Week in Review

Global Roundup

November 18, 2019

Bolivia is shattered: Election crisis leaves deeply divided nation. From Bolivia’s capital of La Paz to the city of Santa Cruz, weeks of protests have undone leftist President Evo Morales’ grip on power and left his South American nation deeply divided. (Reuters)

Low inflation, weak economy worry Peru central bank. Peru's central bank is closely monitoring the fall in inflation and is concerned that it will drop too quickly due to the weak economy, its general manager, Renzo Rossini, said on Nov. 15. (BNAmericas)

Lebanon's Safadi agrees to be next PM amid economic crisis: Bassil. Mohammad Safadi, a former finance minister, has agreed to be Lebanon’s prime minister if he wins the support of leading parties, Foreign Minister Gebran Bassil said on Nov. 15. (Reuters)

Japan’s economy decelerates sharply amid trade tensions. Japan’s economy slowed sharply in the third quarter as overall exports continued to fall amid trade tensions and a shopping splurge before a sales tax increase ran down stockpiles of goods. (HSN)

Argentina is running dangerously low on dollars to pay back debt. Argentina must repay $5 billion by the end of 2019. It doesn’t have much to work with. (Bloomberg)

Trump seen delaying tariffs on imported European cars. The Trump administration may punt a decision on whether to slap tariffs on European automobiles as efforts of German automakers to highlight their new investments have helped in the talks, people familiar with the White House deliberations said. (Business Mirror)

Latest Chinese numbers show economy dragging. China’s economy is showing fresh signs of weakness even as inflation continues to tick higher—a conundrum for policy makers as the trade dispute with the U.S. drags on. (HSN)

Emerging economy leaders meet at 11th BRICS summit in Brazil. A summit of the world's five biggest emerging economies, now in its 11th year, called BRICS has begun in Brazil's capital. (Al Jazeera)

Argentina’s economy is collapsing. Here come the Peronistas, again. The peso is falling—and so, it seems, is the sky. Inflation and poverty rates are soaring. National reserves are shrinking fast. In short, Argentina—in a terrible deja vu of crises past—is hurtling once again toward the economic abyss. (Washington Post)

EU’s East succumbs to chills afflicting global economy. The European Union’s eastern members are succumbing to the slowdown gripping the global economy. (Bloomberg)

U.K.'s Labour plans to nationalize BT's network in free broadband plan. Britain’s opposition Labour Party plans to nationalize BT’s broadband network to provide free internet for all, a radical election pledge to roll back 35 years of private ownership that caught both the company and its shareholders by surprise. (Reuters)

Incoterms 2020 EXW: Spotlight on Ex Works. Incoterms 2020 rules are the latest revision of international trade terms published by the International Chamber of Commerce (ICC). Last week, the International Trade Blog discussed the Incoterm EXW, also known as Ex Works. (Shipping Solutions)

 

Brazilian Divisions Deepen

Chris Kuehl, Ph.D., NACM Economist

The release of former President Luiz Inacio “Lula” da Silva after 580 days of imprisonment has triggered a massive outcry from both the left and right.

During his presidency, Lula made an attempt to shift his policies towards the center and won some support from the business community in Brazil. Since his trial and imprisonment on corruption charges, he has returned to his radical roots and is now galvanizing the left in an attempt to depose the sitting president—the far-right Jair Bolsonaro. Brazil is becoming more and more polarized every day as these two figures square off against one another.

Brazil is facing a series of very serious economic challenges. It seems that nobody in politics is the least bit interested in tackling them as their focus has become “the other side.”

The inflation rate is rising again and at the same time there is emerging recession. The global reputation of the country has also suffered with the burning of the Amazon. That has made it harder for the government to get financial assistance. The ferment around the region has been an issue as well.

The Argentine government is now back in the hands of the Peronists, sworn enemies of Bolsonaro. At the same time, the regime in Bolivia has changed as former President Evo Morales fled into exile in Mexico. The current government there is propped up by the military. That angers Lula who had been an ally of the past leader.

The economic issues at a global level have been unfavorable for Brazil in any case. The Chinese had been investing a lot of money in Brazil until Bolsonaro took office, but it has maintained engagement until the slowdown in its own economy.

The trade war between the U.S. and China has been more damaging to nations such as Brazil than it has to each other. The Chinese still want imports from Brazil, but they lack the money they once had to invest.

The Bolsonaro regime asserted it would be able to develop a special relationship with the U.S. given the similarity between leaders, but President Donald Trump’s rhetoric has not manifested in any tangible way.

The trade talks have stalled and Brazil has not been able to boost its contacts with a U.S. business community worried about Brazil’s inflation and recession threat. It has not helped either that Bolsonaro has made the country something of a pariah over the treatment of the Amazon. The contest between Lula and Bolsonaro will dominate for the foreseeable future and that stalls progress even further.

