In mid-April, the Export-Import Bank of the United States (US Ex-Im) held its annual conference in Washington DC, celebrating its 75th anniversary, and sending out the clear message that export finance is the key part of any economic recovery strategy. Philip de Leon reports.
The increasing relevancy of US Ex-Im in times of crisis was the key theme of the bank’s annual conference held in Washington DC, in mid April. In his key note speech, John McAdams, chief operating officer and senior vice-president, asserted the importance of the bank in supporting “US exports in order to create and maintain much-needed jobs”.
Jim Fortsch, head of ECA finance at UPS Capital, endorsed the views held by McAdams: “Support from US Ex-Im is more important today than ever before, especially for US small and medium-sized companies who are fighting to win business.
“US SMEs tend to trade with foreign SMEs, and with global liquidity and financing options limited, US Ex-Im’s support is paramount to our US small businesses winning the order.”
Joseph Grandmaison, member of the board of directors of US Ex-Im, also called for the bank to be even more proactive in its efforts to beat the recession: “A lesson that we’ve hopefully learned is that, not only in Africa, but throughout the regions of the world that we are involved with, US Ex-Im needs to be more aggressive in facilitating relationships and consummating deals.”
In fiscal year 2008, which ended on September 30, US Ex-Im authorised US$14.4bn in financing to support an estimated US$19.6bn of US exports worldwide. More than 22% of total authorisations, approximately US$3.2bn, was in direct support of US small businesses as primary exporters.
The bank approved 2,328 transactions for the direct benefit of small business exporters, representing 86% of the total number of transactions approved. In addition, an estimated US$1.1bn of US Ex-Im’s long-term authorisations is attributable to indirect promotion of exports, through helping small US businesses that sell goods or services to other US companies which then export them.
The general sentiment is that US Ex-Im is an integral actor of any recovery plan concocted by the treasury department.
This message is not without significance as it was not until April 14 – more than 100 days after President Obama took office – that the White House officially announced Obama’s intention to nominate Fred Hochberg as the bank’s new president and chairman.
This delay in the change of leadership has prevented US Ex-Im from being more at the forefront of the battle to help jumpstart the US economy.
Addressing the crisis
For Grandmaison, “this meeting was by far the most substantive in that the bank was able to outline the changes that have been made to take into account the current financing crisis”.
The challenges of the financial crisis help explain why the 1,000-plus list of delegates was one of the largest recorded in the bank’s history.
Yet, despite the uncertainty surrounding the leadership of the bank, US Ex-Im has been far from passive in the face of the crisis and promptly reacted in late 2008 by customising its existing products to support new exports, small businesses and its network of lenders and brokers.
McAdams explained that “enhancements and modifications to existing products particularly direct lending, short-term finance and working capital” have resulted in 15 direct loans made to date this year compared to two in 2008. There are a further 17 applications under review by the project and structured finance group, and 50% more activity involving working capital facilities for small businesses.
In November 2008, US Ex-Im modified its working capital guarantee programme to provide additional liquidity to US exporters by:
- Providing support for up to 100% of indirect exporters;
- Tripling support for warranty letters of credit from US$500,000 to US$1.5mn;
- Reducing collateral requirement for performance letter s of credit from 25% to 10%.
The bank also arranged a US$2.9bn financing facility to support banks asked to confirm letters of credit for exports to South Korea. Similar actions have been taken for countries such as India, Angola and Nigeria.
Speaker highlights: Oil and Sub-Saharan Africa
Abdallah Jum’ah, former president and CEO of Saudi Aramco, made a keynote address, tackling the issue of future demand for oil.
His presentation contrasted with the enthusiasm for clean and renewable energy seen in the US over the last year. He highlighted that demand for oil will continue to rise, fuelled by demographic growth and improved living standards in Africa and Asia, and the growing energy needs of developing economies in India and China.
“The International Energy Agency (IEA) predicts that by 2030, total world primary energy demand will rise by nearly 45% over today’s levels, and that despite improvements in the performance of alternative sources, fossil fuels will still satisfy roughly 85% of the planet’s expanded energy needs, with oil continuing to represent the world’s single largest source of energy,” he explained.
Jum’ah underlined “the need to rely on a wider and more extensive mix of energy resources, including alternatives and renewables” but added that “pragmatically and realistically speaking, for the next several decades those alternatives will supplement conventional fuels like oil, not supplement them”.
