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What Does the Election Result Mean for the U.K., Brexit?

Theresa May’s attempt to strengthen her party’s majority has resulted in a hung U.K. parliament. As a result, the U.K.’s sovereign rating could suffer further downgrades, according to statements issued by at least two ratings agencies—Standard & Poor’s and Moody’s—following the election. (The U.K. lost its triple-A rating last June when it voted to exit the EU.)

Various news agencies have reported that May plans to stay on and form a government, despite calls for her resignation. A story in Friday’s The Guardian states that sources confirmed that she made a deal with the Democratic Unionists that will allow her to do so.

“With the bulk of seats declared in the general election, no party gained a clear majority but the Conservatives swiftly contacted the Northern Ireland-based Democratic Unionist Party and agreed to a coalition deal,” CNBC reported.

Brexit negotiator Guy Verhofstadt, president of the Alliance of Liberals and Democrats, made his opinion on the outcome known via his Facebook page. “Yet another own goal, after Cameron, now May,” Verhofstadt posted. “This result will make the already complex negotiations not easier. We can only hope that the U.K. will soon have a stable government to start negotiations, a government who understands that the British citizens, especially the young generation, don't want to sever the ties with Europe.”

Whether Brexit negotiations will commence on schedule was not immediately clear. “It will now be hard for the government—whatever shape that government will be—to start talking to the EU in nine days time as planned without rethinking its strategy,” the BBC noted in its coverage on Friday.

“[Brexit] negotiations should start when UK is ready; timetable and EU positions are clear. Let's put our minds together on striking a deal,” said Michel Barnier, the EU’s Brexit negotiator, on Twitter.


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U.S. Engages with Middle East Over Qatar

Chris Kuehl, Ph.D.

Over the years, Qatar has tried to play all sides against one another and has generally refused to completely join any one position or faction. Positioning itself as such has been vexing to many in the region.

It is also hosts the largest U.S. Air Force base in the region. That base is absolutely critical to attacking ISIS and allowing the U.S. to project influence. This would seem to make Qatar a ripe target for the Islamic extremists, but the leaders of the country have long backed Iran and various groups the Western states find unacceptable—Hamas and Muslim Brotherhood.

The Saudi Arabians have been critical of Qatar for years, and they have been joined by others in the region. The surprise move, however, was President Donald Trump asserting his backing of this initiative and his attack on the country the U.S. relies on for its air force support.

Trying to find a true ally in this region is extremely difficult. The Trump team seems to be siding aggressively with Saudi Arabia, but this is the nation that supports the Wahhabi strain of Islam. This has been an inspiration for many of the extremists that have been active in the region.

It was not people from Qatar or Iran or Syria that attacked the U.S. on 9-11; these were Saudis. Osama bin-Laden was a Saudi. The U.S. is not much more than an ally of convenience to these states. Generally speaking, the U.S. has avoided taking sides because the only thing that really should matter is what works best for the U.S. Qatar hosts its base, and there is no ready replacement. The U.S. can get what it wants from Saudi Arabia at times as well, but it should not forget that OPEC has rarely been a friend to the U.S. in the past. This is a diplomatic quagmire and best treated as such.



A Look at U.K. Payment Practices

Slow payer ethic was the greatest challenge to getting paid, according to 45% of the small- to medium-sized (SMEs) businesses that participated in a recent U.K. Business Payments Barometer 2017 survey. Overall, on average, 38% of the total number of participants cited it as their single greatest challenge.

“Corporates also suffered from slow payer ethic as their main cause for slow payment, while for large companies, invoice dispute had the greatest impact,” it notes. In addition, “Cash application or reconciliation challenges is an issue that increased by company size, reflecting the level of complexity in having true visibility of financial documents, processes and payment data.”

Nearly half of the businesses credited collaborative relationships with customers for getting invoices paid on time. Traditional debt collection processes came in second.

The survey results also mention the U.K.’s Duty to Report legislation, which took effect in April, as a possible solution to slow payments by some businesses. The legislation targets large businesses and limited liability partnerships. It requires them to publish information about their payment practices and performance twice a year on a government database. Noncompliance is a criminal offense.

