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Turkey Leads Payment Delays among Surveyed Countries

Among credit professionals, 39% noted that payment delays are increasing in Turkey, up 13% from the year before, in FCIB’s latest International Credit & Collections Survey. Of the other countries in the survey, 18% noted increasing payment delays in Russia, 12% in France, 9% in Germany and 8% in the Netherlands.

Cultural norms and customs was the most common reason for payment delays in Turkey. Top reasons for payment delays in the other countries included payment policies in France, billing disputes in the Netherlands, disputes other than billing in Germany, and cash flow (tied with other disputes) in Russia. Those noticing an increase in payment delays outpaced decreases in delays in all the surveyed countries.

One credit professional described Turkey as “a moderately challenging country for trade. The current government has/is moving away from being business-friendly with Europe and the U.S. Information is not great, and typically financial information is not shared. Working by letter of credit is common and is not met with much objection.”

“Know your customer; use secured terms with new customers,” one respondent said about doing business in Russia. Another said, “Russia is a very fluid country. Things can change rapidly, so it is important to keep up with political developments and with your customer’s creditworthiness.”

“If you make an effort to know the customer’s approval and payment process and make clear agreements, payment delays should be rare and communications clear,” a credit professional said about Germany. Another stated: “We have found it relatively easy to trade with German companies. They take their obligations seriously and nearly always pay timely.”

Knowing your customer and the cultural norms was a common response in France. “Make sure terms and conditions are clear from the start and keep on top of past due,” one respondent said.

“Ensure sales contracts are clear and agreed upon before transactions take place,” a credit professional recommended concerning the Netherlands. Another said, “Get a good understanding of their business culture and keep abreast of their market conditions.”

FCIB members can access the complete survey results via the Knowledge Center. The next International Credit & Collections Survey is now open and will cover Hong Kong, India, Japan, Singapore and South Korea.

ICC Gains U.N. Backing for Universal Forfaiting Rules

The United Nations Commission on International Trade Law (UNCITRAL) has officially endorsed the International Chamber of Commerce’s (ICC) global rules known as URF 800 for forfaiting.

Forfaiting is a form of international trade and supply chain financing that involves the purchase of future payment obligations on a “without recourse” basis. The term refers to the concept that the seller forfeits the right to a future payment on a receivable in return for immediate cash, according to NACM’s Principles of Business Credit. “Without recourse” means that the forfaitier assumes and accepts the risk of nonpayment. Such financing helps exporters by eliminating the country, currency, political and transfer risks often associated with an international trade transaction, thus helping exporters’ cash flow and enhancing their competitive advantage, said Pradeep Taneja, group head of Trade Technical Services with Bank-ABC, Bahrain, in an ICC statement.

The URF 800 are the first-ever global rules for forfaiting and the result of a three-and-a-half-year joint effort by the ICC and the International Trade and Forfaiting Association (ITFA). The rules were developed after considering feedback from major trade finance banks, forfaiting companies and exporters, the ICC said in a statement.

“We are pleased to have the U.N. once again affirm ICC’s role as a setter of global rules and standards for the financing of trade,” said John Danilovich, ICC Secretary General. “Harmonized global rules have a vital role to play in facilitating finance for small businesses looking to trade internationally.”

The U.N.’s endorsement of the rules will help encourage banks and exporting communities to adopt the URF 800 for without-recourse financing of international receivables, while small- and medium-size companies will gain access to affordable trade finance at all levels, said David Bischof, senior policy manager for the ICC Banking Commission.

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What Happened to the Indian Economy?

Chris Kuehl, Ph.D.

Two or three years ago the assumption was that India was on its way to becoming the dominant economy of Asia. China was slowing fast from its heady double-digit growth days and looked to be facing a lot of issues that would drag it down in the years to come, but India was leaping ahead under the reforms touted by Narendra Modi and the BJP. It was the “modification” of India, and the expectations were high. Since then the country’s economy has been steadily slipping, and China has started to surge again. The Indians will not be supplanting China anytime soon at this rate. What happened? Why did these gains fade and what would India have to do to get back on track?

The growth in the latest quarter is down to 5.7%, and that is the slowest since 2014. Granted, the U.S. would be thrilled beyond measure to see growth that aggressive, but India is like China and not the U.S. With a population as large as India and China possess, they must have growth at 6% or above to accommodate the people seeking jobs. Both countries need to add over a million new jobs every month and this can’t be accomplished with less than 6% growth. The Modi government asserts that this is all temporary and mostly a reaction to reforms, such as establishing a national tax rate instead of the myriad local rates. There is still the hangover from the big currency switch late last year. Many economists assert the issues are far deeper than this.

