During a recent visit to Australia, Bhupesh Gupta, Asia-Pacific CEO for Coface, warned Australian exporters should brace themselves for more economic and political global uncertainty over the next 12 months. And he should know. With offices in 100 countries, Coface is a global leader in trade credit insurance and global risk management. Speaking with Dynamic Export editor Tim Michael, Mr Gupta says exporters can expect some short-term pain before enjoying long-term gain…
DE: A weaker Australian dollar and free trade agreements with China, Japan, South Korea, Peru and now TPP-11 have created new opportunities for Australian exporters. What advice can you give them to help minimise risk?
BG: The biggest issue for exporters at present is a disruption to the credit cycle across the world. The US-China trade war is evolving into a long-term face off, much like a cold war. The lines have been drawn and there is no easy resolution. This will have short-term implications for exporters. Also, we are seeing a lengthening of payment periods and an increase in defaults. So, to minimise risk exporters should be very careful about who they are selling to and on what terms. Experts like Coface can help them to navigate those risks. We are not a ‘taker’ of risk, but a ‘manager’ of risk.
DE: Which countries or regions currently pose the greatest risk for Australian exporters?
BG: Right now, it’s India and China. Both countries are facing short-term disruptions. India is facing three issues – demonetisation (which has held back growth), the unification of its tax regime (the implementation of a GST has caused economic uncertainty) and the Nirav Modi fraud case (which has led to a tightening of lending by banks and major financial institutions). In China, it is volatility in the real estate sector and local share market which has increased risk for exporters.
DE: Which industry sectors are most at risk?
BG: The mobile phone sector in particular – and some sections of agri-business and commodities continue to be weak.
DE: What are the greatest challenges now facing exporters in the APAC region?
BG: The biggest challenge is trying to navigate the current environment. Going forward I think the US will be the key driver of growth. Europe may stumble due to Brexit uncertainty and other issues and growth will be slower. Asia will also continue to drive growth with some of the emerging economies like Vietnam, Malaysia and Thailand increasing production and spending more.
DE: Should Australian exporters be doing more due diligence before entering into new markets?
BG: Absolutely. Particularly those businesses that are exporting for the first time. The risk is no longer visible. It’s getting murky. There are many ‘potholes’ to navigate. And where the road looks smooth, there may be new risks to that business and its cashflows. It pays to learn as much as you can about your buyers.
DE: What’s your prediction for the next 12 months? Can we expect to see an improvement in the number of overdue payments and insolvencies?
BG: The next 12 months is looking murky. Hopefully, next year we will turn the corner and there will be more clarity.
DE: So, what can exporters do to protect themselves from overdue payments and/or non-payment?
BG: Work with us. Banks will work with you up to a point, but not often when you are taking business risks out your home country. We have a breadth of information and experience that most banks don’t have.
DE: In the past, Australian exporters have been slow to embrace trade credit insurance compared with other nations in the region and in the US and Europe. Is this now changing?
BG: It’s slowly changing. It’s still an education process. Credit insurance is still unknown or misunderstood by many businesses. As an industry we have more work to do to make exporters more aware of the services we provide and how it can benefit them. It’s a slow process.
DE: What should Australian exporters look for when choosing a credit insurance provider?
BG: There are three main areas. Firstly, customer service – a provider should support the client every step of the way. Secondly, global reach – this is especially important if a business is exporting to several countries. Thirdly, transparency – providers should be open in what they can and cannot do. Some insurers make promises they can’t keep in order to secure a deal.
DE: Last month Fitch re-affirmed its AA-rating for Coface. What does this mean for the company?
BG: It’s huge. It gives our clients confidence they will be paid when a claim is made. It’s also critical for us when working with the major banks, which is a key part of our business. It’s a big advantage for us over our competitors. It demonstrates the kind of company we are and how we manage ourselves.
DE: Does new technology such as blockchain hold the key to the future for the insurance industry?
BG: New technology will streamline the insurance process for providers and clients. Blockchain is proven technology offering a high level of integrity. Insurance providers are not developers of blockchain, but the industry is actively pursuing the technology. Clients can expect to see blockchain technology widely used by insurance companies by 2025. It will make trade more visible and ensure greater security for businesses.
DE: Does Coface have any other new technology in the pipeline?
BG: We are looking at new ways to streamline the entire process for clients. Applications will soon be much easier and quicker. Clients can expect to see big improvements in our credit approval process in coming months. We are streamlining our underwriting tools, including the introduction of a new product that allows us to issue policies wherever a customer is located. These new tools will not only increase productivity for us, but more importantly for our customers. And there will be more focus on Big Data and artificial intelligence to further streamline the decision-making process making it quicker and more consistent.
DE: Finally, there are other insurance providers throughout the world offering similar services, why should I choose Coface?
BG: There are three main reasons. Firstly, our AA-rating, secondly our global reach and thirdly and most importantly we are an open, transparent company that will tell you things the way they are. Underlying that, is our expertise after 70 years in business. In that time, we have focused on collecting information, processing that information, rating companies worldwide and providing credit lines. They are very strong credentials.