and prioritized the industry’s production over consumer preferences. (Quartz)
Blue economy: The handful of companies reaping most of the benefits in multi-billion ocean industries. In 2018, the 100 largest companies took an estimated 60% of all revenues in eight industries. (The Conversation)
Key global events to watch in March. A list of key upcoming meetings and events that have implications for global affairs compiled by the Global Observatory. (IPI)
Bitcoin explained: How it works and what it is good for. The most prominent of cryptocurrencies, Bitcoin has seen wild swings in value lately, making retail investors wonder if it’s worth wagering their money on it. (DW)
The oil market’s wild pandemic ride is about to take another turn. The oil industry is no stranger to boom-bust cycles, but the pandemic has been its wildest ride to date, and on March 4, it’s due to take another turn when OPEC meets to consider rolling back production cuts. (Quartz)
Will UK Become the Blueprint for Recovery?
Chris Kuehl, Ph.D., NACM economist
The United Kingdom suffered as much or more than any of the developed nations from the pandemic. The recession was the worst experienced in more than 300 years. Think about that for a minute. That makes the economic collapse of 2020 worse than the Great Depression of the 1930s, World War I, World War II and the economic crisis situations that predate the independence of the United States.
The numbers have been beyond brutal. The only positive spin we can put on this situation is that the damage is likely now in the past and the data shows improvement going forward. The next steps are in the hands of the chancellor and the Tory Party.
Rishi Sunak has been chancellor of the Exchequer since February 2020, so he took office at almost the exact moment the pandemic started to overwhelm Britain. He has been a partner in Goldman Sachs and other hedge funds. Educated at Winchester College and Oxford, he got an MBA from Stanford. He has been in the Conservative Party for many years and has been in Parliament since 2015. He was very pro-Brexit and supported Boris Johnson as prime minister. He was also part of Theresa May’s government.
His opening speech for the year set out policy objectives for the U.K. that would likely have been shunned by the Tories had they been suggested even a few years ago. The difference now is that Britain faces a daunting task and politicians are being forced to rethink many previous positions. This is likely to be a process that other nations will have to undergo sooner or later.
High on the list of changes is his declaration that government will be forced to “level with the people” regarding taxes. The country incurred massive expenses and continues to do so. Billions have been spent already and billions more will be required to contend with the damage and the ongoing threat of the pandemic. His plan calls for hiking corporate taxes as well as taxes on the wealthier residents. In truth, no section of the population will escape the tax hikes. Those that are not paying taxes will be seeing less in the way of services as they plan calls for some deep cuts in a variety of programs.
The emphasis will be on preserving employment until the lockdown regime can be lifted in its entirety. The furlough program is to be extended. Much of the assistance offered to business will depend on the agreement to maintain employment. There will also be focus on job programs and training. The plan calls for attention to “green” issues. The U.K. hosts a major climate conference in Glasgow later this year. There will be a push to emphasize the U.K. goal of zero carbon emissions by that point. The green initiatives are being tied to job and business growth as well.
Perhaps the most undeveloped and vague part of the plan has been the desire to “level up” parts of the country that have been essentially left behind. Parts of the U.K. in the southern regions emerged relatively unscathed from the recession, but the industrial middle has not fared as well. Major issues in urban areas have been made much worse by the recession. In the short term, the plan focuses on aid, but there is a desire for much longer-term solutions.
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Sharp increase in steel prices
Matthieu Depreter, country and sector analyst Credendo
After almost two years of decline, steel prices have risen sharply in recent months. If we look at the steel price index1, we see that the level of January 2021 is 40% higher than that of January 2020. The main reasons for this movement are to be found on the one hand in the restricted production growth and on the other hand in the increased Chinese demand. The increase in the iron ore price also supports this rise in steel prices, although it makes a dent in the margins of companies that could not pass on the cost increase to their clients.
