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Five contenders to displace China as supply chains hub – Industry roundup: 3 January

Five rivals vie to displace China as centre of global supply chains

China's Covid policies have pushed companies to diversify supply chains away from the country reports the Business Insider South Africa website, with India, Vietnam, Thailand, Malaysia, and Bangladesh vying to replace China as the global hub.

China’s rise as the world’s factory spanned four decades and ushered in an era of globalisation and integrated supply chains. But companies began relocating around 2018, when former US President Donald Trump launched a trade war against the East Asian giant and prompted investors to reassess their geopolitical risks.

However, the website suggests that it was really the pandemic — and China's recently-abandoned zero-Covid policy — that underlined to corporates the importance of not depending on one country alone for their manufacturing needs.

In addition, the effects of the US-China trade war continue to linger. President Biden has even added to the elevated tariffs Trump imposed on China; in October he imposed export controls on shipping equipment to Chinese-owned factories making advanced logic chips.

To navigate this complicated web, multinationals are now more than ever, looking to hedge their business risks and Business Insider focuses on five other countries to which China-based supply chains are relocating:

India is trying to unseat China in higher-end manufacturing, with iPhone maker Apple and chipmakers among those attracted by its vast lands and large, young population. India is set to surpass China’s to become the world's most populous country in 2023, theUN's Department of Economic and Social Affairs said in a July report. It can offer a large labour pool, a long history of manufacturing, and government support for boosting industry and exports.

Vietnam has been undergone rapid economic reforms since 1986, which have propelled the country from “one of the world's poorest nations to a middle-income economy in one generation,” the World Bank said in a November 2022 post. In 2021, Vietnam attracted over US$31.15 billion in foreign direct investment pledges — a year-on-year rise of more than 9% according to the country’s Ministry of Planning and Investment. About 60% of the investments went to the manufacturing and processing sector. Vietnam’s key strengths are in the manufacturing of apparel, footwear, and electronics and electrical appliances.

Thailand’s foreign direct investment (FDI) tripled to 455.3 billion Thai baht (US$13.1 billion) between 2020 and 2021 as manufacturers move away from China. As Southeast Asia’s second-largest economy, Thailand has been moving up the value chain in manufacturing and is a production hub for car parts, vehicles and electronics, with  multinationals such as Sony and Sharp opening new plants.

Bangladesh is already a beneficiary of the supply chain shift away from China. Even before lockdowns crippled China’s manufacturing sector, the Bangladeshi garment manufacturing sector was growing, primarily due to rising labour costs in China pre-dating Trump’s presidency. In dollar terms the average monthly salary of a worker in Bangladesh is US$120 against the US$670 a factory worker takes home in the South China manufacturing hub of Guangzhou. Bangladesh is now working to attract more investments into other sectors including pharmaceuticals and agriculture processing.

Malaysia has been eyeing opportunities created by the manufacturing shift out of China in recent years. In July 2020 the Malaysian Investment Development Authority claimed that at least 32 projects had relocated from China to Malaysia. Even before the pandemic, tech investments into Malaysia were rising due to its lower labour costs and US-China trade tensions. Malaysia’s FDI inflows hit a five-year high of $48.1 billion in 2021, with electronics and vehicles manufacturing the main contributors, according to official government information. 

Seven trends set to affect farmers’ finances in 2023

After a tumultuous 12 months in farming, it seems unlikely that 2023 will provide a significant turnaround in prospects for farm businesses, reports UK trade magazine Farmers Weekly.

Most economists expect the economic downturn to continue and 2023 could be a slower year for growth than 2022. The shifting sands of agricultural policy, further impacts of climate change and soaring input prices are all likely to be key influences within the rural economy.

However, Rhodri Thomas, head of rural policy at UK land agent Strutt & Parker, tells the publication that despite the ongoing challenges of the recession, new and exciting opportunities are emerging. “Land managers would be wise to be proactively thinking about their options to identify where the best opportunities might lie,” he advises.

The land agent has compiled seven key trends that farmers and landowners should watch for this year to give their businesses the best chance of success during what is likely to be a difficult period.

Higher working capital requirements: Harvest 2022 is likely to have been profitable for those arable growers who purchased the bulk of their inputs before the massive increases in input costs and benefited from buoyant grain prices. But input costs for harvest 2023 will be significantly higher and commodity prices have also eased back from the highs seen in H1 2022.

Higher working capital requirements for harvest 2023 will put a squeeze on profitability and have a big impact on cashflow. Farmers should assess if they are likely to have sufficient working capital and consider benchmarking and budgeting.

Mitigating the energy crisis: The crisis is opening significant opportunities for landowners in the delivery of both large- and small-scale renewable energy schemes. Developers of large-scale solar projects are prepared to sizeable rents per acre along with a percentage of turnover. Roof-mounted solar photovoltaic (PV) schemes can help farmers and landowners cut their electricity bills by reducing the amount of energy they buy in.

Farmers who already have a solar array, but no export meter fitted, could consider getting one installed amid some excellent rates being paid for exported electricity.

Nature recovery: Environmental groups are pushing policymakers to recognise nature recovery is equally important as reducing greenhouse gas emissions. Looking ahead, active habitat management will become more important. Research shows that wildlife habitats can have a positive effect on crop production; farm profits can increase even if the area cropped is reduced. The challenge remains securing appropriate funding from both the public and private sector.

Rise in bad debt: Growing levels of business insolvencies make it important for farmers to know their customers and manage the risk of bad debts closely. Measures include monitoring any changes in business practices that might signal buyers are suffering cashflow problems. stating terms of business clearly on invoices and setting up reminders to start chasing payments if and when necessary.

Let property management challenges: Anyone with a property portfolio will also need to be particularly mindful about its impact on tenants. Commercial and residential tenants may struggle to meet their rent in the cost-of-living crisis. Landlords also face the prospect of major legislative changes associated with improving energy efficiency and ensuring a fairer deal for tenants.

Grants: Farmers should take advantage of grant support to future-proof the business where it is available. For example, farmers in England have until 31 January to apply for grants of up to £250,000 (US$305,000) to replace, build or expand existing slurry stores so that they have six months’ storage capacity.

A new Rural England Prosperity Fund is also on its way, which could be useful for farmers looking to diversify. In Scotland, there is funding available for carbon audits and soil testing under the Preparing for Sustainable Farming National Test Programme.

Greater volatility: As the effects of climate change become clearer, heatwaves, flooding and disease risks are increasing for the arable, livestock and forestry sectors. The forestry sector is seeing the European spruce bark beetle and the oak processionary moth spread in south-east England. Woodland owners are advised to actively monitor their woodlands and plan ahead.

Egypt eases import restrictions

Egypt's central bank has cancelled a February 2022 circular requiring the use of letters of credit (LoC) for imports, a move was among several requirements by the International Monetary Fund (IMF) for a US$3 billion support package approved last month.

The decision also follows earlier promises by the regulator to ease import requirements that had been in place despite resulting blockages at Egypt’s ports as the country struggled with an outflow of capital linked to Russia’s invasion of Ukraine.

The LoC requirement meant that importers either were unable to bring their goods to market or were forced to source the currency on the black market. In either case, the end result was spiking inflation, which has reached a five-year high of 18.7% in November.

A dearth of hard currency prompted two devaluations in the Egyptian pound in 2022 and late last month a 300 basis point hike in the country’s benchmark interest rate, which took the deposit rate to 16.25% and the lending rate to 17.25%.

The government will now allow direct payment instead, the statement said. “It has been decided to cancel the letter ... issued on February 13, 2022, and to allow acceptance of documentary collection  to carry out all import operations,” the central bank said in a statement on its website.

Report upbraids multinationals still active in Russia

Many leading multinationals have retained ties to Russia more than ten months after the invasion of Ukraine while their peers have reduced their presence or exited the country entirely, a critical report has found.

The Moral Rating Agency (MRA), which monitors the activities of companies involved with the economies of autocratic regimes, reports that of the 122 largest companies in the world involved with Russia at the time of the invasion last February, only 17 have pulled out of the country entirely. It describes 59 as “stuck in the middle” while 46 have made little or no effort to reduce their presence in Russia.

The MRA, which assesses activities such as importing and exporting, owning factories or having other investments, gives its worst rating to Johnson & Johnson, although the US healthcare multinational said last March it was suspending supply of personal care products in Russia as well as all advertising, enrolment in clinical trials and new investment. However, the agency noted that its J&J Institute in Moscow, still trains healthcare professionals and its pharmaceuticals and medical devices are still available.

J&J has described the war as ‘devastating’ and stresses that it has donated millions to humanitarian organisations as well as medical kit.

The report is also critical of HSBC, although a spokesperson for the bank pointed to the fact that it has “signed an agreement” to sell its Russian business to Expobank JSC. “We are continuing to work on completion of this transaction which is subject to various regulatory approvals within Russia and once concluded, the HSBC Group will exit its operations in Russia,” the spokesperson added. Goldman Sachs, third on the MRA list, is criticised for continuing to serve existing customers.

Other offenders, in fourth and fifth position respectively are consumer goods groups Unilever and Procter & Gamble (P&G). Unilever says that the group has ended much of its activity in Russia but continues to supply “everyday essential food and hygiene products”. P&G, which still produces health-related goods in Russia, has previously said it had discontinued investments, suspended advertising and reduced its portfolio.

