Week in Review

What We're Reading:

November 30, 2020

EU proposes new post-Trump alliance with US in face of China threat. The European Union is seeking to forge a new alliance with the United States to bury the tensions of the Trump era and meet the challenges posed by China, the Financial Times reported on Nov. 29, citing a draft plan. (Reuters)

Trump administration pulls out of Open Skies treaty with Russia. The post-Cold War agreement was struck to allow nations to conduct flyovers of other allies in an attempt to collect military data and other intelligence on neighboring foreign enemies. (The Hill)

Brexit negotiations restart in person as clock ticks down. Face-to-face negotiations between Britain and the European Union over a trade deal restarted on Nov. 28, in a last-ditch attempt to find agreement with just five weeks to go before their current relationship ends. (HSN)

The fallout of assassinating Mohsen Fakhrizadeh. The killing of the head of the Iranian nuclear program may make it even harder to revive the nuclear deal. (Interpreter)

Nigeria’s defense of a spiraling naira and its multiple exchange rates isn’t working. The divergent rates have long been a striking feature of Nigeria’s economy but more so in the last half decade as the country’s financial authorities have attempted to micro-manage the supply of foreign exchange and “defend” the naira. (Quartz)

US imposes Venezuela-related sanctions targeting Chinese firm. The United States on Nov. 30 imposed sanctions on Chinese firm China National Electronics Import & Export Corporation (CEIEC), accusing it of supporting Venezuelan President Nicolas Maduro’s efforts to undermine democracy. (Reuters)

Class action lawsuits to become EU law. European consumers will soon be able to band together as groups in court after the European Parliament on Nov. 24 adopted legislation giving them the right to U.S.-style class-action lawsuits. (EurActiv)

Erdoğan versus Macron: An Ideological Clash or a Geopolitical Race? The threat of Islamic terrorism is once again haunting French society and igniting a bitter spat between Macron and Erdoğan, while forcing France to grapple with its fiercely secular society. What does the future hold for France’s state secularism and Turkey’s increasingly provocative President? (Global Risk Insights)

Australia considering WTO appeal against China barley tariffs as tensions rise. Tensions between Australia and China, its largest trading partner, have escalated after Australia called for a global inquiry into the origins of the coronavirus, angering Beijing. (HSN)

Prospects for a G20 ‘pandemic treaty.’ Spared the “theatre of summitry,” the next leaders of the grouping now have a chance to get on with the job. (Interpreter)

2021 outlook: Global mining. The coronavirus pandemic and lockdown measures across most major economies in 1H20 triggered an economic recession of similar size to the 2009 financial crisis, with most commodity prices falling sharply in March as industrial activity halted, largely linked to uncertainties around the length of disruptions and market sentiment. China has fueled the recovery. (Fitch)

The election nobody is talking about: Leading the WTO. With the U.S. election in the rear-view, the question remains whether the West can champion meaningful WTO reform to address China’s rampant trade violations. (FDD)

Biden names top economic advisers, setting state for more diverse White House. President-elect Joe Biden unveiled his picks for several top economic positions on Nov. 30, including former Federal Reserve Chair Janet Yellen as his nominee for Treasury Secretary, setting the stage for a more diverse White House. (Reuters)

World economy risks buckling into 2021 despite vaccine news. The surging coronavirus is stoking fears of a fresh downturn for the world economy, heaping pressure on central banks and governments to lay aside other concerns and do more to spur demand. (Business Mirror)

The assumption had been that foreign policy would be a priority for a Biden presidency. His background has been heavily weighted toward foreign affairs through his many years in the Senate Foreign Relations committee and his role as vice president.

Joe Biden even took the unusual step of talking about foreign issues on the campaign trail. As he has been putting his cabinet together, he has reinforced that assumption due to a great deal more movement in that sphere than on the domestic side. His priority has been economics, foreign policy and the pandemic, at least as far as personnel is concerned.

At this stage, the four priority areas appear to be China, Europe, North America and Latin America. It is interesting that the Middle East, South Asia and Russia look to be less of a focus. There is likely to be some significant continuity between Biden’s approach and that of Barack Obama on some of these issues, but not all.

One of the most significant differences will likely involve China. Under Obama, there was a push to engage China and use something of a carrot-and-stick approach. If China played by international rules, it would engage more of the global system such as the World Trade Organization. At the same time, there was an attempt to pull together the Trans-Pacific Partnership as a way to isolate China.

Under Donald Trump, the carrots vanished and the sticks got bigger. China was no longer seen as a potential partner or rival and was seen as a real enemy and threat. It now looks like Biden will tilt toward the Trump approach more than Obama’s.

Biden, and many Democrats, have been harsh critics of China in the past, objecting to everything from human rights violations to the treatment of minorities and especially the labor situation in the country. This was a major reason U.S. companies moved to China and took American jobs with them. China did not gain a friend in the White House.

