Looking back over the past month, EFIC’s World Risk Developments newsletter continues its update on the eurozone, Australia continues to attract millions of Chinese tourists, South Africa continues to experience economic turmoil, food price hikes impact African and Middle Eastern countries, Turkey’s exports to core European countries dramatically fall and Vietnam’s bad debt in the banking system hits an all time high.

Eurozone

The recent unveiling of the Outright Monetary Transaction (OMT) program by the European Central Bank (ECB) was highly welcomed by European Markets, however Roger Donnelly from EFIC questions whether the ECB’s introduction of the OMTs will actually ease Europe’s debt crisis.

According to Donnelly, he explains the program intends to allow the ECB to buy sovereign bonds off countries with the purpose to level the playing field between the banks and economies that want to reform.

Since the introduction of the OMT, Spanish and Italian bonds have risen, driving optimism levels up that the “program would seem to be a big step towards resolving the eurozone crisis,” said Donnelly, however “the transactions are an important step, but won’t by themselves fix the eurozone,” he added.

Donnelly warns there is a catch and difficulty remains if weak eurozone economies cannot “boost competitiveness and growth, and promote rebalancing.”

“The ECB is saying that it can act as a lender of last resort…[but] there will be strings attached that governments might baulk at. Or if a government backslides in meeting its conditions, the ECB will withdraw its support. So governments will remain prone to debt rollover difficulties and to the temptation to default on their debt, even to leave the euro area.”

Donnelly noted “the OMTs will do nothing to fix the underlying imbalances in the euro area – in particular the big external imbalance that sees core countries “ship too much and shop too little” and Peripheral countries “shop too much and ship too little.”

He recommends “area-wide demand needs to be rebalanced, and that is a matter for other economic policy instruments beyond monetary policy.”

South Africa

According to Donnelly, South Africa’s investment and regulatory climate needs improvement, as deteriorated ore grades, lack of labour, poor infrastructure, and continued unrest in its mining industry “highlights the country’s broader economic problems.”

Its recent deadly protests have affected production where 44 percent of Australian mining equipment and technology services companies have operations in South Africa.

Australia currently sponsors 134 mining projects in South Africa.

Africa and the Middle-East

Donnelly reported that the Food and Agricultural Organization’s food index has noted “high food prices are causing hardship in Africa and the Middle East,” which he predicts may possibly “lead to political instability.”

He believes the United State’s drought has also contributed to the recent price hikes in corn and soyabean produce. The summer heatwave has reportedly “destroyed 45 percent of the corn and 35 percent of the soybean crop,” contributing to the 2008, 2010-11 and 2012 price hikes.

Turkey

Turkey’s automotive products, textiles and clothing exports to core European countries have seen a dramatic fall notes Donnelly, where he asserts, is heavily impacted by the euro-zone crisis, resulting a slowdown in the country’s economy.”

However, Donnelly noted the slowdown was welcome as “expansion was built on shaky foundations, notably surging domestic demand,” but global rating agency Fitch Ratings has upgraded its outlook on Turkey’s economic climate suggesting a “soft landing” is predicted, which will see Turkey making solid progress.

Vietnam

Donnelly has highlighted Vietnam’s desperate need to help restore its banking sector that is struggling under large stock of bad debt.

Weakened assest prices, tightening of credit conditions due years of rapid credit expansion has dramatically affected the banking system noted Donnelly. The frality of Vietnam’s financial system was further highlighted by the arrest of the county’s banking tycoon Nguyen Duc Kien.

Consolidating the sector, writing off bad debts and boosting capital levels is required if Vietnam wants to regain its vigour, Donnelly said, recommending the country to encourage private capital into the banking sector or fund private capital by borrowing due to its low external debt.

However, Donnelly noted Vietnam has no intention to request International Monetary Funding (IMF) aid if the country has not exhausted all recovery options.

Korea

The Korean financial market has seen the country’s sovereign credit rating boosted to Aa3 from A1 last month, Donnelly reported.

This upgrade, Donnelly asserts to Korea’s “strong fiscal position and the declining reliance of banks on offshore funding.”

However, Donnelly noted an economic slowdown is underway as industrial production and exports have fallen by five percent over the past year and as Australia’s third largest export market – primarily iron ore, coal, fuels, and agricultural products – he predicted Australia will experience implications.

Donnelly reported an alarming increase in lending of non-strict loans by the non-bank sectors to low income earners, which he notes is a concern for household debt, but he believes “the overall financial position of households remains relatively strong, with debt to financial assets just under 50 percent and debt-to-liquid assets just over 100 percent.”

Australia

As China’s middle-class continues to grow, so too is Australia’s inbound tourism. Donnelly says Chinese visitors to Australia are growing in numbers, double to that of Japan visitors.

He noted from January 2009, Australia has seen an increase of more than 60 percent in Chinese visitors despite the high Australian dollar.

According to the latest figures released by the World Tourism Organization, Chinese tourists have spent US$73 billion on international tourism.

Ian Murray from The Export Council of Australia said the finalists this year were a big stand out in ways of doing business and despite the economic uncertainty, were able to find innovative marketing and distribution channels.

