8 Export Credit Guarantee Department
196. Most industrialised nations have an Export Credit
Agency (ECA) which supports its export market by providing government-backed
guarantees, insurance and sometimes loans. The status of ECAs
varies: in some countries, private companies underwrite business
for the government account (for example, France, Germany), while
in others they are public bodies (the Canadian ECA for example,
is a Crown corporation).[235]
The Export Credit Guarantee Department (ECGD) is, by contrast,
a government Department.
197. The UK export credit agency (ECA), ECGD supports
UK exports and investments made overseas by issuing:
- insurance contracts to exporters
and investors; and
- guarantees to banks that make loans to overseas
borrowers. ECGD does not lend directly.
198. In 2009-10, ECGD supported £2.21 billion
of new business (up from £1.46 billion in 2008-09).[236]
Looking forward, ECGD expects to see a further material increase
in the amount of exports it supports by the end of financial year
201011, possibly by over 50% by comparison with the previous financial
year.[237] The increase
in demand has been across a number of sectors, but is led principally
by civil aerospace and the oil, gas and civil construction sectors.[238]
199. ECGD's total exposure to credit risk currently
stands at just under £16.5 billion.[239]
Criticisms of ECGD
200. Throughout this inquiry we have heard criticism
of the ECGD and its work. British Exporters Association data appears
to demonstrate that, in 2009-10, 90% of ECGD's portfolio concentrated
on the commercial airline industry while its non-aerospace business
declined by nearly 90%.[240]
In comparison to other OECD Credit Agencies, ECGD's overall business
had declined by 70% over the last 10 years.[241]
201. The British Exporters Association (BexA) survey
also found that ECGD staffing numbers had reduced from an average
of 366 in 2003-04 to 207 in 2009-10. This was in contrast to its
European counterparts which had increased staffing over the past
decade: France up 258%; Germany up 37%; Italy up 325%; and Belgium
up 188%.[242]
202. As the BexA figures show, the majority of ECGD
activity supports a core of large aerospace exporters, particularly
Airbus and Rolls-Royce. Graham Dewhurst of EAMA argued that such
a concentration on one sector demonstrated that the ECGD was not
"fit for purpose":
It is not doing what it needs to do— if
90% of that £2.2 billion is in aerospace, that leaves £200
million. They're not interested. The other thing that I found
really interesting was that division one was aerospace, [...];
division two was civil and defence; and division three didn't
have anyone as a director. That again tells a story about being
fit for purpose.[243]
203. Susan Ross, Chair of BexA argued that ECGD had
"got into a rut" and while it was good at servicing
the aerospace sector it wasn't "out there looking for other
business."[244]
Paul Everitt from the SMMT concluded that the ECGD had lost sight
of its core role to serve more than just the aerospace industry:
There's a point here about what the organisation
thinks it's there for [...] it's understood that its function
is, by and large, to support aerospace projects around the world.[245]
204. Surrey Satellites, an SME exporter was unhappy
about what it saw as the "apparently restricted mandate of
ECGD" and criticised ECGD's "limited significant contact
with SMEs". Steve Young of Surrey Satellites argued that
in relation to his sector ECGD had shown:
Unwillingness to support credit to UK telecommunication
operators for purchase of European satellites, even though services
from those satellites are supplied at significant risk into international
markets.[246]
205. In written evidence ECGD argued that it did
support SMEs under its Sovereign Star Trade Finance facility.
The facility is a financing programme aimed primarily at supporting
SME export contracts. However, none of the witnesses we questioned
were aware of its existence.[247]
206. The CBI has also been critical of the ECGD and
argued that it was in need of serious reform. In particular, it
believed that the following areas were in need of an overhaul:
- A review of the governance
and application of the rules that ECGD operates under, to ensure
greater flexibility and responsiveness to future financial shocks;
and
- An overhaul of the marketing and product range
of ECGD, starting with a study to understand the potential demand
for further government-backed export finance, to help boost the
UK's export performance.[248]
207. In an interview with the Financial Times
on Wednesday 19 January, Lord Green acknowledged that ECGD was
no longer offering an acceptable service across all sectors of
the economy:
Almost every quarter of government recognised
the "need to do something" about widening the range
of products and services being offered by the Export Credit Guarantee
Department.
