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Look Before You Leap Roger Donnelly, Chief Economist EFIC rdonnelly@efic.gov.au Tim Harcourt, Chief Economist Austrade tim.harcourt@austrade.gov.au Are we as a nation missing out on some opportunities to export to high-risk markets? It's not self-evident that we are. After all, if the private sector isn't able to finance or manage the risks of exporting to emerging markets, then Australian exporters shouldn't be there, should they? Actually, it is not that simple. Reliable information on the political and commercial risks of exporting is hard to come by, restricting the willingness of exporters to venture far afield, and of private insurers and financiers to insure the associated payment risk and to supply credit. In addition, many exporters won’t be prepared to blaze a trail into a difficult or unfamiliar market (however brave or pioneering they may be) even if it might be in the public interest for them to do so. Why? Because if they show the way to other exporters they won’t be able to charge a fee for this service. Exporting to emerging markets is a difficult business. There are many obstacles and pitfalls. Economic risks such as exchange rate volatility and currency inconvertibility are just two. There are also political risks such as sudden changes in government. Or regulatory changes that may affect market access at short notice. There are also clashes of business culture. And civil, religious, ethnic and cross-border conflict. Is it all too hard? Not if you have reliable information on the political and commercial risks of exporting – information that can unlock the necessary credit insurance and finance that is part and parcel of exporting. Fortunately, there are sources of government assistance that can act as a ‘bridge’ to difficult markets where there are information and associated credit/insurance deficiencies. Private players can’t build the bridge themselves because they can’t toll everyone who uses it; there will be lots of free-loaders. But that is no reason to leave the bridge unbuilt. If the bridge is publicly provided the nation as a whole benefits. Supporting the public export bridge from Australia to emerging markets are what Austrade Managing Director Charles Jamieson calls the ‘three pillars’ of government assistance. First, intelligence on overseas countries compiled by the Department of Foreign Affairs and Trade (DFAT). DFAT engages highly skilled political and economic analysts who provide expert advice on global political and economic developments. DFAT warns Australian businesses about foreign hotspots and flashpoints. It also helps prise open markets through trade negotiations. Second, there is Austrade’s human network of trade commissioners and locally engaged staff in 90 offices around the world from Algiers to Zagreb. A source of local or ‘insider’ market intelligence, the Austrade network acts as a risk umbrella for exporters, warning away exporters from local trouble spots (and directing them to alternative markets that would provide better business opportunities). Austrade reduces the risk involved in finding business partnerships for exporters. Austrade’s offices know the local business communities well and can steer exporters to reliable agents and potential business partners. This reduces time and financial costs for exporters. Austrade also provides an avenue for business views in trade negotiations over market access. Third, Export Finance and Insurance Corporation (EFIC), Australia's export credit agency, provides competitive medium to long term finance and insurance services to assist Australian companies exporting and investing overseas. Austrade and EFIC work in close contact with Australia’s worldwide diplomatic network, the IMF, the World Bank, the OECD and the global club of export credit insurers and financiers – the Berne Union. This provides unrivalled intelligence on which to make informed judgments about risk. Thanks to this assistance, exporters can take calculated risks for often substantial returns. Some case studies of where exporters have used the three pillars are outlined below. Peru Sydney based Open Telecommunications and its Peruvian partner Grana y Montero recently announced a $1.75 million software and technical services project with Bell South of Peru. Austrade’s new office in Lima assisted with the relationship and the signing of the deal. The project is an example of the extension of Austrade’s services to Australian exporters in South America. Yemen, Saudi Arabia Keith Seeds has grown its overseas sales of seed products substantially since 1992. Its chief markets are Yemen and Saudi Arabia. ‘We wouldn’t have experienced the growth we’ve had if we hadn’t used EFIC’s products and knowledge to export with confidence to risky markets,’ says Tim Cadzow, Manager of Keith Seeds. Indonesia Austrade has assisted Sydney based Bluefire Gas Ltd to set up a US $10 million project in liquified petroleum gas (LPG) distribution in Indonesia. Bluefire Gas’CEO Ken Matthews commented: ‘Austrade’s first-hand knowledge of the market and its ability to put us in touch with the right people proved pivotal to our success’.
China
With EFIC credit insurance*, Coopers Brewery was able to offer competitive terms on its brewing kits to Chinese buyers, enabling the brewery to chase Chinese expansion plans. So the Australian government can make a difference for Australian exporters. Of course, Austrade and EFIC couldn’t and shouldn’t support every export deal that comes to them. Some are reckless gambles, not calculated risks. But overall, with a little bit of help from their friends, exporters can succeed in a dynamic and volatile global economy. *Since September 2003 EFIC no longer provide short term export credit insurance.
Disclaimer This article is published for the general information of EFIC's clients and associates. It is not intended as advice and readers should rely on their own inquiries in relation to matters discussed. While EFIC endeavours to ensure it is accurate and current at the time of publication EFIC accepts no legal liability for loss suffered by any person arising from any act or failure to act on the basis of information and/or the opinions contained in it. Copyright and Terms of Conditions This work is copyright. Apart from any use permitted under the Copyright Act 1968, no part may be produced by any process without written permission from EFIC. Requests or inquiries concerning reproduction should be addressed to Chief Economist, EFIC, PO Box R65 Royal Exchange, NSW 1223. In all cases EFIC must be acknowledged as the source when producing or quoting any part of an EFIC publication or other product. Produced by Export Finance and Insurance Corporation ABN 96 874 024 697.
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