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Study questions US Exim efficiency

Americas / 23-08-16 / by
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An independent study published by the University of Nottingham is questioning the usefulness of the US Export-Import Bank (US Exim) after finding no correlation between the patterns of US export growth and the bank’s activity.

The paper, called Does the US Exim bank really promote US exports? analyses extensive publicly available data from US Exim and UN Comtrade, studying all authorisations made between 2007 and 2013 and comparing them to the changes in US exports in the same period. Researchers also take into consideration a potential lagging effect of up to two years between authorisations and benefits to US exports to determine whether US Exim really helps US exports to be more competitive.

Among the conclusions, the report finds no correlation between US export growth and the markets that have received the most US Exim support. For instance, India and Saudi Arabia received the highest proportion of the portfolio at around 10% each, yet together these two markets only represented less than 3% of US exports, with no real change over the time period studied.

Although such a pattern is to be expected considering that the mandate of an export credit agency (ECA) is to support exports specifically to markets that are difficult to access, the report’s co-author, Natasha Agarwal, tells GTR that the lack of evidence of monetary gain in markets where US Exim has been particularly active should still raise questions.

“The real question is: ‘Is the support generating dollar value to the US? All things constant, is US support to American companies to export to India generating greater exports to India?’ Great that you are giving more money to countries where you have a low export share but is this money actually generating exports? This is what we are trying to test,” she says.

In a similar way, almost half of US Exim authorisations during the period studied went to aerospace products and parts, even though the sector only accounted for 2.19% of total US exports. This supports the argument made by those that oppose US Exim that the majority of the bank’s authorisations go to Boeing, even though as a large multinational, the aerospace giant shouldn’t need as much government backing.

Additionally, the research finds that US Exim authorisations to sectors other than aerospace do exert some positive effect on US exports, substantiating claims that US Exim should review its allocation patterns.

“Appropriate” results for US Exim

Contacted by GTR to comment on the research results, a US Exim spokesperson said: “[The] bank is mandated to support US jobs through exports by filling financing gaps not met by the private sector. This vacuum generally occurs due to non-availability of commercial sources of financing for creditworthy transactions due to tenor, country or sector limitations imposed by private lending institutions, and/or competition from foreign government-backed export credits.

“Given that such gaps predominantly exist only for certain goods (such as capital goods) to specific markets (less developed countries) and for specific times (for example, the global financial crisis), it is quite appropriate that US Exim authorisations show no correlation to trends in overall US exports. US Exim support is generally driven by the specifics of each case. Accordingly, there is no real feasibility of conducting any level of correlation analysis on US Exim activity.”

The bank “raised questions” on the underlying assumptions, data points and methodologies of the study, though it did not give specifics on which particular parts were questionable.

Support to small businesses

One of the biggest sticking points in the US Exim debate is whether the bank actually supports small US businesses, like it says it does.

The study found that on a global scale, the value of the bank’s authorisations to small businesses ranged from 5% to 11% between 2007 and 2013, which is below the mandated 20% at the time (upped to 25% since then). US Exim declined to comment on this result.

The bank is currently unable to authorise transactions of over US$10mn due to Congress blocking the appointment of a final board member, needed to complete its quorum (the minimum number of members that must be present at any of its meetings to make the proceedings of that meeting valid). There is therefore an argument that the quorum block could be working in the favour of SMEs, but US Exim also declined to comment on that question.

On the topic, Agarwal tells GTR: “One would have to do a cost-benefit analysis of the deals that are not being authorised because of the new legislation not allowing the bank to lend more than US$10mn. If the new money available is helping approve of projects that generate exports, then maybe it is not a bad deal?”

The study is meant to question the efficiency of ECAs around the world, and only looked at US Exim because of the extensiveness of its publicly available data.

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