Atradius: Innovation will be key to 2021 – but make sure you’re getting paid
The trade credit insurance provider is anticipating a substantial increase in insolvencies in 2021 as stimulus packages expire
As a trade credit insurance provider, Atradius is very much a first responder to distressed businesses. Andreas Tesch, Atradius’ Chief Market Officer, says the company expects global insolvencies to have only increased by four percent in 2020, thanks to government stimulus packages. However as those packages begin to expire through 2021, it’s more critical than ever that businesses exhibit caution when selecting their customers: because if the business you’re selling to doesn’t survive, neither will yours.
World Finance: Andreas, it’s been an unimaginably turbulent year; how has the crisis looked from your perspective?
Andreas Tesch: Well Paul, you’re right: turbulence is the right way of describing the economic impact of the COVID-19 crisis on 2020. In fact 2019 already ended quite rocky, with protectionism looming on the horizon. And when the COVID-19 crisis hit, it had a disastrous impact on economic development.
As Atradius, we expect the GDP globally to contract by more than five percent in 2020; and even worse, global trade to contract by more than 15 percent. But there’s also good news, in the sense that governments have been very quick in responding to this crisis. And with massive stimulus packages they avoided an economic catastrophe.
In fact, for 2020 we only anticipate a very small increase in global insolvencies of around about four percent. But that’s mainly due to the stimulus packages that have been put in place, which will expire in the course of 2021.
World Finance: Now, you’ve written about the need for businesses to pair innovation with caution – what do you mean by this, and where is the balance?
Andreas Tesch: Well in fact, what this crisis has told us is that innovation and the ability to adapt to changing situations is key to success. And as a credit insurer, and an insurer of trade receivables, what we mean with caution is always making sure that ultimately you’re being paid by your customer.
So, what’s the right balance between the two? That will differ from industry to industry. When you look at where innovation can be seen, it’s in processes, it’s in products. And looking at the retail sector as one example, we’ve seen a massive shift during this crisis from high street retailers which continue to disappear, to online traders, to ecommerce companies. And those companies are in a lot of instances in place for less than five years, they’re still in a loss-making situation, and their balance sheet is fairly weak.
Still, they have a bright future in front of them, they’re growing very rapidly – which is also where we as a credit insurer had to innovate, and had to adapt our way of assessing such companies using things like artificial intelligence rather than classical financial matrices, balance sheet analysis. Because those would no longer fit this new environment.
World Finance: Finally, what’s your outlook for the year ahead – what will it take for businesses to prosper?
Andreas Tesch: Well, innovation is going to be key for 2021 as well. It’s not going to be an easy year, because the COVID-19 impact will last for a good part of 2021 as well. Still, we expect that GDP will bounce back, and then we will see an increase of more than five percent in 2021.
Nevertheless, as I’ve mentioned before, the stimulus packages will expire, and that will lead to a substantial increase of insolvencies in 2021. So caution is going to be a key theme to be successful in 2021, next to innovation, and making sure that you select the right customers that will survive – even once these stimulus packages have expired.