VEEM have expressly called for government corporation EFIC (the Export Finance and Insurance Corporation) to fill the gap in the market. EFIC moved out of short term credit insurance some years ago but due to a shortage in commercial coverage, VEEM has publicly called for EFIC’s return.

“The insurance sector has reacted to the global financial crisis by cancelling nearly all of our debtor insurance for our export clients. The government needs to step back in to correct this market failure to enable Australian exporters to compete internationally,” said Brad Miocevich, VEEM’s director of Marine Propulsion.

Miocevich says the risks of trading globally without insurance are too precarious and could mean losing thousands of dollars if one or more of their customers collapse.

VEEM’s situation reflects that of many other small and medium exporters, he said: “The credit insurance issue is an undesirable consequence of the GFC and a real threat to the survival of VEEM and that of many others if not rectified in a timely manner.”

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Emerging economies will outpace industrialised countries, growing 0.7 percent this year and 4.1 percent in 2010.

“Some real economy indicators are improving, anticipation surveys of investors and consumers are pointing up and financial players are showing a renewed appetite for risk,” said François David, chairman of Coface.

The agency has maintained its lowered ratings for most European countries but has downgraded Austria, the Netherlands and Finland and put Portugal, Slovakia and the Baltic countries on negative watch as the global recession begins to affect their economies.

And while Latin America has remained steady, Central America has shown some damage from exposure to the North American downturn.

The most positive signs come from the Asia-Pacific region with China and India the strongest in recovery. However, Coface has retained the negative watch placed on China’s A3 rating in January 2009 due to recurrent problems of private sector companies, where the default payment risk is the highest.

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The tales of businesses downsizing and demand falling have become familiar ones as we move into a year which is very different to 2008, faced with the GFC (Global Financial Crisis). And now we are also faced with the R word.

A short survey the Institute ran recently indicates that many local businesses are facing a contracting export order book. However the response is varied across the board, with   some industry sectors doing particularly well and finding demand increasing.

The demand for payment protection for export payments has certainly spiked. The traditional Documentary Letter of Credit, which had moved out of favour as too cumbersome over the past decade, has had a resurgence. It may be a bit cumbersome but it adds a bank guarantee to the buyer’s promise to pay. And with many overseas banks seeing their ratings drop, there is also an increased demand for confirmation by exporters (a guarantee on the buyer’s bank, generally given by the sellers bank).

In tandem, the interest and enquiries for export credit insurance have also spiked, while insurers are reducing their exposure in some industry sectors in the face of increasing claims. Of course this increase in demand and the higher risk profile of both banks and buyers has led to an increase in prices and premiums.

So with a slowing demand in traditional markets, and the higher cost of protecting payments,  it’s very easy to focus on doom and gloom, and not look for the opportunities .

Against that backdrop, a very interesting seminar run by the Institute recently focused on the opportunities in the BRIC economies (Brazil, Russia, India and China).  As noted by the keynote speaker, David Thomas of Think Global, the BRIC economies are apparently investing heavily in infrastructure development to move their economies along, providing opportunities for both domestic and international firms in design, engineering and construction. The BRIC countries were also not so directly involved in acquiring the now referenced  “toxic assets”, and had not seen the same level of asset inflation and consumer borrowing as in the developed west. Accordingly, the argument goes, they should pull out of the global downturn sooner, and with large populations that leaves a sizeable consumer market to approach. Together the BRICs hold 41 percent of global foreign exchange reserves, so they are not short of finance.

Other positive news is the recent signing of a Free Trade Agreement with Chile, which as a gateway into South America is a wonderful new opportunity; certainly an opportunity our miners and mining service companies amongst others, are looking to explore.

And on 27 February 2009, the signing of the AANZFTA took place in Thailand. The agreement brings Australia and New Zealand closer to our neighbours in the region. ASEAN (Association of South East Asian Nations) comprises Burma, Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, The Philippines, Singapore, Thailand and Vietnam.
In terms of coverage, it’s the largest FTA Australia has ever negotiated, covering 16 percent of Australia’s trade in goods and services, worth $71 billion. The combined population of the ASEAN countries is some 570 million, so it represents a sizeable market.

So focusing on the opportunities is certainly the way forward. That’s not to say that a level of caution is not warranted. These countries will also be subject to financial buffeting, but with a sensible approach there may be amazing potential for our exporters across a range of Industries in these markets. The demand for quality food, good education, health care and increasingly environmental solutions will continue even through the downturn.

Many of today’s major corporations were founded in times of extreme difficulties or during great wars. So when the going gets tough, we know what good Australian exporting businesses will be doing.

—Peter Mace is the general manager of the Australian Institute of Export

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Recent research conducted by the Australian Institute of Export clearly highlights the fact that it’s getting harder to financing exports, and exporters reckon it’s going to get worse.

The survey, conducted among the Institute’s 6,000 members and supporters, focused on changes exporters experienced over the last three months in obtaining finance for their export business. For the question ‘Has obtaining finance for your exports changed over the last three months?’ 12.5 percent said extremely more difficult, 33.6 percent said more difficult, while 43.4 percent said the same, which means almost 50 percent of respondents have found it harder to finance their export business.

This figure alone should cause us to raise the warning flag to Government; on top of minerals in decline, exports from the SME sector are also under threat.

Digging a little deeper on protecting export receipts, the result was similar. For obtaining Documentary Letters of Credit, 34 percent said it was extremely or more difficult; for Credit Insurance 35 percent said extremely or more difficult. As expected, for receiving payment in advance, more than 60 percent of respondents said it’s extremely or more difficult.

Of even greater concern is the outlook. For the question ‘Do you expect the financing of your exports to change next year?’ over two-thirds believed it would be extremely or more difficult.

So what’s going on? When it comes to financing export activity, interbank credit lines have come under pressure and overseas bankers have become more cautious. Credit insurance premiums and the incidence of claims are on the rise, and available lines to established buyers will be closely monitored.

Behaviour among some exporters has also changed, particularly with credit insurance. For years we have promoted the value of credit insurance when exporters trade on an open account. Many exporters chose self-insurance, as the risk was low. Now that the risk is greater, they’re lining up and the cover isn’t always there. The exporter trying to get cover for a one-off export to a high-risk destination should have considered insurance before they started.

Where to from here? For exporters it’s a matter of looking for other options. A discussion with your banker is a good place to start, ensuring support for any change in trading terms. It’s also worth talking to overseas buyers to understand what’s happening within your export markets. Finally, it’s important exporters don’t desert key markets, as Austrade data tells us that re-entering a market in good times can be expensive, even impossible.

From a provider viewpoint it’s different and begs the question: ‘What role does Government and the Export Finance & Insurance Corporation (EFIC) play now and in the future?’ Providing payment certainty is a key issue; EFIC may provide confirmation line backup to Australian banks in addition to their Headway product that assists SME exporters in expanding their working capital line.

Similarly, Austrade’s overseas network is well placed to provide updated information on sectors that are performing, and warning on sectors and places to avoid. State Governments too should continue trade missions and education on how to manage export risk.

One thing I fail to understand is why the Government is turning its back on exporters. Money has been found for film production, infrastructure projects and foreign-owned car manufacturers, but exporters who acted on promises and put their money out there were left short, with a tough economic climate exacerbating their woes.

Someone has forgotten that one job in five is export related and that exports are largely non inflationary. If jobs, spending and inflation are key to helping fix the current economic problems, why not support our exporters? After all, it makes good macroeconomic sense to compensate for falling domestic activity by supplementing domestic consumption through increased exports.

Having a low dollar is great, but it’s just one part of the export mix. If credit remains tight and exporters don’t have the confidence to spend on marketing, then capitalising on the low dollar and on opportunities that come when times are tough will be lost. Unless you are the lucky respondent who wrote: “Our business continues to grow around eight percent a month – let’s have more recession.”

—Ian Murray is the executive director of the Australian Institute of Export

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