The right tool for the job: BU celebrates 90 years of supporting trade and investment
It may be younger than the Swiss Army knife, but the Berne Union’s stakeholder event reflected on how adept the nonagenarian organisation is at helping support financing of international trade and investment amid an ever evolving range of challenges
Kicking off the 90th anniversary celebrations of the International Union of Credit and Investment Insurers (Berne Union) in London on 27 February, president Maëlia Dufour compared the organisation to Karl Elsener. Never heard of him? He was the inventor of the Swiss Army Knife (back in the 1890s). The analogy is apt, Dufour says, because the knife provides the right tool to solve specific problems. It may, she quipped, be a little difficult to open the right blade, but it is reassuring to know that there is a solution. And from four members in 1934, to 84 in 67 countries today, BU members are able to use multiple tools to support trade and investment.
Thematically, challenge and crisis (Dufour enumerated seven crises in the past decade) continue to shape the business. She highlighted climate change mitigation as a prime focus of her presidency, the pursuit of which is a marathon best run together (alone may be faster but together can be further, according to an African proverb).
The stakeholder event, featured former presidents, ECA and industry speakers, and was hosted by UK Export Finance (UKEF) CEO, Tim Reid. It focused on five different areas: fair and open trade as a catalyst for economic growth, innovation from ECAs in response to economic challenges, climate as a catalyst for cooperation across international finance, the rise of geopolitical risk and uncertainty, and a look to the future, developing technology and human potential.
Fair and open trade, a good thing, discuss?
“Fair and open trade as a catalyst for economic growth”. That title wouldn’t have caused anyone in an audience of trade and export finance professionals to bat an eyelid a decade ago, as it would have been taken as read. The fact that the industry feels the need to defend the concept of fair and open trade is certainly one change that has been evident over the BU’s 90 years. “We’ve entered a period of the end of certainty, to a period of ‘muddling through’ in challenging times,” said one speaker. Global markets rely on trust, and part of that trust is having the ‘rules of the road’ in place, which means an adherence to standards and a level of integrity. The role of BU in dialogue, trust, rules and cooperation, helps underpin economic growth and export credits are needed to work better to help with that muddling through.
Those rules and guidelines cannot be static, and have evolved, as one former BU president said, particularly the OECD Arrangement and Climate Sector Agreement. These have acted as “guard rails” that ensure consistency. The OECD Arrangement has lasted well, asserts one speaker. Why? Because the ‘consensus’ is transparent and has reacted well to large new needs and has shown its importance in crisis. Secondly, the Arrangement has shown a capacity to evolve and avoid ECAs having ‘a race to the bottom’ at the same time. While not faultless, the guidelines need to continue to avoid encouraging issues such as greenwashing. “The rules may not be perfect and, as one trade negotiator said, they provide a ‘balance of unhappiness’ between different parties, and that way everyone reaches agreement.” The same speaker notes that “future proofing is not a destination but a process and the regulations provide the architecture.”
And as BU secretary general Paul Heaney pointed out, with the end of certainty, managing change when there is so much changing at once, is a challenge.
The evolution of private sector involvement in the BU was also discussed, highlighting that cooperation can exist in a competitive environment. “Competition has helped reduce the price of export finance and helps increase access for exporters,” added one speaker. One private sector BU member added, “crowding in” of the private sector in financing international trade is now embraced, and the risk of ECAs and development financiers “crowding out” private capital is no longer highlighted as the perceived threat it was.
For sure, ECAs are now frequently being seen as the prime supporters in longer tenor financings where banks have been more reluctant in a rising rate environment and amid capital adequacy requirements. As one former president pointed out, ECAs have gone from being largely insurers of last resort to facilitators. “The role of ECAs has gone from being reactive to proactive.”
ECAs and innovation, and climate change as a catalyst
Berne Union member ECAs, particularly those in Europe, have taken a lead in recent years in using different parts of their proverbial ‘Swiss army knives’, particularly in financing linked to ESG/SDG criteria, and in what started as COVID-precipitated untied lending.
