Examination of Witnesses (Questions 100
- 109)
TUESDAY 30 MARCH 2004
BRITISH EXPORTERS
ASSOCIATION
Q100 Sir Robert Smith: Prior to 1991
the state was involved in the shorter term risks as well. How
have your members found the transition since 1991 to being reliant
on the private sector?
Mr Hill: If I may pick that up,
it has been really quite successful. Many people felt it was a
mistake. On the whole it has worked quite well. One aspect of
it where it does leave ECGD weakened to a degree is we hosted
a dinner recently for representatives of various European export
credit agencies and during the conversation a senior official
from ECGD asked the chief executive of HERMES in Germany, "Roughly
what percentage of your medium-term finance support is given for
SME exports?" The German reply was about 75%. Surprise in
ECGD, they verified it, yes, about 75%. There is a difference
in definition between German and UK SMEs, and theirs is slightly
wider, but it does not account for the difference between 75%
and 5%. Coming back to the privatisation point, having lost the
short-term business ECGD have lost easy access to a vast range
of 10,000 exporting companies with whom they used to deal and
they are suffering because of that. The privatisation generally
has been a success.
Q101 Sir Robert Smith: I am just
wondering therefore is it really insurmountable to privatise the
longer-term risk?
Mr Hill: Without the agreement
of the Bank of England it could not be and there is no benefit
from privatisation. Bank of England weights lending, which the
London banks do for ECGD export creditors, at zero weighting and
it makes it a very attractive proposition to the banks, and good
luck to them, but that is fed back into supporting the commercial
terms of the bid. Private insurance is not available and would
not be zero weighted by the Bank of England.
Q102 Mr Hoyle: Can I just take you
on. Part of it is about UK jobs and UK exports, but you state
that it is the failure of the ECGD to introduce a bond support
facility. You state quite clearly that so many other countries
have got this bond support facility in place. Could you give me
a feel for the countries? Who are the main rivals?
Mr Tyler: We can provide you with
a list of which countries provide bond support. We did a study
about six months or a year ago but it is the Scandinavian countries,
I am struggling, France does to a degree, Germany does, Italy
I think does. We can provide you with a list as I would rather
not speculate.
Q103 Mr Hoyle: I think that would
be important because in your evidence you say all the other countries
have got this in place.
Mr Tyler: No, I do not think we
said all the other countries. I hope we did not say that because
that is not true, but there are a significant number of other
countries which provide that support.
Q104 Mr Hoyle: In fact you say "many
other countries". It would be interesting to know what many
means and who is the many.
Mr Tyler: We can provide you with
that list and we will do that immediately afterwards.
Mr Hill: That list was provided
to ECGD and it was provided to the Treasury.
Q105 Mr Hoyle: If we could have a
look at that that would be useful, but why do you believe you
have not been able to convince the Government of the need for
the bond facility?
Mr Tyler: The official reason
that we have been given by ministers is that we have not sufficiently
demonstrated that there is a market failure. We have produced
a very comprehensive paper which again we can give you a copy
of, which illustrated that there was a very demonstrable market
failure in what is called the surety market which is where insurance
companies are providing bonds. There was a complete collapse of
that market and we have got graphs that we can illustrate that
with. It is more difficult to provide real evidence of the market
failure in the banking sector and, frankly, most of the bonds
that we are talking about are provided by banks, and the reason
for that is that banks regard their bonding facilities as part
of an overall lending facility to its customer, so it is difficult
to separate out how much the bonding market has reduced and it
is certainly not possible to get any evidence that will convince
ministers. We have not been able to do that so far.
Q106 Mr Hoyle: I notice you state
that DTI ministers feel it is the lack of hard evidence that stops
them pursuing the bonding system, in which case I think we do
need to see some evidence in order to back up your claims. I do
not know if there is any more you can achieve and if you can state
how much British business is losing because of the failure of
the introduction of a bond system.
Mr Tyler: No, I do not think I
can, but I did bring with me a quote from an SME which I received
just yesterday: "As a small exporter with zero banking facilities
we automatically bin all inquiries which require any sort of guarantee
or bond." I thought that was quite illustrative. It is probably
not the sort of company that ECGD would regard as a good bet for
providing a bonding facility, but I think it illustrates the fact
that a number of companies just cannot provide bonds and if they
get a piece of business coming across their desks, if there is
a bond requirement, they cannot even look at that piece of business.
I think that inevitably affects SMEs more than most but it can
apply to quite sizable companies as well.
Q107 Mr Hoyle: I think it is important,
Chairman, if we can have that extra evidence because it will be
useful.
Mr Tyler: We will provide a copy
of the paper that we have circulated to ministers and attached
to that is the list of countries. If you can bear with us not
updating it because it was produced about nine months ago, I think.
Mr Hoyle: Of course. If you have got
any more prime examples of where British manufacturing is missing
out or where they are not competing because there is no system
in place that would be useful.
Q108 Mr Berry: You criticise ECGD
for its reluctance to underwrite exports to rich markets. Given
that there is only a limited pot of public money available to
support exporters, does this mean that you would like money to
be taken away from the less rich, more politically unstable countries
around the world?
Mr Hill: To a degree the view
that we received from ECGD that they do not want to provide cover
for business in rich markets seems to be counter-intuitive. If
there is a requirement on the part of the customer there is a
requirement on the part of the customer. If there is support available
it is almost the "first come first served" argument;
it is either needed in a rich market or it is needed in a developing
market. Given that ECGD are trying to build a balanced portfolio,
given that they have had very, very little success so far in generating
an active portfolio system of selling off or swapping debts, one
would have thought they would welcome a degree of good market
business to balance concentrations in their traditional areas—China,
South East Asia, South Africa for example.
Q109 Mr Berry: Earlier you declined
to take the opportunity of arguing for a larger pot of public
money for this purpose, therefore it must follow that if you are
suggesting that more should go to rich markets that less should
be provided for the more politically dodgy high risk markets?
Mr Hill: One of the difficulties
we have is that although a figure £1.7 billion capital is
on the table we do not know what is behind that figure, for example
how much capital is allocated for five year credit in Malaysia.
It is very difficult to see how close to the end of that £1.7
billion it is and when it will hit the buffers and have to say,
"No, we cannot support that job," be it in one country
or another.
Mr Tyler: It might be worth adding
that by definition business in a rich market would attract less
of a weighting for capital purposes so you would expect the premium
rate to be lower because it is less risky. There is hardly any
political risk and you would also expect there to be little or
no weighting for the usage of capital.
Mr Berry: Thank you.
Chairman: I think we have covered all
the areas we wanted to talk to you about. If we need to follow
up we will do and we will be grateful if you could send us the
additional information that you have. That is fine. The Committee
now stands adjourned.
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