 

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United Kingdom: Approaching the End Game

The PRS Group

When Boris Johnson, an outspoken Brexit hardliner, replaced Theresa May as prime minister in July, he remarked that he would rather die in a ditch by the side of the road than delay Brexit beyond the extended deadline of Oct. 31, even without a deal with the EU. However, having failed to secure final parliamentary approval of a transitional arrangement by the end of October, Johnson has acceded to an extension of the deadline to Jan. 31, 2020, and is preparing the incumbent Conservative Party for a snap election that will be held on Dec. 12.

Most recent polls show the Conservatives polling near or above 40%, positioning the Tories to emerge victorious in December. On current projections, it appears that Johnson will enjoy a comfortable majority in the 650-member legislature. However, the polls proved to be rather undependable in predicting the outcome of the last election in 2017, and much will depend on whether the Brexit Party carries out a threat to compete for seats currently held by Conservatives.

Even if the Tories end up with a solid majority, it is far from clear that Johnson can get his deal approved by the new deadline. The prime minister claims that his revised withdrawal agreement gets rid of the controversial “Irish backstop.” However, critics point out that the revised terms create a “full stop” (meaning Northern Ireland will remain subject to EU rules for trade in goods) for a minimum of four years following the end of a 14-month transition period. The arrangement can be ended or extended (in four-year increments) by a simple majority vote of the devolved Northern Irish legislature, which many see as a recipe for political polarization that will heighten the risk of a revival of deadly sectarian violence.

With various forecasters predicting that implementation of Johnson’s withdrawal agreement will reduce GDP by 4% over a decade, Chancellor Sajid Javid is expected to present a generous pre-election budget in early November that includes crowd-pleasing spending measures, but at the cost of undermining confidence in the government’s fiscal direction. In any case, the Brexit uncertainty, and the lingering possibility of a no-deal scenario, will undermine business confidence, holding real GDP growth to 1.2% for the year.

The analysis above is taken from the October 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.

Election Guide

Uruguay, President, Nov. 24

Namibia, National Assembly, Nov. 27

Dominica, House of Assembly, Dec. 6

Algeria, President, Dec. 12

Uzbekistan, Legislative Chamber, Dec. 22

Australian Late Payments Amplified During Holidays

Andrew Michaels, NACM editorial associate

Every year, economic data show an increase in spending between November and December—a welcome boost often helping businesses end the year on a high note. However, as late payments are a recurring issue for small- to medium-sized enterprises (SMEs), this rise in spending is particularly problematic when customers close for the holidays, sometimes delaying payments until after the new year.

One of the latest countries to make headlines regarding late payments is Australia, where the impending holidays are creating concerns among SMEs.

According to Illion’s June Quarter Analysis 2019 of Australian Late Payments, one third of SMEs—businesses with less than 500 employees—are struggling with late payments, with payment times reaching yet another historic low in construction and retail. While construction saw payments late by more than 10 days, payments to retail reached nearly two weeks past due. The findings concluded that when an industry is already suffering from late payments—for example, the transportation sector—holiday closures only extend the delay.

“In terms of the timing of late payments, the problem is worse between Christmas and New Year’s,” PYMNTs stated in its analysis. “Payments for the transport industry are late by about 9.7 days, which means it takes these firms about six weeks to get paid. Reports noted that late payments have a negative impact on cash flow, as smaller logistics and transportation firms must grapple with ongoing fuel and maintenance costs.”

Yet, it isn’t only the holidays that make it hard for SMEs to get paid. Dedicated to helping suppliers get paid faster, Previse released its analysis of more than 10 million invoices in the U.K., where 50,000 SMEs close every year because of slow payments. Based on big business spending more than £24 billion, Previse reported small suppliers are getting paid about a month later than larger suppliers.

“We know that slow payments are a system-wide disease in our economy,” Previse CEO and cofounder Paul Christensen told The Fintech Times. “This analysis shows, however, that the smaller a supplier you are, the tougher it is to get paid what you are owed on time. This is critical because these are exactly the suppliers most vulnerable to slow payments.”

Respondents to the FCIB International Credit and Collections survey for the U.K. seemed to agree with the country’s slow payments debacle. A quarter of respondents in March 2019 said payment delays were increasing, an occurrence that continued in August 2019 when 28% said the same. The majority of respondents (29%) said the cause of payment delays was due to customer payment policy, followed by billing disputes, cash flow issues and the inability to pay.

“Do appropriate due diligence before providing unsecured credit,” one respondent said. “Add a clause in your sales contract that will allow you to change the payment term when a customer's creditworthiness deteriorates.”

 

 Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations