A new proposal that may see US Exim lumped together with other US trade agencies to form a new one-stop shop has left both banks and exporters feeling distinctly ill at ease. Eleanor Wragg reports.
In January 13, 2012, President Obama asked congress to grant him the authority to consolidate the US export-import bank (US Exim), the US department of commerce, the office of the US Trade Representative (USTR), the Overseas Private Investment Corporation (Opic), the Small Business Administration and the US Trade and Development Agency (USTDA) into a new export agency; an overhaul that the administration says could save US$3bn.
While US exports are already on track to double and hit the goal of US$3.14tn by 2015 from US$1.57tn in 2009, intense and increasing competition from other exporting nations means that it needs to continue to innovate if it is to stay competitive in the global marketplace. Particularly when many of these other nations invest significantly more in export credit assistance than the US.
“At the beginning of this century, the US was the number one exporter. Now China is. The competition is now fiercely competitive, and the market conditions are vastly different,” says Fred Hochberg, US Exim chairman and president.
By setting up an organisation that will walk businesses through the entire process of selling their goods overseas, from identifying foreign buyers to helping finance sales, the Obama administration argues that the US government can help give US exporters the edge against their foreign counterparts.
Not everyone is convinced. “We believe that such a move will weaken the ability of the US to effectively pursue a strong trade policy that is responsive to congress, business and other stakeholders,” said a group of US business associations engaged in international trade and investment, in an open letter to the president in January.
Rather than creating a more consumer-friendly agency, the concern is that forcing together departments with different missions could diminish effectiveness and actually hamper efforts to boost external trade.
“A single trade organisation has merits in that the topic of trade can be negotiated and promoted with one voice. Still, the challenge for US Exim will be losing the benefits that come with being an independent, self-sustaining entity,” says Lillian Labbat, managing director at JP Morgan treasury services.
“With several agencies under one roof, it is harder to envision the budgetary appropriations process. In the day-to-day transactional business, it is harder to envision a tangible and immediate impact. The risk is that an additional layer of oversight could be counter to the goal of streamlining these agencies.”
Ed Bullen, managing director of global banking for HSBC, agrees: “We can take a positive view and foresee a one-stop shop for exporters and banks that will remove inter-agency overlaps and duplication, create a common agenda and goal, smooth the approval process, and free up more resources to remove the bottlenecks in deal assessment, processing and approval at US Exim. I would not however describe that as a concrete likelihood.”
While the proposed changes are still in the planning stages, it is difficult to speculate what the possible effects will be. But Hochberg is keen to point out that the reorganisation will “eliminate interagency overlaps”, adding that, “there will be one department where entrepreneurs can go from the day they come up with an idea and need a patent to the day they are ready to export and need help breaking into new markets overseas”.
“In some ways, we have already begun the process with the National Export Initiative, which started in 2009 and Global Access for Small Business, which we launched a year ago,” explains Hochberg. “Through these initiatives, US trade agencies have been coming together to work on major initiatives and projects. Streamlining our agencies will be good for American businesses. This will make US Exim more nimble, not less, and more competitive with other countries’ ECAs.”
November 2012 will see the US presidential election, and as shrinking the size of government has long been an issue the opposition Republican party holds dear, there is speculation that this latest announcement is more of an election year gambit rather than a real effort to streamline the US bureaucracy.
“I think this is a gesture towards the electorate and to the voters that the president is at least in part for less bureaucracy and less government and that ties into the Republican motto, so I think there’s no real coincidence there,” says Gregory Daco, principal US economist for IHS Global Insight.
Given that the discussion about potentially combining the trade and commerce agencies has been on the table for several years, it’s difficult to pinpoint what else makes now the right time to try and push the move forward.
“It’s always been about becoming more efficient and trying to bring all these agencies together, but for a number of different reasons it’s never happened. I’m not sure to the extent it does occur that it would necessarily be a negative; certainly each of the agencies have their very clearly defined roles, they have strong suits and they have weaknesses,” says Ae Kyong Chung, head of Americas, export agency finance, Citigroup.
