What We're Reading:
Sri Lanka defaults on debt for first time in its history. Sri Lanka has defaulted on its debt for the first time in its history as the country struggles with its worst financial crisis in more than 70 years. It comes after a 30-day grace period to come up with $78m (£63m) of unpaid debt interest payments expired on Wednesday. (BBC)
Mariupol has fallen to Russia. Here’s what that means for Ukraine. The Ukrainian city of Mariupol is now in Russian hands, after more than two months of bitter fighting and constant Russian shelling that destroyed massive swaths of the city and killed thousands of civilians, according to local officials. (NPR)
India considers allowing wheat shipments trapped at ports. India is considering allowing traders to ship out some of their wheat sitting at ports after a sudden ban on exports of the grain prevented dealers from loading cargoes, trade and government sources said on Thursday. (HSN)
‘Huge spike’ in global conflict caused record number of displacements in 2021. Conflict and violence forced people from their homes a record number of times last year, a report has found, with sub-Saharan Africa bearing the brunt of mass internal displacement caused by “huge spikes” in fighting. (The Guardian)
Saudi crown prince signals family unity as succession looms. An unlikely royal joined a Saudi delegation to the UAE this week, and readers of the Kingdom’s political landscape are viewing the move as a message of family unity from its de facto ruler after fractious years spent building his power base. (Reuters)
How is Pakistan’s military looking at worsening political crisis? Pakistan’s economy is in a shambles, and the political chaos, even after the ouster of former PM Imran Khan, is far from over. For how long the country’s powerful military can remain neutral in the crisis? (DW)
Finland says Russia suspending natural gas supplies. Russia will cut off natural gas to Finland after the Nordic country that applied for NATO membership this week refused President Vladimir Putin’s demand to pay in rubles, the Finnish state-owned energy company said Friday, the latest escalation over European energy amid the war in Ukraine. (AP)
Global risk rises in Q1 2022 with fears of stagflation amid Russia-Ukraine conflict. Russia’s invasion of Ukraine is the third asymmetric global shock following the 2008 financial crisis and the COVID-19 pandemic, which may shrivel the global economy’s recovery path. (GlobalData)
China quietly increases purchases of low-priced Russian oil. China is quietly ramping up purchases of oil from Russia at bargain prices, according to shipping data and oil traders who spoke to Reuters, filling the vacuum left by Western buyers backing away from business with Russia after its invasion of Ukraine in February. (Reuters)
Dawn of a second Cold War and the ‘scramble for Africa.’ Ample empirical evidence shows that the African Continental Free Trade Area (AfCFTA) will boost the competitiveness of African economies and accelerate the diversification of sources of growth and trade to deepen economic integration in Africa and enhance the region’s assimilation into the world economy. (Brookings)
Monkeypox is spreading around the world. What is the disease and how dangerous is it? Health authorities in Europe, the U.S. and Australia are investigating a recent outbreak of monkeypox cases, a rare viral disease typically confined to Africa. (CNBC)
Major climate indicators set ‘alarming’ records in 2021, the U.N. says, ‘bringing us ever closer to climate catastrophe.’ The United Nations’ World Meteorological Organization issued yet another grim report about the state of our planet this week. In 2021, four of the seven major climate indicators—a set of parameters that hold key information about climate change—set “alarming” new records. (CBS)
As Biden visits Asia, China launches South China Sea drills. China is holding military exercises in the disputed South China Sea coinciding with U.S. President Joe Biden’s visits to South Korea and Japan that are largely focused on countering the perceived threat from Beijing. (ABC)
International Commercial Bankruptcies on the Rise
Annacaroline Caruso, editorial associate
Global bankruptcies dropped over the last two years since the onset of the pandemic, largely due to stimulus support that kept many companies afloat. But now more businesses are starting to default as sky-high inflation cuts into profit margins and debt becomes more expensive from central banks raising interest rates.
