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How to Get Paid in Egypt, Ethiopia and Papua New Guinea

Getting payments out of Ethiopia continues to be a concern for some credit professionals, based on posts on FCIB’s Discussion Board. Also of concern are Ethiopia and Papua New Guinea.

JoAnn Malz, CCE, ICCE, director of corporate customer financial services for Pentair Management Company, shared on the discussion board that she had learned Egypt is giving letter of credit transactions first priority and that this form of payment may result in a delay of 10 to 20 days from the LC due date. Additionally, the country is giving documentary collections through a bank, which could result in 20 to 30 day delays, second priority. Companies exempt from Central Bank documentary collection requirements such as subsidiaries of Egyptian multinationals and open credit allotted for payment based on currency availability have third and fourth priority, respectively.

Malz also expressed concern on the discussion board about whether other credit professionals have heard if Ethiopia has similar payment requirements as Egypt and if they are experiencing payment issues in Papua New Guinea as well as special document requirements. Regarding Ethiopia, Malz learned that the country doesn’t have any specific regulations covering payment, but the safest way is to use some type of documentary collections process such as LCs. “Based on feedback to date, we’re operating under the mindset that there are not banking or government restrictions for getting paid like there are in Egypt,” she noted.

In Papua New Guinea, Pentair’s bank worked with a corresponding bank in the country to help answer her questions further. “Leveraging relationships with banks really helps,” Malz added. Although the country appears to have daily limits on currency, “it doesn’t appear to have any documentary collection regulations to get paid, so if you want to do open credit, you can but it may not be as safe or fast,” she pointed out. From what she learned, the foreign currency backlog is about two weeks. Trade payments receive top priority, with payments for oil or groceries at the top of the list. Service payments such as telephone companies and capital distributions such as paying dividends to parent companies come in second and third, respectively.

Malz finds the discussion board an invaluable tool for getting the information she needs quickly, she shared. “In some cases, you don’t know where to go to because even the banks do not have all the answers. I knew someone out there would be doing business in Ethiopia and would know. I received a response practically immediately, so I was able to be nimble and respond to help my business out.”

Trade Advocates Fight Back

Chris Kuehl, Ph.D.

A number of themes have come to symbolize the election this year. It is not something unique to the U.S. either. This has become the year of the populist—even as many struggle to figure out what exactly this means. There are many targets to choose from as far as the populists are concerned. The motivation is essentially frustration with the world as it is today. The issues are economic, and they are social. They seem rooted in some combination of fear and resentment—the fear of losing something such as one’s job and resentment of those who seem to have more than they deserve. There is not time to explore all of these nuances, so I will concentrate on one target that hits close to home for an economist—trade.

The populist message is virulently antitrade. The various trade agreements—past and present—have been vilified as responsible for the ills affecting the economy. Trade is the reason that people lost jobs; trade is the reason the U.S. is no longer a manufacturing state; trade is why the U.S. is dependent on foreign oil and other imports; and trade is what is wrong with everything. The problem is that these attacks on trade are not only based on pure myth, but they utterly ignore the contributions that trade has made to the U.S. consumer.

The U.S. is as dependent on exports as Japan. They make up 14% of our GDP and 14.7% of Japan’s. We are most definitely still a manufacturing nation as this sector is third behind only health care and the financial sector as far as share of GDP is concerned. The manufacturer is the primary contributor to the nation’s export level—over 65% of what we sell overseas is capital goods and industrial equipment. We manufacture and sell everything from airplanes to bulldozers and railroad engines. We export high tech as well as corn and wheat.

Those who support trade are hard to find in the political world these days; but little by little, some are poking their heads out to remind their colleagues and constituents what trade means to them. The much maligned Trans-Pacific Partnership would have been a boon for the agricultural sector in the U.S. as well as the service sector (telecom, banking, insurance and the like). To be honest, it was not a great deal for many manufacturers as it would have invited in more competition in the auto sector and others. The reality is that there has to be something in it for those that would be buying more from the U.S.