“What’s changed in the US export finance market is an increase in demand for ECA finance coinciding with a significant reduction in the number of banks active in the sector. Whether this makes now the right time to promote this merger is a moot point,” says Bullen at HSBC.
What is clear though is that there is some room for improvement, which could be addressed by the proposed changes.
“We find both US Exim and Opic to be slow in turning around applications and believe this to be the result of limited resources and layers of bureaucracy. Bringing it all under one roof could potentially improve efficiency, but the theory is not always easy to put into practice,” adds Bullen.
“US Exim is facing a lack of resources. If you look at the growth that they have experienced in the last couple of years it’s been absolutely tremendous. But they’ve done it with no increase in human capital. The staff is only human and when your workload multiplies it is very difficult to meet client expectations in terms of responsiveness.
“They understand and recognise that but don’t have the funds to hire more people. This is one of the reasons behind the efforts to combine and bring forward and optimise various agencies which may not be growing as fast as US Exim in terms of their flow of business. I don’t see it as a negative event if and when this happens,” says Citi’s Chung.
Last year saw the bank mark its third straight year of record authorisations at US$32.7bn, including a record US$6bn in small business transactions through its Global Access programme, up US$1bn from 2010.
“This record year was led by our determination to continue stepping up during tight credit markets,” says Hochberg.
“It reflects growth in our support for US exports to infrastructure projects in key targeted markets such as Colombia and India. We also had a historic year in Sub-Saharan Africa, where our financing topped he US$1bn mark for the first time. We have financed a wide range of US products and services such as American-made aircraft, locomotives, power-generation equipment and agricultural machinery. We’ve also increased support for advanced manufacturing exports such as satellites and solar cells. Last year we authorised more than US$1.3bn in export financing for US-made communications satellites.”
Given the bank’s resounding success, there is a sense that it risks losing its edge in the proposed reshuffle.
“Chairman Hochberg has done an incredible job creating a far more user-friendly and responsive organisation,” says Marcia Davis, head of structured trade (Americas) for Bank of America Merrill Lynch.
“One of the beauties of US Exim is that it operates as a bank. It’s self-sustaining, it is expert at risk management and financial structuring and looks for ways of creating added value in the market, which was well illustrated back in 2009 when they introduced a very creative response to an apparent market funding gap. The funding gap led to a capital markets funding option for aircraft.
“The other five organisations which will form part of the proposed agency share commonalities with US Exim, but do not share its day-to-day purpose or modus operandi. It will be critical to each legacy agency that they are mandated to implement new policies and creative programme enhancements for their own unique purpose, not required to be beneficial to all parts of the agency.”
The general understanding is that rather than reorganising and consolidating trade agencies, the Obama administration would be better off diverting its energies toward getting the long-term reauthorisation of US Exim through congress and increasing its lending cap to US$135bn from the current limit of US$100bn.
US Exim currently has more business in its pipeline than it can support given the current cap limitations and, unless congress acts soon, exporters could see their lender of last resort falter as it waits for the new reauthorisation.
While US exports totalled over US$2tn in 2011, an annualised increase of 15.9% over 2009 and greater than the 15% growth rate needed to hit the 2015 target, a lack of guarantees from the US Exim in combination with a poor outlook in Europe and the current slowdown in China will mean a reduction in US exports, and could ultimately lead to the target being missed.
“Congress has the opportunity to pass US Exim’s reauthorisation, which really is a jobs bill,” says Hochberg. “More than 85% of our transactions support small businesses that create most new jobs. There is broad bipartisan support for US Exim’s reauthorisation among Democrats and Republicans. Bills have passed the House and Senate committees. We’re not there yet, but we’re working it out.”
While it remains to be seen how the proposed changes will play out, by introducing a debate about US Exim’s future and postponing its authority and capacity to do business, the US could easily be accused to shooting itself in the foot when it comes to achieving its goal of an export-led economic recovery. GTR