The Australian office of advisory, audit and tax services firm, Grant Thornton, issued a warning that it predicts roughly 10,000 companies in the country will default due to unmanageable debts within the next six months. “There’s potentially this tsunami of insolvencies—maybe not to the level that was predicted at the start of the pandemic—but in comparison to where we’ve been,” financial advisory partner, John McInerney, told Accountants Daily.
And England is experiencing the same spike in commercial bankruptcy filings, as the number more than doubled year over year in April, according to the Evening Standard. “The true impact of the pandemic now appears to be coming to fruition, following an extended period of business grants and government backed lending propping up businesses,” Margaret Carter, restructuring and insolvency director at accountancy firm Azets, told the news outlet.
“When compared with pre-pandemic levels, it’s clear we’re witnessing a catch-up effect. Some companies have been beyond rescue for some time, but were able to delay formal insolvency thanks to the government support measures and the restrictions placed on creditors,” Jeremy Whiteson, partner at the restructuring and insolvency practice at Fladgate, also told the Evening Standard.
Canadian business insolvencies increased by nearly 34% year over year in the first quarter, marking a 31-year high, according to the Canadian Association of Insolvency and Restructuring Professionals (CAIRP). “The support measures, together with a heightened level of creditor patience, prevented an initial spike in business insolvencies. However, the reversal in the recent trend of decreasing insolvency filings, seen over the last two years, puts in evidence the economic damage caused by the pandemic,” CAIRP’s Chair Jean-Daniel Breton told Storeys.
Credit Congress Spotlight Session: Take Your Game
to the Next Level—Using Emotional Intelligence to Advance Your Career
Speaker: Jake Hillemeyer, Dolese Bros. Co.
Duration: 60 minutes
Credit Congress Spotlight Session:
When and If to Help a Distressed Customer
Moderator: Chris Ring, Panelists: D'Ann Johnson, CCE, A-Core Concrete Cutting, Inc. and Eve Sahnow, CCE, OrePac Building Products
Duration: 60 minutes
Get Yourself Ready for 2024 - Goal Setting & Future Planning
Speaker: Hailey Zureich, zHailey Coaching
Duration: 60 minutes
Global Expert Briefings: Trade Credit Risks
Speaker: Jay Tenney, Trade Risk Group
Duration: 30 minutes
Egypt’s Central Bank Loosens Documentary Collection Requirements
Diana Mota, editor in chief
The government of Egypt on Wednesday announced additional exceptions for the use of documentary collections. In February, the Central Bank of Egypt no longer allowed importers to use documentary collection processes and instead required them to use letters of credit (LCs) for the majority of imports, barring some exceptions.
“That was quite dramatic because the effect was that quite a lot of export business couldn't go through anymore because the importers in Egypt were not able to raise letters of credit, especially for smaller cargoes and some key components that were needed for the luxury industry,” said Fred Dons, a director at Deutsche Bank (Amsterdam), on Friday during an FCIB members-only Global Expert Briefing.
The country already had an exception for intercompany business and subsidiaries in Egypt. In those cases, “you're still allowed to use open account or documentary collection,” Dons said.
More recent exceptions include:
- Shipments sent by express mail
- Documentary credits under $5,000
- Sales of drugs, vaccines, related chemicals and human corneas
- Food commodities
“However, there's a small caveat; we do notice that there is still a shortage of U.S. dollars and the euro in Egypt,” Dons cautioned. “So, when switching to open account or documentary collections, you're guaranteed to face delays in payments.” With documentary letters of credit, you are guaranteed that the funds will be available, he explained.
Clients who used open accounts earlier this month for small amounts were experiencing payment delays of three to four weeks, Dons added.
A recent FCIB International Credit & Collections survey on Egypt shows nearly half of the respondents (46%) stated no change in payment habits, while 36% noted an increase in payment delays and 18% experienced no delays. Cash flow and supply chain issues were credited as the No. 1 reasons for delays—at 36% each, followed by billing disputes and central bank issues at 27% each. Inability to pay and other disputes accounted for the third highest reasons at 18% each.