The MRA’s founder, businessman Mark Dixon, says that many multinational firms have not followed up on pledges to pull out of Russia in the wake of the invasion and continued to work in the country by various means yet many “often get credit before they have left.”

Turkey’s central bank completes first CBDC test

Turkey’s central bank ended 2022 by completing its first payment transactions using a central bank digital currency (CBDC) and is pushing ahead with more tests this year.

A statement released by the Central Bank of the Republic of Turkey (CBRT) on 29 December confirmed that it had successfully executed its “first payment transactions” using the digital Turkish lira (TRY). The Bank said that it will continue to run limited, closed circuit pilot tests with technology stakeholders in Q1 2023, before expanding it to include selected banks and financial technology companies later in the year.

The results of these tests will be shared with the public through a “comprehensive evaluation report,” before the CBRT unveils more the next phases of the study which will further widen participation.

The Bank first announced plans to review the benefits of introducing a digital Turkish Lira in September 2021 in a research project called Central Bank Digital Turkish Lira Research and Development. At the time, the government made no commitment to the ultimate digitalisation of the country’s currency, noting it had “made no final decision regarding the issuance of the digital Turkish lira.”

In its most recent statement, the CBRT said it will continue testing the use of distributed ledger technologies (DLT) in payment systems and their “integration” with instant payment systems.

It will also prioritise studying the legal aspects around the digital Lira, such as the “economic” and “legal framework” around digital identification, along with its technological requirements.

Oman’s central bank launches Wakala Money Market liquidity instrument

The Central Bank of Oman (CBO) introduced the Wakala Money Market instrument at the end of December, to support the effective management of liquidity by Islamic banks and Islamic banking windows in the Sultanate of Oman.

This product is described as one of several Islamic liquidity management instruments that the CBO has developed for Islamic banking entities in Oman, which is to be introduced in phases, both for absorbing excess liquidity and for providing liquidity support.

Under the Wakala money market product, Islamic banking entities will place funds with the Central Bank in US dollar (USD) for a minimum duration of one day to a maximum of three months. They will be managed and invested by CBO in Sharia-compliant instruments.

Furthermore, to develop these liquidity management instruments, the CBO has worked closely with its High Sharia Supervisory Authority (HSSA), which has reviewed and approved the product structures and relevant contracts.

ICTSI selects ING, Bank Mendes Gans for global cash management

ING Bank Philippines and Bank Mendes Gans (BMG) have been chosen to centralise global port manager International Container Terminal Services Inc.’s (ICTSI) cash management involving multiple countries and currencies.

ICTSI, which is headquartered in the Philippines capital of Manila, hopes to simplify the process and to help clients in utilising their own funds and to minimise external borrowings and relevant costs. The “unique features” of BMG’s cash pool also help ICTSI to avoid intercompany loans by allowing each subsidiary to open accounts with BMG in its own legal name.

“This solution implemented with ING and BMG further widens ICTSI’s liquidity management tools aimed at simultaneously supporting our capital expenditure and deleveraging programs,” said Rafael Consing, SVP and CFO of ICTSI.

The mandate was closed as following a joint effort and close cooperation between the relationship teams of BMG and ING Philippines. BMG, also a 100% wholly owned subsidiary of Dutch multinational banking and financial services group ING, provided expert counsel and advice to ICTSI through several discussions with its legal, tax, compliance, and offshore subsidiaries.

“We envision that this cash pool solution by ING and BMG could be extended to more Philippine corporates with a wide international footprint,” said Jun Palanca, head of Wholesale Banking at ING Bank, Philippines.

Crypto ATMs total continues to grow

The number of crypto automated teller machines (ATMs)continued to increase in 2022 despite a volatile year for the digital assets industry, according to ATM-tracking app Coin ATM Radar.

It reports that there were 38,601 Bitcoin (BTC) ATMs at the end of last year, an increase of about 6,000 machines from December 2021. This represents growth of just over 500% since January 2020, when there were only 6,362 BTC ATMs.

A recent report by market intelligence firm Grand View Research forecasts that the crypto ATM market could be worth over US$5 billion by 2030. The analytics firm says the rise can be attributed to an increase in retail stores accepting digital assets as payments. In 2021 North American retail chain launched a BTC ATM pilot program, installing 200 ATMs in stores across the United States.

The research also finds that the ability of ATMs to liquidate virtual currencies and instantly convert them into fiat dollars is of value to consumers and a crucial factor driving the growth of the crypto ATM market. It notes that the Covid-19 pandemic contributed to the market’s growth as customer demand for advanced crypto ATMs grew.

The report also reveals that North America dominated the regional market last year. Grand View Research says North America’s market will likely continue to grow due to the high availability of crypto ATMs and the legalisation of digital assets across the region.

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