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Late Payments an Issue in Brazil

Business-to-business (B2B) sales are increasing in Brazil as its economy looks to continue growing. Despite this, late payments are a huge issue along with overdue B2B invoices.

Nearly 93% of respondents to the Payment Practices Barometer from Atradius reported late payments from domestic B2B customers. Roughly seven out of eight respondents reported late payments from foreign customers. All this is while Brazil tries to rebound in 2017 following a 3.6% decline in gross domestic product (GDP) in 2016. It is expected Brazil’s GDP will grow 0.6% this year.

Just under half of B2B domestic sales in Brazil were on credit, according to the Atradius report. Roughly 46% of foreign B2B sales were on credit. This comes to a total of about 48% compared to 45.5% in 2016.

Overdue invoices have leveled off in the last three years to around 44%. About 45% of domestic invoices remained unpaid at the time of the due date, while just over 42% of foreign invoices were unpaid. Days sales outstanding in Brazil is 30 days. Brazil has an invoice-to-cash turnaround of 63 days.

The main reason for payment issues is insufficient availability of funds. Roughly 40% of respondents said this was the reason among domestic B2B customers. About a third said foreign B2B customers delayed payment due to the complexity of the payment procedure. Other reasons for delayed domestic and foreign payments included:

  • Buyers’ use of outstanding invoices as a form of financing
  • Formal insolvency by the buyer
  • Inefficiencies in the banking system

About a fifth of respondents said payment delays had no significant impact on their businesses. Just over 22% of respondents reported late payments were a factor for a loss of revenue.

More than a quarter of survey respondents said they will likely increase the use of credit management tools to lessen the blow from Brexit, the slowdown in Asia and the protectionist view of the U.S. Among the specific tools mentioned were increasing creditworthiness checks and monitoring buyers’ credit risk.

In a similar survey of the Americas (U.S., Mexico and Canada), sales on credit increased slightly to 45.5%. Overdue B2B invoices also flattened in the Americas right around 49%. About 93% of respondents in the Americas reported late payments from domestic customers.

Growth in Turkey Despite Turmoil

Chris Kuehl, Ph.D.

The headlines from Turkey have been anything but encouraging for the last few years. The government of Recep Tayyip Erdogan has been embroiled in one political crisis after another. The attempted coup triggered a massive crackdown on everything from the press to the military. The purges are still taking place as Erdogan seeks to consolidate his position. He has been accused of becoming a tyrant and that has caused uneasiness in the foreign investment community as it seems to open the door to another move to unseat him.

The crisis in Syria slops over into Turkey because this has become home to millions of refugees who have fled the war. The longstanding conflict with the Kurdish population continues to heat up and has made the western sections of the country hard to manage. The relationship between Germany and Turkey has been strained by all of this and the fact that Turkey expected more help with those refugees that have been crossing its borders. In the face of all this it was expected that economic growth would stall out and heap more problems on the regime, but thus far the numbers have stayed relatively positive.

The latest data shows that there has been growth of 5.1% in the second quarter—just a little shy of what analysts had expected to see. The government has now revised estimates for the year from around 4.2% to 5.5%, a far better outcome than had been expected just a few months ago. The motivation for this growth has been coming from two areas primarily: construction and exports. The government has played a role in the construction surge with various degrees of public financing, but the private sector has been engaged as well. The projects range from office development to housing to public infrastructure. There has been more activity outside the major cities, although the bulk of the activity has been on the western side of the country.

Exports have played an even bigger role and much of this has been tied to the resurgence of the European economy. The most important trade partners for Turkey are still in Europe, with Germany at the top of the list. The recovery in the Eurozone has been motivating more exports and there has been expanded activity with Russia, as well as with nations in the Middle East. The levels of foreign investment are off from previous peaks, but they have not collapsed as many had expected.

The Erdogan regime still faces many hurdles and investors remain cautious in the extreme, but they also believe that the worst of the crisis is likely over and that he will somehow manage to hang on although he is also likely to continue to become more and more autocratic—a process that could at some point affect the export sector negatively.

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Turbulent Election Increases Economic and Political Uncertainty

Jan-Pieter Laleman, country risk analyst

Event
The supreme court in Kenya has ruled that the elections that where organized on Aug. 8 are invalid due to irregularities in the electoral process that are large enough to jeopardize the integrity of the vote. This means that new elections are to be held in 60 days. It comes after the incumbent president, Uhuru Kenyatta, was declared winner of the elections by the election commission. Immediately after the election, his opponent Raila Odinga claimed that the election was fraught. Violence that erupted after the vote has killed at least 18 people.

