Further written evidence from EAMA
ORAL EVIDENCE—TUESDAY 30 NOVEMBER
FURTHER COMMENT
ON 268
Is BIS doing enough to help SME exporters?
Trade shows are vitally important for companies
selling capital goods overseas. Prospects need to have seen the
goods and get to know and trust the company behind the product
before they will spend £300,000 or more on a new piece of
machinery for their plant. The process can therefore often take
time as commitment to the market as well as technical competence
have to be demonstrated.
Trade shows and missions are therefore vitally
important for our members serving exporters.
There is a strong belief amongst these Trade
Associations that budgetary cutbacks risk damaging UK participation
and representation in trade shows around the world. In a business
environment in which the ability to project powerful messages
matters, there is a real danger that we will be muzzling British
exporters.
BIS needs to do more to ensure that UK participation
doesn't compare unfavourably with our major competitors. That
doesn't necessarily mean having contingents of a similar size.
But we do need to show that the UK has the depth of supply chain
and manufacturing to match others. Key sector events are one route
to achieving this and may be under threat of further budgetary
cuts.
ADDITIONAL EVIDENCE
TO QUESTION
271
The Enterprise Finance Guarantee Scheme
In practice the Enterprise Finance Guarantee
(EFG) has become a mechanism to help firms that have exhausted
their personal guarantees in the search for finance. What's really
needed is a half-way house, where the banks can obtain the sorts
of commitment they need to minimise default risk and businessmen
seeking finance aren't required to put everything on the line,
including the family's home.
Despite its name, the EFG isn't for mainstream
financing. But at one point it may have been mistakenly considered
such.
For example, in mechanical engineering it is
standard practice for a customer to pay a 25-30% deposit to confirm
their order. It happens all over Europe and in the USA. It helps
with cash flow. In return for the deposit, the customer expects
to receive a guarantee, normally from a bank, that they will receive
the machine they have ordered or their money back.
If the company making the machine is any good,
this is all very low risk, for which the banks make a charge.
Whereas French, German and US governments have
bond support facilities that enable banks to provide the guarantee
for a small charge, UK banks take the deposit as security or allocate
it against the company's overdraft and still charge for the guarantee.
The result is that the manufacturer is no better
off for having received the deposit in the first place. There's
no benefit to company cash flow.
In the recession some banks doubled the interest
they charge and increased their administration charges. Others
placed ceilings on the total amount they would guarantee for any
one manufacturer, effectively slapping a cap on the size of the
firm's order book, or forcing them to forego the benefit of the
deposit, which opens them up to increased risk.
Faced with so much uncertainty, some companies
reported trying to use the Enterprise Finance Guarantee Scheme
with significant support from the Department for Business.
However, despite its conception to help dynamic
companies with their cash flow, the terms specifically excluded
support for "individual export orders". If a firm is
over 70% export, in practice all their activity is excluded.
Apparently such difficulties do not arise in
other countries, because they run a "Bond Support Scheme"
with government backing, so that any orders where the deposit
may be too big to be handled by the usual channels, can be covered
competitively.
According to a benchmarking report produced
by the British Exporters Association (BExA), Export Credit Agencies
April 2010, covering 38 countries, 32 offer bond support including
Australia, Canada, China, France Germany, Italy, the Netherlands
Spain and the USA. In fact within the OECD, the UK appears to
be in a very small minority not offering such support.
17 December 2010
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