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Export finance: Money talks

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It may be a case of money too tight to mention when it comes to export finance at the moment but, as Ian Murray explains, now is the best time to talk. 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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