Week in Review

March 19, 2018

Global Roundup

Mexico, Canada should be set to continue with NAFTA without U.S. Mexico and Canada should be ready to continue with a version of the North American Free Trade Agreement (NAFTA) without the United States, the Mexican economy minister said on March 15. (Business Insider)

Trump sharpens trade row, threatening to tax German cars. U.S. President Donald Trump has singled out Europe in a billowing trade row, threatening to tax German cars if the European Union doesn’t lower barriers to U.S. products. (EurActiv)

What central bankers are saying about Trump’s trade-war threat. Central bankers around the world are grappling with the prospect of a global trade war sparked by U.S. President Donald J. Trump’s plan to slap tariffs of 25% on steel imports and 10% on aluminum. (Business Mirror)

Argentina 2018 growth seen around 3% after drought. Argentina’s economy will expand between 0.5% and 1% in the first quarter of 2018 compared with last quarter, and 3% year-over-year, though a severe drought will reduce full-year growth, a Treasury ministry official said on March 14. (Reuters)

Israel and Iran on the path to escalation. Iran has been ratcheting up the rhetoric while Haaretz warns of the consequences of Iran’s ambitions in Syria. It all started back in February, when an Iranian drone and an Israeli F-16 were shot down at the Syria-Israel border. More incidents and additional quarrels over the Iran Nuclear Deal could lead to more grievous confrontations between the parties involved. (Global Risk Insights)

On Russia, Theresa May’s options are limited and ineffective at best. Prime Minister Theresa May’s demands for an explanation of the nerve gas incident are almost certain to be ignored by the Kremlin, but the real risks would lie in pursuing an escalation. (Global Risk Insights)

Top U.S., EU officials fix meeting next week on tariffs. U.S. Commerce Secretary Wilbur Ross and European Trade Commissioner Cecilia Malmstrom have agreed to meet this week in an attempt to resolve a deepening dispute over trade tariffs, a European Commission source said on March 15. (HSN)

China’s economy grows faster than expected on strong demand for exports. China’s economy expanded faster than expected in the first two months of 2018, helped by strong overseas demand for Chinese goods, though economists warned trade tensions with the U.S. threaten to derail that momentum in the months ahead. (HSN)

U.S. hints at shift on Russia with sanctions and condemnation. By imposing new sanctions on Russia and condemning a suspected Russian chemical attack in Britain, Washington has hinted at a tougher stance toward Moscow despite President Donald Trump’s stated desire for better ties. (Reuters)

U.K., Russia tension escalates over spy poisoning. Britain steeled itself for President Vladimir Putin’s reaction on March 15 after Prime Minister Theresa May threw out 23 Russian diplomats in retaliation for the poisoning of a former spy and his daughter on United Kingdom soil. (Business Mirror)

The patchy results of China’s soft power efforts. Chinese media has reported that the Chinese Ministry of Culture is set to be merged with the National Tourism Association. So what? Well, as Xinhua points out, this is no mere bureaucratic reshuffle. Rather, this is about trying to further build China’s soft power. (Interpreter)

India bans trade finance product at the heart of PNB fraud. The Reserve Bank of India (RBI) has banned banks from using letters of undertaking (LOUs) to guarantee imports, a month after the uncovering of a huge trade finance fraud at Punjab National Bank (PNB). (Global Trade Review)

Don’t confuse bitcoin with blockchain technology. Bitcoin and blockchain technology are often incorrectly used interchangeably. This is not surprising, as they are both in their infancy, and despite their becoming mainstream, there still exists a great deal of misinformation. (Motley Fool)


Election Calendar

President | March 18

Chamber of Deputies / Chamber of Senators / President | April 30 (Date not confirmed)

House of Representatives | May 31 (Date not confirmed)

French Polynesia
Assembly | May 31 (Date not confirmed)

House of Representatives | June 20 (Date not confirmed)

Chamber of Deputies | June 30 (Date not confirmed)

Senate | July 1 (Date not confirmed)

Are We Facing ‘Systemic Risks’?

Chris Kuehl, Ph.D.

By most accounts, the answer to this question is yes. There remains considerable debate as to which of these are of greatest concern. There is, however, near universal agreement that all of them will be affecting global growth and all will have to be addressed sooner than later.

A systemic risk is one that stems from events and trends that can’t really be stopped or reversed without massive effort and a wholesale rethink as to how to conduct business and politics in the future. Among the risks that are considered systemic are the impacts of global climate change, the reaction of nations to their increasingly elderly populations, the rise of geopolitical instability, shortages of crucial raw materials and, perhaps the most intriguing and unpredictable change, technological advance and the digitalization of the world.

There are also many positive major changes that can result in a systemic challenge or risk. The advances made in health care around the world have meant that far more people live past infancy (mortality for those under six has plummeted in every corner of the world). Also, the life expectancy of the world has been improving every year. That is a good thing, but it is also expensive because there are far more people living in retirement than ever. No developed nation is immune to the challenge of what to do with this population. The age of retirement was generally set at 60 to 65 because this was the practical limit to people’s productivity in the 1920s and 1930s. Most people worked hard physical labor and were not expected to live all that long past their retirement. Now, people live well into their 80s and can maintain that productivity if they are in occupations that draw on mental abilities as opposed to physical ones.

Climate change is taking place—it always has. The climate is a dynamic system that reacts to many inputs. Some of these are natural and some man-made. The point is that it happens and we have no alternative but to cope with it. Those individuals arguing a “head in the sand” approach are missing the point. Regardless of what has made the climate what it is today, we have to adjust. That means everything from reducing our own contribution to the problem to changing some well-entrenched patterns in reaction to storms, droughts and other weather-related shifts. There will be gains in some places and losses in others. Either way, there has to be adjustment.

