UK Export Finance

Last updated
UK Export Finance
Welsh: Cyllid Allforio y DU
UK Export Finance.png
Department overview
Formed1919
JurisdictionUnited Kingdom
HeadquartersLondon
Minister responsible
Website www.gov.uk/government/organisations/uk-export-finance

UK Export Finance (UKEF) is the operating name of the Export Credits Guarantee Department (ECGD), the United Kingdom's export credit agency and a ministerial department of the UK government. It has been awarded the best global export credit agency for 2019. [1] In 1920, UKEF had a maximum total exposure of just £26mn. Today, its maximum commitment stands at £50bn. It is also celebrating its 100th anniversary as the longest running export credit agency in the world. [2]

Contents

Activities

ECGD derives its powers from the Export and Investment Guarantees Act 1991 and undertakes its activities in accordance with a specific consent from HM Treasury. ECGD was established in 1919 to promote UK exports lost during the submarine blockade of World War I.

In recent years we have supported business in the aerospace, automotive, construction, healthcare, industrial processing, oil and gas, petrochemical, water treatment, and satellite sectors.

UK Export Finance, GOV.uk [3]

ECGD's aim is to benefit the UK economy by helping exporters of UK goods and services to win business, and UK firms to invest overseas, by providing guarantees, insurance and reinsurance against loss, taking into account HM Government's wider international policy agenda. ECGD is required by HM Government to operate on a slightly better than break-even basis, charging exporters premiums at levels that match the perceived risks and costs in each case.

The largest part of ECGD's activities involves underwriting long term loans to support the sale of capital goods, principally for the export of aircraft, bridges, machinery and services; it helps UK companies take part in major overseas projects such as the construction of oil and gas pipelines and the upgrading of hospitals, airports and power stations. Support can be given for contracts as low as £1,000, but some of the projects ECGD backs go well beyond the £1 billion mark.

As part of its risk management process, ECGD has to make a judgement on the ability of a country to meet its debt obligations. The department uses a ‘productive expenditure’ test, undertaken in consultation with the Department for International Development, that makes sure that the countries defined as heavily indebted poor countries and those exclusively dependent on International Development Association financing only get official export credits from the UK for projects that help social and economic development without creating a new unsustainable debt burden. ECGD continues to check that the proposed borrowing is sustainable.

Criticisms of ECGD

The ECGD has been the subject of criticism by UK-based NGOs; The Corner House has claimed that the ECGD has in effect provided public subsidy for bribery; Campaign Against Arms Trade has argued that the ECGD provides excessive levels of support for arms sales; Jubilee Debt Campaign has argued that the cancellation of debts owed to the ECGD should not be counted towards UK Official Development Assistance figures; World Wide Fund for Nature argues that excessive greenhouse gases are emitted from ECGD-supported projects and that this is inconsistent with wider UK environmental policy.

In recent years, ECGD has been heavily criticised for prioritising investment in fossil fuels over renewable energy. A Catholic Agency For Overseas Development report showed that from 2010 to 2017, an estimated 97% of ECGD energy-related support went to fossil fuel development, principally oil and gas exploration and production in upper-middle-income countries. Just 3% went to renewables. [4] The Guardian reported that in the 2018–2019 financial year alone, ECGD committed nearly £2 billion in support to fossil fuel projects across the world. [5] A Parliamentary inquiry called on ECGD to stop funding fossil fuel projects by the end of 2021, citing that the scale of fossil fuel support violated the UK's obligations under the Paris Agreement. [6]

Weapons exports

While in the early years of the decade the proportion of ECGD's business in support of weapons exports ranged from 30% to 50%, this has now declined to under 1% in 2009–10.

ECGD seeks advice on arms sales from the United Kingdom Export Control Organisation (ECO), part of the Department for Business, Innovation and Skills. All applications are assessed, on a case-by-case basis, against the consolidated EU and National Arms Export Licensing criteria.

The ECO's advice is not always followed by the government though. In February 2016, the head of the Export Control Organisation Edward Bell advised business secretary Sajid Javid that Britain should suspend arms sales to Saudi Arabia. This advice was not followed by the business secretary and prime minister. [7]

ECGD's anti bribery-and-corruption procedures

ECGD aims to:

It does this through the public information it provides and the declarations in its application forms; it has some powers to make enquiries but these are limited. ECGD does not have a formal investigative capacity.

Key aspects of ECGD's anti-bribery and corruption procedures are to:

Equivalent in the world

Related Research Articles

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Export A good produced in one country that is sold into another country

An export in international trade is a good or service produced in one country that is sold into another country. The seller of such goods and services is an exporter; the foreign buyer is an importer.

Export–Import Bank of the United States American public bank

The Export–Import Bank of the United States 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". EXIM intervenes when private sector lenders are unable or unwilling to provide financing, equipping American businesses with the financing tools necessary to compete for global sales. EXIM's aim is to promote U.S. goods and services at no cost to U.S. taxpayers, protecting “made in America” products against foreign competition in overseas markets and encouraging the creation of American jobs. Its most recent chairman and president, Kimberly A. Reed, was nominated by President Donald J. Trump on January 16, 2019, and sworn in on May 9, 2019. Her term expired on January 20, 2021 and her replacement has yet to be appointed.

Letter of credit

A letter of credit (LC), also known as a documentary credit or bankers commercial credit, or letter of undertaking (LoU), is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exporter of goods. Letters of credit are used extensively in the financing of international trade, where the reliability of contracting parties cannot be readily and easily determined. Its economic effect is to introduce a bank as an underwriter, where it assumes the counterparty risk of the buyer paying the seller for goods.

An export credit agency or investment insurance agency is a private or quasi-governmental institution that acts as an intermediary between national governments and exporters to issue export insurance solutions, guarantees for financing. The financing can take the form of credits or credit insurance and guarantees 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.

Compagnie Française dAssurance pour le Commerce Extérieur

Compagnie Française d'Assurance pour le Commerce Extérieur (Coface) is a credit insurer operating globally, offering companies solutions to protect them against the risk of financial default of their clients, both in their domestic and export market. In complement to credit insurance, Coface also offers debt collection services, factoring and business information, and bonds.

Export Development Canada

Export Development Canada is Canada's export credit agency and a state-owned enterprise wholly owned by the Government of Canada. Its mandate is to support and develop trade between Canada and other countries, and help Canada's competitiveness in the international marketplace.

A loan guarantee, in finance, is a promise by one party to assume the debt obligation of a borrower if that borrower defaults. A guarantee can be limited or unlimited, making the guarantor liable for only a portion or all of the debt.

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The Berne Union, also known as The International Union of Credit & Investment Insurers, is an international non-profit association and community for the global export credit and investment insurance industry.

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The ECGC Limited is an Indian government enterprise under the jurisdiction of Ministry of Commerce and Industry, Government of India based in Mumbai, Maharashtra. It provides export credit insurance support to Indian exporters and is controlled by the Ministry of Commerce and Industry, Government of India. Its topmost official is designated as Chairman and Managing Director who is a civil servant under ITS cadre.

The Hong Kong Export Credit Insurance Corporation was established in 1966 under the Hong Kong Export Credit Insurance Corporation Ordinance. It was created by statute with the aim of encouraging and supporting export trade by providing Hong Kong exporters with insurance protection against non-payment risks arising from commercial and political events. Its contingent liability under contracts of insurance is guaranteed by the Government of the Hong Kong Special Administrative Region, with the statutory maximum liability currently standing at $55 billion. The Corporation is required to operate in accordance with the requirements laid down in the Hong Kong Export Credit Insurance Corporation Ordinance and to pursue a policy directed towards securing revenue sufficient to meet all expenditure properly chargeable to its revenue account. It is a 'public body' under the Prevention of Bribery Ordinance. HKECIC staff are not permitted to accept any advantages from HKECIC customers. Anybody offering any advantages to HKECIC staff in connection with official business commits an offence.

Trade finance

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The Philippine Guarantee Corporation(PHILGUARANTEE) is a Government-owned and controlled corporation attached to the Department of Finance. Formerly known as the Philippine Export-Import Credit Agency or PhilEXIM, is the principal agency for State Guarantee Finance of the Philippines. The primary objective is to perform development financing role through the provision of credit guarantees in support of trade and investments, exports, infrastructure, energy, tourism, agricultural business/modernization, housing, MSMEs and other priority sectors of the economy, with the end in view of facilitating and promoting socio-economic and regional development.

Sinosure

China Export & Credit Insurance Corporation is a major Chinese state owned enterprise (SOE) under the administration of MFPRC serving as the provider of export credit insurance, in particular coverage for the export of high-value added goods in China.

The Export–Import Bank of Korea, also commonly known as the Korea Eximbank (KEXIM), is the official export credit agency of South Korea.

Export–Import Bank Reauthorization Act of 2012

The Export–Import Bank Reauthorization Act of 2012 amended the Export–Import Bank Act of 1945 to extend the termination of functions of the Export–Import Bank of the United States, which helps financing and insuring foreign purchases of United States goods for customers unable or unwilling to accept credit risk and to aid in creating and sustaining jobs in the United States by financing sales of U.S. produced exports to international buyers. The bill was signed into law on May 20, 2012 and moved the termination of the bank's functions date to September 30, 2014.

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References

  1. "GTR Leaders in Trade 2019: The winners". Global Trade Review (GTR). May 2, 2019.
  2. "UK Export Finance – celebrating 100 years of innovation". Global Trade Review (GTR).
  3. "Export finance and insurance – an overview". GOV.UK.
  4. "Analysis UK support for energy | CAFOD". cafod.org.uk. Retrieved 2020-07-01.
  5. Watts, Jonathan (2019-06-27). "UK committed nearly £2bn to fossil fuel projects abroad last year". The Guardian. ISSN   0261-3077 . Retrieved 2020-07-01.
  6. "MPs call for end of taxpayer support for fossil fuel projects from 2021 – News from Parliament". UK Parliament. Retrieved 2020-07-01.
  7. Ross, Alice; Evans, Rob (February 7, 2017). "UK minister ignored official warning over Saudi weapons exports, court hears" via www.theguardian.com.
  8. https://www.bpifrance.fr/content/download/60791/556699/file/2017%2001%2017%20-%20Bpifrance%20PR%20-%20Bpifrance%20Essurance%20Export.pdf
  9. "Our Mission". www.bpifrance.com.