Many of the objections that have been made as regards trade are misguided. Much has been made of losing jobs to foreign competition or to factories that have shut down in the U.S. so they can move overseas. There has been that kind of loss, but there are also all the operations that have moved here—costing jobs in the countries they left. The more important note is that most of the jobs that have been lost and will be lost are due to advances in technology and robotics. The worker in 2016 is far more likely to be replaced by a robot than by a worker somewhere else.

A Look at Eastern Europe

A recent International Monetary Fund review of Bulgaria characterizes the country as having short-term resilience and long-term challenges. Its review of Croatia finds that country on a gradual recovery following a six-year recession, but challenges such as high public and external debts remain. Both countries, it said, are in need of structural reforms. Similarly, it has described Romania as on an upswing. Its two main risks, however, were noted as electoral, due to an upcoming election in December, and external uncertainties, including deterioration in merging market risk perception. This year, World Bank Group ranked Romania, Bulgaria and Croatia as 37, 38 and 40, respectively, out of 189 economies with regard to “ease of doing business.”

Meanwhile, automakers are shifting research centers to Eastern Europe to lower costs and maintain access to European markets, following the Brexit vote, according to The Guardian. The article states recruitment firms are looking to staff research and development teams there, including in Romania and Bulgaria.

FCIB’s Credit & Collections Survey of Eastern Europe, which closes Oct. 4, is asking credit professionals who do business in these countries, as well as Russia and Ukraine, what they are experiencing. The information will provide real-time data that will help further the credit function. The survey is open to all credit and risk management professionals, but NACM and FCIB members can review historical benchmarks.

Global Roundup

Morocco: The economy is slowing; payment periods are getting longer. As a follow-up to the survey on Moroccan companies' payment periods published in May 2015, Coface presents the results of the second edition. Based on the same principle as the 2015 survey, it seeks to analyze changes in Moroccan companies' behaviors and their perceptions of the economic situation. (Coface)

Lloyd's of London could announce Brexit restructure plans before Christmas. Specialist insurance market Lloyd's of London is close to announcing whether it is considering relocating part of its operations if the U.K. loses vital passporting rights as a result of the Brexit vote. Chief Executive Inga Beale told the BBC the plans could include setting up an EU subsidiary or Lloyd's branches in continental Europe. (City AM)

U.S. Ex-Im resumes Argentina business. The U.S. Export-Import Bank (Ex-Im) has reopened financing lines for exports to Argentina after 15 years of interruption. From Sept. 21, the bank will offer financing of up to seven years to both public and private sector companies in the country, and will also consider supporting longer-termed, structured financing. (Global Trade Review)

Portugal: Growth needs further reforms. While Portugal is recovering after the crisis, its economy continues to suffer from meager growth, weak investment and competitiveness challenges. Its banking sector holds too many nonperforming loans, and public debt remains high. This month’s IMF review mission finds Portuguese economic recovery slowing, while banks remain liquid but with weak asset quality and sluggish lending (IMF News)

China facing full-blown banking crisis, world's top financial watchdog warns. A key gauge of credit vulnerability is now three times over the danger threshold and has continued to deteriorate. The Bank for International Settlements warned in its quarterly report that China’s "credit-to-GDP-gap" has reached 30.1, the highest to date and significantly higher than the scores in East Asia's speculative boom in 1997 or in the U.S. subprime bubble before the Lehman crisis. (Telegraph)

The world economy in 2016 is in a fragile state. The UN Conference on Trade and Development (UNCTAD) released its Trade and Development Report 2016 last Thursday. UNCTAD said, “Neither financial bubbles nor export surges offer a sustainable solution to tepid growth and weak labor market conditions.” The UNCTAD report follows a modest downgrade by the Organization for Economic Co-operation and Development (OECD) to global growth forecasts last Wednesday. (EconoTimes)

Bank of Japan announces major policy overhaul in latest bid to boost economy. Japan's central bank kept rates steady at its meeting last Wednesday, but issued a plethora of fresh changes to its policy approach, including making yield-curve control a centerpiece of its new policy framework, by a seven-to-two vote. It also said it would buy 10-year Japan government bonds (JGBs) so that the yield would hover around 0% while keeping a lid on short-term rates. The deposit rate was left unchanged at negative 0.1%. (CNBC)

Week in Review Editorial Team:
Nicholas Stern, Editorial Associate and Diana Mota, Associate Editor