Week in Review

April 1, 2019

Global Roundup

Venezuelan government bars Guaido from public office for 15 years. The Venezuelan government on Mar. 28 said it has barred opposition leader Juan Guaido from holding public office for 15 years, though the National Assembly leader brushed off the measure and said it would not derail his campaign to oust President Nicolas Maduro. (AP)

Death knell for May's Brexit deal as lawmakers reject it by 286 to 344. Lawmakers rejected Prime Minister Theresa May’s Brexit deal for a third time on Mar. 29, sounding its probable death knell and leaving Britain’s withdrawal from the European Union in turmoil on the very day it was supposed to leave the bloc. (Reuters)

Comedian Zelenskiy maintains strong lead in Ukraine presidential poll. Comic actor Volodymyr Zelenskiy, a political novice who plays a fictional president in a popular TV series, has maintained a strong lead in Ukraine’s presidential election race, according to an opinion poll published on Mar. 28. (Reuters)

The Golan Heights: What’s at stake with Trump’s recognition. President Trump’s reversal of half-century-old U.S. policy will in practice change little in the strategic territory occupied by Israel, but it could have far-reaching diplomatic reverberations. (Council on Foreign Relations)

Zimbabwe’s dollar squeeze worsens. Zimbabwe’s attempt to ease a dollar shortage and stop its currency from plunging in the black market is showing little sign of working. (Bloomberg)

Report shows stark effect Brexit will have on Irish economy, deal or no deal. On the day the U.K. was originally scheduled to leave the EU, several scenarios remained on the table. And a new report shows that all of them spell bad news for Ireland. (DW)

Is Colombia’s fragile peace breaking apart? The historic peace agreement between the government of Colombia and the Fuerzas Armadas Revolucionaras de Colombia—Ejército del Pueblo (FARC-EP), the country’s largest armed rebel force—is facing its most serious test yet. (Brookings)

Beige Book: China business activity recovering thanks to “credit-soaked” quarter. China’s economy showed “unmistakable” signs of recovery in the first quarter, with company profits, investment and hiring improving, but policymakers may be relying too much on extraordinary levels of credit, a private survey showed. (HSN)

China makes “unprecedented proposals” to U.S. on technology transfer. China has made unprecedented proposals in talks with the United States on a range of issues including forced technology transfer as the two sides work to overcome remaining obstacles to a deal to end their protracted trade war. (EurActiv)

Ratifying USMCA the only responsible option at this point. The impending release of the U.S. International Trade Commission (ITC) report, which provides members of Congress with in-depth analysis of the potential economic impact of the proposed United States-Canada-Mexico Agreement (USMCA), may very well have minimal impact in swaying Congressional opponents of the deal. (Global Trade Magazine)

Mauricio Macri's economic troubles rekindle nostalgia for Cristina Fernandez in Argentina. Four years ago, Mauricio Macri’s victory over longtime leftist President Cristina Fernandez’s hand-picked successor was supposed to put the first nail in the coffin of Latin America’s “pink tide” populism. But amid stubborn economic malaise, Argentina’s self-styled left—and Ms. Fernandez herself—now seem poised for unexpected resurrection. (Washington Times)

China’s Farm Sector Leverage

Chris Kuehl, Ph.D.

As the trade talks between the U.S. and China continue, it has been nearly impossible to predict an outcome. Both sides are being pushed toward positions they do not really like.

The leaders of both nations know that any deal will upset some element of their support base. A good percentage of the Trump base is virulently anti-China and will see any concession as a defeat. The President Xi approach to growth in China lacks universal support; some within the Politburo want him to take a tougher stand.

One of the sticking points from the start was the demand from the U.S. that China buy more from the U.S. Practically speaking, that means more agricultural output.

The Chinese have agreed to do just that, but they have been reluctant to commit to numbers. They are clearly seeking some leverage on other issues before diving in to buy more U.S. food.

They know full well this spring’s floods have devastated the U.S. farmer. This means China’s market will be more important than ever. If the U.S. wants China to help rescue the U.S. farmer, the Chinese are demanding something in return—probably an end to the idea of the U.S. unilaterally imposing tariffs again if the U.S. decides that China is violating its promises.

China knows that these farmers are a big part of the Trump base. They are now faced with the challenge of either supporting Trump in a hardline approach to China or protecting their livelihoods by making a deal with China that gets U.S. exports of food back up to traditional levels.

It is hard to say whether this is just a current negotiating tactic or a real impasse. Most analysts think a deal will be made as it would make the most sense for both nations, but that also assumes the personalities involved see it the same way.

Creditors Beware: Invoice Scams Hit UK

Protection should be on the minds of all creditors at all times. For construction credit professionals, it might be as simple as protecting themselves by becoming a secured creditor by filing a mechanic’s lien, but this is only one type or meaning of being protected in the credit industry. Another is filings under the Uniform Commercial Code. Businesses need to be on the lookout for how to become better protected whether it’s in the form of becoming secured or during other payment processes.

According to research released earlier this month, invoice fraud detection is the big wave of protection that should be taken into consideration. Nearly 93 million pounds were lost in the business world to this scam during 2018, states the report Fraud the Facts 2019 from UK Finance. “Invoice fraud could happen to businesses of all sizes,” said Katy Worobec, managing director of economic crime with UK Finance, in a release. “It’s vital that all employees are trained to identify potentially fraudulent transactions.”

