No-deal Brexit would cost EU economy €112bn, report claims. A no-deal Brexit would cost the remaining 27 EU nations €112bn in lost economic output, according to research by a U.K.-based think tank. Although the U.K. would still be the biggest loser from crashing out of the EU without a new trade deal—with a cost to the economy of £125bn by 2020—the EU would also suffer a bigger economic hit than previously thought by the end of the decade. (HSN)
New president plans Zimbabwe revival by restoring economy, democracy. Zimbabwe’s new president, Emmerson Mnangagwa, has a plan to revive one of the world’s worst-performing economies and end its isolation: pay compensation to white farmers whose land was confiscated, sell bonds to rebuild infrastructure and hold internationally acceptable elections. (Bloomberg)
Asian countries open to, but baffled by U.K. TPP interest. After it emerged that the U.K. was seeking membership of the Trans-Pacific Partnership (TPP), trade figures in Asia have expressed openness to the idea, but confusion as to how realistic it is. (Global Trade Review)
Emerging technologies drive more risks than firms can protect against. Emerging technologies such as cloud services, artificial intelligence and the internet of things (IoT) may well become the next big headache for firms and organizations in 2018. (Global Trade Review)
Is NAFTA in trouble again? President Donald Trump once again threatened to withdraw the United States from the North American Free Trade Agreement (NAFTA), this time in an interview with the Wall Street Journal. The U.S. negotiating positions on issues like local content and government procurement are designed to reduce the U.S. trade deficit with its NAFTA partners. (Global Trade Magazine)
IBM and Maersk are creating a new blockchain company. IBM and Danish shipping giant Maersk are teaming up to form a new company whose aim is to commercialize blockchain technology—the nifty, shared-accounting ledgers first made famous by the cryptocurrency bitcoin. (Fortune)
Ukraine faces a heightened risk of instability in 2018. Current high levels of corruption and periodic rounds of unrest linked to poor governance and diminishing support for the local authorities highlight Ukraine’s persistent structural issues. The ongoing conflict in the east will also continue to generate political tensions that may hinder Kiev’s reform efforts. (Global Risk Insights)
Tillerson: Threat of North Korea war growing despite talks. U.S. Secretary of State Rex Tillerson offered a sobering assessment about the possibility of war with North Korea, saying advances in that country’s nuclear program meant the situation was “very tenuous.” (Business Mirror)
China GDP powers past debt purge, leaving trail of unfinished projects. In most of China, the economy is powering through Xi’s borrowing bottleneck, with economists surveyed by Bloomberg projecting the nation’s GDP grew 6.8% last year, the first annual acceleration in seven years. But for less-developed areas, the story is not so simple. (Bloomberg)
Turkey shells Syria's Afrin region, minister says operation has begun. Turkish artillery fired into Syria’s Afrin region on Jan. 19 in what Ankara said was the start of a military campaign against the Kurdish-controlled area. The cross-border bombardment took place after days of threats from Turkish President Tayyip Erdogan to crush the Syrian Kurdish YPG militia in Afrin in response to growing Kurdish strength across a wide stretch of northern Syria. (Reuters)
Why unregulated cryptocurrencies could trigger another financial crisis. Despite the laudable blockchain technology and the great opportunities it offers in enabling quicker transactions, numerous problems can be associated with its products—such as bitcoin and other cryptocurrencies—if regulation is delayed. Global measures for the use of digital currency should swiftly come into force. (EconoTimes)
Britain Faces Uncertain Future
Chris Kuehl, Ph.D.
Things could really not have turned out much worse for the U.K. over the last year or so. The Brexit vote created a crisis in the Conservative Party that cost David Cameron his job and set off an intraparty struggle for leadership.
The assumptions and claims of the pro-Brexit crowd have been proven woefully inaccurate. It was asserted that Europe would be so heartbroken to see the U.K. pull out that it would bend over backwards to accommodate a new era. This has not been the case as the European Union (EU) has essentially said, “Don’t let the door hit you on the way out.”
Germany has been adamant that the U.K. pay the full price for its decision to withdraw, and it is not alone. The EU has been thriving in the last year and seems not to have missed the U.K. one bit, while the British economy has suffered and is slowing.
The other assumption made by those countries that wanted a break from the EU was that they would be able to leverage their other relationships. There was a great deal of confident talk that the U.K. would always have its Commonwealth brothers, and there was always that “special relationship” with the U.S. It was stated repeatedly during the campaign that Britain would be able to easily replace business with Europe with more business with the U.S.
