Week in Review
What We're Reading:
April 27, 2020
UN calls for shipping reforms as North Korea escalates sanctions evasion. The UN Security Council is calling for digitisation of shipping documents, stricter know-your-customer requirements and restrictions on individual vessels, after uncovering North Korea’s extensive ability to evade sanctions on petrol, coal, sand and other commodities (GTR)
Lifting lockdown? Against coronavirus, no one size fits all. Without a tried-and-tested action plan for how to pull countries out of coronavirus lockdown, the world is seeing a patchwork of approaches. (AP)
Businesses urged to explore online market spaces during virus pandemic. Businesses should look at market spaces, like online platforms, more than geographic spaces, during and after the COVID-19 pandemic, said Senen M. Perlada, director of the Department of Trade and Industry-Export Marketing Bureau (DTI-EMB) during a webinar held on April 22 dubbed, “Market Adjustments and Sustainability: Where Do We Sell from Here?” (Business Mirror)
Coronavirus: China urged to “think outside the box” to help businesses struggling for survival. There are growing calls for China to provide direct financial support to small private sector businesses as many are struggling for survival due to the economic damage caused by the coronavirus outbreak. (SMCP)
World Bank urges against export bans amid COVID-19 medical supply chain mayhem. While countries impose bans on medical exports amid the COVID-19 pandemic, World Bank president David Malpass has urged leaders against hoarding medical and food supplies, and not to use shortages as a reason to step up protectionist measures. (GTR)
Barnier: Britain set tight EU talks limit but is not moving. Britain is failing to move in talks on its future relationship with the European Union despite setting a tight timetable, the EU’s chief Brexit negotiator said on April 24. (Reuters)
Tankers: A return to normality or more headwinds moving forward? Tanker owners will have to answer a series of questions in order to determine future demand for their services, once the global economy returns to some sort of normality, after the lockdown measures adopted by dozens of countries worldwide. (HSN)
U.K. says Iran’s ballistic missile launch is of significant concern. Britain said on April 24 that Iran’s launch of a military satellite using ballistic missile technology two weeks ago was of significant concern and inconsistent with a United Nations Security Council resolution. (Reuters)
EU leaders fail to agree on coronavirus economic recovery program. Divisions among European nations over the structure of an economic recovery program continue after European Union leaders again failed to reach an agreement. But the group endorsed the recent recommendation of EU finance ministers for a short-term rescue package worth more than a half-trillion dollars. (NPR)
Coronavirus: Lifting lockdowns could see virus reignite, WHO warns. The head of the World Health Organization (WHO) has warned against complacency in the fight against the coronavirus, saying the disease "will be with us for a long time." (BBC)
German business outlook plunges due to virus lockdown. A closely watched indicator of German business executives’ outlooks plunged to its lowest-ever level in April as economists struggled to predict just how deep the coronavirus downturn would be in Europe’s largest economy.. (AP)
COVID-19 will prolong conflict in the Middle East. The COVID-19 pandemic could not have come at a worse time for the Middle East. Since the U.S.-led international coalition secured the territorial defeat of ISIS three years ago, the region is still struggling to achieve lasting peace. (The Brookings Institute)
Extreme Reactions Increase Globally
Chris Kuehl, Ph.D., NACM Economist
The pandemic has altered life around the world and so has the reaction to that pandemic. It has become obvious that patience has evaporated in many communities as the frustration over social isolation and mounting death tolls continues.
In India, the government has been forced to issue strict punishments for people who attack doctors and other medical personnel. In parts of Asia, mobs have stormed testing centers and there have been hijackings of medical equipment. In the U.S. and Europe, there have been demonstrations by people demanding the lockdown end; some of these have become confrontational. There have been plenty of examples of personal stress exploding into violence.
In those areas where disruption and frustration has been less of an issue, there appear to be three important factors at work. The first is trust in the authorities. If there is a common message presented and the population accepts that message, there appears to be willingness to wait out the crisis.
