SA export credit insurer weighing Exim-style bank strategy

28th November 2013

By: Terence Creamer

Creamer Media Editor

  

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The State-owned Export Credit Insurance Corporation (ECIC) has initiated a process to explore whether or not it would be feasible and beneficial for South Africa to establish an export-import (Exim) bank, to provide one-stop lending and insurance support for exporters.

CEO Kutoane Kutoane, who took over as the head of the ECIC in September, tells Engineering News Online the investigation is at an exploratory phase, but that clarity on the possible advantages and/or disadvantages of the creation of an Exim-type structure should emerge over the coming 18 months. There is no dominant formula internationally with some countries opting for export credit agencies and others for Exim banks.

He stresses that any decision will be made only following thorough consultations with the National Treasury, the Department of Trade and Industry, the Industrial Development Corporation (IDC), as well as with the local banking industry and exporters. At present, the IDC supports exporters with concessional loans, while ECIC provides coverage for political and commercial risks.

“We will be exploring whether or not more could be done, especially for small and medium-sized enterprises (SMEs), through combining the lending and the insurance aspects of trade financing into a one-stop shop,” Kutoane explains.

But such a strategy would need to be premised on market demand, as well as whether it could be funded, particularly given the growing constraints on the national Budget.

In the meantime, the ECIC was prioritising efforts designed to enable more SME exporters to access its subsidised insurance products, as well as to diversify its portfolio beyond the resources sector.

At present, the mining and oil and gas sectors account for more than 60% of the R19.4-billion in capital projects being supported by the ECIC. In addition, the organisation has only supported a limited number of transactions involving smaller companies. “We intend to double our exposure over the next three to five years, while promoting more diversified sector coverage.”

By the end of its financial year to March 31, 2014, Kutoane expects that its coverage would have increased to closer to R22-billion, with Africa-related exports accounting for the bulk of this exposure. Around 85% of its current portfolio is associated with projects in Africa, with 8% in the Middle East and 7% in Asian countries. The major insured projects are from sectors such as mining, rail infrastructure, telecommunications and energy.

To achieve wider coverage, ECIC has also embarked on a brand-promotion strategy in an effort to attain “household-name status within the exporter community”. Kutoane reports that its higher profile has already resulted in an increase in enquiries and that the ECIC’s 50 staff members are hoping to convert some of these enquiries into customers in the coming months.

“We will be spending considerable time and resources in getting the SME sector’s potential off the ground, and this will of necessity require changes in the manner in which we do business, including simplification of the application procedures and processes to unlock accessibility.”

Edited by Creamer Media Reporter

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