Trading from afar

Opinion | 28 June 2017
Mountain_NZECO

Chris Chapman, head of the New Zealand Export Credit Office, talks to Binyamin Ali about how it has developed since it was established in 2002, and the markets exporters are looking to for growth

 

 

How have you been able to educate exporters and banks about what you can do to support them?

Well I'm the only one on my team who's not a banker, so I actually joined the export credit office with no banking, finance or insurance background. I've got a legal background and my legal training has really helped. When I arrived in 2006 (our office has only existed since 2002) we only had one product, and that was the export credit MLT (medium and long term export credit insurance). The fear at that time was that our banks and our companies still didn't really understand how it could be used.

So we had to educate the market around the opportunities of export credit agencies. It helped with me not knowing much either as it meant that I had to communicate in a language that I understood as a non-banker, which I think has helped with the way I've marketed. It made me comfortable to ask the silly questions rather than presuming I know more than I do. And then as we've grown we've recruited very well. We've got very experienced people with banking and finance backgrounds who are really creative. I just kept asking questions and throwing ideas around and getting my skilled staff to do the hard work!

How have the products the credit office provides evolved?

We're still a pure cover export credit agency, so we don't provide any direct financing. However, I look at our suite now and it's pretty comparable to those of other pure cover agencies. We provide counter bond guarantees for performance bonds, working capital loan guarantees to the banks to enable them to advance funds, we also provide short-term trade credit insurance where the private insurers are unwilling to. That came in during the global financial crisis and we have kept that, but really the space we play in now is very small. We'll have first-time exporters where they've got one buyer overseas - the private insurers refer them to us and then we help for two years as they grow their insurable turnover or get more buyers and then the private insurers pick them up. In the last year, we have introduced our range of products to the domestic exporter supply chain in New Zealand.

So when a New Zealand company that's an integral provider to an exporter needs either working capital support or trade credit insurance, we can do that. And we're just about to introduce political risk investment insurance as well, which we hope to introduce in the next quarter. We're not like a lot of the other European export credit agencies, where you've got a few very large industries that fit well with export credit, like large aircraft manufacturers, or wind turbine manufacturers. So we've had to introduce products that fit our smaller and more diverse export profile.

Are there any plans to expand your suite of services beyond cover, and is there any demand for that right now?

Political risk investment insurance and domestic supply chain - that arose from a review we did. So we're expecting to embed that and start getting some results with that before we go back and look at other options. I'm aware that a lot of other export credit agencies are providing direct financing, particularly for SMEs, so there may be a case for that in the future but the moment, that's not on our radar.

What are the limits on your capacity
to support an exporter?

In terms of New Zealand content, we used to have a minimum threshold of 30%, but we removed that. So with a credit amount or project amount of NZ$1m say, NZ$300,000 of that had to come from within New Zealand. We were finding that we've got some New Zealand companies now that do a lot of IT systems and maybe project management, but they source all the nuts and bolts from overseas, and sometimes they were struggling to meet the 30% content threshold. Now it's more generic, there has to be evidence of New Zealand benefit. Goods and services are either made here, designed here, or profits are repatriated, but we don't actually have a dollar figure and so it gives us the flexibility to support the companies that are mainly in IT and design.

But with a higher risk deal, we would expect it to be larger New Zealand content, but we don't have a minimum threshold. And then, in terms of the profile of companies, we don't have a minimum turnover company. Almost 40% of all the companies we've supported to date have a turnover of less than US$5m. In New Zealand, given that we have such a small domestic market, if any companies aspire to grow and sell overseas, then they normally have to start at maybe an earlier stage of their business cycle and maybe they would if they were in the US or even England. But, at the same time, 10% of our companies are supported on a turnover of over NZ$100 million, so we've now got quite a broad range of clients in New Zealand.

Agriculture is New Zealand's largest export sector. How much support does the agricultural sector receive from you?

During the global financial crisis, when we were offering direct trade credit insurance, the multinational insurers, the likes of Euler Hermes, Atradius and Coface had their capacities for limits reduced regardless of whether that might be by sector or country. During that period, our commodity exporters were probably our major customers. However, now, as I said earlier, we don't compete with the private insurers in that short-term space, so we aren't doing a lot because the private sector's filling that in. One exception is letters of credit. Like other export credit agencies, we have the ability to help a New Zealand bank confirm payment of a letter of credit issued by a bank overseas, and so we are seeing some New Zealand banks not having credit lines on some banks in emerging markets. And this is short-term and it is agricultural, but it is not limited to that sector.

Is there a sector of the export market you support more than others?

We're pretty broad. People often ask when I go overseas if it's all wool and cheese, and I say, 'Look, in part, but you'd be surprised by the
sort of niche companies that we do have here'.
We've got companies doing agri-tech or services
around our core agriculture sectors. We've got
companies around the wineries that help them
control temperature. In tourism, we're helping
a company that does rental cars in the US, so that
they're bridging off our experience of tourism
here. We've got two of the world's leading
baggage handling companies for airports and logistics companies. We have over the years helped them with contract bond guarantees.

We're not like Denmark for example, where 60% of their exposure is on the wind sector. We're not faced with those sector or industry concentrations. If we did, it would be just by matter of circumstances, like during the global financial crisis, where at that stage we would have had a lot to do with agriculture, but at the moment it's quite diverse.

What are the biggest obstacles facing exporters in New Zealand?

A challenge is distance to market. It's not like we can hop in a car and drive for an hour and we're at another border or another market. Australia is the largest market near us and that's a three and a half hour flight away. So that comes with challenges in terms of the cost of going to market, building the market, doing your due diligence, getting your goods and services there. However, on the flipside, we're near Asia and the Pacific region so we've got China in our backyard (relatively speaking) and India as well, plus the rest of Southeast Asia. So New Zealanders have been able to increasingly grow their business relationships in that region and work with them, particularly with China, which is now our largest export market after Australia, which wasn't the case 10 years ago.

Chris Chapman is head of the New Zealand Export Credit Office, part of the New Zealand Treasury's Financial Operations division

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