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First-of-its-kind EU export credit facility to target Ukraine rebuild

The European Union is advancing plans to launch its inaugural risk-sharing instrument for the export credit sector, with a pilot initiative aimed at boosting SME exports to war-torn Ukraine.

The European Commission is developing the scheme alongside the EU’s SME financing arm, the European Investment Fund (EIF), which is expected to guarantee export credit deals involving Ukrainian buyers.

The initiative is specifically aimed at SME and mid-cap exports to the market and comes amid wider efforts in the European bloc to help smaller firms weather the economic effects of the Covid-19 crisis and Ukraine war.

The European Commission and the EIF are still ironing out the “exact technicalities” of the Ukraine SME facility, yet a Commission spokesperson confirms to GTR that a €300mn pilot is set to be rolled out at some stage in 2024.

“Once they [the technicalities] are clarified, the EIF will launch a dedicated call for expression of interest. Export credit agencies selected under this call will then be able to support SMEs and small midcaps.”

It will be the first EU-level risk-sharing instrument provided to the export credit sector, the European Commission says, and highlights how Brussels is increasingly seeking to wield the might of export credit agencies (ECAs) from its 27-member states to advance policy goals, such as green energy, overseas investment and competing with China and the US.

For the past three years, the Commission has been deliberating plans for an EU export credit facility, and last year, an independent feasibility study concluded it may consider creating a reinsurance function for ECAs. At the time, Austria’s ECA OeKB suggested a Ukraine facility could be created “without much additional bureaucracy”.

The Ukraine pilot is set to offer a boon to European ECAs and is already garnering interest. While several agencies reinstated cover for the Ukrainian market in 2023, war risks are still prohibitively high.

Eeva-Maija Pietikäinen, head of trade finance and country risk management at Finnvera, has welcomed the innovative new risk-sharing instrument and says it could help boost Finnish trade. “It is quite a new thing for the EU to think of using the European Investment Fund in this way,” she tells GTR.

She says the agency will “negotiate and try to get a piece of this risk-sharing initiative from the European Investment Fund”, noting that the €300mn will be split between all the EU member countries, so it is “unclear how much we can get”.

Pietikäinen explains that the current suggestion is for the EIF to cover up to 80% of an ECA’s risk on certain transactions – so Finnvera would likely also need the Finnish government to cover the remaining portion.

A spokesperson for Austria’s OeKB says the agency is also “very interested in participating” in the EIF pilot.

The Dutch agency, Atradius DSB, which in October was allocated an additional €60mn by the Dutch state to back exports linked to Ukraine’s reconstruction, likewise tells GTR it is keeping a close eye on the programme.

“We, together with the Dutch government are closely monitoring the possibilities of this pilot in a Dutch context, also looking out for applicability on a case-by-case basis,” says an Atradius DSB spokesperson.

 

Too early?

Still, other agencies say it is still too soon to judge whether they will seek to use the EU-Ukraine facility.

“For this particular EU export cedit programme, it is still early days,” says Mariane Søndergaard-Jensen, senior director, head of international regulation & relations, at the Export and Investment Fund of Denmark (EIFO).

“We do not know the details of the pilot yet, but we are monitoring the developments closely to see if it fits and hope that it will open doors for more business between EU-based and Ukrainian SMEs,” she says.

Poland’s ECA Kuke says it would consider taking part in the EU pilot yet argues there is no need for agencies to wait.

“This might be a useful instrument that may encourage some ECAs to reopen for the Ukrainian risk. However, this is not our case – Kuke restored export credit cover already in June 2022, only four months after the Russian aggression and insured goods supply worth US$650mn since then. We still have spare capacity for Ukrainian risk and a very low loss ratio throughout this period,” says Janusz Władyczak, the ECA’s CEO.

Kuke was among a group of the first ECAs to reinstate cover for Ukrainian borrowers alongside the Export-Import Bank of the United States, Export Development Canada and UK Export Finance. Last year, several countries, including Denmark, France, Belgium, Sweden and Finland, followed suit and altogether pledged hundreds of millions of dollars in extra capacity.

With little sign of commercial insurers returning to the Ukrainian market soon, ECAs are expected to play a key part in Kyiv’s estimated US$411bn rebuild by helping exporters supply goods for a range of projects, not least roads, bridges and factories.