An innovative approach to export financing.

• Date: 01 October 1993
• Author: Nyiri, Ivan
• Published date: 01 October 1993
• Author: Nyiri, Ivan

Two countries in southern Africa have set up export financing schemes that have provided strong support for their exporters.

Export financing systems, relying on properly established and managed credit guarantee and insurance mechanisms, are an important tool for promoting a country's exports. Over the past several decades efforts have been made in a number of developing countries to set up new export financing schemes. Different methods and approaches have been adopted, depending on the specific requirements, goals and immediate economic and export possibilities of the country concerned. Among the approaches that have proved to be successful in developing countries is one that was applied over the past decade in sub-Saharan Africa through ITC projects. The experience of these cases is described below.

Reasons for such schemes

The primary objective of any business enterprise is not necessarily to export but rather to run its operations, whatever they may be, on a sound, profitable basis. Entering export markets may not always be a priority for a firm because export business involves higher risks than selling on the local market, and it requires more and better marketing skills than local business. Furthermore banks are often initially reluctant if not opposed to financing exports because of the added risks involved.

Governments therefore need to create a favourable environment that assists business managers to realize profit levels on exports that are in line with the professional skills needed for this type of activity, as well as with the efforts inherent in export trade. A key element for achieving this is an export financing mechanism that has the following major features:

* Medium- and long-term export-oriented investment financing.

* Short-term working capital financing.

* A refinancing system of the commercial banks' export credits.

* A system for insuring against political, commercial and, in certain cases, foreign exchange risks of companies operating in foreign markets, through an export credit insurance system.

* Provision of adequate export credit guarantee cover to commercial banks involved in the financing of export trade.

* Appropriate channels for government support to the national export credit guarantee and insurance agency, either as a re-insurance facility or a direct cover.

New approach

The traditional approach of an export financing scheme, based on the methodology applied in many industrialized countries, is for the government or a private agency to insure the risks involved in export financing by covering the exporter against possible losses. Such insurance cover is subsequently assigned to the bank that finances the pre- and/or post-shipment needs of the exporter, for instance as a cover against the default of the foreign buyer to pay for the goods or a shift in foreign exchange rates. Such an export credit insurance arrangement serves as an additional...