US Ex-Im plans to expand its supply chain finance capabilities, increase support for small businesses and speed up its processes. But will this be enough to help double US exports by 2015? Rebecca Spong reports.
Already a year has passed since President Barack Obama’s speech at US Ex-Im’s annual Washington DC conference. Back in March 2010 the president’s address helped launched the US government’s new National Export Initiative (NEI) which set a target to double US exports by 2015. An export-driven economy is seen as a means of driving the US out of recession.
Obama’s appearance pushed the trade and export finance market into the spotlight, highlighting the inadequacies in availability of financing for exporters. It ensured US Ex-Im would have to up its game to help fill these market gaps left by a beleaguered commercial banking sector.
Moving on 12 months, and US Ex-Im has authorised US$24.5bn in financing in 2010, which is 70% more than in 2008. Authorisations supported over US$33bn in export sales and an estimated 227,000 US jobs.
In 2011 Q1, authorisations already total approximately US$8bn, and the bank has supported nearly US$9.3bn in export sales.
Addressing delegates at this year’s US Ex-Im conference, Hochberg announced: “Exports are up 17% in the first year [of the NEI] in 2010 over 2009, so we are well on our way to meeting the president’s goal, and in January of this year, we had the largest single month of exports ever – the largest month ever for goods, services and commodities.”
Speaking to GTR at the sidelines of the conference, Hochberg even stated there was potentially a “greater buzz” at this year’s conference compared to last year, which is partly due to the impact that Obama’s speech has made during the last 12 months.
“There is heightened interest in exports,” Hochberg noted.
“Our president wants to double them in five years; we are fifth of the way there. So I think that a part of what Obama did was to push American companies and American workers to look outside of our country for opportunity.”
Market gaps
But despite a strong performance so far, US Ex-Im has to maintain momentum around the NEI. The bank will need to speed up its processes, provide new means of supporting exporters and ensure access to financing is available for a whole range of companies. These goals are certainly at the forefront of Hochberg’s mind.
“I think that small businesses will continue to struggle to get liquidity in the market place,” he explained to GTR.
“More and more businesses are going into emerging economies, and some FIs (financial institutions) have told me, or the exporters say to me, ‘my bank has said they only have a certain exposure for certain geographic areas around the world’.
“However, there are more and more businesses going to those areas… so there’s a greater call for US Ex-Im to come in.”
He noted that in the post-crisis market, more companies are looking to diversify their sources of financing, which again heightens the need for US Ex-Im support.
”[Previously] they might have relied on internally generated funds, they now look at commercial paper, they want to look at ECA credit, bond offerings, banking offerings and to make sure that they can weather any future storm. You’ve got to have some diversification [in place].”
With the needs of credit-starved smaller businesses in mind, US Ex-Im launched global access for small business in January this year, a programme aiming to increase the number of businesses that export goods and services.
Over the course of the next four years, the scheme aims to double its annual small business export finance volume from US$4.5bn to US$9.5bn, add a total of 5,000 small businesses to its portfolio and approve at least US$30bn in small business transactions.
Global access incorporates a number of new products, adding to an existing portfolio of products. These are: express insurance; export credit reinsurance; supply chain finance guarantee and solar express (a product whereby small solar energy producers needing loans of between US$3mn to US$10mn can have them granted within 60 days).
To educate US exporters about the new products, US Ex-Im holds regular forums across America as well as online.
Supplier finance
US Ex-Im’s new supply chain finance guarantee is a central component to the bank’s renewed focus on supporting small businesses. During the conference, the bank announced its second transaction signed under the scheme.
The deal was arranged by JP Morgan and provides US$450mn of liquidity to small and medium businesses. US Ex-Im is providing a 90% guarantee over the facility.
By using US Ex-Im’s guarantee, JP Morgan is able to increase its purchase of accounts receivables from suppliers that are related to purchases of goods and services by Caterpillar for its export-related production.
It is designed to help approved Caterpillar suppliers obtain cash more quickly, therefore increasing liquidity to fulfil new orders.
It gives the exporter the option to extend payment terms and improve their working capital. To participate in the scheme, lenders must have an existing supply chain finance programme.
Hochberg remarked to GTR: “We are putting intense focus on it [the supply chain finance guarantee programme]. It is a way that indirect exporters or suppliers can access liquidity, and it fills a real gap, particularly for small businesses with limited access to capital. This gives them source of liquidity quite rapidly.”
The first supply chain finance guarantee was signed in September 2010, and involved US$100mn of liquidity from Citi to small and medium-sized suppliers of CNH America, a subsidiary of CNH Global (an agricultural and construction equipment producer).
US Ex-Im is actively looking to recruit more banks and corporates to join the programme.
Speeding up
A common complaint about US Ex-Im revolves around the speed at which the government entity works.
US Ex-Im decided to call this year’s conference, “Government at the Speed of Business”, aiming to tackle these often-heard complaints.
When asked how he would response to the bank’s critics, Hochberg told GTR: “What I’m saying is that we are fine tuning our systems and streamlining our processing – we are cutting transaction times.”
“We’re really focused on timeliness and finding a way to get to ‘yes’.”
One of the new products launched under global access tackles the need for speedier processes.
Express insurance is aimed at new US Ex-Im customers that are selling overseas and looks to provide a turnaround time within five days of up to US$300,000 per customer.
