Week in Review
February 24, 2020
Venezuela: Refugee crisis tests Colombia’s stability. With the exodus set to continue, the strains on Bogotá and other governments are set to intensify. (Financial Times)
Iranians vote to elect new parliament amid uncertainty. Supreme Leader Ali Hosseini Khamenei says it is a religious obligation to vote amid concerns of low participation. (Al Jazeera)
International Monetary Fund calls Argentina’s debt unsustainable. On Feb 19, the International Monetary Fund said that Argentina’s debt was unsustainable and private creditors would need to make a “meaningful contribution” to help end a financial crisis in the South American country. (WSJ)
Taliban says agreement with U.S. to be signed Feb. 29 in front of international observers. “Both parties will now create a suitable security situation in advance of agreement signing date,” Zabihullah Mujahid said in the statement. Afghan, international and Taliban forces will observe a reduced violence period, an Afghan official said. (Reuters)
New coronavirus cases in China fall again as deaths top 2,000. New virus cases in China continued to fall on Feb. 19, with 1,749 more infections and 136 additional deaths as the top official in the outbreak’s epicenter vowed to find and isolate every infected patient in the city by day’s end. (Business Mirror)
G20 finance ministers gather for summit in Riyadh. The meeting is said to focus on forming and strengthening rules around the taxation of digital transactions, debt transparency and corporate base erosion to the mutual benefit all countries.
Chinese banks’ bad loans may spike by up to $1.1 trillion due to virus hit. China’s banking sector may face a surge of up to 7.7 trillion yuan ($1.10 trillion) of non-performing loans (NPLs) in 2020 if the coronavirus outbreak doesn’t peak until April, credit agency S&P Global estimated on Feb. 20. (HSN)
Japan–South Korea tensions show little sign of easing. After last year’s steady decline over a spate of issues, reconciliation remains a long way off. (Interpreter)
EU leaders return to budget stalemate after all-night talks. European Union leaders appeared no closer to reaching a deal on the bloc’s next joint budget on Feb. 21, with deep divisions between richer and poorer nations over its size—and what to spend it on—unresolved after all-night talks. (Reuters)
Managing coronavirus business interruptions. The novel coronavirus has continued to spread through China and beyond, with more than 1,800 deaths reported. The virus’ spread has also had major impacts on business operations around the world, slowing or shuttering international companies’ operations in China and prompting travel restrictions and evacuations. (Risk Management Monitor)
Synthetic letters of credit: Risk vs. reward. Some banks tout synthetic letters of credit (LCs) as a way of reducing risk, improving working capital and expanding credit lines in emerging markets. For others, fears around insolvency or fraud—and question marks over the underlying trade transaction itself—cause them to shy away. (Global Trade Review)
Incoterms 2020 CIP: Spotlight on Carriage and Insurance Paid To. Incoterms 2020 rules outline whether the seller or the buyer is responsible for, and must assume the cost of, specific standard tasks that are part of the international transport of goods. In addition, they identify when the risk or liability of the goods transfers from the seller to the buyer. This article discusses the Incoterm CIP, also known as Carriage and Insurance Paid To. (Shipping Solutions)
Demographic Crisis in the Middle East and Africa
Chris Kuehl, Ph.D., NACM Economist
It seems that the old adage holds truer than ever: No good deed goes unpunished. Over the last several decades, the development strategy for the Middle East and Africa—as well as the rest of the world—had been simple enough and seemingly logical.
In order for these nations to progress economically, they had to come to grips with the health of their population and radically improve the education of their youth. This is exactly what these nations set out to accomplish with the assistance of dozens of international organizations. If one wanted to get funding for some project, all one had to do was tie it to health and education.
The good news is that all this effort has paid off. The rate on infant mortality plummeted, and millions of kids started to get access to education. That access continued and those millions soon began to get access to higher education.
This region has never had more healthy young people with education. The majority of the population in the Middle East and much of Africa is under 30 and most have some education—many thousands have degrees from universities. There is just one thing this young population lacks: employment.
The vast majority of those who have become formally educated have no opportunity to use those skills and that education. They are working in menial jobs or unrelated fields with virtually no hope of ever progressing. The frustration level is high and getting higher.
All of the development effort has been directed at preparing people for careers that do not exist and that leaves very few options. The young and educated can scramble to find the few local jobs available but that very competition ensures that wages remain very low—far less than they were led to expect. People with advanced degrees are barely making more than a day laborer.
