Ex-Im's mission: expand trade, create jobs

John A. McAdams

Since 1934, Ex-Im Bank has helped financial institutions and their customers in trade-finance activities. Decades of experience have given Ex-Im an edge on best practices in due diligence so it can successfully take on the risk in both established and emerging markets while creating jobs in the U.S.

P & S Supply Inc., a Hispanic-owned company in Houston, Texas, exports industrial cleaning and maintenance equipment to Mexico, Peru, and Colombia with the help of two partners--Frost National Bank in San Antonio, Texas, and the Export-Import Bank of the United States. Frost supplied a working capital loan, and Ex-Im Bank guaranteed it.

Benshaw Inc., a small, woman-owned manufacturer of electric industrial equipment in Glenshaw, Pennsylvania, uses Ex-Im's Bank's multibuyer, short-term insurance to guarantee payment from its sales to new customers in Mexico, China, and all over the Middle East. Ex-Im's insurance ensures that Benshaw will be paid for its shipments, and the risk mitigation enables the company to be much more aggressive in pursuing sales in higher-risk markets. Due in part to these expanded foreign sales, Benshaw is adding 40 new jobs this year--and 15 of them are directly related to their export business.

These U.S. companies exemplify why Ex-Im Bank exists--to help financial institutions assist their customers in their overseas expansion and, in so doing, create jobs for workers at home.

A key role of export credit agencies such as Ex-Im Bank is to fill financing gaps to keep trade flowing to emerging markets, where commercial financing often is unavailable or insufficient. Many commercial banks and insurers simply do not have a large enough appetite for placing emerging-market risk on their books. In recent years, net commercial bank lending to emerging markets actually has fallen significantly. Private financing could reverse this trend with a change in risk perception, but it is unlikely that private finance will fully supplant the role of export credit agencies in providing significant trade finance and risk mitigation for exports to higher-risk emerging markets in the foreseeable future.

Thus, while Ex-Im Bank's mission is to help U.S. exporters sell their goods and services in these higher-risk markets, there is no intention to compete with private-sector insurers and lenders. Indeed, the goal is to complement their efforts and help them expand their business in emerging markets.

Never has it been more important to support global trade and in particular U.S. exports. Today, exports worldwide total $8 trillion, a number that's doubled just since 1990--and the World Trade Organization forecasts that global trade could expand by up to 7.5% this year.

This growth has fueled the greatest aggregate wealth creation in history by spurring productive enterprise. U.S. exports have soared from about $42 billion to almost $1.1 trillion in the last 35 years. That represents an increase from about 4% of GDP to about 10%. Last year, U.S. exports again grew--by 4.6%. In an $11 trillion economy, this means that approximately one in 10 U.S. jobs is now dependent on exports. There are 240,000 American exporting companies. They have helped create millions of jobs and $100 trillion of new net worth in the U.S. over the last four decades.

Ex-Im Bank's trade-finance products and services--including export credit insurance, loan guarantees, working capital guarantees, and direct loans--have supported close to a half trillion dollars in U.S. exports, and millions of U.S. jobs, since the bank was founded in 1934. In fiscal year 2004 the bank authorized $13.3 billion in financing, up from $10.5 billion the previous year, to support approximately $17.8 billion in U.S. exports, a 25% jump from a year earlier. No transaction is too large or too small, and, on average, more than 80% of Ex-Im's transactions directly benefit U.S. small businesses.

Leveling the playing field.

In providing guarantees, insurance, and direct project finance products in areas where private capital alone cannot afford to take either the political or commercial risk, Ex-Im Bank helps U.S. exporters meet foreign competition supported by subsidies from their governments. Ex-Im is legally mandated to find that a "reasonable assurance of repayment" exists for every transaction authorized, but the bank also serves as catalyst for opening up and cultivating more difficult markets.

Exports to 90 markets. Ex-Im Bank is active in about 90 markets, supporting exports ranging from capital goods associated with large infrastructure projects, jet aircraft, medical equipment, and engineering and other services, right through to exports by thousands of small businesses, including consumer products and services. The bank is required to rigorously review environmentally sensitive projects.

