2012 saw a flurry of government initiatives to promote UK exports, but more needs to be done to make sure exporters benefit from them.
- Hugh Bailey, director, British Exporters Association (BExA)
- David Havelock, chief executive, UK Export Finance (UKEF)
- Mark Runiewicz, CEO, Trade and Export Finance Ltd
GTR: In 2012, the UK government announced a number of initiatives to boost exports. David Cameron launched a supply chain finance scheme, UK Trade and Investment (UKTI) received £13mn to improve access to export markets for small businesses and UKEF was allocated £1.5bn in the chancellor’s autumn statement. Is the country finally on the right track?
Bailey: BExA’s view is that the government is certainly on the right track and that the additional products now offered by UKEF, together with additional funding for UKTI export support to SMEs, do represent significantly enhanced levels of support for our exporters.
The July 2012 announcement of a £5bn export refinancing facility (ERF) recognised the bank market liquidity constraints and associated impact on the availability of medium and long-term funding for export credits. The further announcement in the chancellor’s autumn statement of funding of £1.5bn for a direct lending product to be available from April 1, 2013 and to be provided through UKEF represented a further most welcome level of support for exporters. The eventual introduction of both the ERF and direct lending facility will help fill a significant gap in UKEF’s product range when compared to competitor export credit agencies.
Runiewicz: These initiatives are good for the UK but the problem is that the finance schemes are delivered through banks. I feel that it is taking too long for these schemes to be delivered to companies who need them. Our company has agreed to provide evidence proving that despite the availability of UKEF products, banks do not use or promote the schemes.
Theoretically, the initiatives have the correct strategy but I believe that a dynamic approach is required instead of using the ‘old delivery channels’. UKTI could be a dynamic organisation leading the forefront of the export drive but its delivery has been outsourced through the chambers of commerce. This creates regional variances.
The initiatives appear to meet exporters’ needs at a ‘high level’ but are the delivery vehicles translating these opportunities to the people that need it? I do not believe so.
GTR: Do you already feel the results of some of these initiatives, or is it still too early?
Bailey: It is really too early to measure the impact of these initiatives. It is very disappointing that the ERF is still not operational some nine months since its announcement and of course the direct lending product will receive the funding in the new financial year. Our members have not commented on the supply chain finance scheme other than confirmation from a number of our large corporate members that they have signed up to the scheme.
UKEF pilot schemes introduced in 2011 are beginning to become known and do seem to be being accessed by SMEs. In particular, take-up of bond support by SMEs is encouraging as is the gradual increase in the number of enhanced export insurance policies (EXIPs) issued by UKEF. Conversely, take-up of the export working capital facility and use of the foreign exchange credit support product is disappointingly low. There may well be a role for the putative ‘business bank’ to help deliver these products and provide funding for SMEs.
Havelock: Improving the UK’s export performance will take time. The government has set ambitious goals to increase the amount of exports and the number of exporters by 2020. It is premature to judge success in such a short space of time.
It should not be underestimated how much has been done to promote awareness of our new short-term products. These are delivered through financial institutions on a risk-share basis so we cannot go it alone. This necessitates the co-operation of these institutions and it’s important to note that we have 15 banks signed up to the bond support scheme and have been engaging with them on both senior and local representative levels. These banks probably capture over 95% of the SME market.
However, we are not just relying on the banks; we have a direct awareness programme too involving 12 export finance advisors (EFAs) placed throughout the country working closely with UKTI representatives and we are looking to increase this number. So we are making progress.
In the last three years, UKEF has provided over £9bn of support to UK companies on export contracts as low as £12,000 to ones worth hundreds of millions. This year will be a record performance for UKEF in business levels supported for over 10 years and our pipeline for both traditional medium and long-term support and the new short-term products is looking strong.
Demand from smaller exporters has increased and much of this has been delivered through the new short-term products launched in 2011. However, results should not just be measured in number of commitments as a lot of the engagement results in exporters getting helpful advice and being signposted to the private market that can help without our involvement.
Another point often overlooked is that UKEF supports thousands of companies, many of which are SMEs, indirectly through the supply chains of much larger exporters, such as Airbus and Rolls Royce.
To put matters into some context, UKEF’s remit is to complement and not compete with the private market. The private market has an important role to play and it’s important that the government does not intervene unnecessarily.
Bailey: BExA agrees that UKEF’s role is to complement the private market. Closer contact with the private market would enable UKEF to quickly identify gaps in the market. BExA believes that SMEs with an export turnover of less than €2mn selling to the EU and some other OECD countries constitute such a market gap. We understand that the Danish, Swedish and some other ECAs have applied to the European Commission’s Directorate General for Competition for approval
to provide cover for these companies. Why hasn’t UKEF done likewise?
GTR: A lot of the problem seems to come from a lack of awareness among UK SMEs of the products and services available to them. Would you say this is changing, or is there still a lot of work to be done in that area?
Runiewicz: The 2012 International Trade Survey undertaken by Trade and Export Finance in conjunction with the Institute of Export showed that 80% of companies had not heard of the schemes available to exporters. The 2013 survey is currently being undertaken and we have not seen a significant change in the companies using the schemes.
I do not believe that the support from UKTI has reached the target middle market (£50mn plus turnovers) to date, although a number of advisors have been appointed to promote UKTI.
SMEs are still not aware of the products and support that is available. If companies are not members of chambers of commerce then access to information is limited. The various delivery channels proposed to support SMEs seem to be ill-thought through and although theoretically the concept looks good on paper, in reality there are large skill gaps.
Havelock: Since the privatisation of its short-term trade credit insurance business in 1991, UKEF had been focused on big-ticket project exports. Having broadened its business domain to also support exports sold on short-terms of credit in 2011, awareness among SMEs of the support available from UKEF is growing.
