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The Dollar is Moving, Now Come the Reverberations

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Archives, Global Trade Daily, News

The Dollar is Moving, Now Come the Reverberations

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The dollar is on a tear. The greenback has hit a new 20-year high and the fundamentals are there for more upward movement. Governments and industries are making the necessary adjustments, but there are a host of variables that are ever-evolving and difficult to predict moving forward. 

After the 2008 financial crisis, the US pushed hard to devalue the dollar. The Federal Reserve played a principal role, and it is inserting itself once again. In terms of the US’s major trading partners – Japan and the EU – the dollar is the strongest against the yen since 1998 and at near parity with the euro for the first time since 2002. The increasing price of natural gas is the main driver behind the dollar’s leap. Russia’s incursion into Ukraine didn’t help, and pundits predict investment to be routed away from Europe and certain parts of Asia and over to the US.

Energy-intensive industries will find an attractive US market. Fracking had already made the US energy self-sufficient, and Germany and Japan most notably are suffering from soaring import costs driven by energy. Germany is a country accustomed to running massive trade surpluses. Yet, in May the European power registered its first trade deficit in goods since 1991. 

On a global scale, a strong dollar will contribute to rising inflation. Commodities like timber or meat as well as petrol are primarily traded in dollars. When the dollar gets stronger, and local currencies weaker, non-elastic items like fuel, food, and construction supplies cost more. The bet from the Fed, however, is that Stateside a stronger dollar will result in cheaper consumer imports with the hopes of easing inflation. 

While imports might be cheaper, exports from the US will be more expensive. A prolonged strong dollar contributes to a widening US trade deficit. The US trade deficit is already roughly $1 trillion per year with multiple presidencies having vowed to shrink it. In terms of countries that owe their debt in US dollars, the debt will only widen as the dollar appreciates. Lower-developed countries have a long history of taxing their economies more, issuing inflationary local money, and even increasing borrowing in the face of paying down dollarized debt when the dollar grows stronger. The results are predictable and unfortunate in most cases – hyper-inflation, recessions, a sovereign debt crisis, or some mix of the three. 

Returning to Europe, a rising dollar creates pressure for the European Central Bank to bump its interest rates. The justification is to dampen the cost of imports and prop up the euro. Yet, the eurozone is a big zone with a range of member countries. Some hold high levels of debt, namely Italy, with an unreal 150% of GDP. Returns to bail-out talks could get louder if major economies like Italy and others cannot sustain their debt levels and need to be rescued.

The dollar is on a tear, and while some industries will certainly benefit, a strong dollar is not a harbinger of good things on the global level. The dollar is a classic safe haven for a reason. The world is not overly safe at the moment. 

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Archives, Global Trade Daily, International Banking, International Trade

How the ICC Plans to Restructure Global Trade Finance for a More Sustainable Global Economy

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One of the most enduring effects of the COVID pandemic has been the disruption of the global supply chain. Micro, small, and medium enterprises (MSMEs) constitute the majority of companies and employers worldwide and are major contributors to the total global gross domestic product. They frequently encounter more difficulties than other companies because they have less access to global trade finance systems.

The International Chamber of Commerce (ICC) viewed the pandemic as an opportunity for positive disruption in favor of all global financial market participants. Accordingly, in August 2020, it created an Advisory Group on Trade Finance (ATF) and charged it with addressing trade finance challenges that hinder full participation by MSMEs. 

The ATF, in a joint effort with McKinsey and Fung Business Intelligence, recently released a proposal for restructuring global trade finance to better promote financial inclusion and sustainable finance. The report proposes a ten-year, three-phase process for modernizing and standardizing global trade finance systems through the introduction of an “interoperability layer.” 

In this article, we’ll summarize the report’s primary recommendations, provide an overview of the structure of the proposed interoperability layer, and discuss the anticipated effects on MSMEs worldwide. 

The current global trade finance market

In 2020, the finance market covered transactions totaling $5.2 trillion, or approximately 6% of the global gross domestic product. For financial institutions, this translated into 2% of their total revenue or roughly $40 billion. However, despite the size of the market, a finance availability gap of $1.7 trillion still exists, largely affecting MSMEs.

Fintech companies are relatively new participants in the market. However, they are actively working to develop new products at every stage in the supply chain, and the ICC report looks to leverage the capabilities of fintechs.

The vast majority (85%) of global trade finance addresses documentation issues associated with cross-border transactions, such as letters of credit, international guarantees, and international bills of lading, among other services. Documentation products and services also deal with regulatory and compliance issues, for example, anti-money laundering rules. The remainder is split between buyer-led financing (10%) and supplier-side finance (5%). 

What trade finance challenges does the proposal address?

Despite the sizable, robust trade finance market, there is substantial room for improvement, especially as it relates to MSMEs. According to the World Bank, as of 2017, approximately 65 million MSMEs were credit constrained. There are several reasons that MSMEs are less than full participants in the global trade finance arena, all of which the ICC seeks to rectify with its current proposal. Some of the most significant issues facing MSMEs are:

Lack of access to liquidity

Traditionally, MSMEs have had more difficulty accessing trade credit than larger corporations because they have less available collateral or are unable to meet established strict credit requirements. Credit requirements have not evolved to reflect changes in the global economy and there is a dearth of alternative financing options for international transactions. Because of this, MSMEs frequently find themselves without available credit for purchases or sales. 

Transaction complexity

The disparate requirements for international transactions and financing worldwide impose additional challenges on smaller firms with more limited resources. Just keeping track of the different requirements for each jurisdiction can be an overwhelming task. And when it comes time to meet the documentation requirements for each transaction, the burden only increases.

Limited access to B2B markets

B2B marketplaces create tremendous efficiencies in the market by pairing suppliers and purchasers quickly and simply. MSMEs, however, often lack either the knowledge base or the resources to gain access to these marketplaces. And for MSME suppliers, financing, capital, and cash flow issues can prevent them from establishing themselves as effective participants in B2B markets. 

What is the ICC’s reconception of global finance?

The ICC proposes a three-phase, ten-year plan for developing globally accepted standards that serve as a framework for common systems, all of which come together in an interoperability layer. The interoperability layer will not be hardware or software, but instead a virtual construct that sets the baseline standards and best practices supporting trade finance digitization. Digitization is increasingly important to MSMEs, after all. According to recent studies, 43% of small businesses now fully rely on online banks. 

Ultimately, the ICC envisions new standardized and shared architectures equally accessible to all market participants. The interoperability layer would replace the patchwork of standards and protocols that currently exist and fill regulatory gaps by developing a unified and consistent set of standards and practices. The proposed interoperability layer accomplishes three main missions. 

First, it encourages widespread adoption of existing trade finance standards to bring market participants into a common network. Second, it creates new standards and processes to fill existing gaps, including standards for sustainable finance. 

There are two main areas where the ICC identifies specific needs for additional standards, both of which focus on easing and increasing digital transformation of trade finance: uniform data models and API standards. API standards constitute an immediate need because many banks currently suggest that the lack of such standards inhibits their ability to develop strategies for API usage in their operations.

Finally, it creates operational playbooks for market participants that embody the full set of standards. The consolidation of standards and protocols into the interoperability layer will occur with full knowledge of the challenges that prevent or hinder participation by entities with fewer resources or credit histories. With simplified access to the trade finance system, more players at every level will be able to join. 

As for governance, the ICC envisions an industry organization or consortium overseeing the development, implementation, and ongoing management of the interoperability layer. The governing body should include participants from all functions, regions, and company sizes.

How does the interoperability layer benefit MSMEs?

The interoperability layer has benefits for all market participants, but the impact for MSMEs is particularly notable. With new standards and processes for assessing transaction risks, MSMEs will gain greater access to alternatives for credit and liquidity. 

Recent research suggests that traditional bank credit assessment models underperform newer tech-based models for determining creditworthiness. Applying real-time data and highly advanced analytical tools like AI, newer models provide a more timely and accurate assessment of a firm’s payment capabilities. In turn, better credit scoring results in more efficient allocation of resources, particularly for smaller firms like MSMEs.

In addition, new documentary standards and digitization of documentation requirements will reduce costs for all market participants. Because these costs disproportionately impact MSMEs, they will see the greatest benefit. But as finance processes become more streamlined and more participants enter the market, the large financial institutions will see corresponding revenue increases which, coupled with lower expenses, lead to higher profit.

Will the interoperability layer promote sustainable finance?

The ICC report recognizes that sustainability is an increasingly important issue for corporations and governments. However, there is currently a lack of standards for sustainable finance, including the lack of a commonly accepted vocabulary. One of the major tasks the ICC envisions is the creation of a standard taxonomy for sustainable finance that all market players can apply in future transactions. Once the market has a common language, it can better develop standards for applying the principles of sustainability in the global trade finance industry. 

Time will tell if the ICC proposal gains any traction. Further digitization is inevitable with or without the report. But building a common framework for the digitization that makes it easier for firms of all sizes to effectively participate in international trade is a valuable goal.

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Archives, Commentary, Global Trade Daily

How COVID Affected the World Economy and What that Means for Business Owners

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The COVID virus was one of the most recent viruses to sweep through the world. It has had a significant impact on both individuals and businesses, but not in ways that are all negative. In this blog post, we will discuss how the COVID virus affected the global economy and what it means for business owners.

Unemployment

Many business owners have decided not to add any new employees until they see what impact COVID will have on their bottom line profit margins – this can be seen through “hiring intentions” and the “average monthly increase in employment”.

Employment growth is slowing but this can be seen as an opportunity for job seekers to find a great new position before others do. There are currently more open jobs than unemployed people looking to take advantage of that.

Stocks

Stock prices fell at first, with business executives unsure how the new tax plan would affect them, but those concerns vanished quickly as consumer confidence rose and company profits skyrocketed. The stock market and interest rates suffered as a result of the impact of stagflation. This impacted businesses negatively because it made investments less profitable by decreasing their net worth. It also caused inflation to rise, which increased costs for business owners who had no control over how much they could charge customers for products or services. Because people were spending more money on food and other necessities due to inflation, this led them to spend less money on luxury items such as expensive cars or homes, so sales went down at car dealerships and real estate companies alike.

Tourism Industry Crumbling

The tourism industry might be feeling some pain as it will now cost more to travel outside of one’s country due to COVID and other new tariffs that have been imposed on certain goods. This may impact those who enjoy traveling abroad, but with unemployment rates decreasing at such a rapid rate, the demand for labor will also increase. Many businesses that rely on tourism as a large source of customers and revenue might take a hit but it may be short-lived if they can adapt quickly enough.

The travel industry is feeling some pain from COVID already, especially with tariffs placed on goods like electronics and other items that are commonly exported and imported. Tourism is a vital part of many economies, but it will take time to see the true impact COVID has on international travel and tourism.

Online Shopping

Online shopping has impacted stores in a big way. Many consumers prefer the convenience of buying from home rather than going out into crowded retail centers to shop for items they need or want. Online retailers have been able to adapt quickly by increasing their marketing spend on Google Adwords so that they can be more visible when people search for products online. This might be a good time to consider an online marketing strategy if you own or operate a retail store.

The rise of e-commerce has allowed many consumers – especially Millennials and younger generations – to buy things from the comfort of their homes without ever leaving. Many brick-and-mortar retailers have been able to adapt quickly by increasing their digital marketing presence so that they can compete against online retailers.

Loans

Loans are getting harder to come by as banks begin to tighten their lending standards due to fears of rising defaults rates. They have not yet raised interest rates but many experts believe it is only a matter of time before they do! Businesses that need funding for various projects might look into alternative financing options or increase spending to boost revenue and profits so that they can generate enough cash flow to cover their debt obligations.

The difficulty of obtaining loans has increased as a result of COVID and other new tariffs placed on various goods from different countries. This is especially true for those who are deemed “high risk” borrowers by lenders, but it might be time to find alternative financing options if you need them.

World Trade

The world is slightly less connected as a result of COVID and other new tariffs that have been placed on goods from certain countries. This means it will be more difficult for those who rely on international sales to sell their products, but there are still plenty of opportunities out there. Business owners should keep an eye on how this plays out over time and consider new marketing strategies if they rely on international sales.

There are still plenty of opportunities out there for those who rely on international sales. If you haven’t considered it already, now might be the time to invest in some marketing strategies that will help you reach a larger audience.

Working Abroad

The ease of working abroad may decline as the world continues to become less connected. This could impact those who enjoy traveling and want to work while they are on holiday, but it might also make sense for some people if they can save money by living in another country. It will take time before we know how COVID affects the ability of individuals or business owners to work outside their home countries long-term.

It has become slightly more difficult (and costly) to travel overseas and work there due to tariffs placed on goods like electronics that many workers bring with them when they go freelancing or contract jobs globally. However, this is still an option open for businesses that want cheap labor; something which should be considered sooner rather than later if you are looking to expand your business overseas.

With all this information at hand now comes the time when you can use it to your advantage. Remember that while COVID was a major international event, many other factors are affecting the world economy which you should also consider when making decisions about your business or investments. Understanding how they interact and affect one another will help you make better-informed decisions for yourself in this fast-moving globalized society of ours.

Geopolitical
Archives, Commentary, Global Trade Daily

Axis of Innovation: A New School of Geopolitical Economics for the Digital Age

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What a difference a few decades make. Trade ministers from the United States and European Union recently felt compelled to sit down for special high-level ministerial forum in hopes of strengthening their relationship after years of transatlantic tensions on all manner of digital-age economic and trade matters—from digital service taxes to cross-border data flows—which together reflect fundamental differences of geopolitical strategy for the digital economy.

This never would have been necessary in the Cold War, when there was a clear, Manichean struggle between the democratic, market-based West and the authoritarian-communist East. It would have been inconceivable in those days to have such differences “across the pond.” There was strong bipartisan support in the United States—and parallel support in Europe—for a cohesive approach to the geopolitical economy that aimed to attract allies and isolate the Soviet Union and China by supporting Western business interests and spreading democracy around the world.

 


But now, as the Cold War fades into history and as the global economy is increasingly driven by digital and information technologies instead of heavy industry, that consensus view of the geopolitical economy has fractured. The old “free markets and free people” camp has maintained a foothold in the United States, and authoritarian statism is still deeply rooted in the parts of the East, but alongside them there are now other competing visions—including social democratic regulation in Europe and a rising form of digital protectionism in countries such as India, Indonesia, and Vietnam.

If the United States is to effectively advance its interests, which now hinge on spurring faster and deeper digital innovation and transformation, then U.S. policymakers need to recognize this new formation, while embracing a new framework for the geopolitical economy that is better suited to the times: national developmentalism. The overriding priority should be advancing domestic technology competitiveness instead of sacrificing U.S. economic interests on the altar of other foreign policy goals as America often did in the Cold War. Failure to execute this strategic pivot will produce a technologically weaker U.S. economy.

Until recently, America had only one big idea when it came to geopolitical economics, embodied in the neoliberal “Washington consensus.” Policymakers advocated at home and abroad for open markets, deeper trade, limited regulation, budget constraints, the rule of law, and a modest role for government. That approach worked in the Cold War, but there are two problems with it now: First, it ignores the fact that government plays a key role in helping develop and spread digital technologies, as we have seen in the history of the Internet, semiconductors, computing, and technologies like GPS—all of which the federal government spurred. Advancing growth in the era of digital innovation requires more than firms and markets acting on their own. Second, when U.S. policymakers point to the Washington consensus as the only alternative to China’s seemingly successful state-directed model, it gives nations looking to grow their own digital economies a limited choice: Do little and hope markets work things out for the best or be aggressive by copying Beijing’s statist model.

As in the Cold War, some nations today continue to embrace authoritarian statism, but with a digital edge and a more market-friendly veneer. China and Russia are the torchbearers for this formula, with China taking it to the greatest extreme. For China’s central planners, the approach is more than authoritarian; it is deeply mercantilist, seeking not just to build up domestic technology firms by any means necessary, but also to harm foreign competitors—as when Chinese firms coerce their Western counterparts into transferring intellectual property as the price of doing business in China while also enjoying lavish subsidies for “going out” to challenge Western firms for global market share.

This is a model that empowers U.S. adversaries and harms global innovation, because by employing tactics such as massive subsidies, IP theft, and coerced technology transfers, China is empowering its firms to take market share away from more innovative firms in other nations. Moreover, China scoffs at concepts such as freedom and democracy, and in global governance forums, its strategy is to ensure that its formula prevails over the U.S. model of freedom and human rights with private and civil-sector governance.

Meanwhile, where the United States and Europe once were closely aligned on economic and foreign policy, their goals and interests have now diverged. In the EU’s social democratic approach to the digital economy, the government’s main role is to regulate, rather than promote, technology and technology companies (especially U.S. companies) to achieve social policy goals. The EU is doing everything it can, including using carrots and sticks, to bring other nations into its orbit, offering its model as a third-way alternative to Chinese authoritarianism and what it considers to be America’s “cowboy capitalism.” The result is a spread of a digital regulatory system marked by higher taxes, onerous rules, and strict antitrust enforcement, which constrains global innovation and weakens U.S. competitiveness. And unfortunately, many U.S. policymakers, particularly on the left, see this as an appealing alternative to the Washington consensus they believe has been discredited.

But ultimately social-democratic regulation of the digital economy will prove to be a dead end. Even though EU social democrats and their U.S. allies profess to be pro-innovation, the reality is that onerous regulations on privacy, competition, “fairness,” and other areas result in less innovation, slower economic growth, and worse experiences for consumers.

On a separate track are unaligned nations that often charted their own path in the Cold War era. Today, many of them are defaulting toward digital protectionism as a preferred approach. For example, India, Indonesia, and Vietnam, among others, see limiting foreign IT and digital market access as the key to growing their domestic digital economies. To that end, they take measures such as limiting cross-border data flows, favoring domestic digital firms, and otherwise discriminating against foreign technology firms. This, too, will likely prove to be a dead end. Digital protectionism usually doesn’t work, in part because it doesn’t just harm the interests of U.S. firms and others, but often drives up the costs of digital technologies domestically, thereby limiting their use and forgoing the productivity benefits they offer.

Against this backdrop, the United States faces a host of new challenges, but it also has an opportunity to secure a new era of prosperity for itself and others by embracing a national developmentalist model in which government helps coach firms within its borders to compete globally, innovate, and boost productivity. This entails supporting innovation, markets, and business—including big business. But it also recognizes that the state should play a key role in supporting digital innovation in areas like broadband, health care, education, and governance while defending U.S. firms from unfair foreign competition. Among the nations moving toward the national developmentalism model are the Scandinavian bloc, the United Kingdom (as conservatives increasingly move beyond their Thatcherite traditions), Israel, Singapore, and Taiwan. Some U.S. policymakers on both sides of the aisle have begun moving in this direction, too, as evidenced by the Senate’s United States Innovation and Competition Act.

While the doctrine of national developmentalism presents a more realistic picture of the world, recognizing that nations seek competitive advantage in IT and digital industries, it also counsels a “race-to-the-top,” wherein nations support digital innovation with policies related to research and development, worker skills, and digital infrastructure, plus conducive regulatory and tax policies, and government leadership in using the technologies themselves.

The United States should fully embrace this burgeoning national developmentalism at home and work methodically to bring as many other countries as possible into the U.S. national developmentalist orbit—selling it as a compelling and effective alternative to social democratic regulation, protectionism, and authoritarian statism. We are no longer locked in a Manichean struggle; there are now several models on offer. But one is clearly the best.

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Robert D. Atkinson (@RobAtkinsonITIF) is president of the Information Technology and Innovation Foundation, the leading think tank for science and technology policy.

african
Free Trade Agreements, Global Trade Daily, International Trade

African Free Trade Area Presents Opportunity and Obstacles Ahead

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The African continent is on the cusp of long-term economic opportunity thanks to the inception of the African Continental Free Trade Area (AfCFTA), which came into effect in January 2021. The AfCFTA could boost Africa’s growth potential as the agreement intends to liberalize trade across Africa over the next few years. It provides optimism for a region that has been hit hard by the pandemic.

The impact of the pandemic has been uneven across African economies, with some suffering from severe economic contractions, while others managed to record small growth rates. The post-pandemic outlook differs from country-to-country, but most are subject to high uncertainty due to the rise in infections and the slow vaccination process. In the long run, the AfCFTA could be pivotal in Africa’s growth potential as the agreement foresees fundamental freedom of trade in Africa in the next few years.

The agreement has the potential to accelerate African growth rates after the negative impact of the COVID-19 pandemic, according to a recent economic outlook report for the Sub-Saharan Africa (SSA) region from trade credit insurer Atradius.


Early optics reveal uneven results

While long-term results of the implementation of the AfCFTA, the immediate optics are not looking promising for most countries. Some challenges have to be overcome before the AfCFTA is successfully implemented and countries can reap the benefits. In the short run, protectionist tendencies, insufficient capacity to expand cross-border infrastructure, political instability and weak government finances, among other things hinder a full implementation of the agreement.

The AfCFTA’s full implementation has a long way to go, with several countries needing to first establish the necessary customs infrastructure and required procedures to trade. Countries that already have action plans and customs procedures in place, as well as relatively low barriers to trade with other African countries, will likely see success early on. So far, only Egypt, Ghana and South Africa have accomplished the necessary customs infrastructure. Countries that are likely to benefit the most are those with relatively open and diversified economies and well-established trade links, like South Africa. This also applies to other regional trading hubs such as Kenya, Senegal and Cote d’Ivoire.

Economies emerge from harsh COVID effects

Last year’s economic contraction of 1% was the lowest ever witnessed in the region and was stark in comparison to average annual growth of 4.3% since 2010. COVID-19 hit African countries with a drop in trade, lower commodity prices, fewer tourist arrivals, lower remittances and lower foreign investments. Additionally, many countries introduced strict lockdowns in the beginning of the pandemic that hurt domestic economic activity.

Thankfully, 2021 has seen a recovery in the global economy and higher commodity prices, supporting the economic recovery in Africa. Economic growth is expected to reach 1.3% this year. A recovery that is quite moderate, especially in comparison to other regions in the world. Reasons for this are the limited room for government support and the slow vaccine distribution. Similar to other parts of the world, many African governments supported their economies resulting in high budget deficits and an increase in public debt. Now, many face high debt levels that will limit further support and even constrain public investments over the next few years. Therefore, many countries are not expected to return to their pre-pandemic growth figures. The economic outlook is also uncertain due the continued spread of COVID-19 coupled with the slow vaccination process.

Uneven recovery underway for Sub-Saharan Africa

While there is an economic recovery underway for SSA, it will be slow and mostly uneven throughout the region. Oil exporting countries, hit hard by the pandemic, like Nigeria and Angola, will see a particularly slow recovery. Small island economies dependent on tourism, like Mauritius, which recorded deep recessions last year will likely see one of the highest economic growth figures in Africa this year. However, this is still uncertain, as it depends on the expected gradual recovery in tourism.

The more diversified economies fared relatively well through the pandemic and will have a strong economic recovery. Countries such as Kenya, Ghana and Côte d’Ivoire recorded a small contraction or even a positive economic growth last year and are among the top performers.

Opportunities for the region could be on the horizon in the form of the African Continental Free Trade Area (AfCFTA). Although in the short term there is much to overcome, once it reaches full implementation on the longer term, it is set to benefit several African economies.

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Afke Zeilstra is a senior economist for Atradius

SDGs
Archives, Global Trade Daily, International Trade

Pandemic Raises Stakes for Success of the SDGs – with Private Sector Crucial

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In this Decade of Action for the Sustainable Development Goals (SDGs), we hear much about how organizations, countries and individuals are stepping up their efforts to achieve the 2030 Agenda. Despite this, the reality is that the pace of action has not been quick enough and we are already far behind on delivering the Global Goals.

The countless tragic consequences of the COVID-19 pandemic bring an added layer of urgency. Yet, true to human nature, the focus has already shifted to how as a global community we can forge a new way ahead – with the ‘build back better’ mantra being highly relevant from the perspective of progress on the SDGs.

Against this backdrop and with Global Goals Week underway, GRI has analyzed the Voluntary National Reviews (VNRs) presented by countries at this year’s UN High-level Political Forum. Every year since 2016, GRI has reviewed how member states are involving the private sector in the implementation of the SDGs, in particular, to assess progress on SDG 12.6: to encourages companies to adopt sustainable practices and integrate sustainability reporting. With each year seeing a different set of countries submit their VNRs, the analysis varies in terms of the sample of political systems, economies, and geographical representation, providing insights over time to global trends.


 

Mixed messages on private sector engagement

In total, 42 countries carried out VNRs in 2021. Countries with informal, less regulated economies tended to find that they were facing challenges with tracking SDG progress, which have been exacerbated by the pandemic.

Overall, 86% of the analyzed reports recognized the need for private sector investment, which is more than double the level reached in 2020, perhaps triggered by COVID-19, and 85% refer to the contributions of the private sector to the SDGs. Yet less encouragingly, the number of countries consulting the private sector as part of the VNR has fallen to the lowest level since 2016, at 76% (down from 87% in last year).

There are though positive signs of governments and the private sector collaborating more for the SDGs, with 83% referencing public-private partnerships (compared to 54% in 2020). This aligns well with the building back together notion, something GRI discussed at length during our HLPF event – The key role of innovative partnerships and transparency for the SDGs – which we co-hosted with Enel and UNDP Business Call to Action.

Improving alignment of SDG priorities

What our findings show is that there is a clear understanding of the important role the private sector plays in achieving the 2030 Agenda. However, it is not enough that only three-in-four countries engage the private sector in the VNR process. If we are to deliver on the SDGs, we need open collaboration that gets all parties on board – from analyzing the issues, to defining the solutions, to implementation and reporting on the progress.

Government and business interests are naturally not always fully aligned. The role of the private sector for SDG 4 – Quality Education, SDG 5 – Gender Equality and SDG 7 – Affordable and Clean Energy, was most often mentioned in VNRs. Yet, as revealed in the 2020 KPMG Survey of Sustainability Reporting, the most prioritized SDGs by the private sector are SDG 8 – Decent Work and Economic Growth, SDG 13 – Climate Action and SDG 12 – Responsible Consumption & Production. What this indicates is that there can be a disconnect between SDGs priorities and ownership, illustrating how important it is for all stakeholders to engage and align, in order to achieve impact and progress.

Examples to learn from

We see a number of innovative digital initiatives in this space, as identified through the VNRs, that can serve as inspiration for others. For example, the success of the SDG Corporate Tracker in Colombia, a platform now used by 480 businesses in the country that is standardizing SDG-related data collection on the role of the private sector. The Initiative 2030 platform, meanwhile, which is aligned with the GRI Standards, makes it easier for companies to assess how they are contributing to the SDGs, driving SDGs participation within Cypriot society through the involvement of all stakeholders.

Simultaneously, the analysis found new or increased regulations for disclosure of non-financial information – as adopted in Indonesia and Sweden, as well as stock exchanges in Malaysia, Thailand, and Zimbabwe – which is driving an increase in private sector sustainability reporting.

Emerging significance of tax transparency

As a new element of the analysis, in 2021 we saw 29% of VNRs reference corporate taxation and tax reporting. Strong and effective tax systems are necessary to generate the resources needed to meet the SDGs and promote inclusive economic growth yet, as discussed in the opening episode of our new podcast series SDGs: The Rising Tide, it remains a significant challenge.

A fair taxation system is key to achieving the 2030 agenda, and we look forward to tracking the progress on how this will be reflected in VNRs in the coming years. GRI 207: Tax 2019 – the first and only global standard for comprehensive tax reporting at the country-by-country level – will play an important role in facilitating the regional and global conversations on fair tax policies. After all, ensuring finance for sustainable development is a cornerstone for fulfilling the SDGs.

Stepping up the momentum

Through the 2030 Agenda, world leaders have called on businesses to apply their creativity and innovation to solving sustainable development challenges. Yet we also need businesses to be transparent in how they maximize their positive impact on the SDGs. That is why governments must ensure they are bringing companies, and other stakeholders, into the operations room when it comes to developing and implementing their SDGs plans as well as reviewing progress.

Looking ahead, GRI will follow with keen interest the role played by the COVID-19 response in the next VNRs. Will recognition of sustainability challenges see the number of reports by countries – and engagement of the private sector – increase? And will we, years from now, be able to say that the pandemic instigated greater action and collaboration in support of the SDGs? On both these counts, there are opportunities within the adversity that can and must be seized.

When you view the SDGs as the roadmap to a better world – one without poverty or hunger, with gender equality achieved, fair economic growth and the environment protected – participation in their success should not be a hard sell for anyone, be it governments, business or citizens alike. Inclusion and partnerships, at all levels, will be the key to their successful fulfillment. Let’s stay positive that together we can reach that sustainable future.

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ABOUT THE AUTHOR

Tina Nybo Jensen is International Policy Manager at GRI. She leads on the development, management and implementation of GRI’s Sustainable Development Program, with a special focus on the SDGs and engagement with multilateral organizations. She joined GRI in 2014 and has previously worked with the GRI Community, report services and governance relations.

Prior to GRI, Tina worked for the Danish Red Cross Youth in Jordan and the Westbank, and at the Danish Embassy in Thailand. She holds Master’s Degrees in Development & International Relations (Aalborg University, Denmark), and Political Science with Specialisation in Environmental Governance & International Relations (Vrije University Amsterdam, the Netherlands).

ABOUT GRI

Global Reporting Initiative (GRI) is the independent, international organization that helps businesses and other organizations take responsibility for their impacts, by providing the global common language to report those impacts. The GRI Standards are developed through a multi-stakeholder process and provided as a free public good.

EU
Archives, EU Trade, Global Trade Daily

Will the EU Supply Chain Issues Encourage Growth in the UK Economy?

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Brexit and the pandemic have been disruptive for supply chains. Between new regulations, tariffs, and isolation and testing policies, importing and exporting products has been difficult. However, where disruption occurs, so too does the opportunity to seize new shares of growing and changing markets.

By discussing how Brexit has affected trade between the EU and the UK, we can explore how the UK economy may experience local economic growth and how businesses should reinforce their operations to succeed in this new era of regulated trade.

Why is Europe so important for British supply chains?

Trading with the EU has played a significant role in British business as the number one partner for trading goods, accounting for 52 percent of imports and 43 percent of exports in 2019.

In 2019, £374 billion worth of goods were imported to the UK from the EU, while £294 billion worth of goods were exported.

These trading ties are significant for sectors including food and drink, chemical, and automotive industries, supplying commodities and equipment for supply chains in the UK.

Measuring trade

However, the Brexit trade agreement has been disruptive, with imports and exports experiencing a sharp slump after the UK officially left the EU. While it has recovered, there are still some teething issues as the UK attempts to restore European trade to its pre-Brexit high. More checks, paperwork, and higher costs are just some of the problems that businesses are facing.

In May 2021, the value of imports from the EU matched levels of January 2016, lower than its peak in 2019. However, the value of exports remains relatively high, exceeding most figures as far back as 2007. The trade deficit is also at its lowest difference since 2012. The impact of Brexit has been sharp, but data shows that while the recovery is turbulent, it is a recovery nonetheless.

Opportunities for UK businesses

The UK is in a trade deficit with the EU, meaning that more goods are imported into the UK than are exported. This is not inherently bad or good. In fact, in some situations, a trade deficit can allow economies to specialize in specific sectors and achieve significant growth.

However, as imports from the EU remain below their 2019 peak, it could present an opportunity for short-term economic growth in the UK. Businesses may have to temporarily rely on domestic supply chains to sustain their current models while wider international trade deals are crafted. As businesses look to their own backyards, could it boost local communities through employment and other investment?

UK businesses that supply transport equipment, chemicals, and non-electrical machinery could find domestic investment from investors struggling to attain imports from our European neighbors, where these commodity groups equate to 17, 15, and 14 percent of import from the EU respectively.

One UK business, FPE Seals, is a manufacturer and distributor of pneumatic seals and hydraulic cylinder parts. Steve Eillis, Managing Director at FPE Seals says that while Brexit has been disruptive, a clear supply channel strategy along with the specialist focus of their products has allowed them to remain competitive across the UK and European markets. NAME said: “It’s key for businesses to focus on their strengths and what makes their products or services unique. Despite the disruption of Brexit, we’ve been able to embrace a growing UK market while maintaining relationships abroad that limit the impact on our supply chains. Ultimately, by recognizing the strengths of our partners and clients, we’ve been able to tailor our processes to a market and supply chain that is constantly changing.”

Preparedness is key. While European opportunities may be reduced, businesses should seek out local opportunities.

Finding strengths to grow your business and the economy

The environment of uncertainty is unsustainable, as the UK and the EU move beyond the pandemic, businesses will be back to analyzing their Brexit strategy. For UK businesses to grow and to benefit the economy, there are several factors that should be considered and operations that can be more efficiently organized. Businesses that are progressing beyond Brexit and the pandemic must:

Create a new sourcing strategy

Investing in local supply chains or encouraging the establishment of international suppliers on your doorstep can help alleviate the uncertainty of European trade. Existing contracts should also be modified to account for risk in both the near and distant future.

Consider demand changes

As trade changes, so will the demand for your products. Those exporting to the EU may recognize that they cannot compete with internal-bloc businesses, but those with popular imported products may find more domestic success. Flexibility is also vital, where volatility may be a common feature of UK and European markets than previously known.

Reinforce their capabilities

Brexit means that UK businesses will have to stress their capabilities and advantages to new competition within the UK, and to their existing EU customers that may be discouraged by new tariffs, regulations, and checks. Whilst in the trade deficit, businesses should concentrate their efforts to reinforce their specialist skills and products that can also be procured through their business and trade. Only then can supply chains encourage economic growth.

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Sources

https://commonslibrary.parliament.uk/research-briefings/cbp-7851/

https://www.statista.com/statistics/284750/united-kingdom-uk-total-eu-trade-in-goods-by-trade-value/

https://ec.europa.eu/eurostat/statistics-explained/index.php?title=United_Kingdom-EU_-_international_trade_in_goods_statistics#EU_and_the_United_Kingdom_in_world_trade_in_goods

renewable energy
Archives, Global Trade Daily, Utilities

Best Renewable Energy Stocks in 2021: A Survey by Paul Harmaan

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The global economy nowadays is pivoting towards renewable energy, leaving fossil fuels behind. According to Paul Haarman, the economy is evolving and finding ways to adapt to modern technology, changing the whole world and making it more efficient. The various green energy sources that it was planning to adopt vary from solar energy to geothermal energy, from wind to biomass, and many more.

For the economy to convert to clean renewable, there will be a need for a strong financial back which is possible only when we use the economic prowess of renewable energy, and this is only possible through their stocks. So let us go in-depth to understand a few of those energy stocks.

Stocks for Top Renewable Energy

According to Paul Harmaan, various energy stocks like biomass, wind, solar, geothermal, etc., are present, which could support fast-forwarding the clean energy conversion for the economy. First, however, we will look for two of the best stocks where you should invest your money to get the best returns

First Solar

First Solar is one of the top leaders responsible for developing efficient thin-film solar panels. The company produces low-cost electricity per watt compared to the traditional silicon-based panels. Their solar panels are efficient mainly because they work well in extreme hotness and humidity conditions and work efficiently in shedding snow and debris quickly. These few features make them the most ideally used solar panels for utility-scale applications.

Moreover, the panel manufacturing sector of the first solar acts like a strong balance sheet responsible for making First Solar the number one choice and making it stand out.

NextEra Energy

NextEra Energy is responsible for two businesses which it runs efficiently. One business shows the efficient use of the competitive energy segment and is responsible for generating electricity. Besides this, it also transports natural gas under fix-free agreements that are beneficial for the long run. At the same time, the other one revolves around the rate-regulated electric utilities that NextEra Energy takes responsibility for and distributes that power to various businesses and consumers.

One of the highest credit ratings with the support of the largest electric utilities makes the NextEra Energy-efficient in working its stable operations responsibly. The two efficient businesses conducted by NextEra Energy are solely credited, and why shouldn’t they? The combined powers of both businesses help produce extra units of energy from natural resources like that of the wind and the sun, which any other company in the world is incapable of, making it a unique company.

Future of the Top Renewable Energy stocks

The effective and efficient shift by the world economy from fossil fuels to renewable energy sources or clean energy sources has created a massive opportunity for a variety of investors to look into the profits. At the same time, they understand the concept of how these sources can change the world and turn it into a better place. Suppose there is a need to find the future of these top renewable energy stocks. In that case, the most important thing to look for is the balance sheet of the company and the solar energy-focused growth profile, as these two main factors are highly responsible for generating higher returns in the future both for the world and the investors.

U.S. business
Archives, Global Trade Daily, International Trade

U.S. Business Says “Make America Integrate Again”

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In December 1791, United States Treasury Secretary Alexander Hamilton submitted his Report on Manufactures to Congress. In it, he made the case for transitioning the country’s economy from a primarily agrarian model to an industrial one that would level the trading playing field with Europe. An important part of his proposal was to introduce tariffs that would deter imports of products that could compete with the nascent U.S. manufacturing sector. Less than two years later, the Yellow Fever epidemic struck the United States. Hamilton and his wife fell ill and recovered.

And hopefully, that’s where any parallels with the present-day end.

The first half of the 18th century saw one of the most active periods of protectionist tariffs in the history of the United States, largely as a response to interrelated economic and military wars that the country was engaged in at the time with trans-Atlantic continental powers. As we emerge from the COVID-19 pandemic in 2021, it would likely be premature to claim that the U.S. has resolved its trade conflicts across both oceans. Some argue that the new administration will be unlikely to ease trade policies (and tariffs) against China, in particular. However, there is a view that a policy of more open engagement with other overseas partners – particularly historic allies – will lead to less protectionism in the coming months and years. And that this can aid the economic recovery that the country urgently needs to pursue as we address the damage inflicted by the pandemic across many areas of our economy

That view is certainly supported by a significant number of U.S. business leaders. In a survey of 500 senior business executives recently conducted by DHL and Vanson Bourne, nearly 9 out of 10 (89%) said that their organizations’ economic recovery will rely upon robust international flows of trade over the next 12 months. 81% of the same group = each representing companies with at least USD 1 billion of sales –  also believe that their organizations’ profitability would increase if the U.S. were to move away from some of the protectionist trade policies of recent years.

The DHL Global Connectedness Index (GCI), produced by researchers from NYU Stern’s School of Business, has since 2011 provided a clear illustration of the correlation between more global connections and prosperity. The GCI researchers have argued that countries could achieve GDP increases of up to 5% by implementing policies that increased the flow of trade, capital, people and information. While the U.S., by virtue of the size of its economy and population, has a low level of international trade flows relative to its domestic economy, it enjoys some of the broadest trade relationships globally, ranking second in this dimension of the GCI. North America is the top region globally in terms of information and capital flows, which is a testament in large part to the global reach of both Wall Street and Silicon Valley. As the survey respondents assert, by unleashing even more of its trade potential, and perhaps even copying aspects of the “free-flowing” model that it has applied to establish itself as a global leader in capital and information, the U.S. has an opportunity to unlock economic growth and bolster its post-COVID recovery.

There are some low-hanging fruits already in place. Closer to home, the USMCA has already laid some of the foundations for international cooperation. Modified to reflect a new digital economy, the agreement will undoubtedly support U.S. businesses that are looking to trade with Canada and Mexico, particularly online. We at DHL have seen first-hand the increasingly prominent role that e-commerce has played in the economy throughout the pandemic, and while this has been fueled by social distancing and lockdowns, we see it simply as a rapid acceleration of a trend that was already in play. COVID has brought e-commerce forward – both for B2C and B2B businesses – by 7-10 years within just one year. Much of our consumption will remain online even as things return to “normal.” North America was a top-three priority market for 78% of respondents in our survey, and U.S. companies will likely see outsized online demand from our neighboring markets over the coming years.

Perhaps most significantly, U.S. business leaders also recognized in the survey the value of leadership and engagement on global issues not directly related to their next 10k earnings report. An overwhelming majority of business leaders – 96% – see it as important for the U.S. to reconnect with its allies on climate change and specifically to reengage on the Paris Climate Accord. This clearly reflects that business leaders have kept longer-term challenges such as guaranteeing the longevity of the planet for future generations in view, despite the short-term challenges posed by the pandemic and a more inward-looking policy agenda.

The case for more free trade and the desire for closer integration with the international community are clearly evident from our research. While international trade will undoubtedly be competing with many other policy issues on the agenda of the new U.S. administration, the U.S. business community has signaled that the COVID-19 pandemic has created both an imperative for action on trade and an opportunity for this country to once again reassert its leadership both economically and morally on the world stage.

payments
Archives, Banking, Global Trade Daily

HOW TO BETTER PREPARE PAYMENTS FOR FUTURE DISRUPTIONS

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A particularly virulent and nasty airborne virus, it has so far accounted for 2.5 million deaths worldwide with more than 110 million cases recorded at the time of writing. Given these numbers only represent reported incidences, the real tolls could well be substantially higher.

The pandemic has especially caught western societies on the backfoot. Unlike regions more used to infectious disease outbreaks such as Asia and Africa, the likes of Europe and North America have not had to deal with a public health threat of this kind since the Spanish flu disaster of 1918, a four-wave pandemic which is thought to have killed 675,000 people in the USA and 50 million worldwide.

Vaccinations are key to emerging from the worst of the crisis during 2021, both in terms of public health and the economy.

Regarding the latter, COVID-19 has been nothing short of a disaster. America has disproportionately suffered from the coronavirus: Not only does it have the highest registered death toll, but it is also forecast to lose trillions of dollars in revenue.

Predicting the size of the economic fallout is far from straightforward, and estimates vary tremendously.

According to a study by the University of Southern California, anywhere between $3 trillion and $5 trillion could be lost over the next two years, while economists at Harvard believe the pandemic will cost the U.S. $16 trillion, assuming it is over by this fall.

While uncertainty remains as to the exact extent of the financial damage, what cannot be denied is that the financial losses are and will continue to be enormous for years to come.

The second quarter of 2020 saw real gross domestic product in the U.S. decrease at an annual rate of 31.7 percent, the largest quarterly plunge in activity on record.

And one of the most worrying patterns emerging from 2020 is companies struggling to manage cashflows and stay afloat. Payments simply are not flowing through supply chains as they ordinarily would, an observation which is borne out by several reports and surveys.

For example, trade credit insurer Atradius reports in its annual Payment Practices Barometer that businesses across the USA, Canada and Mexico are facing widespread cash and liquidity pressures. Meanwhile, business credit information firm Cortera reported that in May 2020, large companies with more than 500 employees paid their suppliers 15.6 days late on average, up from around 10 days a year earlier.

Responding to economic disruption

So, how can companies safeguard themselves against this sort of financial disruption both now and in the future?

Paying particular attention to cash flow during times of crisis is essential if businesses are to emerge from this black swan event intact–even those that appear to be in strong financial shape, given the longevity of the demand and supply chain disruption being witnessed.

At the start of the pandemic, around March 2020, Deloitte released a series of advice papers on how supply chains can cope with the then anticipated fallout, one of these being “COVID-19: Managing cash flow during a period of crisis.”

“Given the importance of cash flow in times like this, companies should immediately develop a treasury plan for cash management as part of their overall business risk and continuity plans,” the report states. “In doing so, it is essential to take a full ecosystem and end-to-end supply chain perspective, as the approaches you take to manage cash will have implications for not only your business but also for your customers.”

Deloitte draws on lessons learned from the 2003 SARS epidemic, the 2008 global financial crash, and the 2011 Japanese earthquake, offering 15 specific practices and strategies for companies to better manage their cash flow.

15 ways to better manage your cashflow

1. Ensure you have a robust framework for managing supply chain risk.

2. Ensure your own financing remains viable.

3. Focus on the cash-to-cash conversion cycle.

4. Think like a CFO, across the organization.

5. Revisit your variable costs.

6. Revisit capital investment plans.

7. Focus on inventory management.

8. Extend payables, intelligently.

9. Manage and expedite receivables.

10. Consider alternate supply chain financing options.

11. Audit payables and receivables transactions.

12. Understand your business interruption insurance.

13. Consider alternate or non-traditional revenue streams.

14. Convert fixed to variable costs, where possible.

15. Think beyond your four walls.

*Source – Deloitte, “COVID-19: Managing cash flow during a period of crisis”

Among them is advice to extend payables–in other words, take longer to pay suppliers. However, Deloitte warns against delaying payments without prior agreement with customers, urging dialogue between both parties to ensure the supply chain is as minimally disrupted as possible.

Indeed, companies may wish to bring forward payments to suppliers if it prevents them from going out of business, the consequences of which being far costlier than using up some of your own cash reserves early.

As a supplier, offering dynamic discounting solutions for those able to pay more quickly could be a way to improve your cash flows; by using this technique, you are essentially paying customers to provide you with short-term financing. Going down this route could be expensive in the long term, but it could be the only viable option if other financing methods are not available.

Perhaps the most important, albeit least tangible piece of advice is to think outside of the confines of your own business. Rather than simply focus on your own operations, companies should think about how their actions will impact the wider supply chain ecosystem.

A further question revolves around the ways in which payments are being made.

COVID-19 has accelerated the adoption of digital and automated payment methods. For instance, according to research by digital transformation platform MX, there has been a rise in mobile banking engagement of 50 percent since the end of 2019.

The U.S. has been behind the curve on supply chain financing for quite some time. Widescale adoption of electronic, data-driven invoicing will create fluidity and working capital for both suppliers and buyers.

Responding to social disruption

Another dynamic to consider is how to mitigate social disruption.

There is already evidence that the COVID-19 pandemic has rekindled divisions within society–black and ethnic minorities are disproportionately affected by the virus, while the poorest have been hit hardest by the financial costs of lockdown policies.

While not being ostensibly linked to coronavirus, the traction gained by the Black Lives Matter movement in the U.S. has undoubtedly been heightened in the pandemic’s context.

It has also prompted major shifts in consumer and business circles: Citizens and enterprises are putting time and capital towards prioritizing diversity and inclusion.

“Supplier diversity initiatives are no exception,” states supply chain software provider GEP in its 2021 Outlook. “In 2021, procurement and supply chain leaders will need to do more–by developing new approaches to include minority-owned businesses to achieve real targets for supplier diversity.”

Indeed, hardwiring diversity and inclusion into the procure-to-pay process will help organizations respond to the social unrest of 2020. This will involve tracking and benchmarking metrics at a transactional level, and companies can start by focusing on direct spending with small and diverse suppliers.

Going back to Deloitte’s advice on thinking beyond your four walls, businesses should also monitor the revenue growth of their suppliers in order to fully assess the impact of their supplier diversity and inclusion strategies.