SACE’s chief international business officer and former BU president, Michal Ron, discussed the Italian ECA’s major evolution towards an all-embracing ESG-driven model, which she described as “both bottom down and top up,” representing a more comprehensive approach to sustainability “way beyond” just climate policies to include social and governance factors. SACE’s new sense of purpose also affects its “push strategy,” which has been further developed as a “green push” to increase Italian exports in sustainable sectors while also improving borrowers’ ESG profiles.
The push facility allows untied medium to long term loans to underpin Italian supply chains and procurement, and is provided at market terms to selected counterparties in strategic markets and sectors.
[This has seen the Italian agency’s deal volumes top TXF Intelligence ECA league tables in 2023 by some margin ($24.1 billion in 117 deals)].
CESCE’s Beatriz Reguero, COO of the Spanish ECA’s state account business, and also a former BU president [2019-2020], detailed the interesting support structures the Spanish ECA is developing as a result of different national strategies. Product innovations include green guarantees that cover political plus 80% commercial risk of the financing of Spanish foreign direct green investment abroad, as well as new guarantees to cover the financing of investments in Spain in strategic sectors with an export impact.
Reguero pointed to the changes that have happened in the last two to three years that have expanded the range of products and introduced increasing flexibility in the Spanish ECA. Now CESCE has products that create incentives to finance investments both in Spain and abroad and that complement and reinforce its climate strategy. It also has credit risk cover programmes that create incentives for green electricity/renewables PPAs and support certified pathways to transition.
Several billions of euros worth of green projects are already in the financing stage, Reguero said, and with 80% cover available under the different programmes, “we work with banks to make sure that we develop programmes that respond to their needs and those of their clients. We need banking partners as we’re not direct funders.”
Geopolitical risk and uncertainty, the importance of collaboration
Collaboration is going to be one of the main watchwords going forward. “Cooperation, like a well-choreographed ballet,” was how one speaker described it. For another insurance industry speaker, regional liquidity facilities and the support of fellow BU members have been important to create partnerships, and ECA support has helped derisk and facilitate deals, particularly in Africa. BU, as the speaker said, “is a platform for crowding in.” However, while public sector crowding in of private capital has been evident, structuring good deals is always challenging. It is axiomatic that deals have to be bankable, and bad deals cannot be made bankable.
A speaker from a multilateral agency expressed sadness that the direction for free trade seems to be going in the opposite direction from the ‘optimistic days for trade’ in the 1990s after the Berlin wall came down. One of the key concerns raised was that foreign exchange shortages are becoming a pressing issue in developing markets, particularly in Africa. Second was the issue of debt sustainability, third was the risks of political violence, particularly the rising concerns in eastern Europe and in MENA.
Describing himself as a “glass half full” person, UKEF’s Reid provided some optimism. He viewed the export finance market positively with new strategies in place for the UK ECA. He outlined four priorities. First was staying close to the customer. Second was growth – with a portfolio expanding with demand, creating a balanced portfolio is easier said than done in new geographies and sectors, but worth doing. Third was impact. “By being strongly behind projects and helping development finance, the opportunity has never been so real,” he said. The fourth priority was people. “Export finance has always been a people business and building resilience and the right set of capabilities has been key,” Reid said pointing to the importance of UKEF’s “whole of government approach” and looking through the lens of UK exporters.
With a view to the future – one speaker pointed out that in 10 years’ time, on the BU’s 100th birthday, we will be looking back on whether the industry has helped achieve the 2030 net zero goals. All that talk, and action, of crowding in will be vital. Here’s to the continuing efficacy of that Swiss Army knife in the next decade.
This article first appeared in TXF. For further information on the history of BU, written to celebrate 80 years of the organisation, this article is still viewable to subscribers of TXF.
