Canadian, South African Risk Tracking Higher While France Improves

A series of reports released by trade credit insurer Coface in recent weeks indicates that several key nations are showing elevated risk levels, including the one responsible for the largest portion of international business for NACM members. One that is critical to any hope of eurozone stability, however, is emerging as a pleasant early-year surprise.

Coface assigned Canada a rare downgrade to an A2 level, still the second best rating by its metrics, and left the country on its negative watch list. Canada has long been viewed as one of the most reliable nations based on the policies of its government and payment behavior of its businesses; however, its growth in dependence on the energy sector in recent years has raised red flags because commodities prices, especially oil, have fallen to historic lows.

Perhaps Coface’s next most significant classification change to date in 2015 was South Africa’s downgrade from an A4 rating to a B. The nation has been reeling from perceived ineffective leadership, corruption and disparity-based unrest somewhat consistently since its early-decade star turn as host of the World Cup and Olympics. Reduced demand for natural resource products also is not helping what was seen as the most stable economy on the continent as recently as five years ago. Coface continues to consider South Africa firmly part of its negative watch list.

Coface did note some positive movement as well, however. Perhaps no country is showing more of a turnaround than France, which appears to be moving beyond recent years’ problems. One month ago, Coface claimed its growth “should be more dynamic as evidenced by the decline in the number of insolvencies or the sharp increase in the number of start-ups.”  This week, it doubled-down on its positive view by noting the 2.1% annual decrease in insolvencies by France-based businesses through the end of 2015, with a 3.5% drop predicted for 2016. Among factors helping French businesses are the sharp drop in oil prices, the favorable (low) currency value versus the U.S. dollar, success in tax credit programs for well-performing businesses and a business failure rate not seen since pre-crisis years nearly a decade ago.

- Brian Shappell, CBA, CICP, NACM managing editor

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