All of the sales were made to existing customers, and a third of the respondents did not extend credit terms—with 46% not extending beyond 60 days. The survey finds the average number of days beyond terms as 32.4.
Respondents provided advice and information for credit professionals new to the country:
- Whenever possible use secured terms such as letter of credit, documents against payment or cash against documents.
- Companies are having cash flow issues so payments can become stuck for extended periods.
- In the near future, I would only sell to customers with established credit. We are experiencing instability with our established customer.
- They may require letters of credit for every transaction. Have a strong bank confirm the LC.
- Supply chain issues are leading to slower payments in the region.
The April 2022 survey also covers Saudi Arabia, Turkey and the UAE. FCIB members can access the full results of the survey as well as the survey archives via the FCIB Knowledge Center. Nonmembers who participated in the survey will receive the results via email. Participation in the survey guarantees you will receive the results whether you are a member or not and furthers the collective knowledge of global credit professionals by sharing real-time credit and collection experiences. The monthly survey is open to all credit and risk management professionals. The current survey covers Finland, Hong Kong, Japan and Taiwan and is open until June 6.
Global Expert Briefings are a benefit of membership. The third Friday of each month FCIB members can join one of FCIB's global experts for a short, but detailed update on global credit issues such as currency, trade or country risks.
Will NATO Expansion Provoke Putin?
Annacaroline Caruso, editorial associate
Finland and Sweden both officially applied to join NATO last week following decades of neutrality. The change in stance comes as both nations seek more military protection following Russia’s invasion into Ukraine. However, the new memberships could cause a further geopolitical divide.
“Now that Finland has officially confirmed that it will apply—with Sweden’s governing Social Democratic Party similarly backing a bid to join NATO—Moscow has wasted no time in making its feelings known, with Russian President Vladimir Putin saying Monday that the expansion of NATO ‘is a problem,’” reads an article from CNBC.
A major reason for Putin’s invasion into Ukraine was to stop NATO expansion, but it seems to be having the opposite effect. If NATO approves membership for Finland and Sweden, Russia’s border with the alliance would more than double, the Wall Street Journal reports.
One of the reasons Putin said he invaded Ukraine was he felt threatened by NATO being right at his door, said Phillip Poland, counsel with LimNexus LLP (Washington, DC). “So, you put Finland, which is one of its major trading partners directly to its North and a major transportation route of trade, into NATO and you have to wonder if Putin will feel even more threatened, and what then does he do?”
But Putin is not the only leader who objects to Finland and Sweden applying for NATO membership. Turkish President Recep Tayyip Erdogan blocked the start of accession talks with NATO last week after the Nordic countries submitted their applications, making for a bumpy start to the application process.
“Turkish President Recep Tayyip Erdogan has objected to Sweden’s granting of asylum to members of the Kurdistan Workers’ Party, or PKK, and he has indicated that he will seek other concessions if he is to allow the expansion to go forward,” per The Washington Post.
Most experts say the benefits of Sweden and Finland joining the alliance far outweigh any potential risks from Russia. However, that does not mean the process will be without challenges.
“Doubling the security alliance’s direct frontier with Russia would be a personal blow for Putin, who has focused on undermining the Western alliance since he first became Russia’s president, more than 20 years ago,” reads a CNN analysis. “And if Putin felt Russia was already being hemmed in on its western flank, could adding two more NATO members during the worst tension between the West and Moscow in decades exacerbate the Russian leader’s paranoia?”
To learn more about how the war between Russia and Ukraine could impact global trade, be sure to register for this week’s two-part webinar series: Russian Sanctions Part 1: Navigating Logistics Fallout and Russian Sanctions Part 2: Navigating Financial Challenges.
Week in Review Editorial Team:
Diana Mota, Editor in Chief
Annacaroline Caruso, Editorial Associate