Staying competitive
Yet ensuring US companies win export contracts and boost their international sales goes beyond just providing the necessary financing as quickly as possible.
“The way to make them [US exports] more competitive, and I think it’s the theme of the conference, is innovation,” explained Hochberg to GTR.
“We have to take innovative ideas and bring them to market. I think that’s what the American spirit is about. It is having your eyes open, seeing things, and being able to connect the dots and make innovations and bring them to market.
“This conference is about making connections and making deals. It is not just about listening to a lot of people talk and having a cocktail at reception. We have buyers and representatives from 35 different countries that are here looking to buy and there are exporters looking to sell.”
The issue of competitiveness was central to a panel discussion at the conference featuring CEOs from Siemens, Caterpillar and Honeywell International.
The company heads spoke of many problems that could prevent the US hitting its target of doubling exports, including education issues, national debt, energy policy and oil prices, taxation and the threat of protectionism.
Dave Cote, chairman and CEO of Honeywell International, argued for a change of mindset among American businesses. “I would like to see more competitiveness in the US, less entitlement, more a feeling like you have got to earn your way every day and recognise that the global economy has expanded three or four times.”
He highlighted three challenges: “We need to address the debt, we need to have an energy policy and we need to have an education system that reinforces math and science and allows people to focus on technical skills, even in high school.”
He added that some taxation legislation was impeding the growth of exports, commenting, rather provocatively and acknowledging it probably would be impossible to implement, that corporate tax should be zero.
“We argue about whether it should be 25-35%. It should be zero. If you wanted to attract an incredible amount of foreign direct investment, people investing in the US you make the tax rate zero. You would get an influx of capital like you would not believe,” Cote argued.
Protectionism is a further obstacle, as Doug Oberhelman, chairman and CEO of Caterpillar, warned: “I worry greatly that some Chinese company wants to come over and buy an American company and the US government says ‘no’.
“Well, the next week, one of the three of us [the other CEOs on the panel] is over there trying to do something and they say no, and it hurts American workers. So somehow we are going to have to figure out this balance with them and work towards a level playing field.”
Cote at Honeywell elaborated on the issue of national debt, commenting, “The seeds of the next US recession have already been planted”.
“The debt will grow from US$9tn today to about US$20tn 10 years from now, even assuming a 4.5% nominal GDP growth per year for 10 years, and it is all because the baby boomer generation retires, and we have committed more in benefits that we can pay given the number of people paying in.”
He added: “What happens to competiveness? Everything falls apart because we are not willing to face into issues that we have today, and we would prefer to wait for the crisis.”
Boosting capacity
For US Ex-Im to be best equipped to support US exports, the bank will need to be reauthorised by Congress, as the bank’s charter is set to expire at the end of this fiscal year on September 30.
Presently, US Ex-Im is meeting with congressional staff and other stakeholders to share input on potential changes to the charter.
This authorisation is likely to happen before the end of September.
The bank’s current portfolio is about US$75bn, and it is likely to have another record-setting year in terms of business volume. There is a lot of debate about raising the exposure limit above US$100bn.
Keen to ensure US Ex-Im does see an increase in limits, Hochberg emphasised to delegates that the bank does make money for the US. “In fact we generated US$3.4bn profits to US tax payers in the last five years,” he announced.
Hochberg further argues that the power of exports offers more than increased profits for US companies and the US itself. “It lays the foundation for commerce, security, prosperity,” he said. GTR
SMALL BUSINESS SUPPORT
Under US Ex-Im’s Global Access for Small Business programme, the bank is offering four new products – adding to its existing portfolio.
Express Insurance Promises a five-day turnaround on quotations for new customers on overseas buyer credit facilities up to US$300,000
Export Credit Reinsurance Assists private sector insurers that provide short-term export credit insurance
Supply Chain Finance Guarantee Providing guarantees to banks’ with existing supplier finance programmes, helping them increase the amount of liquidity available to suppliers.
Solar Express Helps US exporters of solar energy equipment.
Hot Spots for US Ex-Im
Brazil
The conference’s breakout session on Brazil was packed out, with exporters keen to capitalise on both the forthcoming World Cup in 2014 and the Olympics in 2016.
US Ex-Im authorised US$1bn in export credit for infrastructure projects in Brazil’s Rio de Janiero state in March.
Colombia
Colombia is one of US Ex-Im’s largest markets. In March, the bank gave the preliminary green light to US$2.4bn-worth of direct loans and guarantees to a petrol refinery in Colombia. However, conference panellists spoke of the need to complete a US-Colombia free trade agreement to ensure that trade between the two countries grows.
India
Hochberg told the conference that India plans to spend a trillion dollars between 2012 and 2017 on infrastructure.
This is double the amount spent in the last five years.
Key investment and export opportunities will be in improving the country’s railways, subways and roads.
India also has huge power needs. It plans to produce 20,000 megawatts of renewable energy by 2020.
South Africa
Another key US Ex-Im market.
In February the bank approved a loan guarantee of over US$100mn as part of the sale of locomotives made by GE in the US to South Africa’s Transnet.
In April, the bank granted preliminary approval for a US$805.6mn direct loan to South Africa’s state-owned power company Eskom for the import of US goods from US firm Black & Veatch. The equipment will be used to construct the Kusile power plant.
