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Top 5 Geopolitical Events Impacting Global Trade Credit and Cross-border Investments

Top 5 Geopolitical Events Impacting Global Trade Credit and Cross-border Investments

Top Five Areas of Geopolitical Risk

Assessing country or regional risk is a crucial part of a trade risk strategy and is necessary for conducting international trade.  Understanding laws, customs, and regulations of any country are paramount but it’s also prudent to anticipate how external factors such as your buyer’s creditworthiness, conflict, violence, or other political/economic uncertainty can impact trade or cross-border investments.

Risk insurance provides US exporters with protection against buyer non-payment as well as cross-border investments against political risk such as confiscation, expropriation, nationalization, forced abandonment or political violence. Trade credit and political risk insurance is a specialty risk transfer solution that helps US companies on many levels when trading and operating in the global economy.

For companies seeking to begin or expand their overseas operations, exporting remains a great opportunity to generate growth, but there are always risks.  Right now, here are five major risk areas/issues that impact global trade:

1. China

Vehicle on Street in Between High-rise Buildings With Stores on the Bottom

The ongoing trade dispute between the U.S. and China has garnered the attention of world markets and taken a sort of on-again, off-again nature.  After over a year of negotiations, a trade deal between the two countries seemed to be closer to reality after a meeting between President Trump and Chinese Premier Xi Jinping in December 2018 (in which a 90-day deadline for an agreement was agreed upon). While that deadline has come and gone, the trade war has again ratcheted up along with raised concerns of overall global trade risk.  The Trump Administration announced an intention to place a new set of tariffs on August 2, 2019 which again roiled global markets but also led to China retaliating by devaluing its currency on August 5.  In the most recent salvo, the U.S. has labeled China a currency manipulator.  It remains unclear whether this new round of back-and-forth will delay the anticipated trade agreement, which is likely to include language as well as specific targets for increased U.S. exports to China.

While a recent economic report appears to show that China is weathering the impact of the trade war, second quarter numbers from China showed that overall growth slowed, the slowest rate of growth since 1992.  While the trade war has notably hurt a number of U.S. exporters, such as soybean producers, slowing domestic demand in China also presents a concern for potential U.S. exporters.

Added uncertainty in China relates to growing protests in Hong Kong.  Initial protests over a bill to allow suspects in Hong Kong to be tried in courts in mainland China have now spiraled into their fourth month with protests growing larger, more aggressive, and taking on a more broadly pro-democracy tone.  While worries of a heavy-handed crackdown are present, it remains unclear how or when the protests  will end in what is a vital trade and business hub for the Chinese economy. 

2. Brexit

Blue and Yellow Round Star Print Textile

While the UK’s referendum on leaving the European Union was over three years ago, the details of translating the narrow victory of “Leave” voters into a workable political and economic agreement has been agonizing.  While new Prime Minister Boris Johnson has pledged that the UK will leave the EU “do or die” on the new deadline of October 31, 2019, his narrow one-vote majority in the British Commons leaves him, like his predecessor Theresa May, little room to maneuver.

Significant concerns over the economic and social impact of Brexit, as well as its impact on the hard-won peace in Northern Ireland has UK politics split 3-ways with no consensus – between those who want to an immediate or “hard” Brexit regardless of consequences, those who want to remain in the EU, and those who want a negotiated, gradual exit from the EU that avoids a hard border between Ireland and Northern Ireland.  These divisions internally divide both UK’s two main parties, Labour and Conservative, with only the smaller Liberal Democrats being fully committed to remaining in the EU.

U.S. and UK trade negotiators have met to discuss a possible post Brexit free trade agreement that could hold a number of opportunities and risks for U.S. exporters.

3. The Middle East

While hardening battle fronts and shifting alliances have the Syrian civil war in a current stalemate, the rivalry between Iran and Saudi Arabia is center stage, with the two in proxy conflict both in Syria and in the ongoing civil war in Yemen.  U.S. – Iran tensions have again raised tensions in the Persian Gulf with Iran taking a more aggressive stance toward U.S. and British economic interests.  The United States’ NATO ally Turkey adds another element to the overall regional turmoil, with the two countries at odds over Turkey’s purchase of military hardware from Russia and its antipathy to U.S.-backed Kurds in both Syria and Iraq.

In North Africa, Egypt’s economic growth is notable (5.6% annual GDP growth in July 2019).  The country enacted several IMF-backed economic reforms in recently years and labelled itself a “global investment destination” as part of the effort in 2018.  However, there is uncertainty as to the long-term sustainability of the reforms, with a recent report noting that poverty actually increased since 2015.  The country’s ability to help extend economic growth more broadly is key to reducing uncertainly among investors.

Tunisia, the lone success story of the Arab Spring, recently lost its 92-year-old President Beji Caid Essebsi after a long illness.  Caid Essebsi, elected president in 2014 after fall of the Ben Ali dictatorship, was the country’s first directly elected head of state.  His willingness to broker compromise played a central role in guiding Tunisia’s democratic transition and the country’s ability to democratically replace the deceased leader will again test the strength of its political institutions.  The long-time president of neighboring Algeria, Abdelaziz Bouteflika resigned on April 2, 2019 after a wave of protests.  While the country’s military has taken over the role of stewarding the country’s government, the end of Bouteflika’s notably corrupt 20 year rule has raised expectations among Algerians for possible political and economic reform.

4. Latin America

Africa Map Illustration

The issue of migration and its impact on relations between the United States, Mexico, and the countries of Central America has come to dominate political dialogue and rhetoric.  For the U.S. and Mexico, the border issues have somewhat obscured progress toward a new continental free trade agreement called the United States Mexico Canada Agreement or USMCA.  Mexico, which has become the United States’ largest trading partner, ratified the new deal in June 2019.  A more difficult ratification fight is expected in the United States Congress.  (For more information about the USMCA, see here.)

South America’s large economies, Brazil and Argentina continue to be mired in decline.  Brazil’s downturn, which began in 2016, has not improved under a new government.  Economists anticipate positive economic growth not until 2020 at the earliest.  In Argentina, a mid-2018 currency slide, economic recession and high inflation continues and is likely to result in the country electing a new, more populist government.  At stake are a number of difficult economic policies seen as necessary to pull Argentina out of “perennial volatility.”

Venezuela’s economy continues to bump along the bottom in a what one analyst calls a “perverse equilibrium,” with no resolution in sight for the country’s political impasse.  In the meantime, a growing humanitarian crisis has led to a boom in outward migration, as many Venezuelans seek to flee what appears to be an unending cycle of hardship.

5. Russia

Multicolored Church

U.S. – Russia relations are at a low point, with the two countries in protracted disagreement over Ukraine and Turkey (see Middle East above) to say nothing of proven Russia’s efforts to disrupt U.S. elections or both countries recent exit from the 1987 Intermediate-Range Nuclear Forces (INF) Treaty.  Sabre rattling and regular efforts at deflection from the Russia government draw attention away from the fact that Russia’s economy is stalled with 0.4% economic growth between 2014 and 2018.  Rising political protests in the country have drawn notice and speculation about the rising impact of economic stagnation on the seemingly air-tight political regime of Vladimir Putin.

 

 

About Securitas

Since 2004, Securitas Global Risk Solutions (“Securitas”) has helped clients across the United States develop solutions to mitigate credit risk to achieve their financial goals.  As a specialty insurance broker focused on developing trade credit and political risk insurance programs, Securitas is focused on finding coverage for difficult credits to protect businesses from unexpected credit losses.  See our Website at https://www.securitasglobal.com/ for more information, or contact us at:

900 West Valley Road

Suite 701

Wayne, PA 19087

Telephone 484-595-0100

Fax 484-582-0111

 

 

Bipartisan Decision to Combine OPIC and USAID Promises to Better Support U.S. Business Interests in the Global Economy

Bipartisan Decision to Combine OPIC and USAID Promises to Better Support U.S. Business Interests in the Global Economy

In 2019, the United States will launch a streamlined and stronger development finance institution, called the International Development Finance Corporation (IDFC).  The new agency will consolidate the Overseas Private Investment Corporation (OPIC) and the U.S. Agency for International Development’s (USAID) Development Credit Authority.  The IDFC will continue the work of its predecessor institutions to promote private sector investment in developing countries, but with a number of policy changes expected to make its functions more effective.

The enabling legislation for the IDFC, the Better Utilization of Investment Leading to Development (BUILD) Act passed both houses of Congress with broad bipartisan support in October 2018.  The bill also enjoyed the support of both OPIC and USAID administrators.  The Trump Administration was given 120 days from the time enactment to report to Congress on its plan to structure the new agency, and the IDFC is expected to become fully functional in October 2019.

The IDFC responds to a number of policy priorities, including the desire to streamline overlapping government functions as well as to develop a more robust development finance authority along the same lines as allies such as Canada, Japan, and the UK.  Most notably the IDFC has a number of new capacities tailored to make it a stronger U.S. foreign policy tool and a greater counterweight to China’s extensive development finance activities worldwide. These include a seven-year authorization to encourage private sector confidence (and to perhaps to avoid some of the difficulties of annual re-authorizations) and an increase in the authorized spending cap of the IDFC’s investments to $60 billion, compared to OPIC’s $29 billion cap. Additionally, the IDFC is not required, like OPIC, to work only with U.S. investors.  The new legislation requires the agency only to have a “preference” for U.S. partners.

The new IDFC will continue the core functions of OPIC, but will have other expanded capacities of interest to private sector partners, including:

  • the authority to take equity positions in investments;
  • the capacity to make local currency loans; and
  • the authority to make investments in “upper-middle income countries,” for either national security reasons and/or if targeting an underdeveloped area within the country.

The IDFC also incorporates some of USAID’s existing functions including the ability to provide grants for technical assistance – such as feasibility studies for investment projects – and the authority to establish self-sustaining enterprise funds.

“Development finance tools such as loans, guarantees, investment funds, and political-risk insurance facilitate private-sector investment in developing countries that will have positive . . . developmental impact. These are transactions the private sector will not do on their own because of risks associated with the developing world. Limited backing from the U.S. Government can help catalyze significant amounts of private capital into developing countries.” – Richard Shelby Chairman of the Committee on Appropriations United States Senate

While the full details of the how the IDFC will merge the functions of OPIC and USAID’s Development Credit Authority are unclear, these policy changes, particularly the increase in authorized spending and a seven-year congressional authorization, should increase opportunities for investors interested in developing economies and rapidly expanding markets.

Pamela M. Bates Joins Securitas

Pamela M. Bates Joins Securitas

PB

Securitas Global Risk Solutions is delighted to announce that Pamela Bates has joined our team to provide customized solutions to mitigate credit and investment risk in global markets.  Pamela will be based in Virginia, where, in addition to risk mitigation, she will provide strategic and policy advice to assist our clients in navigating international business opportunities.  Working for the U.S. Department of State for over two decades as a foreign service officer, Pamela managed U.S. diplomatic efforts on energy, information technology and government procurement issues.   In addition, she earned an MBA from the Wharton School.  Pamela brings the skills, knowledge and network to support our clients’ international expansion goals.

International markets provide outstanding opportunities for U.S. exporters to diversify their customer base.  Securitas provides risk mitigation strategies to help reduce the uncertainty associated with approaching new markets.  Pamela will concentrate on solutions ranging from mitigating private sector credit risk, sovereign contract frustration risk, financing international trade, protecting equity investments against political risk, along with government relations strategies, to bring products to global markets.

Having previously lived and worked in France, Germany, Switzerland, and Brazil, Pamela has an extensive network of contacts around the world. She speaks Spanish, Portuguese, and French, along with English.  While a State Department employee, she taught classes on diplomatic tradecraft, including how to evaluate sources of risk.  In addition to her MBA, Pamela earned a Bachelor’s degree in Economics and Environmental Studies from Bowdoin College in Maine and a Master’s degree in International Affairs from the Johns Hopkins University, School of Advanced International Studies.

Thank you for welcoming Pamela to Securitas team.

Export Finance Workshop – World Trade Center of Greater Philadelphia event on Nov 19

Please join us on Nov 19th in Camden, NJ at the Export Finance Workshop facilitated by the World Trade Center of Greater Philadelphia.  Please register at WTCGP website.

Export Finance Workshop November 19, 2014 

Learn the strategies to increase sales and reduce risk!

DATE AND TIME 

November 19, 2014

8:00 am – 12:00 pm

 

LOCATION 

The Waterfront Technology Center

Suite 300

200 Federal Street

Camden, NJ 08103

 

REGISTRATION FEE

WTCGP MEMBERS: $45

Non-Members: $60

REGISTER ONLINE

CLICK HERE

FOR MORE INFORMATION, CONTACT: 

 

Susan Mills Farrington

Office Manager & Membership Coordinator

sfarrington@wtcphila.org

215.586.4240

If financing is not part of your export strategy, you could be missing out on important sales or exposing your company to unnecessary risks.

 

 

Do not miss this opportunity to meet the region’s leading trade finance lenders and government finance representatives.
Receive the latest information on financing programs available with U.S. government backing from the Export – Import Bank of the United States and the Small Business Administration. You will also hear from companies like yours who have successfully utilized this financing to grow their international business.
Who should attend?

CEOs, CFOs, and international marketing managers of export-ready companies


You will learn how to:

  • Utilize export credit insurance to protect against buyer non-payment, minimize risk, and offer extended credit terms to international buyers to increase sales;
  • Obtain working capital loans with U.S. government backing to provide capital for inventory, hiring, and performance bonds to support export sales orders and free up needed capital;
  • Offer financing at competitive rates to prospective customers to help close the sale;
  • And more….

 

MBA students from the McDonough School of Business, Georgetown University, complete their third South African project with Securitas Global Risk Solutions

A project team consisting of five MBA students from the McDonough School of Business completed a project in correlation with Securitas, which examined the feasibility of developing an aquaculture feed production plant in South Africa.

The project team had a period of twelve weeks, culminating with a week in Johannesburg, South Africa, to deliver its presentation.

The objective was to determine whether investment in a fish feed plant could deliver a nominal rate of return of 18% or higher and, if so, which partners Securitas should work with to pursue the venture.  Oceanwise Ltd. (Oceanwise), a South African aquaculture producer of Dusky Kob fish, was identified as one potential partner, and an American animal feed manufacturer, was another.

Two different investment options were identified: A smaller bolt-on retrofit production line and a new greenfield plant, were analyzed to gauge their potential profitability.

To evaluate this business opportunity, market forecasts for the aquaculture industries in numerous Sub-Saharan African countries were developed to gauge the size of the region’s potential customer demand. Nigeria and Ghana were revealed to be much larger markets than South Africa, though the prospect of serving these markets via export poses considerable challenges.

 

Russia – Ukraine – What does all this mean to U.S. investors/sellers?

Most Americans did not expect the quick succession of events in Ukraine leading to the removal of President Viktor Yanukovych or the emergence of Crimea as a flashpoint in Ukraine-Russia relations. The situation in Crimea is just the most recent example of how quickly and unexpectedly the international political and economic landscape can change. These changes can adversely impact U.S. business people and investors who have exposure in places such as Russia and Ukraine.

For example, the U.S. and EU have introduced a series of selective sanctions against Russia and some individuals for their role in the current crisis but have indicated that broader sanctions against certain sectors of the Russian economy are possible.  Russia has responded by putting a travel ban in place for several American officials.   One of the Russians included in the U.S. sanctions, parliamentarian Andrei Klishasa, went further- introducing a bill to allowing for the confiscation, expropriation and nationalization of western assets in response to these U.S. / EU sanctions although it is unclear whether this bill will gain any momentum.  Given the interconnectedness of the global economy (including Europe’s reliance on Russia for about 30% of its natural gas), a widening of the crisis or quid pro quo sanctions could impact U.S. businesses with exposure in Russia, Ukraine or Europe.

Fortunately there are solutions which can mitigate the risk of loss due to political risks.  These solutions include coverage against political violence, war, confiscation, expropriation, nationalization, forced abandonment and selective discrimination. In addition to coverage, these solutions often provide access to a global network of experts who continually monitor political risk in emerging or frontier markets.

The deterioration of relations between Russia and the U.S. and Europe and events in Crimea are a reminder of the value of protecting your investments and assets (fixed, mobile or inventory) against the perils of political risk.   You may also wish to consider protecting your trade receivables against buyer non-payment especially for your international accounts.

For more information see U.S. Freezes Assets of Russian Businessmen and Bank Close to Putin