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An export credit agency (known in trade finance as an ECA) or investment insurance agency [1] is a private or quasi-governmental institution that acts as an intermediary between national governments and exporters to issue export insurance solutions and guarantees for financing. The financing can take the form of credits (financial support) or credit insurance and guarantees (pure cover) or both, depending on the mandate the ECA has been given by its government. ECAs can also offer credit or cover on their own account. This does not differ from normal banking activities. Some agencies are government-sponsored, others private, and others a combination of the two.
ECAs currently finance or underwrite about US$430 billion of business activity abroad – about US$55 billion of which goes towards project finance in developing countries – and provide US$14 billion of insurance for new foreign direct investment, dwarfing all other official sources combined (such as the World Bank and Regional Development Banks, bilateral and multilateral aid, etc.). As a result of the claims against developing countries that have resulted from ECA transactions, ECAs hold over 25% of these developing countries' US$2.2 trillion debt.[ citation needed ]
Export credit agencies use three methods to provide funds to an importing entity:
Credits may be short term (up to two years), medium term (two to five years) or long term (five to ten years). They are usually supplier's credits, extended to the exporter, but they may be buyer's credits, extended to the importer. The risk on these credits, as well as on guarantees and insurance, is borne by the sponsoring government. ECAs limit this risk by being "closed" on risky countries, meaning that they do not accept any risk on these countries. In addition, a committee of government and ECA officials will review large and otherwise riskier than normal transactions.
Officially supported export credit may be connected to official development assistance (ODA) in two ways. First, they may be mixed with ODA, while still financing the same project (mixed credit). As the export credit is tied to purchases in the issuing country, the whole package qualifies as a tied aid credit, even if the ODA part is untied aid. Second, tied aid credits are not very different from export credits, except in interest, grace period (the time when there is no repayment of the principal) and terms of repayment. Such credits are separated from export credit by an OECD requirement that they have a minimum degree of "softness". "Softness" is measured by a formula that compares the present value of the credit with the present value of the same amount at standardized "commercial" terms. This difference is expressed as a percentage of the credit and called "concessionality level". Thus a grant has a concessionality level of 100%, a commercial credit scores zero per cent. The higher the concessionality level, the more the tied aid credit looks like ODA, the lower, the more it looks like an export credit.
Partially untied credits consist of a tied and an untied part. The latter is usually intended to finance "local cost", investment cost to be made in the importing country. This part may also be in a local currency. Partially untied aid is treated as tied aid.
Both officially supported export credits and tied aid credit and grants are extended on terms bound by the OECD's arrangement on official export credits. The Arrangement is a "Gentlemen's Agreement" amongst its Participants who represent most OECD Member Governments. The Arrangement sets forth the most generous export credit terms and conditions that may be supported by its Participants. The main purpose of Arrangement is to provide a framework for the orderly use of officially supported export credits. In practice, this means providing for a level playing field (whereby competition is based on the price and quality of the exported goods and not the financial terms provided) and working to eliminate subsidies and trade distortions related to officially supported export credits. [2]
Since 1999, country risk categories have been harmonized by the Arrangement and minimum premium rates have been allocated to the various risk categories. This is intended to ensure that competition takes place via pricing and the quality of the goods exported, and not in terms of how much support a state provides for its exporters. [3] The Arrangement does not extend to exports of agricultural commodities or military equipment. A recent decision at the World Trade Organization (WTO) indicates that the use of officially supported export credits in agriculture is bound by WTO members' commitments with respect to subsidised agricultural exports (see the WTO Appellate Body decision on the Brazil-US cotton case as it relates to the General Sales Manager (GSM) 102 and 103 programs and other US agricultural export credits, summarized here).
At the EU level, the European Commission, in particular the Directorate General for Trade, plays a role in the harmonization of Export Credit Agencies and the co-ordination of policy statements and negotiation positions. This is based on council decisions 73/391/EEC and 76/641/EEC. These decisions provide for prior consultations among member states on long term export credits. Member states may ask each other if they are considering to finance a specific transaction with official export credit support. EU members may not subsidize intra-EU export credits. The application of the OECD arrangement in providing export credit is mandatory in EU countries under Art. 1 of Regulation (EU) No. 1233/2011. [4]
The Berne Union, or officially, the International Union of Credit & Investment Insurers, is an international organisation for the export credit and investment insurance industry. The Berne Union and Prague Club combined have more than 70 member companies spanning the globe. Its membership includes both commercial and state-sponsored insurers.
Some observers view state-sponsored export credits as nothing more than export subsidies by a different name. As such, the activities of ECAs are considered by some to be a type of corporate welfare. [5] Others argue that ECAs create debt in poor countries motivated not by development goals but to support rich countries' industry. [6]
In addition, ECAs may soak up aid money as debt relief programs predominantly relieve poor countries from debt owed to donor countries' ECAs. [7] ECAs are also criticised for insuring companies against political actions that aim to protect workers' rights, other human rights, or the natural environment in the countries in which the investment is being made. [8]
Advocates of ECAs assert that export credits allow impoverished importers to purchase needed goods that would otherwise be unaffordable; export credits are components of a broader strategy of trade policies; and government involvement can achieve results that the private sector cannot, such as applying greater pressure on a recalcitrant borrower.
These arguments for and against export credits are not new and have been studied at length in academic literature. For a good general discussion, see Baron, David P. The Export-Import Bank: An Economic Analysis. Academic Press. 1983.; or Eaton, Jonathan. "Credit Policy and International Competition." Strategic Trade Policy and the New International Economics, ed. Paul Krugman. MIT Press, Cambridge Mass. 1988.
The economy of Switzerland is one of the world's most advanced and a highly-developed free market economy. The economy of Switzerland has ranked first in the world since 2015 on the Global Innovation Index and third in the 2020 Global Competitiveness Report. According to United Nations data for 2016, Switzerland is the third richest landlocked country in the world after Liechtenstein and Luxembourg. Together with the latter and Norway, they are the only three countries in the world with a GDP per capita (nominal) above US$90,000 that are neither island nations nor ministates.
The Overseas Private Investment Corporation (OPIC) was the United States Government's Development finance institution until it merged with the Development Credit Authority (DCA) of the United States Agency for International Development (USAID) to form the U.S. International Development Finance Corporation (DFC). OPIC mobilized private capital to help solve critical development challenges and in doing so, advanced the foreign policy of the United States and national security objectives.
UK Export Finance (UKEF) is the operating name of the Export Credits Guarantee Department (ECGD) which is the United Kingdom's export credit agency and a ministerial department of His Majesty's Government. It has been awarded the best global export credit agency in 2019. In 1920, UKEF had a maximum total exposure of just £26 million. Today, its maximum commitment stands at £50 billion. Recently, the ECGD celebrated its 100th anniversary as the longest running export credit agency in the world.
The Export–Import Bank of the United States (EXIM) is the official export credit agency (ECA) of the United States federal government. Operating as a wholly owned federal government corporation, the bank "assists in financing and facilitating U.S. exports of goods and services", particularly when private sector lenders are unable or unwilling to provide financing. Its current chairman and president, Reta Jo Lewis, was confirmed by the Senate on February 9, 2022.
Official development assistance (ODA) is a category used by the Development Assistance Committee (DAC) of the Organisation for Economic Co-operation and Development (OECD) to measure foreign aid. The DAC first adopted the concept in 1969. It is widely used as an indicator of international aid flow. It refers to material resources given by the governments of richer countries to promote the economic development of poorer countries and the welfare of their people. The donor government agency may disburse such resources to the government of the recipient country or through other organizations. Most ODA is in the form of grants, but some is measured as the concessional value in soft (low-interest) loans.
A counterpart fund is a fund established as part of an arrangement for converting foreign aid into an account in the domestic currency of an aid-recipient country. Counterpart funds were used by the UNRRA, and the Marshall Plan in the rebuilding of Western Europe after the Second World War, and today remain a common technique for delivering development assistance.
The Organisation for Economic Co-operation and Development's (OECD) Development Assistance Committee (DAC) is a forum to discuss issues surrounding aid, development and poverty reduction in developing countries. It describes itself as being the "venue and voice" of the world's major donor countries.
A Hermes cover is an export credit guarantee (ECG) by the German Federal Government.
The Multilateral Investment Guarantee Agency (MIGA) is an international financial institution which offers political risk insurance and credit enhancement guarantees. These guarantees help investors protect foreign direct investments against political and non-commercial risks in developing countries. MIGA is a member of the World Bank Group and is headquartered in Washington, D.C. in the United States.
ECGC Limited is a government owned export credit agency of India. It is under the ownership of the Ministry of Commerce and Industry, Government of India, and is headquartered in Mumbai, Maharashtra. It provides export credit insurance support to Indian exporters and banks. Its topmost official is designated as Chairman and Managing Director, who is a central government civil servant under ITS cadre.
The Export–Import Bank of China is one of two institutional banks in China chartered to implement the state policies in industry, foreign trade, economy, and foreign aid to other developing countries, and provide policy financial support so as to promote the export of Chinese products and services.
Exim Bank or Export-Import Bank may refer to:
Canada–Mali relations are the bilateral relations between the countries of Canada and Mali. Mali has an embassy in Ottawa whilst Canada has an embassy in Bamako.
China Export & Credit Insurance Corporation is a major Chinese state owned enterprise (SOE) under the administration of Ministry of Finance of the People's Republic of China serving as the provider of export credit insurance, in particular coverage for the export of high-value added goods in China.
Credendo is a European credit insurance group present throughout the European continent, headquartered in Brussels and located in 15 countries. It provides customised options for insurance, reinsurance, guarantees, surety and financing related to domestic and international trade transactions or investments abroad. It protects companies, banks and insurance undertakings against credit and political risks or facilitates the financing of such transactions.
TransCapitalBank is a Russian commercial bank with a share of foreign capital which includes the European Bank for Reconstruction and Development (EBRD), German Investment Company DEG and International Finance Corporation (IFC). Headquartered in Moscow, Transcapitalbank operates in more than 18 regions, providing financial services to 30,000 corporate customers and over 212,000 retail clients. Transcapitalbank is a top 50 bank in Russia by assets and by equity. The bank is also ranked #7 by lending to small and medium enterprises (SMEs). Transcapitalbank is a full-service bank.
Climate finance are funding processes for investments related to climate change mitigation and adaptation. The term has been used in a narrower sense to refer to transfers of public resources from developed to developing countries, in light of their UN Climate Convention obligations to provide "new and additional financial resources". In a wider sense, the term refers to all financial flows relating to climate change mitigation and adaptation.
The Export–Import Bank of Korea, also commonly known as the Korea Eximbank (KEXIM), is the official export credit agency of South Korea.
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