Week in Review

February 18, 2019

Global Roundup

China cracking down on illegal underground forex trading in bid to control capital flight. China is cracking down on individuals and corporations who buy or sell foreign currency on the black market as the government seeks to control capital flight and maintain the stability of the yuan exchange rate and its slowing economy. (HSN)

Venezuela’s crisis hits standstill over U.S. emergency aid. Nearly three weeks after the Trump administration backed an all-out effort to force out President Nicolas Maduro, the embattled socialist leader is holding strong and defying predictions of an imminent demise. (Business Mirror)

Portugal's economy: An express train at risk of derailing. The Portuguese economy, bailed out by the European Union eight years ago, is booming. Yet some economists fear a lack of public investment is starting to undermine the economy, or worse, could be storing up trouble should another recession come. (Reuters)

Trump: Trade talks in Beijing going well ahead of March tariff deadline. President Donald J. Trump said talks to resolve the U.S. trade war with China are making good progress, as face-to-face negotiations continued on Feb. 14 in Beijing. (Business Mirror)

China set to reduce reliance on imports. The proportion of shale gas in China’s energy mix is expected to grow continuously, leading analysts to forecast that the development of the clean fuel will reduce China’s dependency on energy imports and thus improve national energy security. (HSN)

Mexico to pump $3.6 billion into ailing oil firm Pemex in relief plan. Mexico will inject $3.6 billion into ailing state-owned oil company Pemex, including by reducing taxes and refinancing debt, officials said Feb. 15, a move aimed at boosting its finances and preventing a further credit downgrade. (Reuters)

European Parliament endorses free trade agreement with Singapore. The European Parliament approved on Feb. 13 the EU-Singapore Free Trade Agreement (EUSTFA), the bloc’s first bilateral trade agreement with a Southeast Asian country. (EurActiv)

China’s bad debt managers risk becoming bad credits themselves. China’s bad debt managers, whom Beijing hopes to play a key role in resolving financial risks, are in danger of becoming bad credits themselves as the leverage crackdown that fueled a boom in their business now threatens their own access to funding. (HSN)

After 40 years, is Iran’s revolution unravelling? Iranians came to the streets en masse on Feb. 11 to mark the 40th anniversary of the revolution that brought their Islamic Republic to power. As always in Iran, the scenes reflected the full panoply of the country’s diverse and dynamic society. (Brookings)

EU looks to add Saudi Arabia to “dirty-money” blacklist. The EU's dirty-money blacklist should be widened to include Saudi Arabia, Nigeria and Panama, the European Commission has urged. The proposal still hinges on approval by the European Parliament and EU member states. (DW)

What's at stake in Nigeria's election. Nigeria is an African giant, harnessing the biggest economy and nearly twice as many people as the next-largest country on the continent. However, Nigeria also grapples with immense internal challenges that often constrain its ability to act more forcefully beyond its borders. And several of these challenges were on display during the country's presidential election. (Stratfor)

Unrest in India as it prepares for the world’s biggest election. With its mammoth general elections due in April or May, Indian politics is entering full-bodied election mode in a major test of India as an inclusive democracy. (Interpreter)

India’s rush towards a cashless economy. While most payments in India are still made with cash or cheques, the Reserve Bank of India (RBI) has increasingly been focusing on shifting payments to electronic channels. The initiatives are having an impact, as data from the RBI shows that the volume of cheques as a percentage of total payments dropped from 34% in 2013 to 13% in May 2016. Cash payments have dropped as well. (TMI)

Payment Delays on the Rise in Argentina

A quarter of the credit professionals who participated in FCIB’s latest Credit & Collections Survey report an increase in payment delays in Argentina, compared with 10% in the previous survey on the country, taken July 2018. About 64% reported no change, 7% no delays and 4% a decrease.

Billing disputes (27%), cash flow issues (23%) and foreign exchange rates (14%) were the top three reasons cited. In the previous survey, regulatory issues (30%) ranked highest followed by foreign exchange rates and cash flow issues (both at 20%).

One credit manager explained that cash flow issues were due to customers’ inflationary concerns. “This is new,” he said.

Survey takers offered a range of advice for when doing business in Argentina. If the goods being sold are for government projects, “ensure that dealers have government approval and history,” one credit professional advised.

“With the upcoming elections, it’s good to read about the country policies and how these may affect your business industry,” another shared.

Yet another suggested using a security instrument backed by a U.S. bank or company and only to deal in U.S. dollars. One credit manager has found that “insurance companies are getting more comfortable considering providing coverage on some strong companies here than in the past.”

Other countries covered in the February Credit & Collections survey include Brazil, Ecuador and Peru. FCIB members can access the complete results of the survey and past surveys via the Knowledge Center. Nonmembers who participated in the survey will receive the results via an email.

The monthly survey is open to all credit and risk management professionals, and participation in the survey guarantees delivery of the results. The information collected furthers the collective knowledge of global credit professionals by sharing real-time credit and collection experiences.

Next month’s survey will cover the following countries in Latin America: Chile, Costa Rica, Honduras and Paraguay.

Uneven Economic Expansion

Chris Kuehl, Ph.D.

