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Restrictions Against Qatar Continue

The current diplomatic crisis between Qatar and its Arab neighbors will likely take years—not months—to resolve, according to a new white paper, No End in Sight: The GCC-Qatar Crisis, from The Economist Intelligence Unit.

“The rolling crisis between Qatar and fellow Arab states will heighten geopolitical risks in the Middle East and undermine business and investment sentiment in the Gulf region, with Qatar bearing most of the brunt,” the report states. In addition to several other key points regarding political and country risks, it outlines several suggestions specifically for corporates:

  • Monitor political developments closely.
  • Watch out for sanctioned Qatari entities and individuals.
  • Seek legal protection.
  • Anticipate higher freight costs.
  • Hedge positions to mitigate riyal risks.
  • Diversify borrowing options.
  • Expand supplier base.

It is almost two months since the embargo against Qatar by a Saudi-led group of Arab nations took effect. So far, Credit Manager Ron Staebell has not noted a change in business since the embargo, but the country does not represent a significant portion of his company’s accounts receivable portfolio. He added that his firm currently has no active orders pending. To monitor risk, overall, “We watch the headlines and make strategic decisions based on political risk as well as based on financial risk,” he said. He also uses credit insurance for foreign accounts and “leans on [his credit insurer’s] services with some of these decisions.”

To date, Managing Director Jay Tenney, of the Trade Risk Group in Irving, Texas, has not seen or heard of any insurance claims connected to the embargo against Qatar by several Arab nations. “But that doesn’t mean they aren’t coming,” he added. Such claims could fall under the political risk component of a credit insurance policy, which typically requires a 180-day waiting period before the insured can file a claim. The timeframe is designed to provide enough time for countries to address a political risk.

FCIB is currently conducting a survey that looks at several Middle Eastern and North African countries: Algeria, Egypt, Qatar, Saudi Arabia and the United Arab Emirates. Credit professionals who participate in the July Credit & Collections Survey, which just takes a few minutes to complete, will receive the complete results, including a view of payment trends over the past few years.

Modi Consolidates Support

Chris Kuehl, Ph.D.

Prime Minister Narendra Modi just scored a remarkable feat as far as India’s electoral politics are concerned. His rule, however, has not been without controversy, although most people agree that his economic reform efforts have been more successful than many people had anticipated.

There has long been an assumption that opposition leaders would at some point coalesce to provide a challenge to Modi and his Bharatiya Janata Party (BJP), but that now seems far less likely. The man who many thought would emerge as a credible alternative to Modi in the 2019 elections has instead chosen to join the BJP.

Nitish Kumar, chief minister of Bihar, has a reputation as a good administrator and a man of integrity. He has not been generally opposed to the economic reforms that have been promulgated by Modi, but he has expressed concern over the Hindu nationalism that has long been part of the BJP.

His decision to throw his support behind the current government signals that he no longer sees the emphasis on nationalism, an observation made by many others. The rhetoric that once dominated the BJP has been toned down, although there are still plenty in the BJP with a very hostile attitude toward the Muslim population in India.

India has long had the ambition of supplanting China as the growth engine of Asia. It remains a long way from that position, but it is clear that growth in India has been faster than that of China for the last couple of years. India doesn’t have anything close to China’s export presence, but its domestic economy is at least as strong as it is in China. In some ways, it is more vibrant.

Modi has shaken up much of the Indian financial and business community with many of his radical moves. The currency swap engineered last year was supposed to have triggered mass confusion and economic disruption, but the impact was far less dramatic than had been anticipated. It has resulted in higher tax revenues and an expansion of economic activity because it is much harder to hide money now. The majority of the country is now part of the formal banking system for the first time. Modi’s push for a national tax has been more controversial because it is taking revenue control away from the regions, but it has had the desired impact on national business and investors as they are not trying to maneuver through the maze of tax jurisdictions that existed previously.

The Indian emphasis has been on the export sector and the sectors that can best connect to the rest of the world. The service sector in India is far more important than the service sector has been in China—that may be the key to its future growth. China depends on maintaining its position as “manufacturer to the world,” but that strategy relies on the continuing position as the low-cost producer.

China is currently losing market share to countries that can produce these goods even more cheaply than China. India has focused on services that connect to IT, telecoms and banking. That likely provides a more reliable base into the future. There is a higher barrier to entry for this sector; part of that is language-based. India has an enormous advantage due to the fact English is the common language in the country—China is far less proficient.

This Week’s New Postings

News & Updates from Credit Risk Insurers & Banks

Euler Hermes: Weekly Export Risk Outlook
Euler Hermes: Population growth in Germany: New projections – old challenges
Euler Hermes: 7 Economic Misconceptions about France and Germany


Wells Fargo: Weekly Economic & Financial Commentary
Wells Fargo: Canadian Growth Slows, but Not as Much as Expected
Wells Fargo: Brazilian Economy Back from the Brink
Wells Fargo: Australian Q3 GDP Results Just Shy of Expectations

Strategic Global Intelligence Briefs

December 4-December 8

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Africa Continues to Hold Promise Despite Challenges

Africa’s potential remains significant, according to credit insurer Euler Hermes. Political uncertainty, however, remains the continent’s biggest concern.

“It compounds weak economic performance in commodity exporting countries such as Gabon, Ghana, Nigeria and South Africa,” the firm noted. “It also affects foreign direct investment (FDI) as foreign investors are skeptical about putting money into a country [or] region experiencing political upheaval and extremism.”

Exchange rate policy remains another major challenge. In the past, floating exchange rates acted as shock absorbers for Egypt and South Africa, Euler Hermes explained. “However, for countries with fixed rates such as Nigeria and Angola, the fear of floating worsened the liquidity shock.”

In addition, public debt has increased in many sub-Saharan economies. External debt has increased slightly and currently is 32% of GDP; it remains, however, below its past peak of 55% in 2002. Although Euler Hermes does foresee a general solvency issue, liquidity requirements have led some countries to request support from the International Monetary Fund. “Countries such as Ghana and Tunisia have liquidity issues, while Mozambique and Angola faced solvency risks,” it said.

“Despite its challenges and recent severe financial pressures on commodity exporters, the African continent has significant economic potential,” said Stéphane Colliac, chief economist for France and Africa. “Further corporate expansion and development is possible—we predict Africa’s growth to be +2.6% in 2017. However, liquidity is under pressure as many countries have recently experienced currency depreciation pressures.”

Election Calendar

Aug. 4 – Rwanda, President
Aug. 8 - Kenya, General
Aug. 23 - Angola, General
Sep. 11 – Norway, Norwegian Parliament
Sep. 23 – New Zealand, New Zealand House of Representatives
Sep. 24 – Germany, German Federal Diet
Oct. 10 – Liberia, President
Oct. 10 – Liberia, Liberian House of Representatives
Nov. 19 – Chile, Chilean Chamber of Deputies
Nov. 19 – Kyrgyzstan, President
Nov. 19 – Chile, Chilean Senate
Nov. 19 – Chile, President
Nov. 26 – Honduras, Honduran National Congress
Nov. 26 – Honduras, President

Global Roundup

Venezuelan­­­ soldiers in streets as Maduro plans power grab. Venezuelans are stockpiling scarce food and water as tensions mount ahead of a widely criticized vote that President Nicolás Maduro called on July 23 to elect an assembly of supporters to rewrite the constitution and strengthen his grip on power. (Business Mirror)

Wider U.S. sanctions on Venezuela risk biting both countries. The United States and Venezuela are on a collision course as President Trump promises to inflict economic pain if President Nicolás Maduro goes through with an election designed to enhance his powers. Maduro has pledged not to back down from the vote on July 30, so the only question is whether the collision will be a fender-bender or a thundering crash. (NY Times)

Libor's uncertain succession gives banks, markets a headache. U.K. regulators’ decision to abandon the Libor benchmark by the end of 2021 threatens to sow confusion in the market as the industry races to replace the scandal-plagued rate that underpins more than $350 trillion of financial products. (Bloomberg)

U.S. House passes Russia sanctions. The U.S. House of Representatives passed legislation to enhance sanctions against Russia—as well as Iran and North Korea—by a margin of 419 to 3. The Senate passed a sanctions bill by a vote of 97 to 2 a few weeks ago. According to press reports, House and Senate leaders have reached an agreement on the sanctions terms, which means that the Senate will pass the House version of the bill within the next few days. (Global Trade Magazine)

U.S. sanctions threaten European gas export projects. The U.S. House of Representatives has passed a tightened sanctions bill against Russia which could have major consequences for European companies working on Russian energy projects and the export of gas to Europe. (Global Trade Review)

Moody's changes outlook for China's banking system to stable from negative. Moody's Investors Service has revised its outlook for China's banking system to stable from negative. "The revision reflects our expectations that nonperforming loan formation rates will be relatively stable at current levels," says Yulia Wan, a Moody's assistant vice president and analyst. Moody's points out that by comparison, the banks' asset quality had deteriorated more rapidly during 2015 and also in the first half of 2016. (EconoTimes)

Mercosur nations prioritize end-of-year EU trade deal. At its biannual summit, South American trade bloc Mercosur confirmed that it intends to finalize an agreement with the EU by the end of the year. But experts warn that this timeframe might be too ambitious for a full-blown deal. (EurActiv)

Abe's troubles at home cause for concern abroad. In July, Japan's Liberal Democratic Party (LDP), led by Prime Minister Shinzo Abe, experienced its first major electoral defeat since Abe’s inauguration in December 2012. This major slump in support comes as Abe seeks to increase Japan’s defense responsibility and capability. (The Interpreter)

How three upcoming African elections could affect your business. August will be a busy month for African politics, when voters cast their ballots in Rwanda, Kenya and Angola. Global Trade Review looks at the political outlook for these three countries and the key risks the elections present to businesses operating there. (GTR)

U.K. economy sees ‘notable slowdown’ in first half of 2017. The U.K.’s lackluster growth is doing little to support the Bank of England’s hawks. The expansion picked up only modestly to 0.3% last quarter, compounding what the Office for National Statistics called a “notable slowdown in the first half.” It suggests that since the Brexit vote the economy’s resilience has weakened, and it leaves the Bank of England’s divided policymakers with scant further evidence to justify an interest-rate increase this week. (HSN)

Week in Review Editorial Team:
Diana Mota, Associate Editor and David Anderson, Member Relations