“In this global economic environment it is difficult to maintain sales and market share let alone deliver a healthy margin. Many export awards finalists this year did both, even companies doing business in Europe and the United States achieved good outcomes,” Murray said.

The annual NSW export awards ceremony has, to date, honoured 324 of the its companies for their exporting success, and will automatically progress as national finalists to the Australian Export Awards among the nations highest achievers in international export.

The winners will be announced at the gala dinner event held at the Sydney Convention Centre in Darling Harbour on the 11th of October.

For more information on the finalists visit The Export Council of Australia website.

Founded in The United Arab Emirates, the world leader in yacht exports is set to use MultiPanel products in its new 75-foot Majesty yacht expedition craft, making the switch from marine plywood.

Tony Russo from MultiPanel said the company is delighted to be supplying one of the world’s premier super yacht manufacturers and is confident MultiPanel’s quality products “will only enhance Gulf Craft’s class and excellence in producing a quality finish”.

In order to eliminate unnecessary vessel weight, flat wall and ceiling panel products will be specifically used as the products are 100 percent waterproof, made from high-density polyurethane composite material that is 70 percent lighter than marine ply.

The boat maker’s design team will also look to incorporating MultiPanel into their range of cabinetry work, which could see Gulf Craft saving tons in weight thus increasing performance and fuel efficiency.

Mohamed Bin Hussein Alshaali from Gulf Craft said MultiPanel’s material versatility could not be ignored, particularly when it came down to design options.

“When you have a versatile material such as MultiPanel, you are not limited in your design, as the material can be used anywhere for virtually any application whether it be wall linings, fridges because it acts as a good insulator or as a simple material to construct furniture and cabinets in the fit-out phase,” said Alshaali.

MultiPanel’s Tony Russo and its fabrication specialist David Russo will head off to Dubai for two weeks to guide and supervise the production staff upon the arrival of its first container shipment.

According to the latest Coface Country Risk Assessment Review, Spain and Italy have been placed under negative watch as the unemployment rate continues to soar in both countries.

Since March 2012, Spain’s unemployment rate has risen above 24 percent as company bankruptcies rise across its construction; agricultural, electrical, chemical and non-specialty trade sectors. This rise can be seen as a contributing factor to the country’s overall economic decline, hindering any possible recovery.

Italy, too, has hit record unemployment levels, with over 10 percent of the population jobless as of April 2012. The report also revealed a strong decline in payment of company debts across its metallurgy, agri-food, construction and textile industries.

Cyprus has also called for financial assistance after its banking sector was seriously exposed to Greek risks. The country’s construction sector has also been seriously affected by the burst of the property bubble.

The fear of inflation and the level of public debt have begun to upset India’s ranking, as the country experienced its weakest growth in the last nine years. The decline in quality infrastructure has triggered a growing concern among foreign investors, negatively impacting the country’s potential growth and, as a result, Coface has placed India under negative watch.

The increasingly restrictive intervention of Argentina’s Government on its import and export controls has contributed to its slow economic growth, decreasing the country’s business climate rating. These controls have begun to negatively impact household and business confidence across the country.

Despite Europe’s economic condition continuing to plummet, the Coface report reveals positive rankings for Nicaragua, Ivory Coast, Slovakia and Indonesia.

The report revealed Indonesia’s domestic markets are flourishing as China’s demand for raw materials increases. Reforms to its banking sector and its priority to tackle corruption has helped Indonesia to withstand today’s uncertain economic climate.

The report further disclosed that Guatemala and the Czech Republic country ratings have also declined.

Due to popular demand about addressing the need of engagement with China, Sara Cheng from Australian Business Solutions wants to help businesses to be ‘China-business-ready’.

The online course, Engaging with China, aims to educate members about: the systems and trends underpinning China and its business practices, recognising and understanding the tactics of Chinese negotiators, and being able to speak some key Chinese business words and phrases.

The course is made up of 1.5 hours interactive online sessions over a six-week period, using real world case studies. All live sessions will also be recorded.
The Engaging with China course is priced at $880 (inc. GST) and AIEx members will receive a 10 percent discount.

Australian Business Solutions are currently accepting enrolments for the online course to commence on 16 July and 1 October 2012.

For more information about the online course or to enroll, click here for more.

Supported by a continued demand from Asia, the Agricultural Commodities June quarter report projected the value of the industry to be approximately $38.1 billion in 2012-13.

Dr Kim Ritman, ABARES’ acting executive director, said: “Farm export earnings are forecast to be around $34.4 billion in 2012-13,” 4.5 percent lower than the estimated high of $36 billion in 2011–12. However, the figures are still higher than the recorded figure of $32.4 billion in 2010-11.

Forest products are estimated to increase to $2.4 billion (3.4 percent), fisheries is expected to rise to approximately $1.3 billion (1.5 percent) and Australian sale-yard meat produce prices are predicted to continue relatively high at an average of 320 cents a kilogram.

In the 2011-12 estimation, ABARES predicted wheat prices to be roughly US$298 a tonne, however in a revised prediction, it is now estimated to project around US$260 a tonne in 2012–13.

“This downward revision mainly reflects forecast lower world prices for some agricultural commodities,” Ritman advised.

In a bid to capitalise on the growing economic powerhouses of India, China and the rest of Asia, the value of South Australia’s exports has set another record for the ninth successive month, exceeding all other states across the country.

South Australia’s Minister for Manufacturing, Innovation and Trade Tom Koutsantonis said the value of goods exported overseas by SA rose by 8.8 percent, totalling a figure of $11.7 billion in the 12 months leading up to April 2012. In the same period during 2011, SA exports totalled $10.7 billion.

“The official statistics month after month show South Australia’s export growth outpacing the national average. April is no exception with South Australia ahead of the nation, faster than Queensland and is [sic] on par with Western Australia, the two other large mineral exporting states,” Koutsantonis said.

He further added their aim of international engagement will not only focus on scoring trade opportunities, but will also exercise the State’s growing profile to draw foreign investment in order to advance and further build upon export capacity.

According to the figures, in the year leading to April 2012, export commodities reported a record growth for wheat, totalling $293 million, metal ores and metal scrap rose by $284 million and petroleum and petroleum products rose by $64 million.

“These stellar results prove yet again that South Australia is leading the pack in export growth,” Koutsantonis said, adding that he’s committed to building on the success “to ensure our export levels continue to grow in the future by focusing our efforts on emerging growth markets in our region such as China and India.”

Australia’s current economic status has left a number of SMBs concerned according to an HSBC study and in an effort to grow their businesses, 21 percent of the 300 SMEs (with revenue up to $30 million) surveyed are planning to start trading internationally during 2012 with the aim to expand, improve and enter offshore markets. 35 percent of the surveyed businesses have already taken advantage of the offshore trading markets. According to the study, in 2011 the global economic climate was their main concern. Now, it’s the Australian economy that tops their list.

Andrew Skinner from HSBC Bank Australia said Aussie SMEs want a piece of the international trading pie after realising the advantages of extending their services offshore. “As Asia-Pacific countries urbanise and the middle classes grow, there’s a race to climb up the value chain, and Australian SMEs are finding they have significant advantages over in country competitors in areas like construction, agriculture and business services as they cater for the increasing sophistication of consumers in these markets,” said Skinner. The most popular international trading destinations include China, the US and UK.

Skinner says despite the US and UK report subdued economic growth, many SMEs are happy to establish trading deals with countries that share common business practices to Australia. China’s status as the world’s second largest economy and Australia’s largest market for services exports make it an obvious destination of choice.

The all day Fashion Export Briefing and Cluster Workshop provided Australia’s up and coming designers with important export know how about the do’s and don’ts when developing a successful and viable fashion business.

The designers took: “their first export steps in exploring emerging markets,” said NSW Deputy Premier and Minister for Trade and Investment Andrew Stoner, who was present at the workshop.

He said the class aimed: “to increase designers’ understanding of ‘how it is’ in the real world by sharing their own experiences through clustering and learning first-hand from local and international experts.”

The collaboration is believed to be an important stepping stone in creating a much needed supportive network for emerging talent to grow and thrive in fashion export success.

The fashion industry in NSW alone employs an estimated 66,000 people across wholesaling, retailing and design, with a generated sales and service income of approximately $7.4 billion each year.

“37 percent of Australia’s creative industries are based in NSW, with around 150,000 people in NSW directly employed in this sector in the areas of film, music, design and fashion,” said Stoner.

“I was delighted to open the inaugural Fashion Export Briefing and Cluster Workshop recently, which was a great opportunity for emerging designers to learn from the experts. Behind the glitz and glamour of Fashion Week, a lot of hard work goes in to ensuring designers are export-ready.

“The NSW Government, through NSW Trade and Investment, is proud to support the NSW fashion industry, which plays an important role in both the State’s economy and Sydney’s role as a creative capital,” added Stoner.

Stephen Laundy from UK’s Fashion Compass, Jarrad Clark, director of IMG and Project Runway judge, and David Bush, the general manager of David Jones shared their priceless wisdom to the fashion enthusiasts at the workshop.

Emerson will be attending the G20 Trade Ministers’ event as well as the Expomin exhibition in Chile’s capital, Santiago – one of the world’s most important mining events recognised as a key industry fair for suppliers.

The trip plays an important role in seeking to welcome relationship and trade opportunities for Australian companies with other Latin American nations.

“Australia and Latin America have much to gain from working together on economic reform, mining regulation and vocational education and training,” Emerson said.

Other invited Australian guests will be there to reveal progressive technology and services in the mining market, reportedly a developing part of Australia’s involvement in resources in Latin America.

The G20 Trade Ministers’ Summit, which will be held in Puerto Vallarta in Mexico, will concentrate on the importance of trade as a source of progression and employment as the global economic recovery struggles to take hold.

Emerson said: “Our focus in the G20 is on policies that promote economic growth and create more and better jobs. Trade is essential to these goals.”

The G20 Trade Ministers’ Meeting will be held from 18 April to 20 April.