The second option is to give up that search for a good job and take whatever can be found at whatever wage and wonder why they wasted their time getting an education they can’t use.
The third option has been to migrate somewhere else and that usually means Europe. The myth is that these migrants are the poor and uneducated when the reality is that most of the migrants (aside from the refugees fleeing war) are young and educated. It doesn’t seem to strike people as odd that these migrants are speaking English and German and French when they arrive.
In many of the nations of the region, there has been considerable political unrest and demonstrations made up of that young and angry population. These are the educated young who feel betrayed and exploited and become candidates for all manner of protest movements. They are engaged with the Islamic militants, the nationalists and populists and the radical left—any group that seems to promise their future can and will change.
What is needed is business and lots of it. The only way out of this crisis is the development of viable and vibrant economies that can employ tens of thousands of people in high level tasks. This means massive levels of development and investment via active engagement of the private sector. This is not going to be an easy task in any sense.
Argentina: Payments Slowing
Nearly 60% of credit professionals who participated in FCIB’s most recent International Credit & Collections Survey on Argentina reported increases in payment delays. A quarter were not experiencing a change in delays; 13% had no delays; and 4% noted a decrease.
Cash flow issues (40%) were credited for the majority of payment delays, followed by central bank issues (25%) and an inability to pay (10%).
Payment terms 61–90 days were typical for 40% of the credit professionals, while 0–30 days and 31–60 days were each common for 28% of respondents. The remaining 4% granted terms greater than 90 days.
Advice from survey participants ranged from having patience to not taking on any new accounts. “Know your customer and ensure a solid sales-customer relationship,” one credit manager said.
Another said his company was limiting shipments due to currency restrictions. Limitations in foreign currency payments regulated by the central bank create delays in receiving funds, a credit manager explained.
“Take country risk into high consideration,” another shared. “If you can visit the company, it will help with the credit decision process.”
Other tidbits of advice included getting financial statements, reducing terms and asking customers to send documents to the bank as soon as an invoice is due. “If you have extended terms, find a method to hedge against inflation,” a respondent advised.
A couple of other suggestions were to discern the name of the legal entity—not the doing-business-as name—and to determine where the buyer’s customers are located in an effort to get ahead of potential collection issues.
The February 2020 International Credit & Collections Survey also covers Brazil, Colombia and Peru. 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 Chile, Honduras, Trinidad & Tobago, and Venezuela and is open until March 6.
Slovakia, National Council, Feb. 29
Guinea, National Assembly, Mar. 1
Mali, National Assembly, Mar. 29
North Macedonia, Assembly, Apr. 12
Burundi, National Assembly, Jul. 20
Kyrgyzstan, Supreme Council, Oct. 4
Guam, Legislature, Nov. 3
Central African Republic, National Assembly, Dec. 27
Aussie Ombudsman: Legislation May Be Only Way to End Late Payments
If big businesses continue to flout reasonable payment terms, Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell says she will have no choice but to recommend federal legislation requiring all businesses to be paid in 30 days.
“In the past week, Telstra and Rio Tinto have moved to 20-day payment terms for SMEs, and there is no reason why other big businesses can’t do the same,” Carnell said. “Australia’s big businesses have had more than enough chances to do the right thing, so if they can’t follow Telstra and Rio’s lead, I will have no choice but to recommend legislation requiring 30-day payment terms across the board.”
Late payments by large businesses to small businesses account for 53% of all invoices in Australia. That’s AU$115 billion paid late to small businesses—equivalent to AU$7 billion of working capital to Australian small businesses every year, according to accounting software firm, Xero.
“The economic case for faster payment times is clear, not just in Australia but internationally,” Carnell said. “When the Obama administration moved to 15-day payment times, a Harvard Business School study found that created 75,000 jobs and delivered an additional US$6 billion to U.S. workers’ pay packets. Our recently released position paper outlines the key preliminary findings of our supply chain financing review, and we are seeking feedback on that before making formal recommendations.”
The final report will be handed down at the end of March. Presently, Carnell noted that the review finds that the voluntary supplier payment code is just not working.
“The Code is voluntary,” she explained. “There is no compliance monitoring, and it’s actually unenforceable. The fact is that all businesses, regardless of their size should be paid in 30 days and supply chain finance should be available to those small businesses that want to be paid faster.”
Week in Review Editorial Team:
Diana Mota, Associate Editor and David Anderson, Member Relations