(IFC, Washington, 28 May 2024) The World Bank Group’s Multilateral Investment Guarantee Agency (MIGA) and International Finance Corporation (IFC) today signed three-year cooperation agreements with Nippon Export and Investment Insurance (NEXI), the official export credit agency of Japan, to promote foreign direct investment in developing countries. The agreements underscore the organizations’ shared commitment to expanding investment opportunities and mitigating risks in developing countries. The cooperation between MIGA and NEXI builds on a 2020 agreement aimed at facilitating Japanese investment in developing countries through co-insurance and reinsurance instruments.
ECAWatch Newsletter 5
Audit slams US EXIM for weak performance in Africa
(Semafor, Legos, 23 May 2024) A scathing evaluation of the US Export-Import bank’s uneven approach to supporting US trade with sub-Saharan Africa has put its management on the backfoot. It comes the bank scrambles to make the opposite case with a slew of recent deal announcements. The report from the Office of the US Inspector General said the export credit agency had failed to expand its performance to achieve its sub-Saharan Africa mandate and in fact declined over the evaluation period from 2014 to 2023. It also found that, despite multiple Exim officials taking initiatives related to the region, there was no specific program or office designated with the responsibility. A senior Exim official pushed back at the report for not providing “a comprehensive picture of our efforts” in the region where it has a total exposure of over $8 billion.
US EXIM enters the battle against Chinese boycott of Lithuania
(ABC News, Washington, 27 May 2024) After Lithuania allowed Taiwan’s de-facto embassy in Vilnius to bear the name Taiwan, instead of Taipei — Taiwan’s capital city — as preferred by Beijing, Lithuanian businesses saw their cargo shipments to and from China stranded, and they were warned by major European businesses that Lithuanian-made auto parts would be barred from products for the Chinese market. Instead of caving in, Lithuania asked for help and American diplomats sought new markets for Lithuanian goods. The Export-Import Bank in Washington provided Vilnius with $600 million in export credit, and the Pentagon signed a procurement agreement with the country. The U.S. State Department has set up an eight-person team known as “the firm” to provide help to countries cut off from Chinese trade. Other examples: When a Norwegian committee in 2010 awarded the Nobel Peace Prize to a Chinese dissident, Beijing stopped buying salmon from the Nordic country. Two years later, China rejected banana imports from the Philippines over a territorial dispute in the South China Sea. In 2020, Beijing responded to Australia’s call for an investigation into the origin of the COVID-19 pandemic by raising tariffs on Australian barley and wines.
SWEDWATCH: The EU must urgently review its outdated policy on export credits
(Swedwatch, Stockholm, 27 April 2023) Despite promises to make financial flows consistent with a low-carbon economy, EU member states continue to provide financial support to the fossil fuel industry through export credits. It is time that the EU Commission replaces its outdated policy with new and ambitious regulation, prohibiting export support to oil and gas, Swedwatch argues in a new policy paper. “Export credit agencies are the world’s largest international public financiers of fossil fuels. In the EU, the lack of an ambitious regulatory framework allows for oil and gas projects to continue to be supported through state-backed export finance, undermining EU contributions to climate goals. This gap needs to be urgently addressed“, says Davide Maneschi, climate change program officer at Swedwatch. Export credit agencies (ECAs) have a critical role in the energy transition, as they de-risk large scale infrastructure and energy projects. However, in the period 2019-2021, some six years after the Paris Agreement was signed, G20 export credit agencies provided seven times more support for exports of fossil fuel projects than for clean energy. In an April 27 policy paper Swedwatch calls on the European Commission to promptly initiate a reform of the regulatory framework on the activities of ECAs, ensuring that they are aligned with the Paris Agreement 1.5°C climate change mitigation goals and EU climate objectives.
EU greenlights Denmark’s export and investment fund
(ScandAsia, Bangkok, 18 May 2023) The European Commission has approved Danish measures to set up Denmark’s Export and Investment Fund. The fund has a total estimated value of over €4 billion. It aims at supporting economic development, competitiveness, innovation, and growth for Danish companies. Denmark notified the commission its plans to set up the fund, with an initial capital of up to €807 million. The fund will be established as a new, fully state-owned entity gathering three existing state-owned entities: the Danish Growth Fund, the EKF Denmark’s Export Credit Agency and the Danish Green Investment Fund.
Heads of G7 Export Credit Agencies – Meeting Statement
(UK Government, Rome, 19 May 2023) The leaders of official Export Credit Agencies (ECAs) of G7 Countries – Canada, France, Germany, Italy, Japan, United Kingdom and the United States of America – met on May 16th in Rome, hosted by SACE, the Italian ECA. The meeting provided a framework for an open and constructive exchange around topics of relevance for the financing of global trade, from a practical and policy perspective. Discussions centred on recent business trends in the ECA industry, new instruments implemented to address the challenges currently faced by national exporters, policies and initiatives related to climate, as well as on joint support for the reconstruction process in Ukraine:
UKEF and BAE reach deal over historic Iran weapons sales
Global Trade Review, London, 15 May 2023) UK Export Finance (UKEF) and defence giant BAE Systems have struck a last-minute out of court deal to settle a £13.9mn claim by the government agency over guarantees for missile systems sold to Iran in the 1970s. In around 1980, export credit agency UKEF paid a claim under a policy covering contracts for the supply and maintenance of the Rapier surface-to-air missile system, a deal which fell apart in the wake of the Islamic Revolution of 1979. A UKEF spokesperson later confirmed to GTR that a deal was struck and the trial averted, but did not provide details of the settlement. Court documents show that UKEF paid BAE (then BAC) £27.3mn under guarantees issued between 1973 and 1977, when Iran was ruled by Western-backed autocrat Shah Mohammed Reza Pahlavi. But in 1991, Iran’s defence ministry launched arbitration proceedings in The Hague against BAE for alleged non-performance of defence contracts, which triggered a counterclaim by the UK firm. Almost two decades later the arbitration panel awarded BAE £28.8mn from the Iranian defence ministry, while Iran was awarded an undisclosed “greater amount” from BAE in relation to other contracts not covered by the UK government guarantees. BAE has historically been a major purchaser of UKEF’s export credit products. Between 2018 and 2022 alone, UKEF extended £3.5bn in support to BAE through direct lending and buyer’s credit, according to the agency’s data.
Export credit market shows strong growth: Berne Union
(Reinsurance News, Brighton, 15 May 2023) Berne Union, the global association for the export credit and investment insurance industry, has reported that its market showed “strong growth” across business lines in 2022 and a fall in claims paid overall. Highlights from the year’s data show that the export credit industry supported $2.83 trillion of cross-border trade and investment with an additional $68.6bn in non-cross-border support for exporters. Berne Union notes that growth has been supported by the return of significant transactions in the transportation sector as well as a large expansion of manufacturing sector project. The report notes that renewable energy transactions also continue to increase and are close to doubling 2019 levels, while commitments for natural resources continue to decline now at just 33% of their 2019 levels. Total claims paid fell from $9 billion to $7.6 billion over 2022, following a notable drop in MLT transportation claims which had spiked in the first stages of the pandemic. [However as noted in other articles of this issue of What’s New, ECAs poured 77% of their spending into fossil fuel projects between 2018 and 2020, making claims for increased renewable energy transactions almost irrelevant! ]
EDC and Alstom support sustainable transport projects
(Railway Gazette, Suttton UK, 24 May 2023) Alstom and Export Development Canada have signed a C$3·5bn three-year sustainable global corporate partnership covering export financing support and insurance in the transport sector. The export credit agency will focus its support on digital systems, services and projects based on low-emission freight and passenger transport technologies. These could include electrified, hybrid, battery or hydrogen propulsion. Alstom will report on sustainability using indicators such as CO2 emissions, renewable energy and gender balance.
IFC announces it will stop clients funding new coal projects
(IFC, Washington, no date 2023) One of the key goals of the Paris Agreement is to ensure that financial flows are consistent with a pathway toward low emissions and climate resilient development. In 2020, The International Finance Corporation (IFC) the World Bank’s private sector arm launched the Green Equity Approach (GEA) to help our financial institution (FI) clients continue to do business in a changing world. This year (2023) IFC, is taking the next step toward alignment with Paris Agreement ambitions by introducing an update to the GEA under which IFC will start requiring a commitment from FI clients to not originate and finance any new coal projects. Previous policy allowed the IFC’s financial clients to support new coal projects as long as they exited coal by 2030, but new update explicitly rules out new coal. However Re-Course notes that the IFC still has a fossil fuel addiction. In the year when the Multilateral Development Banks (MDBs) are finally aligning their portfolios with the Paris Agreement, over seven years after the Agreement itself was made, it is time for change. [ECA Watch can only hope the OECD and all ECAs could move quickly in this direction for all fossil fuel project credits and insurance.]
