GTR’s Eleanor Wragg catches up with Fred Hochberg, chairman and president of the Export-Import Bank of the United States (US Exim), to discuss the bank’s plans for the coming year ahead of its annual conference in April.
GTR: What would be your assessment of US Exim’s performance since the 2012 conference?
Hochberg: US Exim had another strong year in fiscal 2012; we’ve had four record-breaking years in a row. The environment we operate in is very competitive. There is a lot of focus on China, but frankly there’s also intense competition from Korea and Japan, particularly when we talk about large infrastructure projects and power projects. Every country has an employment issue, so there is competition globally to find value-added jobs. We have provided financing to back US exports to make sure that those jobs are created here. Looking forward, the focus for the coming year is an increasing emphasis on infrastructure and power. These are the areas that are driving the global economy.
We are in the midst of a multi-year total enterprise modernisation. We are upgrading our systems and tools to improve our responsiveness, so that when we have a huge project we can respond quickly and ensure that US companies get there first. As an example, we did a US$2bn project in India recently, and we closed that whole transaction in 60 days.
GTR: What will be the focus and theme of the upcoming conference?
Hochberg: We’re going to have speakers from around the world talking about what’s going on in emerging markets, as well as panels on China, infrastructure and power. The takeaway from US Exim’s 2013 annual conference will be identifying as best we can what the opportunities are for US companies globally and how they can best compete for them. We are supplying our customers with the competitive edge – the ability to bid on projects, win the orders and close the deals.
GTR: At the last conference, the focus was on US Exim’s congressional reauthorisation and an increase in the bank’s exposure cap. What reforms were put in place at the time of the reauthorisation and what effect have they had? What has been the measurable effect on US exports since this hurdle was overcome?
Hochberg: The certainty that US exporters now have is critical. US Exim now has an exposure cap of US$130bn, and it will go up to US$140bn on October 1, 2013. One important change has been greater transparency. We post every transaction that is over US$100mn in the federal register. We report to Congress every 90 days on what our defaults and write-offs are. We also provide reports to Congress on our small business work. Something President Obama strongly believes in is having an open and transparent government, and US Exim is no exception to that. Sometimes I think it might give our competing ECAs an advantage because we’re far more transparent than they are, but that’s the price to pay for living in an open democracy and a free-market economy. We just have to run faster, quicker and smarter.
In addition, by April 1 we’ll be implementing a new approach to economic impact, where we look at a potential transaction’s benefit to the US economy and how it balances against any potential harm. That requirement is more clearly articulated as a result of the reauthorisation. We have sent a report to Congress for review and comment, and we’re working out a plan of implementation by April 1.
We are also in the midst of a report on our content policy. We have a US content requirement at US Exim that tries to best match job creation and sustaining in America. We are currently reviewing that content policy to ensure that it is serving the American economy. It goes back to being transparent and providing clarity for exporters so that they understand what criteria we will deploy when reviewing their need for financing. We are looking to enhance that certainty.
GTR: With the national export initiative, President Obama set an ambitious goal of doubling US exports over the five years until the end of 2014. Are you still on track?
Hochberg: 2012 was a challenging year in the markets in Europe, India, Brazil and China. There was a time when it was clear that we were beating the goal; I would say now that we are making steady progress. It’s harder for me to say if we will get there ahead of time. That said, I’m optimistic that we can meet the goal. I think that we’re seeing a strengthening in the global economy. When I talk to exporters large and small in the fields of satellites, aircraft, construction and transportation, they’re all looking at strong order books for 2013. We need to see how this year plays out.
GTR: The bank approved US$35.8bn in total authorisations in FY 2012 – an all-time record. What were the key factors in this success, and where do you think US Exim could have done better?
Hochberg: I would say that US Exim tried to be very responsive to the marketplace. We’re also providing a fast turnaround time as well as some innovations in the marketplace, such as more capital markets transactions. We had a strong year in Sub-Saharan Africa, which is where seven out of the 10 fastest-growing countries in the world are situated. I think we’ll see continued strength there. I think we’ll still see great strength in the aircraft sector.
There’s going to be greater infrastructure investment and a larger middle class globally, which will help to drive the world economy.