When you look at it in relation to what other
credit agencies in our main competitive countries offer, you can
see where the gaps are.[249]
Trade White Paper and Trade Finance
208. Criticism of the ECGD appears to have been taken
on board and the Government's Trade White Paper announced four
new schemes to help exporters get access to credit and insure
themselves against risk:
- Export Enterprise Finance Guarantee
Scheme established by the Department for Business, Innovation
& Skills, offering export finance valued up to £1m to
SMEs.
- ECGD will launch the Export Working Capital Scheme
for those not eligible for the Export EFG, offering export finance
worth over £1m.
- Bond Support Scheme offered by ECGD, under which
the Government will share risk with lending banks on the issue
of contract bonds.
- ECGD will support banks offering foreign exchange
hedging contracts to small and medium enterprises (SMEs) by sharing
credit risk.[250]
In addition, ECGD will extend its existing short-term
export insurance to cover a broader range of exporters, including
SMEs. Announcing the new schemes, Lord Green confirmed that ECGD
would be offering an "expanded, better coordinated range
of products to large and small businesses alike".[251]
209. The Export Enterprise Finance Guarantee Scheme
will be based on the Enterprise Finance Guarantee Scheme (EFG).
It is aimed at SME exporters with annual turnover up to £25m,
who will access the scheme through a range of commercial providers,
many of whom already participate in the EFG.[252]
The extended insurance will be available directly from ECGD in
March. The Bond Support Scheme will be available from participating
banks and is also expected to be available in March. The other
two ECGD measures are expected to be made available from participating
banks in April.
210. Patrick Crawford, Chief Executive of ECGD argued
that:
There has to be a very active exercise to reintroduce
ECGD to exporters, particularly smaller firms. The 1991 privatisation
of our short term products was a long time ago, and there is a
whole generation of exporters for whom ECGD is not known, not
recognised, or for whom its products are not thought to be relevant.
The announcements have changed that fundamentally, and ECGD has
to reintroduce itself to the exporting community. [253]
He also acknowledged that ECGD had to change the
perceptions that it was "not relevant to many sectors and
many small firms".[254]
211. We welcome the improvements to trade finance
provided by ECGD. As these products are new to the market we expect
the Department to update us on their availability and their take-up
by business in its Response to this Report. ECGD has failed to
support the wider business community, and in particular SMEs for
far too long. It will have to make significant efforts to restore
business faith in its operations and we expect it to demonstrate,
in detail, how it is going to re-engage with all sectors of the
economy and in particular with SMEs. Furthermore, we will expect
the Department to prove, through regular publication of statistics,
that ECGD is supporting more businesses from across the sectoral
spectrum.
ECGD Funding and staffing
212. ECGD has already undergone a process of staff
reduction over the past decade. As we mentioned earlier, between
2003-04 and 2009-10, staff numbers declined from 366 to 207. ECGD
told us that it expects this trend to continue during the lifetime
of this Parliament, in compliance with government policy to reduce
the costs of the public sector.[255]
Patrick Crawford, Chief Executive of ECGD, told us his Department's
CSR settlement was based on assumptions on demand for its services
but that should demand increase, there was the possibility of
returning to Ministers to justify an increase in that settlement:
Underlying it, however, was an understanding
with Ministers that, while we had put forward assumptions on our
business volumes, and derived costs from that, we were not in
a position to predict demand. However, we were in a position to
say that if demand grew, then our income would grow, and we would
be able to go back and justify an increase in the settlement.[256]
213. We find it surprising that an organisation
tasked with providing a wider range of services is doing so at
the same time as reducing its headcount. Efficiencies can always
be found, but should demand for ECGD services outstrip capacity
further reputational damage may be occur. We will expect to receive
a detailed assessment of potential demand for ECGD services and
an assurance that ECGD capacity can meet that demand in the Department's
response to this Report.
WIDER SCRUTINY OF EXPORT CREDIT
AGENCIES
214. ECGD must be satisfied that the transactions
it supports are acceptable and conform to the following guidelines:
- Credit risk—transactions
are assessed in order that ECGD can be satisfied they meet its
minimum risk standards;
- Environmental and social impacts—transactions
must meet international standards as required by the OECD Revised
Council Recommendation on Common Approaches on the Environment
and Officially Supported Export Credits;
- Bribery and corruption—ECGD takes precautions
that no corruption is involved in the transaction as far as ECGD
can reasonably ascertain, in compliance with the OECD Council
Recommendation on Bribery and Officially Export Credits; and
- Sustainable lending—where the export is
to an IDA—only country (International Development Association)
or to a country subject to the non-concessional borrowing policy
of the IMF, ECGD must satisfy itself that the provision of export
credits reflect sustainable lending practices (that it supports
a borrowing country's economic and social progress without endangering
its financial future and long-term development prospects), while
at the same time preserving the country's debt sustainability.
This is in accordance with the OECD Principles and Guidelines
to Promote Sustainable Lending Practices in the Provision of Official
Export Credits to Low-Income Countries.[257]
215. Export Credit Agencies are subject to particular
scrutiny from a number of NGOs who look to hold them to account
under these rules. During the course of our inquiry we received
submissions from the Jubilee Debt Campaign, Worldwide Wildlife
Fund, The Corner House, Campaign Against Arms Against Trade and
Amnesty International all expressing concerns with the projects
ECGD supports and the role of the UKTI.
216. In February, the Jubilee Campaign published
a Report in February entitled Department for Dodgy Deals
about ECGD-supported exports, calling it a "rogue department
that acts with impunity, fuelling human rights abuses and environmental
destruction." It highlighted the sales of Hawk fighter jets
to the Indonesian air force, a hydroelectric project in Kenya
and oil pipelines through the Caucasus as examples of projects
which should not have been supported by ECGD.[258]
Amnesty International also argued that "fundamental policy
decisions have been taken by the ECGD without any assessment of
their impacts on human rights".[259]
217. Campaign Against Arms Against Trade also wrote
to us arguing against the "hugely disproportionate"
support given by UKTI to military exports, in particular to countries
it believed should not be in receipt of military goods:
UKTI DSO [Defence and Security Organisation]
is not discriminating about the records of Governments to which
it promotes arms. Its priority markets for 2010/11 include Algeria,
with a poor human rights record; regional rivals India and Pakistan;
unstable Iraq; recent "pariah" Libya; and repressive
Saudi Arabia.[260]
218. Susan Ross of British Exporters Association
believed that scrutiny by NGOs had resulted in ECGD taking an
overly cautious attitude to the provision of their services:
They were covered in the problem of having always
to explain to NGOs what they were doing, and gradually withdrew
to things that were they tried and tested. They weren't prepared
to stick their necks out.[261]
A|D|S acknowledged the fact that the defence and
security industries face stringent export controls and regulations,
but believed that that ECGD application of the rules was sometimes
overdone:
There is a feeling amongst A|D|S Members that ECGD
tends to implement internationally-agreed guidelines in a more
stringent way than international counterparts.[262]
As a result, ADS argued that this made ECGD less
competitive internationally.
219. We support the OECD rules which govern all
Export Credit Agencies. We also acknowledge that many NGOs do
not have faith that all ECAs abide by them. We look to the Government
to work towards the highest level of transparency in ECGD transactions
so that all interested parties can have confidence that ECGD activities
abide by both the letter and the spirit of the OECD rules.
235 Ev 134 Back
236
Ev 135 Back
237
Ev 135 Back
238
Ev 135 Back
239
Ev 135 Back
240
Ev 164 Back
241
British Exporters Association, Export Credit Agencies, ECGD
Benchmarking, April 2010 Back
242
Q 47 Back
243
Q 71 Back
244
Q 39 Back
245
Q 70 Back
246
Ev 207 Back
247
EAMA Q72; FSB, Institute of Directors, FPB and CBI Q 114 Back
248
Ev 165 Back
249
www.ft.com Back
250
Department for Business, Innovation and Skills, Trade and Investment
for Growth, Cm 8015, February 2011,pp 56-58 Back
251
www.ecgd.gov.uk/news-and-events/news/new-support-for-exporters-from-ECGD Back
252
www.ecgd.gov.uk/news-and-events/news/new-support-for-exporters-from-ECGD Back
253
Q 411 Back
254
Q 419 Back
255
Ev 135 Back
256
Q 409 Back
257
Ev 134 Back
258
www.jubileedebtcampaign.org.uk/dodgydealsreport Back
259
Ev w3 Back
260
Ev w7 Back
261
Q 40 Back
262
Ev 151 Back
| 
