The current political uncertainty and unpredictable world economy will not change anytime soon – but exporters should not be overly concerned, says Bhupesh Gupta, a world expert in risk management.
Mr Gupta, the Asia Pacific CEO for Coface, says the uncertainty caused by Brexit, recent European elections, new US trade policies and potential world conflicts are keeping many exporters awake at night.
“But I’m not worried too much,” he said during a recent visit to Sydney. “Because although I am seeing overdue payment cycles getting longer, I’m also seeing people working harder to meet the requirements that the liquidating gap is creating.
“So we’re actually seeing a more docile environment overall.
“Australian exporters should not be too concerned.
“Is it a time bomb ticking or is it something that will pass?” he asks, “I wish I had a crystal ball.”
With offices in 100 countries, Coface is a global leader in trade credit insurance and global risk management.
The Coface Group offers companies around the globe solutions to protect them against the risk of financial default of their clients, both on the domestic market and for export.
Over the past 20 years Coface has had a direct presence in 13 markets in the Asia Pacific region and Sydney is now a key location in its Asia-Pacific network.
When it comes to credit insurance, Mr Gupta says there are currently a few red flags for Coface.
“In some countries we continue to be cautious – and we continue to stay away from commodity traders. But overall, we are starting to see stabilisation setting in … so we are now in a climate where we can support the exporters that need support.”
That support is not always about convincing exporters they need credit insurance.
“Sometimes it is by declining insurance because the risk is too high – and they should take cognizance of that. We also provide insight which should give exporters more comfort when they are trading with the world."
Each quarter, Coface publishes its assessments of country risk for 160 countries, based on its unique knowledge of companies’ payment behaviour and on the expertise of its 340 underwriters located close to clients and their debtors.
Coface is a risk management AND an information company, says Mr Gupta.
“We can help identify the places where you should be taking risks and where you have greater certainty of getting paid.”
Mr Gupta says the biggest challenge now facing exporters is price pressure – with thinner profit margins.
“When you go through these cycles of uncertainty people are going to put off decisions and they are going to pay less for products and services.
“And there is going to be more pressure on commodity prices.”
Sectors most at risk
So, which sectors are most at risk in the current climate?
“Construction,” Mr Gupta says without hesitation.
“This is the sector that remains most at risk.”
“There is no other sector that really stands out across the board.
“But the construction industry is definitely a worry in terms of oversupply globally.”
More deal flow
Mr Gupta remains “cautiously optimistic” of an overall improvement in trading conditions next year.
“I am starting to see more deal flow,” he says.
“Activity is increasing in an environment of volatility and uncertainty – which means more people are willing to think about insurance – and that’s a good thing.”
Mr Gupta, who has more than 25 years of international experience in credit, origination and risk management, has been in his current position for 12 months.
During that period the company is collaborating more on a global level to deliver better customer service and stronger relationships with clients and brokers, he says.
“We have grown from a company with a culture of being very good at underwriting to become a company that can work together that can deliver more value for our clients.”
Shortly after Mr Gupta’s visit to Sydney, International ratings agency Fitch affirmed the company’s AA- rating, reflecting the company’s “very strong business profile in credit-insurance, very strong ‘capitalization and leverage’, and profitability, although earnings were hit by adverse claims experience in 2016”.
According to Fitch, the Group “has strong franchise in credit insurance with a high level of geographical diversification”, which supports its solid business profile.
Reluctance to use credit insurance
Mr Gupta remains optimistic that the company will continue to grow its business in Australia despite a reluctance by many exporters to use trade credit insurance to reduce their risk.
Surprisingly, only about 10% of exporters in Australia take credit insurance cover, compared with 40% in Europe.
But that position is gradually changing.
“Many Australian businesses are now exporting to places where they cannot afford to underwrite the risk – and that is where we can help,” says Mr Gupta.
“It’s not a case of ‘if’ something might happen – it is always ‘when.’
“We are always happy to talk to people and explain the benefits (of credit insurance).
“We are selling a partnership that allows you to focus on your core strengths, while we take the risks.”
Mr Gupta said Coface is now considering hosting a major risk conference seminar in Australia next year.
“Many people – even in banking circles – don’t know what credit insurance is or how it works.
“A seminar of this kind would help to provide those answers.”