GROWING EMPHASIS on export-oriented industrial policies aimed at stimulating the private sector and diversifying local economies has turned attention towards the need for export credit and insurance agencies in the Middle East. Three new schemes have taken off recently - the Jeddah-based Islamic Development Bank's Islamic Corporation for Export Credit Insurance and Investment Guarantee, Egypt's Export Credit Agency and Iran's Export Promotion Bank (EPB). Both Saudi Arabia and the Gulf Cooperation Council (GCC) have also commissioned feasibility studies on a national and a regional export-import bank.
Turkey started the trend in the mid-1980s with the establishment of the Turkish Export Credit Bank (Teximbank) as part of the "export-or-die" economic recovery strategy launched by the then prime minister, Turgut Ozal. Teximbank has since become the most active export institution in the region.
The break-up of the Soviet Union and the emergence of the six Muslim Central Asian republics has given Teximbank a new area of focus. Suleiman Demirel, the present prime minister, has recently toured these countries extending generous offers of export credit and soft loans totalling $1.1bn, of which Teximbank will provide $500m in support for capital goods and contractors, loan guarantees and consumer goods exports.
The Manama-based Inter-Arab Investment Guarantee Corporation (IAIGC), founded in 1975, had high hopes of fulfilling an export credit function. But, as the Saudi finance minister, Mohammed Abal Khail concedes, IAIGC has major financial problems which are only now "being discussed with a view to solving them". Some of the larger commercial banks in the region do have their own export credit schemes, but these are limited mainly to trading companies which they control. In Egypt, the People's Assembly recently approved the establishment of the Egyptian Export Credit Agency (ECA), which is capitalised at E 100 [pounds] m ($17m) to help promote exports. ECA's first chairman, Hazem Beblawi, says export credit support would put Egyptian exporters on the "same footing" as their competitors.
The GCC move towards an export credit agency is attracting much interest. Through its Doha-based affiliate, the Gulf Organisation for Industrial Consulting (GOIC), the GCC last May commissioned India's Eximbank to carry out a feasibility study for a proposed regional export credit guarantee agency. David Rasquinha, deputy manager of the Indian Eximbank, which is now acting as a consultant to GOIC, comments that "when they target export markets to overcome protestionism, the Gulf states used tools such as export credits to penetrate new markets in the developing world or to introduce new products to existing members in the industralised countries. The focus is also to protect Gulf exporters from all sorts of export risks, especially to the developing states." The Indian Eximbank has acquired an international reputation for its export credit services since it was set up a decade ago, and a number of developing countries (including Turkey) consulted it prior to setting up their own institutions.
Saudi exporters also want the government to create an Eximbank which will provide export credits and guarantees to the private sector. Saudi businessmen are increasingly aware of growing competition and risk in a changing world market. In cooperation with the Council of Saudi Chambers of Commerce and Industry, the government has already conducted a feasibility study on forming an Eximbank. The Saudi private sector is expected to contribute a greater share during this decade to GDP and national income through increased export earnings.
Iran's newly-established EPB has much potential but is handicapped by lack of capitalisation. Nonetheless it is trying to compete (if only as an also-ran) with Teximbank in offering credits to the six Muslim Central Asian republics. EPB has just granted Turkmenistan a $50m line of credit in support of Iranian exports such as automobilies, medicines, food and machinery, and plans to extend similar export credits to other Central Asian republics.
An intriguing variation has been pioneered by the Malaysian central bank, Bank Negara. In cooperation with its counterparts in Iran, Bank Markazi, and in Algeria, Banque d'Algerie, it has set up a Payment Arrangements System which aims to stimulate trade by ensuring adequate export credit funds are made available. PAS has two models -- the "Iranian model" and the "Aladi model". Under the former, each central bank will guarantee its own importers. Thus, if Malaysian importers do not pay up, Bank Negara will pay the Indian exporter, and vice-versa.
"The basic objective," explains Bank Negara's governor, Tan Sri Jaffar Hussein, "is to create confidence among potential traders by converting the commercial risk into a sovereign risk. Payment of bills drawn under letters of credit is done through a number of designated banks in both countries. If such a bank opens a letter of credit and fails to make payments, the central bank in the exporter's country will make a claim on the counterparty's central bank."
The Iranian model has proved very cost-effective, "In the past, letters of credit issued by an Iranian bank for exports from here to Iran had to be reconfirmed in London, where some of the banks were charging 8% for the service," says Hussein. The cost of doing export-import trade has now decreased markedly.
Under the "Aladi model", Malaysia extends credits to Algeria over a four-month settlement period. Malaysian exporters to Algeria submit their invoices to Bank Negara, which pays them in ringgit through a designated local bank. Bank Negara Then debits Banque d'Algeria. When Algerian exporters sell to Malaysia, they submit invoices to the Banque d'Algeria, which will then debit the Bank Negara. On a net basis we have a $50m credit either way. At the end of the settlement period the accounts are reconciled in US dollars on a net basis. PAS will be expanded significantly over the next few years as Malaysian trade develops with more Middle East and Islamic countries.
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|Title Annotation:||Business and Finance; export credit agencies in the Middle East|
|Publication:||The Middle East|
|Date:||Jul 1, 1992|
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