Index for January 2018

Volume 17, Issue 1

  • (Global Trade Review, London, 31 January 2018) The Australian export credit agency (ECA), Efic, has been armed with A$3.8bn to help companies sell military equipment overseas. Over the years, ECAs have been heavily criticised for selling arms which often help prop up tyrannical regimes and which can fall into the wrong hands. Indeed, the murky track record of the UK’s ECA was reportedly one of the reasons behind its rebranding from the Export Credits Guarantee Department (ECGD) to UK Export Finance (UKEF). ECGD was found to have funded a succession of arms deals involving despotic regimes including a £49mn loan made to Zimbabwean President Robert Mugabe to buy a fleet of fighter jets and police Land Rovers. Alas, its successor UKEF has continued the trend. It was reported in 2015 to have guaranteed £130mn in financing for repressive governments to spend on arms over the previous years. These include loan guarantees for the Indonesian government to purchase anti-aircraft missiles and a bond guarantee for Saudi Arabia to buy unspecified arms amid Saudi Arabia’s ongoing offensive in Yemen. Over half of UKEF support in the last annual report was for defence... and UKEF is by no means the only ECA involved in funding weaponry. Last year, US Ex-IM was questioned over its funding of dual-use goods which ended up in the militaries of Cameroon, Mexico and Qatar. Last year, the Russian ECA Exiar lent US$100mn to the Armenian government for the purchase of Russian-made munitions and French ECA Coface issued a 50% guarantee on a US$5.9bn loan from a group of French banks to the Egyptian air force to buy 24 multi-role fighter jets built by French company Dassault.

  • (Guardian, Sydney, 30 January 2018) The financial aspects of the Turnbull government’s plan to turn Australia into an arms exporting powerhouse are baffling, a leading defence expert says, but the decision to promote defence products overseas is welcome. Andrew Davies, the Australian Strategic Policy Institute’s director of defence strategy, said the Coalition’s plan to use a $3.8bn fund administered by Australia’s export credit agency to underwrite an expansion of arms exports made little economic sense because manufacturers had no trouble securing funding from private sources. Davies said it was highly unlikely Australia could ever join the ranks of the top 10 arms exporters because the things it was good at producing – component parts for foreign assembly lines; niche sales of intellectual property, and services (training, consultancy, and acquisition)... And it’s unlikely that Australia will be able to produce warships and submarines at less cost than well established shipyards overseas. Peter Whish-Wilson, the Greens defence spokesman, said the plan was designed to shore up a handful of defence industry-centric seats “at the cost of Australia’s soul”.

  • (Daily Sabah, Istanbul, 5 January 201) President Erdoğan's first visit abroad in 2018 was marked by a groundbreaking defense agreement that includes the joint development of missile systems by Turkish, French and Italian firms, among other commercial and economic deals. The Export Credit Bank of Turkey (Türk Eximbank) and Bpifrance Assurance Export also signed a comprehensive business cooperation agreement in France.

  • (Bloomberg, London, 9 January 2018) Saudi Arabian Oil Co. is seeking a $2 billion loan from Japan’s export-credit agency, three people with knowledge of the matter said, as competition for a role in potentially the world’s largest initial share offering heats up. A deal would make the Japanese export-credit agency the second state institution to extend financing to Aramco ahead of its planned initial public offering -- which the Saudi government has said may value the company at $2 trillion. The U.K. government agreed to a $2 billion loan guarantee for Aramco in November as it competed with the U.S. to host the IPO. The unusually large export-credit guarantee was designed to finance the purchase of British goods but opened the U.K. up to the suggestion that it was trying to influence the decision on where the company should be listed. Aramco also signed an agreement with a group of regional and international lenders for $10 billion of standby revolving-credit facilities in 2015. Mandates on the oil company’s IPO may be finalized as early as this week, with Goldman Sachs Group Inc., Citigroup Inc., JPMorgan Chase & Co., HSBC Holdings Plc and Morgan Stanley said to be among lenders vying for a place on the deal. According to Reuters, Saudi Aramco is working to secure billions of dollars in cheap ECA backed loans from banks before its stock listing and disclosure of its assets raises loan rates. Meanwhile, Abu Dhabi National Oil Co (ADNOC) plans to raise a $3 billion syndicated loan from JIBC, according to a source close to the matter. Such loans aim to help Japanese companies secure oil supplies from Abu Dhabi, as the proceeds are generally used as a form of advance payment to ADNOC for crude oil sales to Japanese oil firms.

  • (Vietnam Net, Hanoi, 18 January 2018) Vietnam is expected to receive loans in the billions of US dollars from some G20 nations for its many coal-fired power projects, helping the capital-thirsty country further ensure its growing demand for power. The US-based Natural Resources Defense Council (NRDC), an international non-profit environmental organisation with over three million members, two weeks ago released a report stating that Vietnam will be the second-biggest borrower from G20 nations for its coal-fired power development. G20’s five largest coal financiers include China, Japan, Germany, Russia, and South Korea.

  • (New York Times, LONG PHU, Vietnam, 26 January 2018) With help from a Kremlin-connected Russian bank, Vietnam is building a coal-fired power plant called Long Phu 1 that will produce an estimated 5.4 million tons of carbon dioxide a year, generating enough electricity to power millions of homes. But the project needs something else first: help from the United States government and the plant’s state-controlled owner has applied for assistance with the project from the Export-Import Bank of the United States. The bank has not yet decided whether it will back the project. If it did, it would show that the Trump administration’s commitment to using more coal at home also extended overseas. Critics say it would also challenge a growing global consensus that developed nations and groups like the World Bank should stop funding high-polluting energy projects in developing countries. Britain’s equivalent of the Export-Import Bank has already declined to participate in the project. In addition, it would provide American backing for a project partly funded by a Russian bank that has endured sanctions by the United States government since 2014 because of Moscow’s military intervention in Ukraine. Several advocacy groups say that PetroVietnam’s environmental due diligence underestimated the project’s likely carbon footprint. They also say the project is not clean enough to meet new guidelines from the OECD which has tried to curb lending by government-owned export credit agencies to certain types of coal projects. By approving the project, the United States would be “thumbing our nose to all the other countries that have striven so hard to reach this agreement,” said Doug Norlen, the director of economic policy at Friends of the Earth USA.

  • (Financial Post, Toronto, 11 January 2018) Canadian exporters with long histories of doing business in Russia are urging the federal government to help them compete with foreign rivals that they insist are profiting from Ottawa’s particularly rigid approach to international sanctions. Companies say they’re losing ground because, unlike other countries that have imposed sanctions directed at Moscow, Canada went a step further by removing its export credit agency from the Russian market in 2014. Canadian firms say the vacuum has helped open up new opportunities for competitors from places like the United States, Europe and Japan, where export credit agencies continue to support local businesses with interests in Russia, despite similar sanctions by their governments.

  • (Hill Times, Ottawa, 15 January 2018) When allegations emerged last fall that the Mexican president’s 2012 election campaign was funded in part by a subsidiary of the Brazilian construction giant Odebrecht, the news barely made headlines in Canada. But this recent development in the far-reaching Odebrecht corruption scandal should give us pause, because it raises crucial questions about the anti-corruption and disclosure policies of our export credit agency, Export Development Canada (EDC). In December 2012, EDC loaned $300 million USD to Braskem, an Odebrecht subsidiary, for construction of a petrochemical complex in Veracruz, Mexico. Earlier that year, Braskem allegedly paid over $3 million USD in bribes towards President Peña Nieto’s election campaign. In its review this year of the Export Development Act, the government must turn a critical eye to this issue. The review, conducted by the trade minister every ten years, provides a crucial opportunity to enhance the transparency of EDC’s due diligence practices.

  • (Xinhua, Phnom Penh, 11 January 2018) China eyes stronger ties with Myanmar, Laos, Thailand, Cambodia and Vietnam, the other five countries along the Lancang-Mekong river, pledging new loans, medical aids and scholarships to its neighbors. At the second Lancang-Mekong Cooperation (LMC) leaders' meeting here, Chinese Premier Li Keqiang announced that China will provide another 7 billion yuan (1.08 billion U.S. dollars) in government concessional loans and also the setup of a 5-billion-dollar credit line for supporting production capacity and equipment manufacturing cooperation among the Lancang-Mekong countries. As an important mechanism along the Lancang-Mekong River sub-region, the LMC mechanism has been focusing on sustainable development and pragmatic cooperation in the sub-region and serving as an important platform for implementing the Belt and Road Initiative.

  • (Yonhap, Seoul, 9 January 22018) The British government has withdrawn its plan to cancel a North Korean debt that has been unpaid for more than four decades, in consideration of the possibility that North Korea could pay it back after the two Koreas are unified, U.S. broadcaster Voice of America reported Tuesday. UK Export Finance (UKEF) decided in May 2013 to stop efforts to recover the debt, Voice of America said, citing data from the export credit agency.

  • (India Times, New Delhi, 11 January 2018) The UK government today announced the doubling of its national credit support for UK businesses exporting to India, during the visit of Commerce and Industry Minister Suresh Prabhu. As part of the deliberations, UK trade minister Liam Fox announced that the UK's national export credit agency, UK Export Finance (UKEF), has more than doubled its financial support to enable UK businesses to trade with India. This means 4.5 billion pounds will now be available for UK companies exporting to India as well as Indian buyers of UK goods and services.

Volume 16, Issue 12

  • (Global Trade Review, London, 7 December 2017) UK Export Finance (UKEF) has announced plans for a new invoice financing scheme for exporters in a bid to boost exports through supply chain efficiency. GTR has learned that the new scheme will allow an exporter to set up a supply chain discounting facility with its bank, through which suppliers can receive up to 95% of their payment on invoice submission. The facility will be based on an export contract and support will be based on the buyer’s creditworthiness. UKEF will provide the bank with a guarantee for up to 80% of the amount of credit provided through the facility. The finer details of the scheme, which is due to be launched next year, are still being ironed out. Earlier in the year, the export credit agency (ECA) launched the Bank Delegation scheme, which gives banks authority to issue UKEF guarantees for their customers simply by telling UKEF they are issuing the guarantee based on the banks' own due diligence. [How UKEF will ensure compliance with its own international, WTO and OECD agreed due diligence requirements on human rights, environmental standards and corruption is not clear under this delegation of responsibility to private sector banks.]