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Australia's Export Credit Arrangements

Inquiry report

This inquiry report was released on 26 June 2012.

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  • Key points
  • Contents
  • The ExportFinance and Insurance Corporation (EFIC) has been established to facilitate andencourage Australian export trade through the provision of financial services.EFIC is expected to conduct its origination business (loans, guarantees,insurance) on a commercial basis. EFIC also manages the national interestaccount.
  • Virtually all ofAustralia’s exports, by volume and value, take place without EFIC’s assistance.EFIC’s support goes to relatively few firms and often on a repeat basis. Byvalue most of the support is targeted to large corporate clients. These clientsaccount for more than three quarters of the value of EFIC’s signings in 2010–11.
  • Over the pastfive years, EFIC has earned most of its income through the investment ofsurplus funds and its capital and reserves, not the provision of financialservices. EFIC’s commercial account operations have yielded a low rate ofreturn, with some facilities subsidised by taxpayers.
  • EFIC’scommercial account objective should be to efficiently address the limitednumber of market failures that impede otherwise commercially viable exporttransactions.
  • While few, ifany, markets conform to the competitive ideal, there is no convincing evidenceof systemic failures that impede access to finance for large firms or forresource-related projects in Australia.
    • EFIC should not continue to provide facilities tolarge corporate clients or for resource related projects in Australia,including suppliers to those projects, on the commercial account.
  • Financialmarkets may be affected by information-related failures. These are likely to belimited to small and medium-sized enterprises (SMEs) with limited exportexperience or attempting to access emerging export markets.
  • Accordingly,EFIC’s role should be to demonstrate to the private sector that providingexport finance to such newly exporting SMEs can be commercially viable.
  • To fulfil thisdemonstration role, EFIC should provide export finance services on the samebasis as the private sector. This means:
    • setting prices to cover the expected full economiccosts of provision; and
    • being subject to competitive neutralityarrangements, including earning an appropriate return on equity, setting pricescommensurate with risk, and paying a tax equivalent charge and a debtneutrality fee.
  • EFIC’scommercial account product range should normally be limited to guarantees,including the provision of bonds on behalf of the exporter.
    • When directed by the Minister, the product rangemay extend to reinsurance for a limited period, to cover sovereign and countryrisk insurance provided to newly exporting SMEs by the private sector, whenfinancial markets in the buyer’s country are temporarily disrupted.
  • Measures should beintroduced to enhance the transparency of EFIC’s activities to the Minister,the Australian Government and the public.

Background information

Anna Heaney (Assistant Commissioner) 03 9653 2153

  • Preliminaries
    • Cover, Copyright, Letter, Terms of reference, Contents and Abbreviations
  • Overview - including key points
  • Findings and recommendations
  • Chapter 1 Introduction
    • 1.1 Background to this inquiry
    • 1.2 What has the Commission been asked to do?
    • 1.3 Conduct of the inquiry
  • Chapter 2 Export Finance and Insurance Corporation
    • 2.1 The role of international trade in the economy
    • 2.2 Export Finance and Insurance Corporation
  • Chapter 3 Private sector provision of export finance and insurance
    • 3.1 The role of finance and insurance in trade
    • 3.2 Finance and insurance markets
    • 3.3 Comparison of products offered by EFIC and private providers
    • 3.4 Difference in coverage between EFIC and the private sector
    • 3.5 Alternatives to using export finance and insurance products
    • 3.6 In sum
  • Chapter 4 Analytical framework
    • 4.1 What are the policy design questions?
    • 4.2 Rationale for intervention
    • 4.3 Achieving cost-effectiveness
    • 4.4 Distributional effects
  • Chapter 5 Economics of export finance and insurance
    • 5.1 National interest rationales
    • 5.2 Broader rationales suggested for export support
    • 5.3 Specific problems in export finance and insurance markets
  • Chapter 6 Pricing of export credit
    • 6.1 What is a subsidy and how could it arise?
    • 6.2 How does EFIC price its products?
    • 6.3 Analysis of whether EFIC's products are priced efficiently
  • Chapter 7 Economic impacts of current arrangements
    • 7.1 The market gap
    • 7.2 EFIC's role in the allocation of resources in the economy
    • 7.3 EFIC and the incentives of others
    • 7.4 In sum
  • Chapter 8 Financial management and performance
    • 8.1 Risk management
    • 8.2 Dividends
    • 8.3 EFIC's treasury
    • 8.4 EFIC's financial performance
  • Chapter 9 Governance arrangements
    • 9.1 The importance of good governance
    • 9.2 EFIC's governance arrangements
    • 9.3 Are EFIC's external governance arrangements adequate?
    • 9.4 Are EFIC's internal governance arrangements adequate?
    • 9.5 The national interest account
    • 9.6 EFIC's environmental and social responsibilities
    • 9.7 Confidentiality and disclosure issues
    • 9.8 In sum
  • Chapter 10 A future role for EFIC: limited support for SMEs
    • 10.1 Changing EFIC's scope of operations
    • 10.2 Structural and operational reform of EFIC
    • 10.3 Next steps
  • Appendix A Conduct of the inquiry
  • Appendix B Estimating export credit subsidies
  • Appendix C Approaches of other ECAs: similarities and differences
  • Appendix D Other government bodies
  • Appendix E EFIC's environmental and social policy
  • References

Printed copies

Printed copies of the full report can be purchased from Canprint Communications.

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