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The Export-Import Bank of the United States (US Exim) has conceded that its levels of officially supported export credits were “low by historical standards” last year, as exporters and lenders alike urge a rethink on internal processes and issues such as content requirements.

As detailed in US Exim’s latest competitiveness report, the levels of new officially supported medium and long-term (MLT) export credits on offer from export credit agencies (ECAs) worldwide plunged in the wake of the Covid-19 pandemic last year.

In many instances, these government agencies were put to work providing less traditional forms of support such as working capital guarantees.

Despite the downward trend for ECAs across the board, US Exim saw its standing fall comparatively to many of the other major providers of medium and long-term export credits in the calendar year 2020.

Having ranked eighth in 2019, authorising more than US$5bn in new MLT support, US Exim’s standing fell to 13th last year after its support dropped to US$1.8bn.

US Exim’s acting first vice-president and vice-chairman James Cruse notes in the report that the ECA’s 2020 performance was below par in comparison to previous years.

Both Cruse and industry figures suggest that the ranking reflects that US Exim is still feeling the effects of years spent hamstrung when it was unable to authorise transactions of more than US$10mn.

“Although still low by historical standards, this ranking demonstrates a strong return of the agency to MLT financing after several years of near total absence, and the steps taken laid an important foundation for this next chapter in the agency’s history,” says Cruse.

Ralph Lerch, head of export finance at DZ Bank, tells GTR that US Exim’s current ranking is “not a big surprise” and that it will “take time to be fully back to business”.

“Long-term export finance is not a business you can easily switch on or off. It requires predictability and trust that at a certain moment in time – if all approvals are there and the borrower decides to go for the envisaged project – respective cover and financing are available. In the case of Exim, predictability needs to be restored and a pipeline of transactions needs to be built up,” he says.

“I also have the impression that some major US manufacturers have successfully explored alternative ECA solutions based on their global presence and value chain. To encourage them to use US Exim as their ‘home’ and natural ECA again might be a priority for US Exim,” he adds.

Nevertheless, elsewhere in the report, US Exim says that its showing in the MLT space could also partly reflect issues with the ECA’s processes.

As part of the report, US Exim gathered feedback from more than 100 exporters and lenders who last year engaged with the ECA in some way, whether through pending applications or approved transactions.

“Multiple exporters and lenders explained that the low activity levels, in part, reflect US exporter reluctance to seek Exim support because of the bank’s relatively longer due-diligence processes and documentary burden compared to foreign ECAs,” US Exim says.

Exporters and lenders alike bemoan various internal process issues, explaining that these hurdles impede the ECA’s ability to provide “quick and reliable support”.

Heavy paperwork, advisor requirements, unresponsiveness, frequent leadership turnover, and long processing periods for transactions were all cited as ways in which US Exim lags behind other foreign ECAs.

A US Exim spokesperson tells GTR that “we know we need to improve on some customer experience issues. Ensuring that Exim is as effective and efficient as we can be in all customer processes is a major priority.”

 

Foreign competition

While the latest competitiveness report identifies China as one major competitor, US Exim makes clear that the ECA and American exporters are also facing stiff opposition from credit agencies in allied countries.

In last year’s paper, US Exim railed against China’s “aggressive” export credit system, which the US says is used by Beijing to advance its geopolitical aspirations globally.

Yet, the latest report from US Exim highlights that it is coming up against increasing rivalry from ECAs in friendly nations, such as the UK, Italy, Germany and Japan.

“Exporters and lenders described other ECAs such as UKEF, Sace, Euler Hermes and Nexi as more competitive in the programmes and services they provided in 2020, proactively working as partners with industry stakeholders to not just support but instead create business opportunities,” the report reads.

“Some lenders provided specific examples of foreign ECA support that was more competitive than Exim, emphasising that the competition is not just from Chinese ECAs. Specifically, several lenders positively referred to UKEF’s EDG [export development guarantee] as an untied programme that allowed UKEF more flexibility than standard Arrangement export credit financing, calling it a ‘game changer’ programme that UKEF was using to provide liquidity to the UK’s exporter base.”

The use of untied products has been increasingly flagged as a way for ECAs to provide support outside of the OECD Arrangement, the decades-old gentleman’s agreement that puts in place rules on the use of export credits by Western countries.

But within the remit of officially supported export credits, US Exim has also been urged by some users to make changes to comparatively stringent policy requirements.

While exporters and lenders praised the ECA’s Covid-19 response and the quality of its guarantee in 2020, some also called for changes to US Exim’s US Maritime Administration (Marad) policy mandating that certain exports be carried on US flagged ships.

Meanwhile, the long-raging debate over minimum US content policy continues, with exporters and lenders calling for proposed changes to the requirement through the Program on China and Transformational Exports (CTEP) to be rolled-out to all transactions.

Late last year, as part of its China programme, US Exim moved to lower the minimum US content required in a deal from 85% to 51%.

However, with the change only applying to 10 so-called transformational sectors, including 5G and quantum computing, multiple exporters and lenders urge the bank to overhaul its content rule across the board.

“No other ECA requires 85% domestic content to provide 85% support. US exporters without the manufacturing flexibility and/or institutional expertise to source alternative ECA support lose sales,” says one unnamed source in the report.

“Right now, the content requirements are the principal reason Exim is practically useless,” says another.

Gary Mendell, president at trade credit insurance broker Meridian Finance Group, tells GTR: “We would like to see the spirit of the China and transformational programme more broadly spread across a lot more industries, bringing about wider liberalisation of the content requirements. Many exporters, whether small or middle-market, aren’t impacted by the initiative.”

In response, a US Exim spokesperson says that with global supply chains and technology having “fundamentally changed” how products come together and move towards their final point of sale, “all ECAs need to take a hard look at how they can support domestic job creation in the modern global market place”.

“Exim remains fundamentally committed to our mission – supporting jobs in the United States – and we are always examining how best to do that within the framework set for the agency,” they add.

 

China programme issues?

The China programme was created largely to help US exporters better compete with rival counterparts, namely those in China, in a handful of sectors.

The programme is tasked with supporting the “extension of loans, guarantees, and insurance, at rates and on terms and other conditions, to the extent practicable, that are fully competitive with rates, terms, and other conditions established by the People’s Republic of China or by other covered countries”.

At the same time, US Exim must earmark no less than 20% of its total financing authority (roughly US$27bn) for the programme.

Progress has reportedly been made in rolling out the programme since Congress directed US Exim to set up the initiative in late 2019, with the bank’s spokesperson telling GTR that it has “come a long way in a very short amount of time”.

“As the Competitiveness Report shows, CTEP has already helped close several deals – like Weldy-Lamont in Senegal – in transformational export sectors and in the face of competition from companies backed by the People’s Republic of China. As we go forward, we’ll continue talking to stakeholders and making sure that the programme grows and evolves as any new programme would.”

But there are also signs of teething problems. Lenders and exporters have told US Exim that the CTEP is “riddled with confusion because access to, and application of, the programme lacked clarity”.