Since 2011, UKEF has been working closely with banks, trade associations, lawyers, accountancy firms and UKTI to raise awareness of the support available, not just from UKEF, but across government and the private sector. As I mentioned, UKEF has also recruited 12 EFAs based around the UK, whose role it is to signpost exporters to the most appropriate form of support for them. The EFAs work closely with the UKTI international trade advisors to provide a wide range of support to companies.
Bailey: BExA does believe that awareness of what UKTI and UKEF have to offer to SMEs is spreading. However the messaging process will take time which, given the context of the national export challenge timescales, will require additional resourcing most probably by way of more EFA appointments in the short term. In these early stages it’s all about making SMEs aware of what government support is available and how to access it. Government initiatives will not fare well unless the message is delivered.
The introduction of 12 UK EFAs based regionally in UKTI offices is a big step in the right direction. The importance of establishing regional contact points for SMEs cannot be over-emphasised. A number of our SME and sole trader members have reported that there is insufficient awareness of UKEF schemes at some local banks. There may also be reluctance, on the part of some branches of the banks, to engage with UKEF.
GTR: What is the general feedback you get from exporters on government support?
Bailey: A number of members have highlighted UKEF product application processes and documentation. A streamlining of forms, quicker turn around on enquiries and changes to policy documentation, including improving the quality of credit risk coverage under the EXIP, would all help take up of UKEF support. BExA believes that there is great scope to make improvements in these areas.
Existing schemes such as UKTI’s passport to exports and export market research scheme are to be applauded. EFAs are approachable and have a useful breadth of knowledge and practical experience.
One concern of members regarding UKTI is the way it charges for its overseas market introduction service (OMIS) reports. BExA agrees that a fee should be paid, but believes that this should be on a ‘payment by results’ basis, which, we understand, is the case in France. For exporters to be asked for £1,000 or more for what can be basic information on an overseas market is a disincentive from undertaking market research through UKTI. BExA would like to see a free mini-OMIS made available to SMEs. The announcement in 2012 of discounts on the cost of an OMIS report is not a long-term solution.
In amplification of the position in France, Coface can offer an SME a ‘prospect insurance’ product. This provides the SME with funding to cover sales and marketing costs incurred by the SME in new export markets. The amount of funding is established upon the SME’s export business plan and projected export sales. The SME repays the upfront funding as new export orders are won. As such the prospect insurance product provides not only a level of validation of their business plan but critically committed funding of upfront costs.
Runiewicz: The general feedback is that the government should do more. This is something that I disagree with. I believe that there are many schemes available to support SMEs; however, they are not yet being delivered in the most effective manner. I further believe that the delivery channels need to move into the 21st century and lose the ‘civil servant’ approach and be more customer-focused, reacting faster to opportunities, being less paper-intensive and risk-adverse but more commercial.
The availability of finance is still an issue. Many financial institutions will look to support SMEs and UKEF’s products would dovetail into a robust financing package but the products can only be delivered through major banks. Smaller organisations can provide a more flexible and bespoke solution yet fail to meet the entry point to provide these schemes.
GTR: What should be the next priorities in the government’s export challenge?
Runiewicz: The next challenge should be to streamline the delivery channels, target those promoting the schemes to deliver and get the message out to companies. I believe that the government should look at their delivery channels, open up new channels and provide success stories to demonstrate how the schemes can work to drive export growth.
Bailey: BExA’s document UK export finance – A key role in the national export challenge sets out in detail nine recommendations for the development of UKEF, which include: the introduction of the ERF and direct lending schemes at the earliest opportunity; improved accessibility to UKEF products through simplifying the application processes and improving product documentation and associated improvements to the quality and scope of cover; thinking again about the re-introduction of a fixed-rate export finance scheme and a tender-to-contract foreign exchange cover product; supporting suppliers in the supply chain of the major exporting primes – other export credit agencies do, why not UKEF; taking advantage of the EU small company exception, which would allow UKEF to provide short-term cover to SMEs who export less than €2mn per year of their turnover when exporting to marketable risks; and appointing more EFAs and international EFAs in the UK’s key target export markets.
The government should also establish the business bank to co-ordinate the delivery of UKEF products and provide funding of products where there is market failure.
Havelock: We are addressing the SME space with a structured marketing programme assisted by professional advisors. We have heard what needs to be done on processes and documentation and we are working with the banks on that and indeed have just launched new application forms.
UKEF does not set business targets as it responds to demand from exporters. However, it is important that knowledge of our products, particularly those aimed at SMEs, is available to as many as possible so that the range of support on offer from UKEF is well known and understood throughout the export community in the UK.
Moving away from SMEs for the moment, of particular relevance to UKEF over the coming year will be the support it can provide to exporters in the UKTI priority markets and securing high-value opportunities (HVOs) for UK companies.
One way of maximising the opportunities for UK exporters, is through the provision of credit facilities to overseas project sponsors so that exporters have the chance to bid for supply contracts on large overseas projects. A good example of how UKEF can assist UK companies in this regard is the US$1bn line of credit extended by UKEF to Petrobras of Brazil in November 2011. This provided an umbrella facility under which Petrobras could procure exports from UK companies, knowing that a finance package had already been put in place. Since this facility was agreed, UKEF and UKTI have been working closely together to identify UK companies who could benefit from this support.
The pipeline of major HVOs is extremely strong with around 40 new projects in that category potentially requiring billions of support and UKEF is gearing itself to meet this challenge. Nevertheless these do take time to come to fruition sometimes over a number of years so conversion is not instant. This is a very encouraging outlook and as mentioned earlier these will have SME supply chain benefits too. In addition to working closely with UKTI we are in the process of appointing international EFAs in key strategic markets globally to support this HVO initiative.