The other topics of this year’s agenda reflected what the bank considers as promising markets, such as Sub-Saharan Africa. Small business exporters, clean technology, India, Colombia and five African countries (Angola, Ghana, Kenya, Nigeria and South Africa) were the topic of panel discussions.
The panel discussion on opportunities in Africa was lively, and the speakers paid particular attention to Angola, Ghana, Kenya, Nigeria and South Africa. These five countries alone represent about 75% of all US exports to Sub-Saharan Africa.
The economic minister at the embassy of South Africa, Lerato Mataboge and James Kiiru of the embassy of Kenya, addressed delegates on a number of investment projects that had been approved by government economic development agencies and industries and that require US funding, partnerships, technology transfer and/or US goods and services. Some of these projects were of small sizes such as a US$5mn bottling plant in Gauteng, South Africa.
Talking with Mataboge after the conference, she said she was encouraged by the conference as, despite the global economic situation, there is heightened interest in Africa as expressed by US companies and entities.
She told GTR: “There is recognition that Africa, with over 980 million consumers, represents a large market for US goods and services and the continent has consistently offered the highest returns on investments. What the continent requires is trade-enabling infrastructure, not only to facilitate the movement of goods and services, but also to create infrastructure that will reduce the cost of doing business in our respective economies.
“It is through partnerships with developed economies and in investing in industrial capacity enhancing sectors on the African continent that we can fully realise Africa’s economic growth and development.”
The economic/commercial minister at the embassy of Nigeria, Gregory Odon, also spoke on the advantages of doing business in Nigeria, and following the conference he told GTR that: “International investors who indulge in unwarranted stigmatisation and characterisation of Nigeria are engaging in unfair trade tactics of monopolising the Nigerian investment space for themselves by scaring away prospective competitors.
“The best way of judging the returns on your investment or evaluating the investment potentials of Nigeria is to find out yourself, not from fellow investors. No country has a monopoly of crooks or criminals, and therefore Nigeria should never be singled out on the basis of a few undesirable elements that the government has done a lot to prosecute.”
He further added: “We in Nigeria are tired of making excuses for our national problems. Rather we think that all challenges in Nigeria present economic strategic opportunities. Whether it is in the infrastructure, agriculture, mining or power sectors, all Nigeria’s challenges present healthy and lucrative investment opportunities. We invite all investors to convert retreat into advance and reap the bountiful returns that await them.”
Like his counterparts, he concluded: “On the whole, the conference offered us in Africa a platform to dispel most of the misconceptions and mischaracterisation of Africa in the west. We require more of these scenarios to educate the international investment community of the huge, untapped potentials of our continent as the last economic frontier of the 21st century.”
Francis Addo, commercial minister at the embassy of Ghana mentioned that: “According to the World Bank Report 2008, Ghana has become the best place to do business in West Africa.”
Kiiru, from the Kenyan embassy, expressed his regret that: “Africa’s market share for both exports and imports in the US remains quite insignificant at only 3% and despite the huge potential provided by African Growth and Opportunity Act (Agoa) [an act signed in 2000 aimed at providing African countries incentives to open up their economies and improve access to US markets]” and that “US companies are losing a lot of business to other countries, especially China”.
However, US Ex-Im is making progress in supporting trade with Sub-Saharan Africa. In the fiscal year of 2008, the bank authorised more than US$555.3mn in export credit insurance and guarantees, and US$20.2mn in working capital guarantees.
Continuing its efforts to be more engaged in this challenging but promising market, US Ex-Im announced in April 2009 its approval of a US$120mn credit facility covering four Angolan banks: Banco Africano de Investimentos (BAI); Banco Espirito Santo Angola (Besa); Banco de Fomento Angola (BFA); and Banco De Poupanca e Crédito (BPC).
The facility will provide special delegated authority (SDA) for short and medium-term private sector transactions. In practical terms, the credit facility will allow these four banks to provide their clients an expedited review process and shortened approval timeframe by US Ex-Im.
Short-term financing is defined by US Ex-Im as any transaction with a repayment term of 360 days or less US Ex-Im’s short-term exposure to the Angolan bank will be no more than US$25mn. Medium-term financing is defined as any transaction that has a maximum financed amount (excluding exposure fee or premium) of US$10mn or less and has a repayment term that is not in excess of five years.
“The announcement of the US$120mn bank facility between the US Ex-Im and four Angolan banks further confirmed our confidence in our business prospects in Angola,” said US Ex-Im’s Grandmaison.