In almost every respect, some uneven economic performance is inevitable. It is not realistic to assume that every segment of a given economy will perform at the same level—regardless of the efforts to assist or influence.

The U.S. has a $20 trillion economy—larger than the next four-largest economies in the world combined (China, Germany, Japan and the U.K.). The U.S. is even bigger than the entire eurozone (19 countries including Germany and the U.K.). At any given time, there will be parts of it that will grow and prosper and parts that will not.

The real question is whether any of this can be ameliorated by policy decisions made by the likes of the Federal Reserve, Congress, the executive or any of the myriad of state and local governmental entities.

The message presented by Fed Chair Jerome Powell at a speech in Mississippi was similar to the speeches that have been made by many others. It acknowledged that the robust economy the U.S. has sported for the last few years has not been experienced in the same way by everybody. The growth in cities that are on the cutting-edge of technology has not been matched in rural areas that have been hit by everything from bad weather to slumping commodity prices and now steep tariffs as the U.S. and China engage in their tit-for-tat trade war.

The surging growth in the suburbs doesn’t help struggling inner cities. Industries that are on the ascent—such as health care and those based in technology—are not doing much for the regions dependent on declining industries. Factories in the “Rust Belt” falter as factories in the Southeast and Southwest thrive. The examples are plentiful. What can be done about this?

Very broadly speaking, there are two schools of thought on how to deal with this issue. The first essentially places the burden on the people and companies that have been negatively affected. If the industry that one is in has been in decline, it is the responsibility of the affected people and businesses to relocate to where there are better opportunities. This has been a common reaction in the U.S. for decades and has been responsible for the great migrations to the West and Southwest. There is also no escaping the fact that making this adjustment is wrenching and not always possible. People don’t have the resources to pick up and move, they can’t leave elderly relatives behind, they don’t qualify for the new opportunities and so on. Even those who can afford the move will take a huge financial and emotional hit.

The other alternative is to find a way to bring prosperity back to a region. This may involve finding an alternative for economic development as Pittsburgh did when it transitioned from its steel town origins to a regional health center. This is far easier said than done however. It usually takes copious amounts of government investment, concentrated private sector support and a population willing to make dramatic changes in their way of life. Even as the community prospers, there will be many who do not fit into the new system and will be left behind.

The bottom line is there are no easy solutions to uneven economic growth. Every scheme will have strengths and weaknesses; there will be winners and losers. As individuals and business people, the onus is on us to think ahead and have contingency plans. Not that this is very easy, but it means staying current and educated so new techniques and technologies can be adapted to and used. It means knowing when to shut down an operation and move, or shifting the product mix.

One tactic that never works but is tried over and over again is to somehow stop the advance of the global economy. It is some form of isolation or protectionism. Prohibit the development of new products or techniques so that the old systems can remain intact. Keep products from other countries from competing. The consumer loses out, but so does the protected business at some point. They can no longer sell to other populations because their product is antiquated and obsolete. Profits and revenue decline and they hire fewer people and pay those they have less. With less money and fewer consumers, they eventually fall into financial ruin anyway—but have taken the whole economy with them.

Moving B2B Payments from Checks to Digital

Jesse Champagne, DCR Strategies Inc.

In 2004, 81% of businesses used checks for business-to-business (B2B) payments. By 2007, that number fell to 74%. In 2016, this number was below 50%. Why have businesses stopped using checks? The reason is electronic payments, such as prepaid.

Nearly 80% of companies are transitioning their B2B payments from paper checks to electronic payments, according to the Association for Financial Professionals. 81% of executives believe digital transformation is a competitive opportunity. From 2000 to 2012, the number of checks paid declined by more than 50% as payments through cards, direct deposit and other services more than tripled.

Payment processing inefficiencies cost businesses between $3 billion and $6 billion annually, according to 2018 research by Payments Canada and Ernst & Young. Migrating to electronic payment options could save Canadian businesses approximately 41% in B2B transactions. Reports show that checks can account for 25% of outgoing payments.

A Deloitte study on B2B payments found that there are major benefits of having a card-based payment solution from the buyer’s perspective, such as reduced processing time. The faster a transaction can be completed, the faster a company can manage its reconciliations. 74% of respondents stated that “using a payment card for B2B purchases reduced the number of approvals required, thereby streamlining the purchase process.” 68% of companies reduced administration costs by using payment cards.

However, while check usage has been drastically decreasing in the last few years—the amount of checks being written decreased 41% from 2008 to 2018—commercial checks remain prominent in payments for rent, payments to governments and B2B payments.

As in most businesses, everybody thinks about revenue generation, but few think about the benefits of cost avoidance, automation and efficiency, which are dramatic when compared to electronic payments. In the case of older businesses, where people have been writing checks forever, they just don’t think about it. The old axiom, “If it works, why fix it” truly applies here. While in younger companies, where technology is part of their DNA, people are more likely to think, “There has to be a better way of doing this.” With today’s technology, there is.

It’s time to move to digital payments. By modernizing business payments, companies reap the benefits of reduced costs and more. It's time to #KillTheCheque.

Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations