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Pandemic Risks to Shape Treasury Strategy in the Short and Medium-term, a New EIU Survey Reveals

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Shape Treasury Strategy to be Affected by Pandemic Risk in Medium Term

  • Top drivers of strategic change in 2020 are changes to internal company strategy (27%) and new regulatory requirements (26%)
  • The replacement of LIBOR[1] is the most challenging regulatory initiative for treasurers
  • There is a growing reliance on technology to address treasury challenges, with 74% of treasurers having identified the use of new technologies in order to improve KYC processes 78% of respondents are very or somewhat concerned about the quality of the data they are working with

A new report was written by The Economist Intelligence Unit (EIU) “The resilient treasury: Optimising strategy in the face of COVID-19” explores the forces that will shape and define the corporate treasury function and the priorities of the future.

It identifies the macro and financial risks that impact strategy as drivers of strategic change, the regulatory initiatives that are currently top of mind and the technologies and the skills that the function requires. The research, supported by Deutsche Bank, is based on a global survey of 300 corporate treasury executives (conducted between April and May 2020).

The pandemic risk will have the most impact on corporate treasury in the short term (43%) and medium-term (27%). Other risks, notably concerns over global economic growth (31%) and geopolitical risks (25%) are also high on the list over the medium-term. In response, treasurers plan to increase investments in long-term instruments (55%), bank deposits (48%) and local investment products (48%) over the next 12-24 months.

But the pandemic has eclipsed other risks that were previously high on the corporate agenda: environmental, weather and climate risks were only treasurers’ sixth most pressing risk for 2020.

Regulatory challenges remain very much top of mind. Respondents indicate that the replacement of the LIBOR, and other Interbank Offered Rates (IBORs), is the most challenging regulatory initiative for treasury (38%), followed by GDPR (32%), the OECD’s initiative against BEPs[2] ( 31%) and MiFID II[3] (30%). The regulatory burden will continue to affect different parts of the treasury function and could lead to structural adjustments. The functions most affected by regulatory actions and initiatives in 2020 are funding strategies (25%), overall operating model (25%) and cash/liquidity investment policies (24%).

Treasurers have become increasingly reliant upon new technologies and data for their day-to-day activities. However, close to 80% of respondents are either very or somewhat concerned about the quality of data available within the business (a noticeable increase from last year’s survey, at 69%).

Having the correct skills within the treasury function to take advantage of new technologies is critical, and their efforts to upgrade their tech and data skills are starting to bear fruit: almost 30% of respondents say they have all the skills necessary to meet new challenges posed by technological change (compared to 22% in 2018).

Looking ahead, the utmost priorities on the treasury agenda in 2020 are managing relationships with banks and suppliers (32%) and collaborating with other functions in the business (32%). Looking ahead, the data-driven approach of treasury will allow the function to become an even more supportive and proactive partner to the rest of the business.

Melanie Noronha, the editor of the report, said: “The covid-19 pandemic has drastically altered business plans in 2020. It has placed a certain level of strain on treasury processes, but the challenge it presents has been managed by traditional treasury skills. It is clear that pandemic risk will be on the treasury checklist for years to come, but it is one of many risks the department faces and will continue to manage.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Communities in Delta State Shut OML30 Operates by Heritage Energy Operational Services Ltd

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The OML30 operated by Heritage Energy Operational Services Limited in Delta State has been shut down by the host communities for failing to meet its obligations to the 112 host communities.

The host communities, led by its Management Committee/President Generals, had accused the company of gross indifference and failure in its obligations to the host communities despite several meetings and calls to ensure a peaceful resolution.

The station with a production capacity of 80,000 barrels per day and eight flow stations operates within the Ughelli area of Delta State.

The host communities specifically accused HEOSL of failure to pay the GMOU fund for the last two years despite mediation by the Delta State Government on May 18, 2020.

Also, the host communities accused HEOSL of ‘total stoppage of scholarship award and payment to host communities since 2016’.

The Chairman, Dr Harrison Oboghor and Secretary, Mr Ibuje Joseph that led the OML30 host communities explained to journalists on Monday that the host communities had resolved not to backpedal until all their demands were met.

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Crude Oil Recovers from 4 Percent Decline as Joe Biden Wins

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Oil Prices Recover from 4 Percent Decline as Joe Biden Wins

Crude oil prices rose with other financial markets on Monday following a 4 percent decline on Friday.

This was after Joe Biden, the former Vice-President and now the President-elect won the race to the White House.

Global benchmark oil, Brent crude oil, gained $1.06 or 2.7 percent to $40.51 per barrel on Monday while the U.S West Texas Intermediate crude oil gained $1.07 or 2.9 percent to $38.21 per barrel.

On Friday, Brent crude oil declined by 4 percent as global uncertainty surged amid unclear US election and a series of negative comments from President Trump. However, on Saturday when it became clear that Joe Biden has won, global financial markets rebounded in anticipation of additional stimulus given Biden’s position on economic growth and recovery.

Trading this morning has a risk-on flavor, reflecting increasing confidence that Joe Biden will occupy the White House, but the Republican Party will retain control of the Senate,” Michael McCarthy, chief market strategist at CMC Markets in Sydney.

“The outcome is ideal from a market point of view. Neither party controls the Congress, so both trade wars and higher taxes are largely off the agenda.”

The president-elect and his team are now working on mitigating the risk of COVID-19, grow the world’s largest economy by protecting small businesses and the middle class that is the backbone of the American economy.

There will be some repercussions further down the road,” said OCBC’s economist Howie Lee, raising the possibility of lockdowns in the United States under Biden.

“Either you’re crimping energy demand or consumption behavior.”

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Nigeria, Other OPEC Members Oil Revenue to Hit 18 Year Low in 2020

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Revenue of OPEC Members to Drop to 18 Year Low in 2020

The United States Energy Information Administration (EIA) has predicted that the oil revenue of members of the Organisation of the Petroleum Exporting Countries (OPEC) will decline to 18-year low in 2020.

EIA said their combined oil export revenue will plunge to its lowest level since 2002. It proceeded to put a value to the projection by saying members of the oil cartel would earn around $323 billion in net oil export in 2020.

If realised, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues,” it said.

The oil expert based its projection on weak global oil demand and low oil prices because of COVID-19.

It said this coupled with production cuts by OPEC members in recent months will impact net revenue of the cartel in 2020.

It said, “OPEC earned an estimated $595bn in net oil export revenues in 2019, less than half of the estimated record high of $1.2tn, which was earned in 2012.

“Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programmes, and support public services.”

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