Business divisions cloud export credit proposal

By DANIEL RIORDAN

One policy that did not make today's Budget is a Government-financed export credit and guarantee scheme.

Cabinet is expected to consider the proposal soon, but business itself is divided on whether such a scheme makes sense.

Exporters want it, but insurers already providing such assistance say its introduction would only expose taxpayers to high financial risks the private sector is not prepared to take.

Governments in every other developed country - bar Luxembourg - fund such schemes, as the Labour Party was keen to point out while in Opposition.

Helen Clark told business on the election trail last November that she wanted quasi-Government agency Trade NZ to develop the scheme to help small and medium-sized exporters, filling the gaps in private sector coverage and working with insurance and banking industries.

In what cynics saw as a response to criticism of Government inability to deliver on other pre-election pledges to business, Treasurer Michael Cullen told the House on Tuesday that a paper on the export scheme would be going to cabinet "within the very near future."

Private sector insurers are sceptical how much detail that paper will contain as Trade NZ is understood to be some months away from finalising its views on the proposal.

Export credit insurance allows firms to cover the risk of sending their products offshore.

Policies cover a percentage of the losses resulting from the buyer overseas going broke, failing to pay or refusing to accept goods.

The cost of the insurance is typically 50c for every $100 of the landed value of the exported goods. However, small firms - the likely target of Government assistance - pay more.

The insurance also allows firms to "discount" - take a bank loan against the value of an export consignment while it is in transit. That allows small firms with one large export order to pay salaries and keep afloat until the bill is paid.

No one disputes the importance of exporters having access to such coverage. But is there a gap in private sector coverage the Government can effectively fill?

Yes, says Export Institute president Graham Boult, who reckons NZ exporters are missing out on hundreds of millions of dollars to competitors from countries with Government-funded insurance.

No, says the biggest provider of export insurance, Exgo, started by the Government in 1965 and now owned by Norwich Union. If the private sector believes the export deal is too risky - maybe because of the customer's financial record or political instability in the destination country - the taxpayer should not have to step into the gap, says Exgo spokesman Andrew Weir.

Exgo has no monopoly on providing such cover, which Mr Weir says is competitively priced. Recently, the Hongkong and Shanghai Bank and HIH Casualty and General Insurance set up a private scheme called TradeSure, aimed at medium to large exporters.

However, aluminium exporter and business advocate Gilbert Ullrich discounts the risk of taxpayers being left with bad debts from risky export deals.

He says the Australian and Canadian Governments make money from their schemes because claims are lower than premiums.

Insurers say they are in the dark on what the Government has in mind. Even the scheme's supporters know little.

Mr Boult said: "I still think Government is genuine in its efforts to investigate this but I'm at a loss to understand how it's bogged down with so many models out there to duplicate."

Part of the problem with the slow progress may be what he calls the "uncertain status" of Trade NZ. "They're not certain of their role or whether they've got the power to provide the financial backing."

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