At the start of the Trump administration, it appeared that this was an accurate assumption as President Donald Trump said all the right things about doing more business with the U.K. He had been a big supporter of Brexit and seemed ready to bolster the U.K. economy, but that enthusiasm passed very quickly. Today, there is open hostility between the Theresa May government and Trump. The trip that Trump was supposed to take to London was canceled in part because the British population is not fond of the U.S. president and there would have been large and angry protests. The promised trade deals have not been forthcoming either. Even the low value of the pound has not triggered much in the way of exports from Britain to the U.S.
Meanwhile, the talks with the European Union have most definitely not gone the way the British would have liked. The debt the U.K. owes for breaking away has been acknowledged and will be paid despite all the pledges to refuse. The hoped-for trade agreement has been stalled, and there is deep opposition from Germany and others. The EU has most definitely moved on and seems to be seeking ways to bolster the organization without the U.K. Issues still abound as far as how to deal with the border between Ireland and Northern Ireland. There are also numerous other sticking points. All of this has been made far more complicated by the weakness of the May government and the efforts on the part of the Tories to unseat her. She lacks the authority to make real deals with Europe.
Then, there is the role of the Commonwealth. It was expected that somehow Canada, Australia, New Zealand, South Africa, India and a collection of former British colonies would step in and do far more business with the U.K. They haven’t and seem to have no intention of doing so. They have far more relevant relationships with neighbors and with the EU and the U.S. The levels of trade between them and the U.K. have not changed appreciably.
All of this has led to a significant diminution of British power and influence. It was once a key decision-maker in Europe and was considered the most steadfast ally the U.S. had. Today, it has no power in Europe at all, while under Trump, the British have all but lost any vestige of being special.
Carillion—What Happens Now?
Elaine O’Connor, of Anthony Gold
Carillion is, or was, the second-largest construction firm in the UK. Its collapse on January 15, 2017 was confirmed when the High Court ordered the compulsory liquidation of the various companies in the group. It employed 20,000 people and the projects of the business included the HS2 rail project, Battersea Power Station redevelopment, military contracts and the maintenance of schools, prisons and hospitals. So, what happens now?
Carillion outsourced projects to a significant number of smaller businesses and spent £952million with local suppliers in 2016. The construction giant stated that this demonstrated its commitment to generating economic growth and development. Many of these firms are now waiting in the wings to learn if they will be paid. It has been suggested that the small suppliers are already out of pocket due to being made to wait 120 days for payment. For small business owners, extending this sort of credit may put the entire business at risk.
The BBC reported on January 16, 2017 that Cabinet Office Minister David Lidington said there would be government support for public sector contracts. This means that employees will be paid. However, this will only extend to two days and does not extend to companies working on private projects.
It was well known that Carillion was experiencing financial difficulty. Last year, the company issued three profit warnings, had debts of approximately £1billion and a £600million pension deficit. Richard Howson was the company’s chief executive until he stepped down in July 2017, after the first profit warning was issued. He will continue to be paid until October this year fueling increasing criticism about executive pay. It will be interesting to see whether this leads to greater shareholder engagement regarding director’s pay, particularly in companies that are not performing well.
The government is also likely to come under scrutiny as it encouraged small businesses to get involved with Carillion and continued to award several billion-pound contracts to them, even after substantial financial issues were reported.
Accountancy firm PwC is overseeing the liquidation and made the following statement:
“Unless told otherwise, all employees, agents and subcontractors are being asked to continue to work as normal and they will be paid for the work they do during liquidations.”
Contrary to this, there have been reports where workers attended projects and were told to go home. Redundancies have also already begun. For example, Flora-tec is a landscaping services company, which Carillion owes £800,000. They were forced to make 10 people redundant when the collapse was announced.
It is PwC’s job to sell Carillion’s assets, and to try to satisfy the many creditors to which debts are owed. It is not clear whether this will prevent suppliers becoming insolvent, which may depend on whether the debts are secured and if insurance for such an event was in place. As with all liquidations, it is highly unlikely that there will be sufficient funds available to pay everyone what they are owed.
Printed with permission from Anthony Gold.
Australia’s Late Payments Fight Shows the Limits of Government Intervention
When it comes to late business-to-business (B2B) payments, eyes most often turn toward the U.K., where payments and fintech companies have worked to raise awareness of the issue, and where government policymakers have taken steps to combat the problem. According to the latest figures from Dun & Bradstreet, small businesses (SMBs) in the U.K. are owed an average of more than $88.6 million each from their corporate customers.
But the late B2B payments problem is a global one, and while the U.K. explores how to approach the topic, there is another jurisdiction in which the late payments fight is heating up: Australia.