In those nations where there are dozens of contradictory messages and where people are very skeptical of the political leadership, there has been considerably less cooperation. A related factor is rooted in national culture. There are populations that tend to follow instructions better than others or which tend to think more of the whole society than of the individual.
Many of the Asian states have more of a group culture than nations in Europe or the U.S. It has been pointed out over the years that Japan (for example) has a “shame” culture, while the U.S. (for example) has a “guilt” culture. In Japan, it is the opinion of one’s neighbors and society that governs actions, and, in the U.S., it is more a matter of personal guilt. In Japan, people adhere to the social isolation strictures because society demands it—in the U.S. it is a matter of personal responsibility and preference.
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Iran: Hardliners Tighten Their Grip
Legislative elections were held on Feb. 21, against a backdrop of multiple overlapping crises stemming from heightened tensions with the U.S. over Tehran’s regional ambitions and crippling economic sanctions imposed by the U.S. following President Donald Trump’s decision to renounce the landmark nuclear agreement signed in 2015. As expected, the elections resulted in a rout of the moderate political forces aligned with incumbent President Hassan Rouhani, but faith in the newly elected principlists—the staunch defenders of the Islamic revolution—will face an immediate challenge as Iran absorbs the impact of a looming global recession and the government attempts to contain the domestic damage from the COVID- 19 pandemic.
The hardliners will seek to cement their dominance throughout the governance structure by winning the presidency at an election that falls due in mid-2021, but Ayatollah Ali Khamenei has affirmed the primacy of unelected (and conservative) religious bodies over democratic institutions as part of a “second phase of revolution” decreed by the supreme leader in early November to mark the 40th anniversary of the establishment of the Islamic republic.
Authorities have sought to deflect blame for the hardships endured by the population by focusing on the effects of the U.S. sanctions. Despite such efforts, protests have occurred with unprecedented frequency, and the government’s belated admission of responsibility for the downing of a Ukrainian passenger jet stoked the outrage of an already incensed population.
The incident occurred in a period of dangerously heightened tensions between Iran and the U.S. that resulted from President Trump’s decision to authorize the assassination of Maj. Gen. Qasem Soleimani, the commander of the elite Quds force within the Revolutionary Guards, who was generally acknowledged to be the second-most-powerful figure in Iran after the supreme leader. Tensions between Tehran and Washington are likely to remain heightened as Trump, who is standing for re-election in November, persists with his administration’s “maximum pressure” strategy and Iran responds with tit-for-tat reprisals while offering no concessions.
In a potentially significant development, Iran has turned to the IMF for help for the first time in 60 years, a show of humility that underscores both the extent of the economic damage already incurred and the depth of concern among Iranian leaders that they may not be able to contain the public discontent over surging inflation, job insecurity and deteriorating living standards if they allow conditions to deteriorate much more. However, any assistance from the IMF will require the endorsement of the U.S. Beyond concerns about the purposes for which any loans might actually be used, President Trump’s track record suggests that he is unlikely to show mercy to one of his favorite diplomatic foils unless Iran is willing to make a show of public humiliation, a condition that leaders in Tehran will find intolerable.
The analysis above is taken from the March 2019 Political Risk Letter (PRL). The best-in-class monthly newsletter, written by the PRS Group, provides concise, easy-to-digest briefs on up to 10 countries, with additional recaps updating prior month’s reports. Each month’s Political and Economic
Forecasts Table covers 100 countries, with 18-month and five-year forecasts for KPIs such as turmoil, financial transfer and export market risk. It also includes country rating changes, providing an excellent method of tracking ratings and risk for the countries where credit professionals do business. FCIB and NACM members receive a 10% discount on PRS Country Reports and the PRL by subscribing through FCIB
Mexico’s B2B Payments Opportunity
as a Global e-Invoice Leader
While the U.S. continues to struggle with paper invoices in accounts receivable (AR) and paper checks in accounts payable (AP), its neighbor to the south has emerged as the world leader in e-Invoicing adoption.