Although global steel production fell by only 1% in 2020 compared to 2019, this figure hides many disparities among the different regions in the world. In fact, the production in the European Union fell by more than 15% annually in 2020, as that of the NAFTA region. In the C.I.S., the fall in production was less severe (- 9% in 2020), in part thanks to the demand from China. In Asia and Oceania, the evolution of annual production is positive (+ 2.1%), mainly thanks to China (the first world producer, with + 6% year-over-year in 2020) that offsets the drop in Indian production (the second one, with - 11% in 2020). In all these regions, steel production is expected to rise in 2021, but not enough to reach the pre-crisis levels (with the exception of China, whose annual production has kept growing for years).
Resilient demand for steel in the short term
Global demand, for its part, followed an opposite path, mainly due to the resumption of activities in China (whose average imports in 2020 increased by 65% with respect to those in 2019), supported by massive investments in infrastructure (steel-intensive), even though other major economies slowed down. This shows the first risk underlying the steel market, namely its heavy dependence on Chinese demand.
The demand for steel in China is expected to slowly decrease over time since the property sector (which accounts for about 35% of the domestic steel consumption) is likely to slow down. In the longer term, the government’s willingness to turn to a service-oriented economy, putting infrastructure work aside, will also lead to lower demand of steel in China. This decrease in domestic demand combined with domestic production capacities steadily growing should put more steel on the global market, leading to higher exports and putting pressure on global steel prices. Hence, even if steel prices are expected to remain elevated in the coming months, they are likely to decrease at the end of the year and in 2022.
Main risks facing the steel sector
The biggest risk for companies engaged in the steel-making industry is a sudden drop in demand from China, which will possibly happen again, leading to a lower steel price. Besides, overall steel production is expected to grow faster than consumption, putting downward pressure on the price of steel. In addition, the historically high iron ore price reduces the margins of the firms that do not manage to pass the increase in cost on to their clients – although we expect the iron ore price to slightly decrease over time. Another factor to watch is the development of the China-US relations, which could also have an impact on the prices. Finally, any delay in vaccination campaigns or the unexpected spread of Covid-19 variants could also derail the demand for steel, eventually weighing on prices.
1. The MBR steel price index is the computed average of the MBR steel flat products price index and the MBR steel long products price index, supplied by Metal Bulletin Research.
Reprinted with permission from Credendo.
Digitizing Indian Treasury and Trade Services
Ben Poole, CTMfile
Battered by the COVID-19 crisis, large Indian companies are looking to their banks for digital solutions that can make their supply chains more resilient to pandemic-related disruptions, according to a report from CRISIL Coalition Greenwich. These demands are speeding the transformation of trade finance—one of the banking industry’s last paper-based holdouts—into a digital business.
The global pandemic hit global trade flows harder than the global financial crisis of 2008–09. Now, a second wave of COVID cases in the U.S. and Europe are dashing hopes of an early recovery. For large Indian corporates, that could mean a continuation of troubles experienced in the first half of this year, including supply-chain disruptions due to lockdown measures, industrial shutdowns and the resulting delays in shipping and transport.
“Facing these challenges, Indian companies have changed their ‘ask’ to banking providers,” said Gaurav Arora, head of APAC & Middle East at CRISIL Coalition Greenwich and author of Corporates Look to Digital Solutions as COVID Disrupts Trade Finance in India. “In the crisis, operational agility and digital solutions are taking precedence over the traditional priorities of financing trades and meeting liquidity needs.”
A Desire for Digitization
Unlike most areas of banking and business, the vast and diverse world of international trade and finance still relies heavily on the physical exchange of paper documents to function seamlessly. However, the results of a Coalition Greenwich study suggests that the business in India is changing.
In 2019, 88% of respondents ranked “competitive pricing” as a key criterion for trade provider selection, while only 11% considered quality of e-banking and digital platform a relevant metric. However, in 2020, we observed a sharp shift toward digital solutions, with 60% of the respondents ranking digitization as a critical metric for evaluating a trade provider.
Although it’s the companies’ need for operational agility in the face of COVID-19 disruptions that is driving this increased demand for new solutions, the emphasis on digital will outlast the pandemic. Once the threat of the pandemic begins to dwindle, things like end-to-end supply chain visibility and digital interoperability will become much higher priorities for corporates that have now started down the digital path. This, in turn, will compel banks to evaluate their digitization strategy and accelerate the digital transformation of trade finance.