In terms of where US Exim could do better, small business is still a challenge. It’s something I lose sleep over. We’ve grown that portfolio to almost double what it was in 2008; we approved over US$6bn for small-business exports last year, but I would like to grow it faster.
GTR: What is your outlook for US Exim and US export performance in 2013?
Hochberg: I used to run a public company, so the last thing I do is make forecasts, particularly so early in the year. However, in 2012 we saw exceedingly strong growth in Australia, strong growth in Saudi Arabia and strong growth in the UAE. I’m seeing continued strength in those markets. In the first quarter of this year, our overall authorisations are up 75%, with infrastructure leading the way, which is a very strong start to the year. Small business was also up 50%, and women and minority-owned businesses were up 43%; that’s pretty strong growth across the board. I think the power sector is still going to be a very exciting area; it’s connected to infrastructure development as a lot of infrastructure is centred on energy supply. I also see a greater trend around energy security. We’re still at the dawn of a new age when it comes to shale gas and liquefied natural gas and how that becomes part of the energy supply globally.
GTR: Often, ECAs come in for criticism over the environmental impact of the projects they finance. What are the bank’s environmental principles?
Hochberg: US Exim is in full alignment with the Equator Principles in terms of environmental projects, and we are the only ECA that explicitly puts out on our website for the public the environmental impact of all of our projects. It is something we have encouraged other ECAs to do because we would not like to be the only one standing when it comes to transparency on carbon policy and on environmental impact.
GTR: How do you intend to maintain your competitive edge versus other ECAs?
Hochberg: We give US exporters the competitive edge in the global marketplace through our products. We’ve been groundbreaking on capital markets and in how we’ve aggressively pursued increasing support for small business exports. Additionally, President Obama came to an agreement with the new Chinese premier on coming up with a new international working group. This new framework would include China – which is not a member of the OECD – in agreements on global finance, what the framework is and what the rules of governance are.
GTR: US Exim recently partnered with Coface to provide reinsurance to protect the accounts receivables and cashflow of US companies that are exporting their goods and services overseas. Is this the shape of things to come? Do you foresee more link-ups with other ECAs?
Hochberg: We’ve done a number of collaborations with other ECAs. We do a lot with Canadadian ECA EDC, and we’ve just done a transaction with the Czech Republic’s ECA (Egap). In Australia last summer I met with the Australian national credit agency, Efic. In the emerging markets, we signed an agreement with the South African ECA (ECIC), and we have an agreement with Brazil, but these relationships have taken a little longer to germinate. Most recently, I met with the Indian ECA and the Indian Eximbank. India right now is very active in Sub-Saharan Africa, and that may well be an area of collaboration. One of the drivers of our business is joint ventures, and we’re seeing more and more of these, particularly in the energy sector. The large size of the projects and the fact that they are joint ventures in emerging markets drives the demand for our business where we can fill that financing gap.
GTR: US Exim’s “put” option was a groundbreaking innovation in export credit. Do you have any new products or structures in the pipeline?
Hochberg: One of the things we have done that has really picked up is funding transactions through the capital markets. Since October 2009, we’ve done 66 transactions for a total of US$13bn. The significance of this is that Basel III and more exports going to emerging markets have created a bigger challenge for conventional financing or even ECA-backed financing. Capital markets funding is something that reduces the cost of capital, which in many cases is the difference between making these projects work or not work. Another thing we’ve done in the aircraft space is pre-funding. We don’t have to time the bond issues precisely to the date of that aircraft delivery.
We can do a pre-funding and then the airline can draw it down over a three or four-month period and therefore take advantage of a slightly larger offering and time it a little bit better. Last year, we also launched a product called Global Credit Express, which is a financing facility for small businesses, for loans of up to half a million dollars. That has had a slightly slower start than I was hoping for, but we’re looking to speed it up this year. Sometimes products take a little time to get off the ground.
GTR: Almost exactly a year ago, President Obama asked Congress to grant him the authority to consolidate 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. Is this plan still on the table?
Hochberg: That’s still active; it’s still under discussion. We’ve gone through a number of budget issues in the United States with the fiscal cliff and so forth, but the consolidation plan is still being actively worked on.