Working Capital Guarantees

Ex-Im Bank's working capital guarantee helps small businesses by covering 90% of the principal and interest on working capital loans for pre-export costs. These costs can include purchase of raw materials or finished products, production of exports, and coverage of standby letters of credit serving as bid bonds, performance bonds, or advance payment guarantees.

The guarantee provides 100% coverage for woman- and minority-owned businesses. Most of Ex-Im Bank's working capital guarantees are done directly through commercial lenders--"delegated authority" lenders--such as Frost National Bank and PNC Bank. These lenders can commit Ex-Im Bank's guarantee at the time of the credit decision without prior approval from Ex-Im Bank--and that expedites exporters' access to capital. In all, there are more than 200 delegated authority lenders nationwide.

Bank Insurance

Ex-Im Bank's export credit insurance protects mostly small-business exporters and their lenders against the commercial and political risks of a foreign buyer defaulting on payment. Export credit insurance--which can cover multiple buyers, countries, and transactions--also enables exporters to extend credit terms directly to their international buyers.

Ex-Im's medium-term insurance helps U.S. companies selling their capital goods in emerging markets, filling the gap of private insurers that do not like the longer terms of this insurance, especially in riskier markets.

Dealer Insurance

Ex-Im Bank recently introduced a new type of insurance policy that covers financing of exports of U.S. machinery and equipment to foreign dealers for resale to local buyers. The insurance supports an important distribution channel for U.S. capital goods exports. Not only do foreign dealers help U.S. companies penetrate local markets, but their ability to hold U.S. machinery and equipment in inventory overseas also allows them to respond immediately to resale opportunities.

Three types of dealer financing are now covered under a single off-the-shelf policy--short-term, medium-term, and floor plan/rollover financing--eliminating the need for the exporter or commercial lender to obtain multiple policy types.

Floor plan/rollover financing consists of short-term financing of inventory purchases followed by the option to roll over (i.e., refinance) on either a short- or medium-term basis. This type of financing provides dealers with the flexibility to match financing terms to their needs.

Guarantees

Ex-Im Bank's medium- and long-term guarantees of commercial bank loans are widely used to support larger exports such as capital goods. Lenders--who are in an excellent position to sell customers on the benefits of exports--clearly can profit from a strong trade-finance portfolio. Ex-Im can provide capacity in markets such as Brazil or China, where private-sector lenders have reached their internal limits, thus helping them manage their exposure requirements.

Outreach

Through eight regional offices, Ex-Im Bank reaches out to small businesses--as well as large ones--to ensure that every U.S. company that exports is aware of the bank's financing tools. Ex-Im's partners in this endeavor include delegated authority lenders across the country.

Ex-Im works with insurance brokers, who are able to pick the best insurance for their clients' needs, as well as with other U.S. government agencies that are part of the Trade Promotion Coordinating Committee. The U.S. Department of the Treasury, the U.S. Department of Commerce, the Small Business Administration, the Trade and Development Agency, and the Overseas Private Investment Corporation all are part of the Committee.

Ex-Im's Web site--www.exim.gov--lists its partners and the locations of the Commerce Department Export Assistance Centers across the country, and it also provides information on Ex-Im's financing products, key transactions, export opportunities, available training, and more.

Training seminars for lenders and exporters are held around the country and at Ex-Im Bank headquarters. Banks that undergo this training can qualify as delegated authority lenders.

Ex-Im Bank Activities

Although small and medium-sized businesses provide the vast majority of transactions, the largest share of Ex-Im Bank's portfolio involves the transportation, energy, and construction industries.

Commercial aircraft. Ex-Im's commercial aircraft portfolio includes more than 700 aircraft purchased by 75 airlines in 60 countries. These aircraft exports typically involve thousands of U.S. sub-suppliers and therefore have a ripple effect on U.S. job creation among small and medium-size businesses across the country. (Ex-Im also has supported light-rail systems in Latin America and currently is backing a major railroad modernization program in Kazakhstan.)

