Export drive into top gear

By VERNON SMALL deputy political editor

The Government will offer selected firms up to $350 million in insurance cover under a credit guarantee scheme to be launched next year aimed at boosting exports.

Details of who will run the scheme, due to start on March 31, are yet to be finalised with a range of options from a standalone department to a private provider.

Associate Minister of Foreign Affairs and Trade Pete Hodgson said the scheme was expected to support export sales of at least $100 million a year spread over four or five medium to long-term projects averaging about $15 million each.

It would underwrite 60 per cent of the risk of any one deal, leaving exporters to find 40 per cent of the cover in the private sector or accept the risk themselves.

The Government would accept a maximum contingent liability of $350 million from the scheme.

Trade New Zealand would run a parallel campaign to tell exporters about existing facilities.

The aim was to extend, not replace, existing commercial insurance and credit guarantee providers. There are about 12 private players in the sector, including trading and merchant banks, insurers and niche operators.

The scheme would see the Government offering underwriting services - insurance rather than cash or grants - to cover exporters against non-payment by an overseas buyer or its bank.

The Government would underwrite the risk for those who need finance between shipping an order (or providing a service) and being paid, so the exporter could obtain credit from other sources if necessary.

Mr Hodgson said long-term projects, which were normally construction, engineering or consultancy contracts, would be targeted.

For example, if a firm had tendered to build a meat plant overseas but would not be paid for several years, the scheme may be able to help.

The Government would set aside $35 million from the scheme for short-term cover to support existing trade to countries that suffer sudden economic problems, such as those hard hit by the Asian crisis in 1998.

Short-term cover, for exporting to high-risk markets, would be available to firms with a capitalisation less than $200 million. Applicants would have to be New Zealand-based with the potential to generate new added-value exports.

Mr Hodgson said the scheme would appeal to small and medium-sized firms trying to expand, not to large corporates such as the Dairy Board.

Many applications would be turned down on the basis of overseas experience, and there would be some countries where the Government would not accept the risk.

"I don't think anyone wanting to build a meat plant in Iraq need apply," he said.

A national interest test will be considered when judging who would get cover, he said.

Premiums would be set at an appropriate level to allow the scheme to cover its costs.

WTO rules ensured schemes were self-funding, otherwise they were open to challenge as a subsidy.