“With corporates increasingly adopting digital solutions to interact with their customers and seamlessly deliver services, they will inevitably demand a similar level of digitization from their banks and other service providers,” Arora said.
New Online Option for Foreign Companies Setting Up Operations
Against this backdrop, ICICI Bank has announced the launch of an online platform for foreign companies looking to establish or expand business in the country. Called “Infinite India,” the platform offers banking solutions as well as value-added services such as incorporation of a business entity, corporate filings, licenses and registrations, HR services, compliances and taxation among others. An industry-first initiative, the Infinite India platform is designed to offer convenience to foreign companies, as it eliminates the need of coordinating with multiple touchpoints leading to a hassle-free experience of doing business in India.
The Infinite India initiative is a part of the host of technology-enabled-services that the bank is offering to foreign companies and multi-national corporations (MNCs) coming to India.
"Over the years, India has emerged as a preferred destination for foreign investment," commented Vishakha Mulye, executive director, ICICI Bank. "In these improved scenarios, we are launching the Infinite India portal, that brings together various banking and value-added services on one platform for foreign companies. It frees up their bandwidth from time-taking procedures and thus boosts their business growth by improving overall productivity and efficiency. The Infinite India initiative is part of our strategy to further strengthen our technology-enabled offerings aimed to partner with foreign companies coming to India. We believe that our dedicated strategy for this segment will further simplify the journey of foreign companies looking to start or expand their business in India.”
Breaking Down the Offerings
Some of the “value-added” offerings that ICICI Bank says the platform contains include:
- Incorporation services: Especially curated for the set-up stage, it offers advisory on laws and regulations to incorporate business in India as a joint venture, wholly owned subsidiary, liaison office, branch office, project office or a Limited Liability Partnership (LLP).
- Licenses and registration: Foreign companies can apply and obtain licenses and registrations in a timely manner on import/export code, FSSAI license, trade license, copyright solutions and patent registrations.
- Taxation and compliance: Foreign companies can access to an array of tax and compliance related services such as filing annual returns of company, GST registration, income tax returns as well as corporate filings with the Ministry of Corporate Affairs (MCA) for registered office and amendment in memorandum of association (MOA).
- HR services: Assistance in implementing HR related services including payroll processing, provident fund registration and return filing is also available.
The key banking services are:
- Authorize set-up of office: As an “Authorized Dealer Category 1”, the bank can authorize the setup of Liaison Office (LO), Branch Office (BO) as well as a Project Office (PO) in India within the FEMA (Foreign Exchange Management Act) framework.
- State-of-the-art digital channels: The Current Accounts holders get access to its Corporate Internet Banking platform with over 300 services as well as a mobile banking application. It enables businesses to complete almost all their banking requirements digitally such as payments, receivables, foreign exchange, tax payments among many others. They also get convenience of automatic bank reconciliation with ICICI Bank’s Connected Banking, which is featured with popular accounting / ERP platforms. Also, they get the facility to easily undertake integrations with the Bank by using the APIs readily available on ICICI Bank’s API portal.
- Trade services with wide global network: It provides a wide range of trade finance solutions including Bank Guarantee (BG), Letter of Credit (LC), remittances among others. Also, it offers these through a comprehensive digital platform called Trade Online. Further, it provides outreach with correspondent network of over 400 foreign banks across 67 countries and foreign currency Nostro accounts in 26 currencies, ensuring that almost all international trade requirements are met.
- Treasury services: The platform provides access to leading treasury operations in India with round-the-clock servicing. Also, it offers online booking of forex trades as well as a web-based treasury solution.
Any multinational from any industry across the globe including IT, ITES services, manufacturing, pharmaceuticals, automotive, textiles and more can visit the Infinite India portal and apply for the required service.
Reprinted with permission from CTMfile.
Week in Review Editorial Team:
Diana Mota, Associate Editor and David Anderson, Member Relations