‘Beware the impact of Eurozone troubles’

African exporters should not underestimate the impact on their trade of struggling European countries, Credit Guarantee economist Luke Doig said last week. “A saving grace for South Africa is that Greece is only our 62nd largest trading partner, so if one looks at our total insured turnover then Greece only represents 1% of that,” said Doig. “So in the bigger scheme of things Greece is very small, but one should be concerned about the effect of Greece’s turmoil on the entire Euro region and the impact that will have on South Africa and African exporters at large.” He said while the bail-out package offered to Greece was expected to make some difference it was debatable whether this would be sufficient. “Spain is expected to re-enter recession possibly late in the last quarter of 2011 or early 2012, while Italy will need to repay or re-finance 260 billion euro of debt next year.” He said all this was placing pressure on banks and warned exporters not to just rely on letters of credit to ensure payment. “The perception of the South African exporter must surely have changed by now because of the ongoing crisis,” said Doig. “In other words the debtor may pay, but the international European bank may not. The terms of bank to bank letters of credit have changed as the markets have become more volatile and really the only safe guarantee outside credit insurance is cash in advance for one’s goods.” Momentum in the global economy has slowed and is continuing to do so, Doig added. “Taiwan is usually a very good indicator of global trade and growth, and they have had four months of negative growth. We are not seeing any encouraging signs at the moment, and while trying to predict markets in times like these really is like looking into a crystal ball, it is important to at least be aware of the risks.” Credit Guarantee’s general manager Theo Reddi, who recently visited several African countries, said they were extremely optimistic about the opportunities for trade on the continent. “Having just been to Cote d’Ivoire I am very optimistic as business seems to be on the increase and there is very little sign of the civil war. We have been active in many of the African markets, like Zambia, for many years and we are seeing an increase in the insured turnover growth into Africa.” He said this was because clients were realising and recognising the fact that they could no longer rely on traditional markets and had to branch out. “In Africa you must be willing to take the risk and we do it with them,” he said. “We have been into the African region and we have looked at the risks that we underwrite – in Africa you don’t underwrite perceived risks, but real risks.” Another growing market was South America, said Reddi, especially in industries such as steel, fruit and pharmaceuticals.