GTR talks to Karin Apelman, the outgoing director general at EKN, Sweden’s export credit agency, about key developments in the industry, and some of the challenges that lie ahead.
GTR: How big a role do export finance guarantees play today in global trade, and in which sectors are you witnessing the greatest demand?
Apelman: ECAs play an important role in making trade transactions happen.
The majority of ECAs – both public and private – have expanded their activities over the last 10 years, with 10% of global trade now considered to be guaranteed by ECAs.
In the Swedish market, EKN’s guarantee volume closely mirrors those sectors of the Swedish economy that are strong, particularly infrastructure. Export finance guarantees are used by companies in the telecoms; transport, including buses and trucks; and power and transmission sectors, among others. These companies tend to be large players globally, and by supporting them we enable them to play an important role in markets worldwide.
Last year, we saw a major increase in guarantee issuing, mainly due to one deal – SAAB’s Gripen transaction to Brazil – the largest deal ever for EKN. But even if we exclude this deal, the guarantee volumes were higher than the year before. The increase in demand for guarantees for transactions to Gulf countries and Russia also contributed to this.
Additionally, we saw high demand from SMEs. The Swedish SME market is an important segment and there is great potential for them to grow their exports, especially to emerging markets. We have increased our efforts to reach out to SMEs, and for two consecutive years EKN has had record-high guarantee volumes to this market segment.
GTR: Is EKN active in emerging markets?
Apelman: At EKN, we have long-term experience of working in emerging and growth markets. Our mission is to make all markets available to Swedish exporters. And in supplementing the private sector, our role is specifically to offer risk capacity in what are perceived to be difficult markets. During the last year, EKN guaranteed transactions to 120 countries, and the largest part of EKN’s outstanding risk exposure is related to mostly private – but also state – buyers in regions as diverse as Asia, Africa, the Middle East and Latin America.
Our role is to promote the export business and internationalisation of Swedish corporates, and offer added value to them by enabling their transactions to happen. We work in collaboration with global banks on higher-risk counterparties, and support them with export credit guarantees all over the world, but there always needs to be a Swedish element to these deals – they must involve either direct or indirect Swedish exports.
GTR: Has the provision of export credit and guarantees to corporates and banks witnessed growth over the last 10 years, and why is this the case?
Apelman: During the high-growth years, before the financial crisis (2008/09) the role and existence of ECAs was often discussed. Then, when the financial crisis came in 2008, its impact was huge and the need for ECAs increased extensively.
The initial implications of the financial crisis that we experienced were for trade transactions in countries like Indonesia, India and Mexico, which were markets where the need for ECA risk cover had been previously low. After this, we experienced record-high demand for transactions in Organisation for Economic Co-operation and Development (OECD) countries.
To keep Swedish exports afloat during the crisis years, the Swedish government and central bank took a series of measures to restore confidence in the Swedish credit market. One such measure was to raise EKN’s guarantee limit from SEK175bn (US$17.4bn) to SEK350bn (US$40.7bn) and then to SEK500bn (US$58bn). EKN started to provide large Swedish exporting companies with the opportunity to take out working capital credit guarantees for a limited period of time as a means of mitigating the crisis and stimulating exports.
GTR: What do you consider to be the main challenges that will be faced in the years ahead in the export credit and guarantee market?
Apelman: One challenge relates to how we can work and participate effectively with banks and several different exporters in markets across the world as global sourcing gathers pace. The important issue we have to deal with is ensuring that we fully understand trade flows so that we can facilitate these transactions.
There is a necessity for banks to co-operate with ECAs due to the more challenging risk profiles in many transactions, where a team involving exporters, financiers and ECAs needs to offer a competitive financial solution, which is monitored until maturity.
GTR: In terms of the countries you work in, does today’s more difficult geopolitical climate present any issues to ECAs?
Apelman: EKN supports Swedish corporates worldwide. If a country presents increased risk, then the need for our support to enable the deal increases.
We always try to see opportunities as opposed to risks. We support transactions in difficult markets as long as the risk assessment is satisfactory. This requires us to conduct due diligence in areas such as Know Your Customer (KYC) very carefully. We assess sustainability in every transaction and, from our point of view, the sooner we get involved in a trade deal to achieve this, the better.
For ECAs, it is important to be fast-moving and proactive, and to be seen as rapidly mitigating market failures such as those seen during the financial crisis. We must also be well prepared for new markets entries, such as now with the reopening of Iran.
We are working with a number of professional partners in order to better understand how we can meet demand in Iran for imports, and we took part in a Swedish delegation to Iran last December to see what we can achieve once the market fully opens. Swedish exporters themselves have a long history of conducting transactions in Iran prior to the sanctions, and now we can support them in this business, working alongside banks. Every transaction request to EKN is screened to ensure that the goods are non-sanctionable.
GTR: How important is it for ECAs to promote sustainability and fight climate change, and is there any market traction?
Apelman: At EKN, sustainability is an integrated part of the risk analysis conducted by our underwriters. When assessing transactions, they always look for environmental impact, social impacts including human rights, anti-corruption, and the policy of sustainability lending that precludes us from guaranteeing export credits to public buyers in countries that face restrictions on commercial borrowing under programmes with the World Bank and International Monetary Fund (IMF).
EKN also has a unit of corporate and social responsibility (CSR) experts who focus on ensuring that a transaction is sustainable. Swedish companies themselves are focusing strongly on sustainability as they know that a sustainable transaction is also more secure from a long-term perspective. Not conducting an assessment of sustainability is considered to be a major disadvantage, and can impact their own relationships with their counterparties, which include banks and buyers.
For the market as a whole, there is a lot of work being conducted by organisations such as the OECD and European Union (EU) on promoting sustainability, and the creation of appropriate guidelines is always high on the agenda. We are already seeing the provision of standards, which international players and countries can apply. Such global standards are coming into play on a gradual basis, meaning that ensuring sustainability will eventually become a wider market reality.
GTR: What have been the main highlights of your own career at EKN, and have you encountered any particularly challenging or interesting experiences?
Apelman: I have thoroughly enjoyed all the years I have spent at EKN, and especially the opportunity it has provided for me to get involved in various transactions together with our customers.
One particular fond memory is a state visit to Botswana in 2011, which really made me understand the value that organisations like ours can bring to the development of other countries.
There, EKN is involved in supporting financing for a project being carried out by Eltel, a Swedish electricity infrastructure provider, which involved providing electricity to 114 villages across the country for the first time. This was a particularly large investment for Botswana’s government, and a number of different banks participated in the financing, including the Nordic Investment Bank and Nordea. At EKN, we provided the guarantees needed by Nordea to provide financing.
While I was in Botswana, I had the opportunity to visit the village of Gakuto, which was already benefiting from electricity. The local school had electric lights on for the very first time; the water camp had its own telecom tower; and when I went to the local hospital, nurses were benefiting from the use of a refrigerator to keep medicine in, and electronic lighting – enabling them to treat their patients after sunset. It was a truly remarkable experience that really demonstrates the real value of our combined efforts.