Newly exporting small and medium-sized enterprises have not, to date, has sufficient focus from the Export Finance and Insurance Corporation's assistance with export finance and insurance, according to this report.
These key points were released with the Australia's Export Credit Arrangements draft report on 22 February 2012.
- The Export Finance and Insurance Corporation (EFIC) has been established to facilitate and encourage Australian export trade through the provision of financial services. It provides these services on a commercial account and manages the national interest account on behalf of the Australian Government.
- The rationale for EFIC operating a commercial account should be to address the limited number of market failures in financial markets that impede otherwise commercially viable export transactions.
- At present EFIC's activity on the commercial account is largely focussed on large corporate clients and often repeat customers. The Commission has found no convincing evidence to indicate there are failures in financial markets that impede access to finance for large firms, or for domestic resource projects. EFIC should not continue to provide finance to large corporate clients or for domestic resource projects on the commercial account.
- The Commission's preliminary assessment is that there may be some instances of information-related failures in financial markets, and that these failures may impede otherwise commercially viable export transactions. To the extent that they exist, these information-related failures are only likely to affect newly exporting small and medium-sized enterprises (SMEs) accessing export finance.
- Until it is next reviewed, EFIC's commercial account objective should be to address the information-related failures in financial markets that affect newly exporting SMEs. EFIC's role should be to demonstrate to the private sector that providing export finance to these exporters can be commercially viable.
- EFIC must provide export finance services on the same basis as the private sector. This means EFIC should:
- charge a price covering the full economic cost of provision
- be subject to competitive neutrality policy including earning an appropriately benchmarked rate of return on equity, setting prices commensurate with the level of risk undertaken, and paying a tax equivalent charge and a debt neutrality fee
- publish information on the transactions it approves on the commercial account, including the name of the firm, price and other terms of provision.
- EFIC's commercial account product range should be limited to guarantees. When directed by the Minister for Trade, the product range on the commercial account may extend to reinsurance, for a limited period, to cover sovereign and country risk insurance provided to SMEs.
- EFIC's activities on the commercial account have earned a relatively low rate of return on equity. Some transactions on the commercial account are subsidised by taxpayers. The Commission's proposals seek to address this.
- Measures should be introduced to improve the transparency of EFIC's activities to the Minister for Trade, the Australian Government, and the public.
- Measures should also be introduced by the Australian Government to improve the transparency of national interest account transactions.
See also: Media release
This draft report was released on 22 February 2012. You are invited to examine this report and make written submissions by Tuesday 20 March 2012.