The most interesting and potentially most vexing issue is our reaction to technology as it has been altering some of our most fundamental actions. The rise of the machine has meant great things as far as productivity is concerned. The U.S. was rapidly losing its ability to compete as a global manufacturer as recently as the 1990s; but today, it has regained most of that influence thanks to technology and robotics. This return to respectability has also presented problems. The machines essentially eliminated 20 million manufacturing jobs in 20 years. These jobs were replaced by millions of new jobs that related to the new technology, but the people who lost their jobs are not the ones that would be getting the new ones. Despite the 20 million lost jobs, the manufacturing sector now faces a shortage of labor. In the future, there will be other sectors facing this same transition. What can be done with those who lose their jobs in the face of this change and how does a society find and train the new skills that will be needed? That is the big question.


Doing Business in Algeria

Algeria remains a lucrative but challenging market, according to the U.S. Department of Commerce’s International Trade Administration.

“International firms that operate in Algeria sometimes complain that the [government of Algeria] lacks an economic vision, and that laws and regulations are constantly shifting and are applied unevenly, strengthening the perception of commercial risk for foreign companies,” it states. “Business contracts are likewise subject to changing interpretation and revision, which has proved challenging to U.S. and international firms.”

The U.K.’s Department for International Trade agrees that “historically, Algeria has been seen as a challenging market to enter,” but further notes that “hurdles are often similar to those experienced elsewhere.”

It identifies the following as hurdles to doing business there:

  • bureaucracy inherited from a history of francophone and eastern bloc influences
  • the 51/49 investment law
  • the ongoing process to join the World Trade Organization (WTO)
  • some corruption; however, scores fairly well on the corruption index

Credit professionals who recently shared their advice about doing business there in FCIB’s latest International Credit & Collections Survey also shared some of the challenges they have experienced as well as advice for overcoming them.

“Algeria is a very difficult place for trade,” one credit manager said. “The government there has put regulations in place intended to drive business to local companies by making trade with international companies difficult.” Restrictions on payments have led to a high use of letters of credit (LCs) or cash against documents, he noted. The survey shows that 82% of the respondents use LCs.

In addition, new or ever-changing documentation requirements were credited for payment delays. About 36% of the survey respondents noted payment delays were increasing compared with 9% who said they were decreasing, 27% who experienced no change and 27% who said payments were not delayed.

Other respondents suggested regular visits to customers and using a well-developed credit application. About 60% of the survey takers granted terms between 31 days to 60 days.

Others who are doing business in Algeria, or who are considering it, have a unique opportunity to learn more about some of the challenges and how to overcome them. Two credit professionals will share firsthand experiences in a May 15 webinar that will allow time for questions from the audience. The webinar will look at compliance issues, payment and collection practices, and dispute resolution, among other topics. Click here to learn more about the “Doing Business in Africa Webinar: Algeria and Egypt.”

The March 2018 International Credit & Collections Survey also includes results for Morocco, Nigeria, South Africa and Tunisia (FCIB member login required).


Measuring Digitalization

When it comes to digitalization, the United States takes the lead, according to Euler Hermes’ Enabling Digitalization Index (EDI) 2018.

The country received a score of 87 out of 100. “The [U.S.] benefits from a large market, a strong knowledge ecosystem and a favorable business environment, three major areas when looking at conditions necessary for digital transformation,” the trade credit insurer said.

Western Europe, however, stood out for providing “the right environment for businesses to thrive in the digitalization era, with 16 countries ranked in the top 30,” the findings show. The report credits European Union construction: aligned business practices, improved logistic infrastructure and a stronger knowledge ecosystem for four of the countries being in the top five (Germany, Netherlands, Switzerland and the United Kingdom, respectively).

“While outcomes of digitalization are less visible there than in the U.S. (less strong global market players), Germany, as well as the Netherlands, both exhibit robust fundamentals with especially solid logistics infrastructure, connectivity and knowledge ecosystem,” said economist Georges Dib, a co-author of the report.

Euler Hermes’ report also puts forward “interesting patterns” within the region with Nordic countries showing a strong knowledge environment, small trade and financial hubs benefiting from logistics infrastructures and business environment, versus the largest European countries enjoying a significant market size.

Asia Pacific also was noted as a region supporting digitalization. Out of the 30 top markets, eight were from Asia-Pacific. Japan (7th), Singapore (8th), Hong Kong (9th), South Korea (10th) and China (17th) are the top scorers, followed by Australia, New Zealand and Malaysia.

“Strong improvements in Thailand, India and Indonesia are to be noticed since last year,” said Mahamoud Islam, senior economist for Asia-Pacific at Euler Hermes and lead author of the report. “These are our three rising stars in the region. As a demographic giant, China largely benefits from its market size, but ranks poorly when it comes to connectivity quality.”

In Latin America, weak connectivity, logistics infrastructure and innovation scores were the main shortcomings. The first two Latin American countries in the ranking are Chile (43rd) and Mexico (52nd) due to their relatively favorable business environment (and large market size for Mexico). In the Middle East, the United Arab Emirates (UAE) is the best performer (24th), with an impressive infrastructure score due to its position as a trade hub, while, by contrast, Saudi Arabia ranks 50th and Egypt 80th.

In Africa, South Africa (46th) leads the pack. The second African country of the ranking is Kenya (70th), which owes its score to its infrastructure performance. Nigeria ranks 100th out of 115 countries, despite a substantial market size score.

“Developing digital regulation, building human capital, using pivot sectors and territories, banking on smart logistics and reducing digital inequalities are five successful strategies to top EDI ranking,” said Ludovic Subran, chief economist at Euler Hermes.


Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations