Credit Management July and August 2020

INTERNATIONAL
TRADE
Monthly round-up of the latest stories
in global trade by Andrea Kirkby.
Retailers rapidly fall
out of fashion
WITH coronavirus eating its way
through global economies,
fashion seems to have a big
red target placed upon it. In
recent months, the UK has seen a number
of retailers in the sector fail including
Oasis and Warehouse while others are
struggling too including Cath Kidson and
Debenhams. Even firms that are in better
positions have been cancelling orders with
manufacturers.
However, the travails of the sector are
most definitely not confined to the UK.
In the US, for example, preppy retailer J.
Crew Group is preparing for a bankruptcy
filing. The company is reportedly
working to secure $400m in financing
to fund operations in bankruptcy. While
coronavirus was the tipping point, it
doesn’t help that the New York-based
retailer had already been struggling under
a heavy debt load and sales challenges as
it suffered criticism that it had fallen out
of touch with its once-loyal customers. On
top of that the company has been grappling
with competition from online firms such as
Amazon which have taken market share.
The point for exporters in this
sector is very clear. Be careful when
accepting orders so that contracts cover
cancellations, that sales days outstanding
are kept to a minimum and that no matter
where in the world the client is, they will
be able to pay. If they can’t pay you may as
well hunt down re-runs of the Jeremy Kyle
show to fill your time.
EU aren’t likely to
get any benefits
IT’S what most of us already know. Michel
Barnier, the European Union’s Brexit negotiator
has recently gone on record as saying that the
UK is not automatically entitled to any benefits
that the bloc had previously granted to other
partners on trade.
Barnier said: “The UK cannot expect highquality
access to the EU single market if it is not
prepared to accept guarantees to ensure that
competition remains open and fair.”
So, is it game over? Do we have to prepare
for trade barriers to be imposed or will there be
some compromise? Who knows, but if I were an
EU-centric exporter I’d be taking a twin track
approach of maintaining my present customer
base while looking elsewhere for business.
“The UK cannot expect highquality
access to the EU single
market if it is not prepared to
accept guarantees to ensure that
competition remains open and fair.”
READERS will hopefully recall that last
month I reported that Japan kicked its
economy in the teeth by raising its VAT
rate from eight to 10 percent and that as
a result, consumer spending contracted
by 11.5 percent.
Well Japan’s not been alone in
making changes to its VAT rate -
Saudi Arabia is to triple its recently
introduced VAT from five to 15 percent
from 1 July this year. However, unlike
Japan, it’s to hike the rate through
sheer economic necessity as it strives
VAT WON’T DO NICELY
to support its coronavirus-hit economy.
On top of the VAT rise, a cost of living
allowance worth 1,000 riyals (around
£216) was suspended from 1 June. The
allowance only came in two years
ago to help offset increased financial
burdens of the introduction of VAT and
a rise in the price of petrol.
The core of the problem is that
government revenue has dropped
through the floor as a result of a huge
fall in demand for oil which in turn has
seen the price of oil crash. Oil revenues
in the first quarter fell by 22 percent
from a year earlier to $34bn. Further,
the Saudi’s appear to be living beyond
their means; the kingdom had a $9bn
(£7.2bn) budget deficit for the same
period.
As with other countries, measures
to fight the impact of coronavirus are
expected to slow the pace and scale of
economic reforms.
So – be careful with your exposure to
Saudi Arabia as careless trading could
see you lose your head.
Advancing the credit profession / www.cicm.com / July & August 2020 / PAGE 30