Of the 92.7 million pounds, almost 30 million pounds were returned to customers—an average loss per invoice scam was nearly 21,000 pounds. This scam was the third-most popular authorized push payment (APP) fraud, but it resulted in the largest losses.

Fraud from payment cards, remote banking and checks totaled roughly 850 million pounds in 2018—a 16% increase—but more than 1.6 billion pounds were prevented by banks and card companies. A total of more than 354 million pounds (roughly 228 million pounds for personal and 126 million for nonpersonal/business) were lost via over 84,000 APP scams last year.

One of the biggest reasons for invoice fraud is because 43% of businesses are not aware of it, states a separate UK Finance report from earlier this month, Business Payments Survey. As the size of the business increases so does the awareness of invoice fraud. The advancement in technology has contributed to the increase of fraud, allowing scammers the ability to copy invoices and gain other details about the payment process.

More than a third of business payments in the U.K. are through Bacs Direct Credit—check usage dropped from 21% of outgoing payments made by businesses in 2012 to 6% in 2018. More than three-fourths of business-to-business payments were accepted directly into business bank accounts.

There are several ways to be on top of invoice fraud, or any fraud for that matter: Confirm banking details with the customer before making payments and transfer smaller sums for first-time clients to make sure everything checks out. However, if it is too late to prevent the fraud, it is important to contact the bank and alert authorities.

—Michael Miller, NACM Managing Editor

Expected Increase in Insolvencies Suggests a Worsening Global Economy

The trade credit insurance members of the International Union of Credit and Investment Insurers (Berne Union) and International Credit Insurance and Surety Association (ICISA) anticipate an increase in insured trade matched by an increase in insolvencies for 2019.

Growth in insured trade is especially expected in Asia and Sub-Saharan Africa, while an increase in insolvencies is mainly expected in the MENA region and Asia. Several members have already observed a rise in the frequency and severity of claims.

The respondents foresee a significant worsening of the risk environment, and the possibility of a recession coupled with higher expected levels of default. Eighty-five percent of respondents think commercial risks are increasing, and 75% of respondents think political risks are becoming more prevalent, driven by concerns about risks such as Brexit and trade wars. Automation and digitalization of trade documentation are considered to be the greatest opportunities in the short term.

“Political risk is clearly back,” said Vinco David, secretary general of the Berne Union. “This is not only due to the impact of armed conflict—such as in the MENA region, Ukraine and Venezuela—but also due to more recent trade conflicts, which put the careful balance of multilateralism at risk. With considerably higher custom tariffs, e.g., in the U.S. or China, some exporters are faced with difficulties if they cannot relocate to other markets or adjust their global supply chains.”

Automobile and transportation manufacturing, and to a lesser degree construction, are the sectors that are viewed as most likely to see a fall in underwritten volumes. A more positive outlook is given to product manufacturing and pharmaceutical and medical products. Electronics and pharmaceutical and medical products are considered most likely to see reductions in insolvencies. Construction and automobile and transportation manufacturing are considered likely to see a significant increase in insolvencies.

After many years of very soft market conditions, the markets in Asia and Europe are expected to move toward more neutral territory.

“The forecast for the coming months is that price developments remain soft despite the clouds on the horizon,” said Patrice Luscan, president of ICISA. “The current claims outlook is perceived not to be negative enough for a tipping point. Disruptive political developments in the world economy, such as Brexit and trade wars, might change this”

Insurers of medium and long-term export credit, mainly for capital goods and infrastructure, also reported positive expectations for new business, against a background of increasing commercial and political risks.

They anticipate increases in new business through the course of this year, with more than 90% expecting an overall increase in exposure by year end. Deal pipelines for developing markets in Sub-Saharan Africa and Asia stand out with the highest growth expectations, while Latin America may see an overall reduction in new commitments.

Renewable energy is the leading sector for expected growth of new business, with 60% of respondents expecting significant increase in demand, and a healthy supply of good projects. They cite strong demand, especially from Eastern Europe, as well as favorable policies directed at imports of renewable energy equipment in some countries. Continued demand for cover is also expected in traditional energy, transport, manufacturing and infrastructure, but here there is also an indication of possible claims on the horizon.

In contrast to this generally positive picture for the insurance of export finance, members reported significant concerns about trends impacting the underlying economic environment. The slowing global economy and fear of a possible recession top the list.

Despite this, insurers see opportunities to improve awareness and use of nonpayment insurance with support from banking partners and through increasing collaboration between public and private insurers.

The majority (80%) of ICISA’s surety members expect an increase in the demand for surety bonds in 2019, especially in Latin America and North America. While the outlook for claims in the Americas is relatively positive, the same cannot be said of Europe and Asia where claims are expected to pick up. Generally speaking, the rise in the demand for surety bonds is perceived to exceed the rise in claims, indicating a positive outlook for the surety market.

The surety markets in all regions are currently considered to be soft. Europe is expected to harden slightly, while especially Asia and to a lesser extent Latin America are expected to soften further.

“Demand for surety bonds will continue to grow in line with increased need for construction and spending on infrastructure projects,” said Rob Nijhout, executive director of ICISA. “Recent failures of construction companies (e.g., Carillion) enhanced the awareness of the value of surety bonds, particularly in public works.”

Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations