Index for August 2021

Volume 20, Issue 8

  • (Lexology, London, 24 August 2021) ASHURST LLP has produced a 12 page overview of official export credit agencies in the EU, OECD, UK and globally, which broadly reviews ECA history, policies, competition, budgets, sector agreements, etc. It notes that as recently as the turn of the century, the OECD Arrangement was understood to cover the vast majority of export credits globally, whereas US EXIM now estimates that in 2019 total activity provided under the rules of the OECD arrangement amounted to only 34% of total export and trade-related finance - approximately US$76 billion. The OECD arrangement is described as a 'gentlemen's agreement' among its participants, seeking to ensure there is not a race to the bottom or a crowding out of private financing options that could lead to public resources subsidising exporters. The participants to the Arrangement claim that, despite its voluntary nature, the international cooperation that regulates ECA operations has been a mainstay of the market for decades, looking to ensure that competition remains on the quality and pricing of goods and services rather than the financing terms, i.e. subsidies. However they admit that the core purpose of ECAs is to promote exports to provide jobs domestically and increase the wealth of the country they originate from. Meanwhile, ECA Watch maintains that monitoring of the implementation of the OECD Arrangement, its sectoral agreements as well as the Common Approaches on social and environmental due diligence for officially supported export credits, remains seriously inadequate. The lack of transparency in the application of due diligence procedures results in official ECA support for multiple projects to contravene international environmental, human rights and other treaties and agreements to which these ECAs' own governments are parties. While a somewhat useful overview of complex ECA agreements and practices, the report neglects the significant contraventions of international rights and the resultant trauma caused by so many official ECA supported projects on people and their families across the globe.

  • (Global Trade Review, London, 4 August 2021) Export credit agencies (ECAs) are lagging private financial institutions in setting targets for reaching net zero greenhouse gas emissions and are missing opportunities as the energy transition gets underway. That’s the argument of a University of Oxford paper published last week by a group of five researchers, including experts in trade, law and economics. Former Bank of England governor Mark Carney says in the paper’s foreword that ECAs “are increasingly conspicuous by their absence” in efforts by financial institutions to back a transition away from fossil fuels.

  • (EKN/SEK, Stockholm, 26 August 2021) The Scientific Climate Council, a group of academic experts, will provide advisory support to EKN and SEK to assist aligning the Swedish export finance system with the Paris Agreement’s 1.5°C goal. The climate council is the first of its kind in the world and will focus on issues such as the role of natural gas for the energy transition in low- and middle-income countries. EKN’s and SEK’s climate transition efforts are at the forefront from a global perspective. Stringent requirements are set for projects that receive guarantees and credits and the Swedish export finance system was one of the first to cease export financing the extraction and transportation of coal.

  • (China Daily, Beijing, 9 August 2021) The Chinese government issued a policy on July 16 encouraging Chinese businesses to integrate green development through overseas investment and cooperation. The document, titled "Green Development Guidelines for Overseas Investment and Cooperation", was jointly issued by the Ministry of Commerce and the Ministry of Ecology and Environment. The guidelines recommend that Chinese businesses support investments in clean energy and also cover trade, by requiring companies to speed up integration with the global green supply chain, carry out green procurement and purchase environmentally friendly products and services. The guidelines are specifically addressed to some of the most important financial institutions: the China Development Bank, China Import-Export Bank and Sinosure, China's export credit agency. In June this year, the Belt and Road Initiative International Green Development Coalition, ClientEarth and the Beijing Institute of Finance and Sustainability conducted a two-day workshop on environmental and climate risk mitigation with the largest financial institutions in the Belt and Road Initiative. Although the process is not without difficulties, these institutions are developing key policies, such as categorization of projects based on environmental risks, requirements for environmental standards, impact assessments, third-party evaluations, information disclosure and public participation, grievance mechanisms, and even potential fossil fuel exclusion policies.

  • (Global Trade Review, London, 11 August 2021) Chinese banks have a “dismal” rate of engagement with concerns about the human rights impacts of their overseas investments, a new report says. The London-based Business and Human Rights Resource Centre (BHRRC) says China’s banks, including private, state-owned and development banks, have responded to only one of 20 requests to answer to human rights concerns raised by civil society organisations. BHRRC said that overall, it has recorded 670 allegations of human rights abuses “linked to Chinese business conduct abroad”. Countries where most complaints are recorded are Myanmar, Peru, Ecuador, Laos, Cambodia and Indonesia. China’s banks’ 5% rate of response to BHRRC requests compares to the Asian and global financial sector’s response rate of 63%.

  • (Global Trade Review, London, 28 July 2021) Australia’s banks have defended their decision to exit the thermal coal sector and pushed back against suggestions from government lawmakers that they be forced to extend financing to fossil fuels. A flurry of exits from thermal coal businesses that began mainly among European banks and export credit agencies has since spread to Asia. Economies such as South Korea and Japan, which are major buyers of Australian coal and natural gas, have now set ambitious carbon reduction targets ahead of the COP26 summit in Glasgow in November. Australia is the world’s largest coal exporter by value, and coal miners are expected to post bumper profits during the full-year reporting season for listed companies in August. The decision has angered lawmakers in the ruling conservative coalition, many of whom represent communities where coal mines and their supply chains are major employers. Submissions to an inquiry on financing for Australian export industries, launched earlier this year by a parliamentary committee on trade and investment and focusing almost exclusively on thermal coal, included suggestions that the government force banks to lend to any business that is operating legally.

  • (All Africa, Cape Town, 23 August 2021) The withdrawal by risk averse lenders from the East African Crude Oil Pipeline has seen the cost of the project rise by 30 percent to $5 billion, meaning shareholders will be forced to dig deeper into their coffers to fund it. Shareholders of TotalEnergies raised this question during the annual general meeting in May, and company executives confirmed that increase in cost to $5 billion for a fully completed project, of which $2 billion will be financed through shareholders' equity and $3 billion by external funding.
    Last month, the project also suffered another setback after global insurers and export credit agencies, including French multinational AXA, withdrew its support. "The underlying project is not compatible with our climate commitments," AXA wrote in July, while the UK Export Finance also turned down an application for finance, after the UK government ceased financing fossil fuel projects overseas.

  • (Euro Money, London, 6 August 2021) The World Economic Forum has warned that the global trade finance gap could reach $2.5 trillion by 2025 as large numbers of funding applications continue to be rejected due to lack of collateral or information from the requesting entities. More than half (60%) of the banks that responded to a survey conducted by the Asian Development Bank just prior to the outbreak of the coronavirus pandemic expected an increase in the volume of trade finance requested by importers and exporters but subsequently rejected. Governments around the world have taken a variety of steps to support trade finance since the start of the pandemic, including increasing the capacity of export credit agencies, expanding working capital programmes and introducing new facilities to support exporters and importers – particularly SMEs.

  • (Business Post, Lagos, 24 August 2021) Russia’s weak economic presence in Africa has become a thing of concern for some experts in the country and they wonder why the nation is not aggressive with this like its ally, China. In July 2021, participants at the Association of Economic Cooperation with African States (AECAS), established under the aegis of the Secretariat of the Russia-Africa Partnership Forum (RAPF), agreed that lack of financial support was the major reason for this. Nikita Gusakov, Head of the Russian Export Credit and Investment Insurance Agency (EXIAR), reiterated that Africa was a priority for the agency. Senator Igor Morozov, a member of the Federation Council Committee on Economic Policy, and Chairman of the Coordinating Committee on Economic Cooperation with Africa noted during one of the meetings that in conditions of pressure from sanctions, it has become necessary to find new markets, new partners and allies for Russia. “It is important for us to expand and improve competitive government support instruments for business. It is obvious that over the thirty years when Russia left Africa, a number of countries such as China, India, the United States and the European Union have significantly increased their investment opportunities there in the region,” Morozov stressed. With a renewed growing interest in Africa, Russians are feverishly looking for establishing effective ways of entry into the huge continent.

  • (Export Institute, Peterborough, 12 August 2021) UK Export Finance has signed a partnership with CABEI, Central America’s leading development bank, to encourage joint financing of major clean energy, infrastructure and construction projects. Trade between the UK and Central America was worth over £1.7 billion in 2020. At least £2.5bn is now available for new business in each of Guatemala, Honduras and Panama and £1.5bn for Costa Rica, El Salvador and Nicaragua. Countries that can benefit from the joint financing agreement include the Dominican Republic, Panama, Guatemala, Honduras, El Salvador, Nicaragua and Costa Rica. The UK signed a continuity trade deal with Mexico in December and started talks on a £5bn trade deal in March that promised an ‘Aztec-Brexit bounce’. However, as reported in IOE&IT Daily Update, the deal was rendered obsolete after the EU signed a more generous and comprehensive deal between its 27 members states and Mexico. According to a report from the House of Lords’ International Agreements Committee, the UK could now have to wait another three years to catch-up with the EU in trade with Mexico.

  • (Construction Review Online, Nairobi, 25 August 2021) Financed to the tune of US$ 1.2bn by a consortium of international banks including CDP Bank, Credit Agricole Bank, and BNP Paribas with the Italian Export Credit Agency (SACE) and the Egyptian Ministry of Finance as guarantors, the Middle East Oil Refinery (MIDOR) expansion project is being undertaken by TechnipFMC. When fully completed the facility is expected to increase the production of LPG by 107%, high-octane gasoline by 60%, jet fuel by 145%, and diesel by 45%. These are the equivalent of 280,000 million tonnes (Mt), 1.6Mt, 2.2Mt, and 2.8Mt respectively.

  • (This Day Alive, Lagos, 8 August 2021) The Nigerian Export Import Bank (NEXIM) has introduced a specific policy intervention that is promoting economic and social inclusion of key segments of the population, in particular women and youth. UN population projections for Nigeria in 2020 indicated that about 62% of Nigerians were below 25 years old; while over 50% are women. The Women and Youth Export Facility (WAYEF) is a deliberate and targeted funding scheme to address the needs of these vulnerable groups notes NEXIM Managing Director Mr. Abba Bello. Over the years, the bank has provided enormous support for many export-oriented industries that are high employers of women and youths such as cashew, shea, hibiscus, ginger among others, where a lot of women are involved in cleaning and packaging of products for export.

  • (Global Construction Review, London, 6 August 2021) UK Export Finance has lent €241m toward a €326m project to build six hospitals in the Ivory Coast, with UK-headquartered NMS Infrastructure Ltd. contracted to do the work. The hospitals will serve a catchment area of more than a million people, and will be built in Bouaké, Boundiali, Katiola, Kouto, Minignan and Ouangolodougou. The financing, a mix of buyer credit and direct lending to Ivory Coast’s Ministry of Health and Public Hygiene, will fund design and construction, equipment, post-completion training and technical support.