Index for May 2018

Volume 17, Issue 5

  • (National Observer, Ottawa, 30 April 20188)Canada’s federal auditor general says there are “significant deficiencies” at Export Development Canada when it comes to risk management.The Office of the Auditor General of Canada announced the results of an audit into Export Development Canada (EDC), which facilitates international business deals as Canada's export credit agency, on April 30, that “found a number of weaknesses."The warning comes on the heels of a report by Ottawa-based watchdog Above Ground that found EDC did not have effective screening for corruption.

  • (Australian Associated Press, Sydney, 1 May 2018) Papua New Guinea’s prime minister has dismissed as “fake news” a report that claims a partially Australian-funded liquefied natural gas project is failing to deliver a promised economic boom to his people. Peter O’Neill was in Brisbane for the Australian-PNG business forum and used a keynote speech to attack a damning report by Jubilee Australia, which questioned whether projected economic benefits were flowing from the ExxonMobil-led project. Australia’s export credit agency, Efic, made its largest ever loan of $500m to ExxonMobil, OilSearch, Santos and the PNG government in 2009. “The people of PNG would have been better off had the project not happened at all,” said report co-author Paul Flanagan, a former Australian Treasury official. OilSearch chief executive Peter Botten said the report would be subject to "rigorous analysis" to find out where Jubilee was right and where it could be challenged. The Guardian Australia reported that despite company celebrations of gas flowing since 2014 and  the 300th shipment of LNG from the project’s export terminal, the landowners in Hela hadn’t been paid any royalties. Santos chairman Keith Spence has stated that "We have met every obligation... the moneys that were promised to the landholders have been paid to the government" Predictably, this was raising tensions in the area and there were – and are – very real fears that the project could end up triggering an armed insurgency. One news agency noted that undelivered infrastructure projects which resource companies promised landowners, including roads, airports, hospitals, housing and sewerage projects, could even lead to civil war. Between 1987-1997, 20,000 people died in a civil war between PNG and its Bougainville province. Panguna, one of the world's largest copper and gold mines, sparked that conflict.

  • (Reuters, Paris/Brussels, 3 May 2018) France, Britain and Germany all say they will stay in the deal even if the United States withdraws, and try to protect and foster European trade and ECA support with Iran, which has soared since the European Union lifted most of its economic sanctions. Iran’s exports of mainly fuel and other energy products to the EU in 2016 jumped 344% to 5.5 billion euros ($6.58 billion) compared to the previous year, while investment in Iran jumped to more than 20 billion euros. The Europeans aim to present a separate political agreement to the White House that commits to taking a tougher stance on Iran, if they can agree it in time with the U.S. France’s President Emmanuel Macron and German Chancellor Angela Merkel are continuing to lobby Trump, but with the prospect of him changing his mind remote, the focus has shifted to managing the fallout and avoiding a dangerous vacuum. The German Economy Ministry said it was waiting for a formal U.S. decision on the Iran deal before deciding whether to stop offering German firms export guarantees for business deals with Tehran. Such guarantees provide state protection for companies doing business abroad when foreign debtors fail to pay. The EU may also be considering switching to euros instead of U.S. dollars in the oil trade with Iran The prospect of trade with Europe would provide the Europeans with a chance to assuage the Iranians, and dissuade them from rash decisions such as leaving the deal or reviving the nuclear activities they agreed to give up. The Financial Times notes that even as European leaders prepared their pleas for exemptions from US president Donald Trump’s sanctions on Iran, advisers were warning of a deepening chill on multinationals’ willingness to do business with the Islamic republic.

  • (Law360, New York, 30 April 30 2018) On the heels of President Donald Trump’s decision to tap one of his top trade advisers as the interim head of the U.S. Export-Import Bank, a throng of Democratic senators on Friday pressed the White House to move ahead with a permanent leader for the beleaguered export credit agency. In a letter spearheaded by Sens. Maria Cantwell, D.-Wash., and Heidi Heitkamp, D.-N.D., the senators once again noted that the bank has been unable to finance high-value export projects since December 2015 due to the lack of a sufficient quota on its board of directors and that the appointment of a new bank president would go a long way to remedying that dynamic. “Since December 2015, Ex-Im has not had a fully operational board that is able to review and approve the types of deals that would expand U.S. exports,” they said. “As a result, foreign export credit agencies have been and will continue to rush to fill the void. In turn, more U.S. jobs will be sent overseas, and both American workers and companies will be at a serious disadvantage.” Trump’s first nominee for the job, former congressman Scott Garrett, was eventually withdrawn after stern backlash that focused on Garrett’s past as staunch advocate for shuttering the bank. Since then, movement on Ex-Im has remained mostly quiet as Trump’s board nominees have earned the blessing of the Senate Banking Committee but are still awaiting a full vote.

  • (GAO, Washington, 10 May 2018) The US Foreign Military Sales (FMS) administrative account balance grew by over 950 percent from fiscal years 2007 to 2017—from $391 million to $4.1 billion—due in part to insufficient management controls, including the lack of timely rate reviews. The Defense Security Cooperation Agency (DSCA) has some controls to manage the account balance. By not performing timely rate reviews or setting an upper bound, DSCA has limited its ability to prevent excessive balance growth.  U.S. foreign partners buy billions of dollars of defense equipment and services each year through the U.S. Foreign Military Sales program. The program charges fees to purchasers to cover the U.S. government's cost of operating the program. As the value of these sales has increased, the balances in the 2 main fee accounts have grown in excess of 950% and now top $5 billion. GAO found that the substantial growth in these accounts was due to insufficient management controls.

  • (Korea JoongAng Daily, Seoul, 3 May 2018) As relations between the two Koreas warm, Seoul is gearing up to create new economic ties with Pyongyang, according to the South’s top economic official. According to Kim Dong-yeon, South Korea’s minister of strategy and finance, the so-called inter-Korean cooperation fund, a government fund established in 1991 that is devoted to projects that promote ties and exchanges between the two Koreas, has about 1 trillion won in its budget for 2018, with about 350 billion won (US$324 million) assigned specifically for economic projects. The fund is sourced from the government budget and public sector funds and is under the supervision of the Export-Import Bank of Korea, a state-run export credit agency.

  • (Australia Financial Review, Melbourne, 8 May 2018) In the overall rankings, Australia is defined as an over-performer, or a country that punches above its economic and military strength. Indeed, we are ranked third in the over-performer stakes behind Japan and Singapore, coming in one place ahead of South Korea. This is primarily due to the strength of Canberra's military connections into the region and the cultural power associated with the university sector. But when it comes to business, Australia has shown itself to be sub-scale and insular. Seoul's export credit agencies, a mark of economic integration and regional influence, have extended $US82 billion of credit (third in the region) compared to Australia's $US2.7 billion (11th in the region).

  • (Reinsurance News, Brighton, 9 May 2018) MIGA (Multilateral Investment Guarantee Agency), the political risk insurance arm of the World Bank Group, and NEXI, Japan’s state-owned export credit agency, have entered an official agreement to share risk, through reinsurance, on investments made by Japanese firms in developing countries.