Exporters Look to Govt for Export Credit Insurance


By Wezi Tjaronda WINDHOEK Namibian exporters and traders need access to credit insurance to cover risks associated with exports to enable them to expand their existing trade and to enter new markets without exposing themselves to undue risks, a consultant has said. The Bank of Namibia, in a feasibility and field study on the Viability of Export Credit Guarantee and Insurance Scheme in Namibia done in 2005, also recommended the establishment of an Export Credit Guarantee Insurance Scheme as one of the ways in which Namibia could increase its exports and promote economic growth. The consultant, Anthony Coles, contracted by both the bank and the Ministry of Trade and Industry, said the absence of adequate trade finance infrastructure is equivalent to a barrier to trade because limited access to financing, high costs and lack of insurance or guarantees are likely to hinder the trade and export potential of an economy, especially that of small and medium-sized companies. Credit insurance covers the provision of credit in a trade transaction, and credit insurers generally provide insurance of up to 80 percent of the value of an invoice, including the seller’s profit, with the seller or provider of services carrying the remaining 20 percent. The experience of other countries, including SACU, is that export credit agencies are indispensable tools in encouraging exports to countries that are considered too risky for open account trade. In sub-Saharan Africa, credit insurers exist in Botswana and Zimbabwe, with Swaziland providing a guarantee scheme, while insurance companies in Ghana, Kenya and Lesotho have entered into reinsurance or fronting arrangements with other credit insurers. Based on responses to a survey conducted by the Bank of Namibia, as reported in its study of November 2005, exporters are looking to government for the provision of an export credit insurance or guarantee scheme in order to increase their trade. “Their expectation is that this will enable them to obtain cheaper working capital finance and to take on new business in new markets,” said Coles, noting that the government wants to promote markets such as Angola, DRC, Zambia and Zimbabwe, which are all problematic markets for any exporter. Additionally, with African markets becoming future markets for Namibia, exporters cited in the study indicated the need for coverage of commercial and political risks. “Pilchards and horse mackerel are exported to the Africa markets, especially to the DRC, Mozambique, Ghana, Zimbabwe and Nigeria. The responses from the exporters reflect a need for an export credit guarantee scheme, especially for the intra-Africa trade and a few European countries,” the bank’s study indicated. Coles recommended that government pass legislation to create Export Credit Reinsurance to be funded from premiums received for the cover of political risks, which should also provide for commercial risks. He said government should enter into agreement with insurance companies in Namibia or abroad to provide such reinsurance for political and/or commercial risks, while also providing – through its embassies and high commissions – information to Namibian businessmen on the availability of credit insurance in Namibia. The bank’s study found that Namibia’s manufacturing sector – a critical sector for sustainable growth – has seen slow growth as it is driven by a narrow and undiversified export base due to what potential exporters say is the lack of trading finance facilities such as guarantees and insurance. It said some exporters, mainly of grapes, dates and ostrich production, indicate that these industries have the potential to become significant earners of export revenue and major contributors to the economy, but they cannot because of lack of export financing facilities. “In this respect, there is no doubt that trade financing problems in Namibia limit both the existing and upcoming exporting firms, which may suggest the need for a specially designed trade financing instrument to assist exporting companies beyond conventional commercial bank instruments and existing incentives,” BoN’s study noted. Although the country has preferential access to a number of markets within the region and internationally, data of some sectors such as the beef industry indicates that the exports do not maximize the opportunities. Challenges such as this, says the study, could find relief in the export credit guarantee insurance scheme as in some instances exporters lose money because their clients are located in countries where the delivery of exported goods is impeded or payment is prevented. Deputy Minister of Trade and Industry, Bernhard Esau, said Namibian exporters and traders need access to credit insurance, particularly insurance cover associated with exports, to be able to expand their existing trade and to enter new markers. He added that exporters were at a competitive price-disadvantage when they rely on advance payments and letters of credit, because their counterparts offer open terms backed by credit insurance which cover their risk of non-payment in the event of protracted defaults. Both the banks and Coles recommend that the existing Small Business Credit Guarantee Scheme, which is being upgraded to become a bank, offers the services. BoN also recommended that the government be the main funder of the scheme.