Mexico’s e-Invoicing requirements began back in 2004, when its tax authority, the SAT, first developed its e-Invoicing legal framework. Since then, the mandate has been expanded, and today, all invoices, including those in business-to-business (B2B) transactions, must be electronic.
While the requirement aims to combat tax evasion and fraud, e-Invoicing can also be greatly beneficial to AR departments that are able to more efficiently digitize transaction data for reporting, analytics and tracking purposes.
Yet e-Invoicing and its related AR efficiencies don’t necessarily result in gained efficiencies on the payment and AP side. Indeed, traditionally, the invoice acceptance and payment processes have been disparate in AP departments, said Fairfax Software CEO and President Steve Chahal in a recent interview with PYMNTS.
The company recently announced a collaboration with Mexico-based Indicium in a deal that sees Fairfax connecting its Quick Payments software within Indicium’s e-Invoicing solution, eFactura, allowing recipients of e-Invoices in the country to click a link and pay the bill straight from the invoice itself. “It solves a convenience problem,” Chahal explained, noting that integrating payments and invoicing addresses friction on both the AP and AR side.
AR teams are better able to track payments and lower barriers to getting paid, while AP teams no longer have to toggle between an invoicing platform and their bank portals to facilitate a transaction. “For accounts receivable, when the link is right there to pay the invoice, nothing falls through the cracks,” he said. “For accounts payable, it’s a one-stop-shop to make a payment.”
Mexico’s Payments Challenges
Its e-Invoicing traction isn’t the only way the Mexican market differentiates itself from the U.S. While paper checks may be common in U.S. AP departments, Chahal explained that checks are rarely ever used, unless to facilitate a large transaction between banks or large corporates.
Adoption of electronic payments isn’t as mature in other parts of the world, however. “Nobody will take your money unless it’s cash or secured by a bank-to-bank transaction,” he said, adding that for many payers, “cash is still king.”
For Fairfax, the opportunity to integrate with Indicium meant the opportunity to expand into the Mexican market, but it’s not without its challenges. At present, the integration supports card payments on invoices sent via the eFactura portal, although Chahal emphasized the importance of supporting bank transfers in Mexico as well.
In Mexico, the Interbank Electronic Payment System, also known as SPEI, is used to facilitate high-value bank-to-bank transfers and is therefore a key component to B2B payments solutions. It’s not necessarily easy for FinTechs and other technology players to loop into the rail, however.
“It’s controlled by [Mexico’s central bank] Banco de Mexico,” explained Chahal. “It’s similar to ACH but it’s not as accessible to everyone. It’s tightly held by the bank.”
Fairfax is currently working to secure clearance to process SPEI payments to enhance its invoice payment capabilities in the country with Indicium, he said. While commercial cards, and credit card products overall, are gradually gaining popularity, bank transfers remain essential to entities looking to avoid the fees associated with card payments and processing.
Multitasking and Fighting Friction
The jury is still out over whether invoice digitization correlates to digitization or acceleration of payments. But what the B2B payments landscape can be sure of, regardless of market, is that in order to reduce as much friction as possible, the experiences of both the AR and AP ends of a transaction must be taken into account.
In Mexico, while paper checks are scarce, integrating payment functionality on the invoice itself could help migrate more businesses, particularly smaller ones, away from cash, which can create workflow inefficiencies and even security concerns.
Lifting as many barriers as possible for the recipient of an invoice to actually settle the bill means less friction for the payer and accelerated AR cycles for the vendor, a trend especially important during today’s market of volatile cash flows.
And while the market presents its challenges, Mexico’s standing as the globe’s leader in e-Invoicing could position the country as a leader in B2B payments efficiency.
“Mexico’s advantage is that they have had 15 years of building upon a legacy of electronic invoicing,” said Chahal.
Reprinted with permission from PYMNTS.com.
Week in Review Editorial Team:
Diana Mota, Associate Editor and David Anderson, Member Relations