Over the past three years, the Export Credit Insurance Corporation (ECIC) has supported export transactions of some ZAR14 billion and facilitated almost 25 000 job opportunities. This is a laudable feat considering the global economic plateau, as it provides a secure and credible platform for local contractors to continue to trade in foreign markets. Essentially the ECIC, often referred to as ‘the insurer of last resort’, caters for the cover of medium- to long-term export transactions by underwriting bank loans for the financing of South African exports of capital goods and services.
Kutoane Kutoane, CEO of the ECIC, explains that while the past three years have facilitated a comfortable turnover for the state-owned but independent limited liability company, the future requires a more strategic focus in order not to affect the positive impacts the agency has had on socio-economic development throughout Africa.
These include its leadership role in narrowing the skills gaps, particularly in the mining, power, oil and gas, defence, aviation, transportation and other infrastructure sectors.
‘The ECIC has been a key player in driving and facilitating the availability and affordability of long-term finance that unlocks the development of Africa’s much-needed infrastructure shortfalls,’ he says.
‘By aiding in the removal of access barriers to new markets experienced by exporters, we motivate increases in industrial output, which in turn boosts local economies. But with the downgrade of South Africa’s sovereign credit rating and the volatility of the rand, among other challenges, we have had to become creative to ensure we continue to meet the challenges faced by our clients.’
One of the solutions was the establish-ment of a business development team that originates and identifies new markets in collaboration with the ECIC marketing department, expanding access to capital goods export markets. Working with in-house researchers, the team also exposes regional dynamics that help create trade and investment opportunities to enhance the ECIC’s additional co-operative agreements, which include Brazil, Russia, India and China, other export credit agencies (ECAs), the African Export-Import Bank (Afreximbank) and the Africa Trade Insurance Agency.
The latest venture by the ECIC is the acquisition of a shareholding in Afreximbank, the trade bank for Africa. ‘We view this as a very strategic deal because apart from increasing access to trade credit facilities for South African exporters, it also exposes them to an even bigger pool of opportunities and allows us to be major players in the facilitation of intra-Africa trade,’ says Kutoane.
It is in identifying how the ECIC can be of broader benefit despite the challenging times that makes the organisation the success it is. ‘Our value proposition is that we have a healthy risk appetite for high-risk jurisdictions related to long-term exposure,’ he says. ‘Our comparative advantage over other export credit agencies is that the ECIC is not a member of the Organisation for Economic Co-operation and Development [OECD], meaning that we have flexibility on tenors, repayment profiles and other terms.
‘We can, therefore, move quickly and respond to the needs of our exporters that require new products, like the performance bond insurance cover, which covers credit lines in new markets.’
Another new offering from the ECIC is the addition of insurance cover for non-South African-registered banks and financial institutions, as well as foreign-registered or domiciled companies, ‘on condition that they are willing to support South African exports or can meet the ECIC’s minimum South African content requirement of 50% of the supported loan value’, says Kutoane.
It is in having the support of government that allows ECIC clients to weather catastrophes. Kutoane elaborates: ‘When large or many risks [occur] simultaneously, the government of South Africa must intervene to pay the claims made to the ECIC. Such co-operation ensures that domestic firms remain competitive despite issues like the sovereign rating downgrade, which impacts on decreasing the asset quality of our insurance products. This is why government interventions, inclusive of financial incentives, must continue to address macro-economic imbalances.’
Most, if not all, economies in Africa are affected by the macro-conditions outside of the continent, and that is why the contribution by ECAs to GDP is valuable. Kutoane says that in the ECIC’s case, it has provided ZAR6.35 billion to the country’s GDP from the projects it supports, ‘with the economic benefits impacting on host countries, where economic growth may on average be generated on an annual basis for a very long period during the operational phase’.
In the meantime, and in trying to stay abreast of currency depreciations, crude oil and petroleum price increases, rising logistics costs and so on, the ECIC encourages exporters and contractors to make use of domestic hedging instruments, but to ‘bear in mind that the ECIC also provides foreign-exchange risk cover that will protect them against exchange rate volatility’.
