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Export Credit Agencies

Export Credit & Mining

What are export credit agencies?

Almost every industrialised country has at least one export credit agency (ECA). Despite playing a critically important role, they are largely unknown. Few textbooks on international trade and finance give them more than a passing mention. Yet ECA activity exceeds all multilateral development bank (MDB) and overseas development agency activity, impacts on almost every international trade decision, and directly finances one in every eight dollars of world trade, supporting US$1.5 trillion in global export business in 2008.

ECAs are agents of governments, usually overseen by the finance, trade or economics ministry. They use taxpayers’ money, either directly or through guarantee, to help their country’s companies win investment and export business overseas. The IMF defines ECAs as public agencies intended to promote home country exports by providing financial products and assistance to exporters who cannot secure private commercial finance or insurance market support.

Collectively, ECAs are the largest source of official financing for developing countries. Called the ‘unsung giants’ of the international finance market, ECA-backed exports and investments account for as much as 80 per cent of foreign direct investment (FDI) from industrialised countries to developing countries annually, far greater than the combination of all World Bank and Official Development Assistance (ODA) commitments.

An industrialised country, through its ECA, may offer a loan or credit to a developing country, so that the developing country can buy that particular country’s exports— the result is increased sales and foreign investment opportunities for the multinational companies based in the industrialised country. Or, when commercial banks or exporters provide the loans or credit, the ECA may provide insurance or guarantees— essentially promising to reimburse the banks or exporters and cover most losses if things go awry.
Within the world’s international trading system, ECAs occupy a unique place. The first ECAs were established as far back as the 1920s, but most in operation today have been established since the 1970s.

Traditionally constituted as nationalised corporations mandated to promote their domestic economies in over- seas markets, ECAs have adapted in more recent years to the changing market conditions in which they operate, most notably the expansion of private sector providers of export finance and insurance. Despite these shifts, ECAs remain an important instrument in the economic and foreign policy branches of home country governments.

There is no such thing as a typical export credit agency, but three broad structural models can be identified: first, ECAs that are established as state agencies or departments; second, ECAs which are government-owned state corporations, managed independently with government oversight, as is the case of Australia’s Export Finance and Insurance Corporation (EFIC); and third, those which are controlled by the state in various ways, including authorisation, funding and regulation of operations, but which are consortia of private/public companies.

Australia's export credit agency, the export finance and insurance corporation (EFIC)


EFIC is a federal government agency that funds international projects to promote Australian exports.

EFIC support comes in the form of medium to long-term loans and guarantees to the buyers of Australian exports, as well as risk insurance and guarantee facilities directly to Australian exporters. The structure and function of EFIC clearly indicates that it is an organ of the state. However, like other export credit agencies around the world, EFIC operates in an environment of limited transparency, including a legislative exclusion from Freedom of Information Act 1982. In addition, the Minister for Trade can borrow funds for the purpose of supporting Australian companies on EFIC's 'national interest' (government) account, without any public or senate scrutiny.

Learn more:

 Risky Business, Shining a Spotlight on Australia's Export Credit Agency - Jubilee Australia Report (December 2009)

 

PNG LNG Project

Jubilee Australia has taken particular interest in the liquid natural gas (LNG) project that EFIC is supporting in PNG. It is a featured case study on our 2009 publication “Risky Business” (LINK) exposing the problems with Australia's export credit agency, EFIC.

In it's biggest ever loan, EFIC agreed to provide up to $500 million to the Exxon Mobil-led PNG LNG project, 80 per cent of which will come from public money.

In 2011, a mere one year on from the signing of Papua New Guinea’s largest ever extractive industry project, led by American giant Exxon Mobil and Australian partners Oil Search and Santos, the PNG LNG project has already been linked with a number of worrying incidents, including tribal conflict, local landowner unrest, alleged abuses by the companies involved, and concerns over transparency of government decisions.

In late 2010 the project reached boiling point when landowners closed down gas plants by mobilising on project sites following increased discontent about their benefits payments. A National Court Judge has stepped in to stop all LNG payments from banks and to freeze all accounts relating to benefit agreements until proper and transparent processes are set up for the distribution of landowner payments. Jubilee Australia is concerned that this and a number of other developments during the first year of the project warrant serious examination, not least by the Australian government, which has helped finance the project through its largest ever export credit loan.

In December 2012, after more than 18 months of research, we released our in-depth investigative report into the PNG LNG Project, and its foreseeable impacts on the country’s precarious political institutions, economy and society. Find out more and download this report:

LEARN MORE:

'PIPE DREAMS: The PNG LNG Project and the Future Hopes of a Nation".


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