Portfolio and client base
12. The contents of the ECGD's portfolio have changed
significantly since 2000. Both the value of business and the number
of projects supported have declined, a phenomenon ascribed to
a number of factors including changing patterns in manufacturing
and the increasing maturity of foreign markets. Most notably,
the 1991 privatisation of the ECGD's short term trade credit insurance
operation led to a significant reduction in its role, which has
been further eroded by the increasing availability of insurance
from the private sector.
The profile of the ECGD's portfolio has also changed: defence
and aerospace cases have always been important but now dominate,
while civil projects have shrunk to a fraction of the ECGD's business.
The NAO believed this raised 'significant issues for the ECGD
as its customer base has continued to shrink and it is now largely
dependent on a small number of exporters operating in the civil
aerospace and defence sectors'.
13. These concerns are not new: the 1999 Mission
and Status Review proposed widening the ECGD's customer base and
identifying specific export markets to support the Government's
sustainable development objectives.
The NAO noted that the ECGD had been 'less able to respond' to
these 'wider aspirations'
(the various reasons for this are set out in the paragraphs below).
In addition, the domination of the portfolio by aerospace and
defence, coupled with the high proportion of fossil-fuel-related
projects in the civil non-aerospace sector, has attracted the
criticism of environmental groups. WWF accused the ECGD of sending
a message that the government, contrary to its environmental aims,
is prepared to subsidise and support these heavily polluting sectors.
14. Evidence to the inquiry from business groups
stressed the vital role played by the ECGD. The CBI insisted that
any move to limit support for aerospace, defence, or fossil fuel
projects could put UK business in these sectors at a competitive
disadvantage and have a negative impact on the economy.
SBAC insisted that such a move could even have negative environmental
consequences, because it 'would result in making the equipment
of UK competitors financially more attractive even if it is less
efficient and more environmentally damaging.'
The ECGD has a responsibility to support UK exporters. Any
move by the Government to adopt policies that limited support
to sectors such as defence, aerospace and fossil fuels, or to
assess these sectors by different standards, would need to be
carefully assessed. While these sectors remain within the ECGDs
portfolio, the agency must take steps to improve the scrutiny
of sustainable development in these areas.
15. The Corner House argued that the agency should
be trying to improve the balance of its portfolio.
However, the ECGD does not choose its business: it is a reactive
organisation and its business is determined by the applications
it receives. Any attempt to change the nature of the client base
will either need to restrict ECGD support in these more polluting
sectors, or encourage new industries to take advantage of ECGD
facilities and redress the balance. In 2003 our predecessors welcomed
the establishment of a £50 million underwriting facility
for renewable energy projects as a 'step in the right direction';
but not a single application for support through this facility
has been received. The NAO attributes this to the fact that the
UK has relatively little manufacturing capacity in the renewable
energy sector, and that those firms that do exist are not of the
size to require support of the kind provided by the ECGD.
Patrick Crawford, the ECGD's Chief Executive, noted that even
in the USA, where the renewable energy industry is larger and
better established, little use was made of export credits to support
16. The ECGD is not able to offer subsidised facilities
To do so on a tied basis to UK exporters would
not only conflict with international guidance on ECAs but might
be viewed as anti-competitive and incur the risk of legal actionfor
example, by the EU or WTO.
The agency is also limited in terms of how actively
it can market its services to potential applicants. The department
has a non-statutory policy objective to 'complement, not compete
with, the private market'.
As such, the department is restricted to raising awareness of
its services, rather than actively selling its wares or chasing
down business opportunities. Mr Dodgson summarised how it currently
goes about this:
One of the key links is through UKTI [UK Trade
& Investment] because it has contacts with industry. A number
of my staff sit on some of the trade sector groups so we are linked
with industry on those groups and they are aware of what we do.
We also participate in conferences or exhibitions, and in some
cases we will go out and visit exporters. The other arm of it
is also to be known overseas because project sponsors are very
influential in where they place business. [
there is a role in making sure that our posts overseas are aware
of our services and facilities, but, frankly, it is about awareness
rather than selling.
This activity is encouraging, but it has clearly
not been able to bring about the changes in the ECGD's client
base that would support a more sustainable portfolio.
17. A large programme of support for sustainable
and environmental industries would help the ECGD to revitalise
its role while remaining within its current remit. Although it
cannot compete directly with the private sector, the ECGD should
establish a programme actively to promote its services to environmental
industries and to other projects that could support sustainable