Looking ahead, participants identified six key drivers of change in the payments industry for 2017:

  • The need for greater security
  • Real-time payments globally
  • Innovation in payments technology
  • Proposed Payment Systems Regulator (PSR) changes
  • Introduction of Open Banking and Payment Services Directive II (PSD2)
  • Blockchain

(The PSR is the economic regulator for the U.K.’s payment systems industry, while PSD2 enables the use of third-party providers to manage a business’ finances.)

Survey participants were comprised of 400 financial decision-makers “who input solely or as part of a group into the purchase of accounting, tax or financial services.” Representation was across SMEs (up to 250 employees), large companies (251 to 999 employees), corporates (1,000 to 9,999) and enterprises (10,000 and above).


Election Calendar

June 18 – France, National Assembly of France (second round, if needed)
June 24 – Papua New Guinea, National Parliament of Papua New Guinea
June 26 – Mongolia, President
July 2 – Senegal, Senegalese National Assembly
Aug. 4 – Rwanda, President
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

Brazil’s court begins hearing on removing President Temer. Brazil’s top electoral court began hearing arguments on the evening of June 6 on whether embattled President Michel Temer should be pushed out of office over allegations of illegal campaign financing. The hearing was expected to take at least three days, and there is no deadline for a final ruling, which is the first time in Brazil’s history that a sitting president risks could have the job taken away by the electoral court. (Business Mirror)

South Africa tumbles into recession as manufacturing, trade slumps. South Africa has entered recession for the first time in eight years, data from Statistics South Africa showed on June 6, after the economy contracted in the first quarter, led by weak manufacturing and trade. The economy contracted by 0.7% in the first three months of the year after shrinking by 0.3% in the fourth quarter of last year, the statistics agency said. (Reuters Africa)

Stuck in a death spiral, Venezuela is borrowing money at any cost. Last week, Goldman Sachs acquired $2.8 billion worth of bonds issued by Venezuela's state oil company at just 31 cents on the dollar. Now Venezuela is looking even more desperate, offering $5 billion worth of bonds at 20 cents on the dollar, according to the Wall Street Journal, whose reporters have been tracking the country’s attempts to secure emergency cash. The latest sale would raise $1 billion in cash but leave Venezuela on the hook for more than $11 billion in payments through 2036. (Washington Post)

Merkel in Argentina hopes for Mercosur trade deal. Germany and Argentina voiced hopes on June 8 for a free trade agreement between the European Union and South America as German Chancellor Angela Merkel visited Buenos Aires. (EurActiv)

China trade healthier than expected. China’s exports and imports rose by more than forecast in May, indicating that economic growth remains resilient amid concerns about a slowdown. Exports rose by 8.7% from a year ago in U.S.  dollar terms, beating estimates of 7%, after strong demand from Europe. Imports shot up by 14.8%, compared with estimates of 8.5%, thanks to purchases of processing and assembly products. (HSN)

Cambodian opposition complains of 'smear campaign' after vote gains. Cambodia's ruling party supporters have stepped up efforts to undermine opposition members following their gains in local elections. The main opposition Cambodia National Rescue Party (CNRP) made significant gains on Sunday in local elections against the ruling party of authoritarian Prime Minister Hun Sen, winning about 46% of the vote compared with 51% for Hun Sen's Cambodian People's Party (CPP). (Reuters)

What's holding up the blockchain? It’s not technology or regulation holding back the blockchain–software that stores and transfers value or data across the internet—we just haven’t figured out the next big use-case. Two reports released this week by the CSIRO’s Data61 not only inject some well-researched gravitas into the conversation, they also provide insight into why some of the major blockchain projects have stalled. (EconoTimes)

All aboard the Belt and Road Initiative? Not so fast… Since its launch in 2013, the Belt and Road Initiative has been the subject of an extraordinarily lavish public relations campaign. In particular, the intense Chinese PR campaign around BRI has managed to create a sense of urgency in Western industrialized countries, where people are increasingly pressing their governments to hop on the BRI train or risk missing enormous business opportunities. So, why hesitate? (The Interpreter)

Ensuring Export Compliance: Understanding foreign country import requirements. When U.S. exporters think about export compliance, they tend to think about complying with U.S. trade regulations. However, it is important not to overlook the rules and regulations that may be imposed by the customs authority in the country of import. Depending on the terms of sale agreed upon, the exporter may be responsible for clearing their goods through foreign customs. (International Trade Blog)


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