Ex-Im Bank recently renewed its offer to reduce exposure fees by up to one-third on financings of U.S. large commercial aircraft for buyers in countries adopting, ratifying, and implementing the Cape Town Treaty. The treaty is an international agreement that will facilitate asset-based financing and leasing of large commercial aircraft and reduce certain risks associated with cross-border sales and leases of aircraft and aircraft engines. Ex-Im Bank's offer enables eligible foreign buyers to receive an Ex-Im Bank exposure fee of as low as 2%, a one-third reduction of the current minimum 3% exposure fee on financings of large commercial aircraft. More favorable financing terms also apply to asset-based financings of spare engines to such buyers. Ex-Im Bank has extended the offer for approvals issued through fiscal year 2005 and ending September 30, 2005.

Project finance. Ex-Im Bank's project finance program is particularly useful for major infrastructure development needs, such as transportation, oil and gas and other energy facilities, and major telecommunications systems. Pemex and Sonatrach, the Mexican and Algerian oil companies, respectively, have extensively used Ex-Im Bank financing to purchase U.S. exports which they then use for oil and gas exploration and production, and Nigeria recently embarked on a significant expansion of its liquid natural gas facilities using an Ex-Im Bank loan guarantee.

More recently, Ex-Im supported transactions such as the Nanhai petrochemical project in China, a power-generation project in Brazil, and a cellular telecommunications network in Jordan. The bank also is a key financer of pipeline projects ranging from the 1,100-mile Baku-Tbilisi-Ceyhan project, which will transport oil from Azerbaijan to a Mediterranean terminal in Turkey, to the 700-mile Chad-Cameroon pipeline in West Africa.

Service and high technology. Ex-Im Bank is working to expand its support of service and high-technology exports. During the last eight years, the bank has underwritten between $1 billion and $2 billion per year of services and high-tech exports, such as satellite and telecommunications projects, and also can finance the export of engineering and design services.

Special initiatives. Ex-Im Bank also has enhanced financing available for certain categories of exports. These include environmentally beneficial goods and services, medical equipment, and transportation security equipment. For these products, the bank offers special extended repayment terms.

Cofinancing. Buyers seeking the best quality and price in complex transactions often turn to companies from several nations. Ex-Im Bank has worked to develop cofinancing arrangements with other nations' export credit agencies. For example, Ex-Im Bank and its Japanese counterpart, Nippon Export and Investment Insurance (NEXI), recently signed a cofinancing agreement that will facilitate export transactions involving companies in both the U.S. and Japan. The agreement will enable Ex-Im Bank and NEXI to provide "one-stop" trade-finance services to buyers in third countries purchasing both U.S. and Japanese goods and services.

The two export credit agencies will share risk under one financing package, creating administrative efficiencies for foreign buyers. The partnership will enable businesses in both countries to compete more effectively in high-value, multisource transactions. It is Ex-Im Bank's fourth cofinancing agreement. The bank's first three agreements were with the Export Credits Guarantee Department (ECGD) of the United Kingdom, the Export Development Corporation (EDC) of Canada, and Servizi Assicurativi del Commercio Estero (SACE) of Italy.

While Ex-Im Bank assists U.S. exporters and foreign buyers in virtually every part of the world, there are special programs targeted to particular regions, for example, Sub-Saharan Africa. In addition to supporting a record $700 million in U.S. exports to the region in fiscal year 2003, Ex-Im Bank and the Corporate Council on Africa in September held a conference in Johannesburg that connected investors, financiers, and project sponsors for 14 key infrastructure projects in Africa.

Exports = Jobs

In all of these programs, Ex-Im Bank's mission remains the same: to help U.S. exporters sell their goods and services in challenging foreign markets. U.S. exports translate into millions of jobs, and Ex-Im Bank believes that trade will continue to drive increasing prosperity both in the U.S. and globally.

Ex-Im Bank invites lenders to visit its Web site at www.exim.gov or to call 1-800-565-EXIM (3946) to find the closest regional office.

COPYRIGHT 2005 The Risk Management Association
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