In Germany today, one in four jobs depends on German products and services becoming established on world markets. In an interview, Nadja Marschhausen explains how KfW IPEX-Bank uses export credit insurance to ensure that Germany will continue to be a leading export nation in the future.
Doing export business with risky countries can jeopardise a company's existence. Dr Marschhausen explains how export credit insurance can provide more security (KfW Group/Kazawa).
With goods and services valued at 1.3 trillion euros, Germany exported more in 2018 than ever before in its history. Is Germany's title as “export world champion” still a foregone conclusion and is it more likely to endure than the title of football world champion?
The Chinese already took over our position as the world's leading exporter in 2008. But we are still playing in the Champions League; we are an important export nation, and exports are still the engine driving our economy and jobs in Germany. This is why all the efforts to promote exports through policy are extremely important. Every fourth job is dependent on exports. It is not something that can be taken for granted and requires a lot of hard work: German companies must produce goods that the global market considers attractive both as products and in terms of price. The government can then support them in their endeavours to venture abroad with suitable instruments, such as export credit insurance. This export credit insurance is handled by Euler Hermes Aktiengesellschaft on behalf of the Federal Republic of Germany as mandatary of the Federal Government.
What are the current political crises affecting exports?
There is a growing list of war hotspots and crises in the world: many emerging and developing countries are politically unstable; trade conflicts are casting doubt on the mutual trust that is so important for foreign trade.
And what are the specific consequences?
Exporters have to ask themselves whether the project can still be carried out on the ground at all. Does the cross-border movement of goods work? If it is still possible to enter the country, can a company's goods be transported from the port to the project site? Is the buyer still able to pay back the export credit loan tomorrow and in the future financially speaking? When we talk about exports here at KfW IPEX-Bank, we are referring to long-term projects, on average lasting 12 to 15 years.
Starting at what minimum amount should companies insure their exports?
I recommend insurance regardless of the amount. If a large company loses a project worth billions of euros, it faces the same existential difficulties as a small or medium-sized enterprise (SME) with a contract value of half a million euros. It is important to keep in mind the time frame typically necessary in the run-up to export financing: before the loan agreement is signed, we expect 12 to 18 months of processing time; not because we are slow, but because we structure the financing package very individually and tailor it to the needs of the customer.
About Mrs Marschhausen
Nadja Marschhausen (47) is Head of Structuring Advisory at KfW IPEX-Bank, a wholly-owned subsidiary of KfW. She holds a doctorate in law and has worked for 19 years in various areas for the financier specialising in project and export finance. She rides a racing bike to work, and enlarged photos of her travels hang around her office. Visitors gaze at photos showing the fragile beauty of coral in the Great Barrier Reef (Australia) and the majestic formations of Antelope Canyon in Arizona. The lush green of Frankfurt's Palmengarten can be seen outside the window.Read more
Let's imagine that I own a company and want to export my special machines for an industrial plant in China; how does it work?
The Chinese buyer will usually ask you to enclose a financing offer from a bank with your quote so he can assess the total costs of the export transaction. You then contact KfW IPEX-Bank – we review whether financing is generally feasible. It would have to involve German or European deliveries, services or goods, for example. In a second step, we assess the financial situation of your customer in China to determine whether he can repay the loan without any problems. It is also important that any necessary environmental and social impact assessments are initiated at an early stage. If you ultimately reach an agreement with the Chinese buyer, our experts will handle your application for export credit insurance with Euler Hermes. After the loan agreement between KfW IPEX-Bank and your Chinese buyer has been negotiated and signed, the export loan is ready for disbursement for your order to China. You then receive the money from us to deliver your machine.
What happens if the loan collapses?
As a company, you are not directly affected initially. As the exporter, you usually receive all other payments directly from the export loan after the typical advance payment depending on the progress of delivery. If there are problems with the subsequent repayment of the loan by the buyer, we as the bank handle everything. We notify the Federal Government of these payment problems and settle the claims under the export credit insurance.
How often do these kinds of defaults occur?
Fortunately, they are the exception. When a government is involved in an export transaction through export credit insurance, we see better payment practices and discipline. Last year, the Federal Government paid compensation for claims amounting to less than 0.5 percent of the total volume. Thanks to in-depth preliminary checks, claims are very rare.
Who pays the costs?
An insurance premium is charged for export credit insurance. These are costs that arise in connection with financing and which, in your example, are paid by the buyer in China. Without insurance, I could only offer you a loan term of five years, for example; with export credit insurance, a longer term of, say, 10 years is possible. This is a huge advantage for the Chinese buyer, who can pay off the loan over a longer term. But don't confuse export credit insurance with an all-inclusive worry-free package: only projects with justifiable risks are granted an insurance commitment. Furthermore, the Federal Government does not completely exempt you from risks just because you have insurance, as a rule only 95 per cent of risks are covered. You and your Chinese customer are therefore in the same boat as risk partners.
Are there countries where investment is particularly difficult?
Emerging and developing countries in particular tend to be affected by crisis hotspots, instability and greater risks for the handling of foreign trade. Yet at the same time, there are new business opportunities and potential for growth compared to established markets. Africa and especially the G20 Compact with Africa initiative is a classic example: the African continent is traditionally more of a sales market and supplier of raw materials. What is needed for the future, however, is a long-term partnership on equal terms and with the same benefits for all parties. This includes improving the conditions for trade and private investment while simultaneously paving the way for jobs and prosperity for the population.
Are export loans also a form of development aid, because otherwise no one would invest in these countries?
They help to ensure that domestic industry develops there, which contributes to local prosperity. For example, the expansion of Ethiopia's rail infrastructure or the construction of Ethiopian Airlines' new state-of-the-art cargo terminal in Addis Ababa are long-term investments we financed that help the country.
Do political crises pose a greater business risk for you today than insolvent business partners in the German economy?
This is increasingly the case. For many decades economic risks were the focus of claims. The number of cases involving political risks is now on the rise again. These cycles have also been observed in the past.
What do you enjoy about your job, in particular?
It is no longer easy to be a banker nowadays. What I like about this bank, however, is its link to the real economy. We support real projects, we watch them grow, they are tangible. I find their diversity fascinating, ranging in volume from cruise ships of the German Meyer shipyard to retrofitting ambulances and emergency vehicles for Ghana. We provide financing in all directions, whether they are the world's largest combined cycle power plants from Siemens in Egypt or wind farms in Argentina with wind turbines from the Danish manufacturer Vestas. It makes me proud when I go on a trip and am able to point to something and say: We helped to finance that! And I am sure this feeling will continue because we at KfW IPEX-Bank support the real economic development of our future with our loans.
This is how export credit insurance (’Hermes cover’) works in Germany:
Published on KfW Stories: Tuesday, 17 September 2019