French elec­tion vic­tory re­duces sup­ply chain risk in Europe

Pos­i­tive de­vel­op­ments in Western and Cen­tral Europe put down­ward pres­sure on global sup­ply chain risk, but were also coun­ter­acted slightly by an in­crease in risk in the Mid­dle East and North Africa.

Financial Nigeria Magazine - - Contents - French Pres­i­dent Em­manuel Macron Fi­nan­cial Nige­ria re­port­ing

Western and Cen­tral Europe's con­tri­bu­tion to global sup­ply chain risk fell in Q2 2017 to 29.94%, com­pared with 30.14% in Q1, ac­cord­ing to the CIPS Risk In­dex, pow­ered by Dun & Brad­street.

The main driver of this fall in risk is France, fol­low­ing Em­manuel Macron's vic­tory in the French pres­i­den­tial elec­tions. Macron's vic­tory brings greater clar­ity, fol­low­ing fears that his main op­po­nent, Ma­rine Le Pen, would with­draw France from in­ter­na­tional trade agree­ments and the EU, and im­me­di­ately sus­pend France's mem­ber­ship of Europe's Schen­gen bor­der­free zone.

The In­dex, pro­duced for the Char­tered In­sti­tute of Pro­cure­ment & Sup­ply (CIPS) by Dun & Brad­street economists, tracks the im­pact of eco­nomic and po­lit­i­cal de­vel­op­ments on the sta­bil­ity of global sup­ply chains. First launched in April 2014, the CIPS Risk In­dex, analy­ses the so­cioe­co­nomic, phys­i­cal trade and busi­ness con­ti­nu­ity fac­tors con­tribut­ing to sup­ply chain risk across the world, weight­ing each score ac­cord­ing to that coun­try's con­tri­bu­tion to global ex­ports. The CIPS is the lead­ing in­ter­na­tional body rep­re­sent­ing pur­chas­ing and sup­ply man­age­ment pro­fes­sion­als.

The new EU trade deal with Ja­pan is also good news for sup­ply chain risk, with trade tar­iffs due to be re­moved for key sec­tors in­clud­ing au­to­mo­tive and agri­cul­ture. This new deal comes af­ter the US with­drew from the Trans-Pa­cific Part­ner­ship, leav­ing room for the EU to fill the gap.

How­ever, the out­come of elec­tions in Italy and Aus­tria are un­clear, and if par­ties that are un­sup­port­ive of the EU and keen to leave the sin­gle mar­ket rise to power, this could lead to sup­ply chain dis­rup­tion if more coun­tries leave the sin­gle mar­ket. Italy's elec­tions are due to be held in 2018, and the Euroscep­tic Five Star party, which has pre­vi­ously promised to pull Italy out of the Euro, has been gain­ing sup­port.

Pos­i­tive de­vel­op­ments in Western and Cen­tral Europe put down­ward pres­sure on global sup­ply chain risk, but were also coun­ter­acted slightly by an in­crease in risk in the Mid­dle East and North Africa. The in­crease is largely due to the sev­er­ing of diplo­matic and trade ties be­tween Qatar and each of Saudi Ara­bia, Bahrain, Egypt and UAE. These events are hav­ing a sig­nif­i­cant im­pact on Qatar, lim­it­ing the flow of goods to and from the coun­try and forc­ing it to re-route sup­ply chains through Oman. As a re­sult, the Mid­dle East and North Africa con­trib­uted 6.91% to global sup­ply chain risk in Q2 2017, up from 6.87% in Q1.

Ad­di­tion­ally, large-scale protests took place in Ro­ma­nia fol­low­ing the govern­ment's de­ci­sion to amend the Pe­nal Code of Ro­ma­nia to weaken an­ticor­rup­tion laws. This led to a rise in East­ern Europe and Cen­tral Asia's con­tri­bu­tion to global sup­ply chain risk to 7.58% in Q2 2017 from 7.55% the pre­vi­ous quar­ter.

Over­all, global sup­ply chain risk fell to 81.27 in Q2 2017 from 81.90 in Q1, though the un­der­ly­ing risk trend is on the rise.

John Glen, CIPS Econ­o­mist and Di­rec­tor of the Cen­tre for Cus­tomised Ex­ec­u­tive De­vel­op­ment at The Cran­field School of Man­age­ment said:

“Euro­pean economies are per­form­ing well, and the EU is cap­i­tal­is­ing on new op­por­tu­ni­ties for trade deals, as shown by the re­cent agree­ment with Ja­pan. This is good news for sup­ply chains in the Eu­ro­zone, but the threat of pop­ulism to the Euro­pean project re­mains in the back­ground.

“Over­all, the global econ­omy is un­der­go­ing a pe­riod of change. Al­though there ap­pears to have been lit­tle move­ment in sup­ply chain risk since last quar­ter, we could be ex­pe­ri­enc­ing the calm be­fore the storm. The re-shap­ing of global trade, with Brexit and var­i­ous, long­stand­ing trade agree­ments such as NAFTA be­ing ne­go­ti­ated, could dis­rupt sup­ply chain in­tegrity in the fu­ture."

Bodhi Gan­guli, Lead Econ­o­mist, Dun & Brad­street, said: "Global sup­ply chain risk con­tin­ued to im­prove in Q2, driven by two main fac­tors: A strength­en­ing global econ­omy with im­proved near-term fore­casts and a de­cline in po­lit­i­cal risk over re­cent months, par­tic­u­larly in Europe.

“Nev­er­the­less, po­ten­tial changes to global trade agree­ments re­main a ma­jor risk to cross-bor­der sup­ply chains, as NAFTA rene­go­ti­a­tions could start as early as late Au­gust, and Brexit ne­go­ti­a­tions start in earnest. Q2 also saw a num­ber of ma­jor cy­ber se­cu­rity in­ci­dents, with this be­com­ing a se­ri­ous and evolv­ing threat and a more sig­nif­i­cant op­er­a­tional risk.”

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