The three factors that seem to be pulling the economy down include a sharp decline in export business and high levels of debt held by banks and many corporations, as well as a sharp decline in private investment. All three of these have been affected by the decisions made by other countries and global consumers, and that means that India can’t do all that much about it.

The prime export market for India is Europe, with the U.S. in a close second. The travails of the eurozone have been obvious enough and this has affected the ability of the Indians to export at the levels seen a few years ago. Not that Europe and the U.S. were all that healthy economically when Modi took power, but there was a focused effort on the part of India to promote these exports. This has been reduced in the last few years because the budget has been strained and China has resumed its focus on exporting. For a while the Chinese were placing most of the emphasis on developing the local consumer economy. That left the door open for more exports to Europe and the U.S. from other countries, India included. Now China is grabbing that market share back.

The lack of private investment is related to this. The demand for Indian goods is not what it once was and that has dulled the appeal for investors in and out of India. The lack of demand from the Europeans and Americans cooled enthusiasm for investment because there was no replacement from within India. This is the same dilemma faced by every developing economy. To appeal to the consumers in the developed nations, the prices have to be low. If the prices are low, the wages paid to the workers will be low as well. These low wages prohibit the domestic consumer from expanding his or her purchases. It is quite the Catch-22. Hiking wages so that domestic consumers can spend more will mean that demand from overseas ebbs and people lose their jobs altogether. To make matters worse, the investments by banks and companies have not prompted the returns expected and now they are saddled with extensive nonperforming debt.

Election Calendar

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

Turkey to deliver ‘final warning’ against Kurdish independence. Turkey plans to send its “toughest and final warning” to Iraq’s Kurdish provinces planning a referendum on independence on Sept. 25, a senior adviser to President Recep Tayyip Erdogan said. Erdogan convened a National Security Council meeting in Ankara on Sept. 22, before the Cabinet finalizes measures Turkey will take if the Iraqi Kurds do vote for separation. (Bloomberg)

CETA goes live, but not without foes. The EU-Canada trade agreement entered provisionally into force on Sept. 21, sparking a rehash of old claims in the bloc about threats to food safety and environment. (EurActiv)

Guatemala faces political uncertainty as it continues its fight against corruption. Guatemala’s political stability has suffered again, due to a significant corruption scandal involving President Jimmy Morales, who attempted to expel the chief of a UN-backed anti-corruption panel from the country. (Global Risk Insights)

Venezuela ‘has and will have’ cash, makes $185M debt payment. Venezuela may be running on fumes and U.S. sanctions may hurt, but the government coughed up $185 million to pay the coupon on a bond maturing in 2027, according to several reports. Moreover, the government's office of public credit Tweeted to critics that "the Republic has and will have the resources to honor their obligations." (Barron’s)

Push for NAFTA overhaul may fall short, U.S. negotiator says. The top United States trade negotiator said Sept. 18 that it was unclear whether Canada, Mexico and the United States could reach a deal to overhaul the North American Free Trade Agreement within the ambitious timetable set by the Trump administration. (New York Times)

Egypt’s looming concern: Increasing violent unrest and a fragile economy. The state of the economy of Egypt has garnered the attention of the IMF.  Investments are needed but will the escalating violence and increasing prices hamper such efforts? (Global Risk Insights)

Trump boosts North Korea sanctions, adding economic pressure. U.S. President Donald Trump ordered new sanctions on individuals, companies and banks doing business with North Korea as he sought to further isolate the regime and increase economic pressure for it to curb its weapons programs. Trump added that China is ordering banks to stop dealing with Kim Jong Un’s regime. (Bloomberg)

India eases foreign investment rules for corporate debt. India’s central bank on Sept. 22 eased rules governing foreign investment in corporate bonds by excluding rupee-denominated securities from its overall debt limit. The move potentially freed up 440 billion rupees ($6.79 billion) of debt available to offshore investors. (Reuters)

Kenya not at risk of constitutional crisis ahead of election re-run. Kenya will not face a constitutional or political crisis even if a planned re-run of its presidential election, now set for Oct. 26, is delayed beyond the end of October, the attorney general said on Sept. 22. The Supreme Court this month annulled President Uhuru Kenyatta’s August 8 election win, citing irregularities, and ordered the election board to organize a new poll by the end of October. (Reuters)

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