Europe is a priority. Biden wants these alliances to strengthen, but this will not be an easy task. The U.K. is led by Boris Johnson and Trump was very popular with the Tories. Germany is in the middle of a leadership shift as Angela Merkel readies for retirement. Her party is currently split between her supporters and more conservative rivals. Emmanuel Macron has his hands full in France, and the economies of Spain, Italy and other southern states are in deep trouble. The eastern European nations are largely led by populists who were close to Trump. There are numerous trade confrontations between the U.S. and Europe and after four years of antagonism from Trump these nations are angry and suspicious of the U.S.

The policy options for this hemisphere are less formed at this stage. The intent is to get far closer to Canada, but Mexico presents a real challenge as the leader of that nation is Andres Manuel Lopez Obrador, a leftist populist whose policies have done considerable damage to an already suffering nation and one that has a very serious pandemic issue. Relations between Biden and Brazil’s Bolsonaro will be rocky because the Brazilian leader supported Trump’s refusal to accept defeat and suggested that Trump should stage a coup to keep power. The majority of new governments in Latin America have tilted center left in the last few years.

Global GDP is expected to fall 4.3% in 2020, Atradius economists predict. If that happens, the negative impact of COVID-19 will be greater than that of the financial crisis of 2008-09.

Atradius notes risks to the current forecast are on the downside as many countries tighten quarantine measures to deal with a resurgence of infections, and insolvencies are expected to accelerate.

Although the economic impact of the 2020 pandemic has been severe and swift, the latest Atradius Payments Practices Barometer survey results for Europe show a region battered, but not beaten by the virus, the trade creditor explained. However, the pandemic has plunged the eurozone into recession, and businesses may need more government intervention next year.

Every country polled in the region reported an increase in late payments and lengthening of DSO compared with pre-pandemic levels. Respondents in the U.K. and the Netherlands reported year-on-year increases in overdue invoices of 81% and 75%, respectively. Eastern Europe reported an average increase of 88%. And a significant percentage of businesses reported a negative impact on cash flow and revenue, particularly in Bulgaria and Slovakia.

Clear new trends have emerged with businesses altering their payment practices in response to the economic downturn, Atradius said. Many businesses increased payment terms. The majority did so in a bid to increase their competitiveness and encourage sales. However, a sizeable proportion reported providing credit to support their customers with short-term finance.

Despite a dramatic surge in late payments and a substantial number of businesses reporting liquidity stress, business confidence is largely buoyant, the survey finds. Although many countries are now entering a second lockdown, significant numbers of businesses are optimistic about the outlook for next year.

Much of this apparent business confidence has been driven by government support, Atradius noted. Although differing in approach and scope, many governments in the surveyed countries enacted business support programs. Continued support will be vital for many businesses next year. The insolvency environment is likely to be heightened, with travel, tourism and hospitality sectors expected to be hardest hit.

However, like the virus itself, there are many unknowns. Much will depend on the evolution of the virus and the efficacy of any potential vaccine. In the meantime, businesses plan to use a range of credit management techniques to protect their cash flow.

World trade is expected to shrink by about 15% this year. Without exception, every country polled in Europe reported an increase in late payments, which corresponds to an average two-thirds increase on pre-pandemic figures for the whole region. For several years to come, global and local economies will have to cope with the effects of this crisis, which is likely to have a substantial impact on corporate insolvencies.

The Atradius Payment Practices Barometer survey was conducted during the first wave of the COVID-19 pandemic with businesses from 13 countries across Eastern and Western Europe. The results were benchmarked against last year’s poll to provide clear pre-pandemic to pandemic trends.

In Australia, the government could be looking at mandatory eInvoicing for companies, according to a report by Accountants Daily.

The effort would be phased in and start first with the biggest businesses, the report says. eInvoicing, which constitutes digital exchanges of invoices between a supplier and buyer's software or systems, has been hailed as a more efficient, secure and accurate method of doing business.

There could be some kind of sanction for businesses not complying with the government's mandate. But the mandate, according to the government, would still let companies send non-eInvoices like paper or PDF notices.

A mandatory option, the government believes, will help to move along the adoption of eInvoicing and help it become part of the wider digitization of the invoicing process. Benefits of eInvoicing like saving time and cutting costs are also part of the appeal, the report says. The shift also anticipates the fact that in the next year or so, major accounting software providers will be able to support eInvoicing. That would give around 60% of small to medium-sized enterprises (SMEs) access in the near future.

That said, the measure would consist of regulatory costs for businesses, and companies that don't make use of accounting software would find it difficult to follow the rule. The government could possibly only implement the rule for larger businesses or make it more flexible for companies to implement it at their own speed, the report says.

But the report notes that the other options wouldn't carry the urgency that an all-out mandate would to help move along the adoption of eInvoicing.

Kim Vodicka, vice president of commercial operations at Dell Financial Services, spoke with PYMNTS recently about the shift in B2B payments because of the pandemic. She said the companies more entrenched in AP operations had a harder time transitioning to new ways of payment. But corporate buyers' shifts to electronic payments has also had a "ripple effect" and enticed other members of the supply chain to adopt new B2B methods as well.

Reprinted with permission by PYMNTS.com.

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 Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations