Coface predicts contrasting fortunes for two important
In its latest Panorama Report of country risk assessments, a unique evaluation of the risk of payment default within different countries, Coface has updated its assessment for 11 different countries. Amongst these, Ireland’s risk assessment has been placed under positive watch, whilst South Africa’s risk assessment has been downgraded.
Ireland is the UK’s fourth largest export market in the European Union, accounting for 12% of total EU exports according to HMRC. Trade with Ireland in April 2013 was worth £1,450million, a fall on the March total but an increase of 7.5% on the figure for April 20121.
Coface suggests there may be light at the end of the tunnel for the Irish economy following the banking crisis. While growth was slower in 2012 because of the European crisis, the downturn was not as severe as had been feared, particularly in the important chemicals, IT and telecoms equipment sectors. Meanwhile, domestic demand is now contracting at a slower rate as residential property prices stabilise and the labour market improves. Coface forecasts growth of 0.9% in 2013 and has put a positive watch on its country risk assessment of A4.
However, Coface did warn of weaknesses within Ireland’s important agri-food industry where margins are being squeezed and believes that construction and distribution continue to pose a high credit risk. It also pointed to continued concerns about the damaged banking sector and the rising level of public sector debt which it forecasts will reach 124% of GDP in 2013.
The economic picture is less favourable in South Africa, the UK’s biggest trading partner on the African continent which accounts for trade worth up to £10.5billion each year. Coface believes recovery from the sharp downturn of 2012 is still some way away and has downgraded its country risk assessment from A3 to A4, indicating that it expects more incidents of late payment and insolvency. Coface’s assessment reflects the impact of poverty and high unem-ployment on domestic demand, the weakening rand, which reached its lowest level in 4 years in early 2013, and the effect of the EU downturn on exports. An additional factor is the increasing social tensions which led to strikes and violence at the Marikana mine in 2012. Despite this, the mining and extraction sector expanded at the beginning of 2013.
Grant Williams, Risk Underwriting Director at Coface in the UK & Ireland commented: “Western economies such as Ireland were at the epicentre of the 2008 crisis but it has also had a ripple effect through other countries which depend on overseas exports. South Africa was one of the fast-expanding BRICS economies but has been hit by the slowdown in European export markets. The country also faces long-term structural problems such as the shortage of qualified labour and high levels of crime which are undermining the business environment. By contrast, Ireland has a flexible economy and business-friendly environment which is attracting investment and this should help promote long-term recovery.
“The fluctuating fortunes of these two countries highlights the need for UK exporters to monitor trading risk as part of their credit management procedures. Coface’s free country risk assessments complement our sector and business environment assessments in helping our clients to trade with confidence.”
For the full Panorama report, providing the risk evaluations for Ireland, South Africa and for other countries, including Italy, Japan, the Czech Republic and Slovenia, please click here.