Impact on country risk
This is the third time that the election is disputed. Political violence after the 2007 elections has led to the deaths of 1,200 people and to 600,000 people being forced to leave their homes. In 2013, Odinga has also claimed that the poll was rigged, but his case was then rejected by the Supreme Court. The election dispute is likely to lead to a period of increased economic and political uncertainty in the country. It comes at a time when the country is trying to implement a fiscal consolidation plan in order to reduce the significant public deficits, which stood at 8% of GDP in 2015 and around 7% in 2016. In line with the current IMF programme it is currently foreseen that the fiscal deficit is brought into line with the East African Monetary Union’s budget deficit ceiling of 3% by 2020. Increased political uncertainty is making it less likely that this target will be achieved. This would be problematic given that the external debt build-up is already impeding the country’s MLT political risk outlook (which currently is in category 5). The interest rate cap introduced in August 2016 to address high borrowing costs weighs on the systemic commercial risk (which is currently already in category C). After all, instead of lowering interest rates, the rate cap—at 4% above the central bank’s benchmark rate—is reducing commercial borrowing. While the rate cap is expected to be changed or annulled, this is likely to happen only after the new government has taken office and it will therefore continue to put pressure on the country’s commercial risk rating.

Reprinted with permission from Credendo.

Election Calendar

Sep. 22 – Aruba, President
Sep. 23 – New Zealand, New Zealand House of Representatives
Sep. 23 – Singapore, President
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

“Adios Spain”: Huge rally for Catalan independence before vote. Hundreds of thousands of Catalans rallied on Sept. 11 to demand their region’s secession from Spain, in a show of strength three weeks ahead of an independence referendum which has been banned by Madrid. (Euractiv)

Fitch: Liquidity, GDP challenges for Caribbean credit after Irma. The effects of Hurricane Irma could slow the Dominican Republic's GDP growth in 2017, but storm damage poses little risk to the sovereign's ratings, Fitch Ratings says. Damage is expected to have a greater near-term impact on issuers in Puerto Rico and the U.S. Virgin Islands as lost revenue and expenditures strain already low liquidity ahead of aid payments and potentially challenge restructuring efforts. (Fitch Ratings)

EU to race Britain for Australia, NZ trade deals. The European Union wants to launch and conclude free trade negotiations with Australia and New Zealand in the next two years, European Commission President Jean-Claude Juncker said on Sept. 13, opening up a potential race with Britain. (Reuters)

German economy to grow by more than 2% this year. The German economy is set to grow by more than 2% this year adjusted for calendar effects, which would be the strongest rate in six years, the BDI industry association said on Sept. 12 as it lifted its growth forecast for Europe’s biggest economy. The outlook followed a more muted message from the Economy Ministry, which said the economy could lose some momentum in the second half after powering ahead in the first six months. (HSN)

North Korea: “Toughest ever” sanctions will only work in long term. The UN has agreed to the strongest ever economic and trade sanctions on North Korea, designed to choke off the supply of capital and energy. However, experts are warning that they will only work if they are complied with over the long term, amid fears that sympathetic nations to North Korea may try to circumvent them. (Global Trade Review)

European Secured Notes will provide new funding source for banks, but assets pose complex credit risks. European secured notes (ESN), a new type of collateralised bond being created in the European Union (EU), will provide an additional funding tool for banks, allowing them to increase issuance of secured debt backed by assets such as small- and medium-size enterprise (SME) and infrastructure loans. (Moody’s Investors Service)

Norway's right-wing government wins re-election fought on oil, tax. Norway’s tax-cutting Conservative Prime Minister Erna Solberg declared victory on Sept. 12 after a parliamentary election, narrowly defeating a Labour-led opposition with her promises of steady management of the oil-dependent economy. (Reuters)

Qatar fund plans U.S. deals to diversify amid Gulf crisis. Qatar plans more U.S. investments as it seeks to diversify its assets further as a diplomatic standoff with its Gulf neighbors continues. The Qatar Investment Authority, which was created to handle the windfall from the world’s largest liquefied natural gas export base, will spend most of what remains of its $45 billion investment target on infrastructure in the U.S. (Bloomberg)

U.S. slaps preliminary countervailing duties on biodiesel from Argentina and Indonesia. U.S. Secretary of Commerce Wilbur Ross has announced the affirmative preliminary determinations in the countervailing duty (CVD) investigations, finding that exporters of biodiesel from Argentina and Indonesia received countervailable subsidies of 50.29% to 64.17% and 41.06% to 68.28%, respectively. (Global Trade Magazine)

Moody's maintains negative outlook on South Africa's banking system. Moody's Investors Service has maintained its negative outlook on South Africa's banking system, reflecting the rating agency's view that banks' creditworthiness will come under some pressure over the next 12 to 18 months. (Moody’s Investors Service)

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