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Abu Dhabi, UAEWednesday 19 December 2018

Etihad Credit Insurance to support at least $40bn of exports

The federal agency was set up in February to protect exporters from commercial and political risks

“The birth of an export credit agency which is federal is a very important milestone for the sustainability of the economic development of the non-oil gross domestic product of the country," said Massimo Falcioni. Victor Besa / The National 
“The birth of an export credit agency which is federal is a very important milestone for the sustainability of the economic development of the non-oil gross domestic product of the country," said Massimo Falcioni. Victor Besa / The National 

Etihad Credit Insurance, the federal agency tasked with helping exporters by protecting them from commercial and political risks, expects to support at least $40 billion (Dh146.9bn) worth of exports and re-exports in the next three years, its chief executive said.

ECI, which was set up in February and started operations in October, expects to work with its first two customers, manufacturers in the food and petrochemical sectors, this month, Massimo Falcioni said.

“The mission of ECI is to support all exporters which are based in the UAE in order to mitigate against these two risks and also to ease their access to bank funding,” said Mr Falcioni.

“The birth of an export credit agency which is federal is a very important milestone for the sustainability of the economic development of the non-oil gross domestic product of the country.”

The ECI expects to protect at least 20 per cent of the $52bn of annual non-oil exports and 30 per cent of the $122bn of re-exports in the next three years as part of its mandate to help develop the non-oil GDP of the country, he added.

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The UAE is implementing a slew of reforms to help boost its non-oil GDP, which contributes to about 70 per cent of total output. It is waiving corporate fines, granting long-term visas and, in Abu Dhabi, implementing a three-year Dh50bn stimulus package to create jobs, attract foreign direct investments and propel growth.

The main beneficiaries from working with ECI will be small and medium-sized enterprises, which do not have as easy access to bank funding as large firms and do not necessarily know how to manage risk associated with trade. ECI works with companies to protect them from commercial and political risks, assess the credit worthiness of the buyers SMES deal wtih and provide guarantees to banks, which in turn can lend more to exporters and at a lower cost of funding. SMEs consequently benefit from access to low-cost funding.

“Any exporter which is selling on credit has receivables in the company. By protecting these receivables from the non-payment risk due to commercial and political risks they [companies] can access bank funding and inject liquidity in the company,” Mr Falcioni said. “So they don’t need to wait the maturity of the invoice because the bank can anticipate the amounts which are in the receivables.”

Exporters usually have to take provisions in their balance sheets. With credit insurance, they will no longer need to book large sums of provisions and they can avoid bad debts, giving them confidence to trade and export more, he added.

While SMEs could have high-quality goods and services, in terms of risk management, when it comes to working capital management and reducing the cost of funding and export financing, they are still not quite there yet.

The ECI creates a level playing field with importers into the UAE who can get support from export insurers in their countries.

So far, 26 manufacturers have shown interest in working with the ECI, which seeks to support any non-oil exporter.

Usually, ECI chooses companies that export 20 per cent of their annual turnover but it is open to working with non-exporters as well.

“Those who are at the moment mostly trading domestically and they want to exploit or leverage the geographical position of the UAE and the logistical infrastructure of the UAE which gives them easy access to Middle East, Asia and Africa markets, we will be supporting these companies to open new geographies and find new buyers in export countries,” said Mr Falcioni.

While re-exporters do not usually qualify for ECI support, some of them can benefit from the agency’s services, depending on their scope of work. If re-exporters add value from goods and services produced in the UAE, such as repacking or reassembling with an eye to exporting to Africa, Middle East and Asia, they would qualify for support. Examples include food processing, machinery and gold jewellery.