Recent research from Australian small business accounting firm Xero and payments company American Express explored just how big of a stressor late invoice payments are on Australian companies. Analysts found that more than a third of outstanding invoices at businesses with between $1.5 million and $230 million in annual turnover cannot be reconciled at least every other month. Xero and Amex described the nation’s late payments problem as “endemic” across the mid-market. The matter has landed on the desks of policymakers too.
Australia’s Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell is one of the loudest opponents against late supplier payments. Last month, reports said she began the process of establishing a mechanism for large corporates to register their supplier payment practices and collect data on payment times. According to government data, up to half of Australia’s SMBs are owed more than $20,000 by larger companies who, according to Carnell, use their small suppliers as “cheap finance.”
In its final report on Payment Times and Practices, the ASBFEO recommended legislative action to promote fair payment terms, along with the adoption of digital payment technologies to accelerate supplier payments. Following a probe into Australia’s late payments culture, Carnell also provided recommendations to establish a National Payment Transparency Register, an online portal that can also support small suppliers’ submission of complaints of late payments by their customers.
The report caught the attention of the Australian Institute of Public Accountants (IPA) this month, calling on the government to take action in support of faster payments to small- and medium-sized suppliers. The IPA, which represents 35,000 accountants and business advisors, submitted recommendations on how to support SMBs in the country in its 2018 pre-budget submission, according to reports in Dynamic Business last week.
In that submission, IPA CEO Andrew Conway said he was “disappointed that the government did not go further” to act on recommendations by the ASBFEO on late supplier payments, reports said.
“The consequences of late payments on small businesses across the economy and across all industry sectors cannot be overstated,” said Conway. “The ASBFEO report cites, ‘Payment times matter’ or, more poignantly, ‘How I started using small businesses to finance my multinational conglomerate.’ Sadly, this is not frivolous hyperbole; it’s a statement of fact.”
“We urge the government to reconsider its response to the report and to adopt all of the recommendations, especially Recommendation 9 to legislate maximum payment times for business-to-business transactions,” he added.
Wayne Debernardi, general manager of Media and Strategic Communications at the IPA, recently spoke with PYMNTS and emphasized the Institute’s support of the Ombudsman’s recommendations.
“Small business is the most vital sector for a thriving economy, and anything that can be done to support their productivity and business success should be pursued,” he said.
One of the largest hurdles for today’s small businesses, especially those facing longer payment times from corporate customers, is availability of financing.
“Access to affordable finance is still a difficult issue facing small businesses, and cash flow is vital for their business community,” Debernardi stated. “Many small businesses fail without adequate cash flow to sustain their operations. Hence, having their invoices paid in a timely manner is critical.”
Ombudsman Carnell recently highlighted the issue of SMBs’ access to financing when she offered harsh criticism of the nation’s banking industry, describing the process of getting financial institutions (FIs) to comply with new bank rules is “like pulling teeth.” The regulations require banks to nix unfair loan contracts with small business borrowers and increase coverage of total loan facilities.
“The banks’ initial underdone response to the legislation serves as a reminder that [they] were once again trying to ‘game’ the rules, and this erodes trust,” Carnell said in a statement last August, noting that it took months for banks to comply with the new rules that came into effect in 2016. “It’s hard to understand why all these things are like pulling teeth. It came into effect last November, and it has taken my office and ASIC until now to take them to where they are pretty close to complying with a law that has been in effect for eight months.”
The delay of complying with new rules showcases the limitations of regulations on making a meaningful impact on late payments and SMB finance.
“Regulators can play a role in enforcing [timely invoice payments] to a certain extent,” noted Debernardi.
He cited recent efforts by the government to lead by example, describing the initiative as “a big step in the right direction” but warning that “enforcement without consequences, such as penalties, will still be difficult.”
In November, reports said new government rules came into effect that require government employees to pay contractor invoices within 20 days, a direct response to recommendations from Kate Carnell. The rules apply for contracts up to $1 million and, according to reports, will affect more than 6,800 small suppliers that have contracts with the government.
Previously, the Business Council of Australia also launched an initiative in early 2017 to deploy a code of supplier payment ethics. Companies can sign up for the code and vow to pay their own suppliers within 30 days, however the effort is voluntary and unenforceable, again highlighting the limits of government intervention.
“Legislation, such as the recent unfair contract terms legislation, will have a positive impact,” Debernardi stated. “However, we believe that it will not be enough to change ‘payment culture’ in Australia.”
Week in Review Editorial Team:
Diana Mota, Associate Editor and David Anderson, Member Relations