In the third Digital Dialogues podcast episode, we heard from Philip Summerton, CEO of Cambridge Econometrics, together with Sandip Patil and Kanika Thakur from Citi, about geopolitical risk and the broader world trends shaping treasury in 2022.
Head of Financial Institutions and Liquidity Management Services, Treasury and Trade Solutions, Asia Pacific
Head of Trade, Treasury and Trade Solutions, Asia Pacific
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Preparing for the unknown unknowns
Sandip Patil, Head of Financial Institutions and Liquidity Management Services, Treasury and Trade Solutions, Asia Pacific at Citi spoke about the current geopolitical risk landscape, and what that means for corporates. He noted that several variables dominate this theme, including trade and the evolution of trade treaties; the dominance of China across the ecosystem; changing consumption patterns; shifting business models, and evolving regulations. As well as managing their trade partners, supply chains and customer behaviours, Patil said that companies need to deploy cutting-edge technologies in their businesses, “so that they can generate a very differentiated client experience, which is a recipe for success in realising growth in Asia.”
When it comes to navigating these changes, Patil said there are a number of “known unknowns” to consider, including managing trade counterparties, locations, business model shifts and the challenges that come around managing liquidity and working capital. But for companies operating in emerging markets, “there are also a lot of unknown unknowns – and that requires pretty accurate planning.”
In order to manage these challenges, Patil suggested, “Try to visualise the future for your industry, for your customers, for your ecosystem, for the geographies that you operate in. Plan for the future, and then start work on executing that plan. And measure consistently, so that you are dominating each and every parameter as a best-in-class in the industry.” He added that Citi offers advisory practices across each industry, helping clients understand their current position and the key initiatives they need to invest in.
Geopolitical tensions and the impact on trade
Kanika Thakur, Head of Trade, Treasury and Trade Solutions, Asia Pacific Citi, spoke about the impact of geopolitics on trade. She explained that most of the clients Citi works with operate across multiple countries – meaning that they may be impacted by potential geopolitical tensions not only in manufacturing locations, but also in countries where goods are consumed, or suppliers are located. As such, “Clients are watching very closely how different geographies are interacting with each other.”
In 2022, with uncertainty around the pandemic continuing and supply chains becoming more complicated, she said “you will see inventory positions being taken; you will see domestic manufacturing decisions being taken; you will see transportation implications coming through.” As such, she predicted that people will continue to have backup plans, build resiliency and ensure there are no distractions to their businesses.
For corporates, she said, it is important to have continual engagement with on-the-ground resources in relevant markets, and to achieve diversification across supply chain partners, manufacturing inputs and shipping inputs. “I think putting all your eggs in one basket is potentially difficult at this point in time,” she added. But she also noted the importance of being able to rely on key trusted partners, as well as having robust contingency plans in place.
Philip Summerton, CEO of Cambridge Econometrics, explained the company’s role includes providing data-driven analysis to policymakers at all levels, as well as providing economic research to help corporations navigate today’s world.
“For me, they really need to start thinking about how to make their businesses resilient, rather than profitable,” he said. “In turn, that probably leads to long-term profitability anyway.” He added that with the current uncertainty around the global economy, it is more difficult to carry out traditional business planning, and to make traditional finance decisions based on ROI and profitability. “Instead, you’re having to think about how to protect your business model cost-effectively.”
When risks are systemic, he said, “you have to think about your business in a different way to protect it, and that is really about scenario planning.” This means looking at a possible event and considering the impact on the business, its supply chain and its customers: “It actually takes imagination, and some real thinking about what the future could look like. A lot of businesses need to change their way of thinking, and really focus on resilience under uncertainty.”
From Covid to climate change
Finally, where specific risks are concerned, Summerton said that Covid, inflation and climate change are things to watch out for in 2022 – “The first two are really for 2022, and climate change is just every year from now until forever.”
He added, “I think at some point this decade we’re due a really big climate shock – whether that’s this year or next year; whether it plays out as a series of more intense and more frequent disasters, or whether it’s one really big disaster.” If a climate shock were to occur, he predicted, the policy response will become stronger and quicker, driving rapid changes in technology – “so there could be some very big, fast changes that really affect people.”
This podcast episode was recorded before Russia’s invasion of Ukraine.