Global credit crisis creates opportunities

AUSTRALIA'S Export Credit Agency, EFIC, increased the support it provided to Australian companies exporting and investing overseas by 62% in the last financial year.

AUSTRALIA’S Export Credit Agency, EFIC, increased the support it provided to Australian companies exporting and investing overseas by 62% in the last financial year. In 2007-08 EFIC supported $2.2bn of exports and overseas investments through new facilities totalling $365m.

EFIC’s Annual Report tabled in Parliament recently provides details of the transactions it signed.

Managing director, Angus Armour said EFIC had largely avoided the problems many financial institutions had faced in the last 12 months.

“EFIC has a strong Risk Management Framework. The assessment and underwriting of risk is central to EFIC’s financial management as is maintaining appropriate capital and reserves to support the level of risk that it accepts.”

As a result, EFIC reported a Capital Adequacy Ratio of 21.7%.

Armour predicts that the state of global credit markets will mean EFIC and its services become more important to Australian companies looking to finance international growth.

“Turbulence in world financial markets continues to influence EFIC’s operating environment,” said Armour. “The tightening credit conditions and a lower risk tolerance in global financial markets create opportunities for EFIC to collaborate with banks and insurers to meet the needs of profitable Australian companies exporting and investing overseas.”

In 2007-08 EFIC also signed 31 Headway facilities to provide guarantees for small to medium Australian businesses that created $100m in exports for the sector.

Engineering services and construction were the main sectors supported by EFIC in terms of value equating to 71% of transactions; manufacturing and construction were the sectors most prevalent in number representing 73% of all signings.

EFIC Global Readiness Index

According to EFIC, Australian businesses seeking to grow overseas need a comprehensive understanding of the strategic drivers, decision-making processes, risks and barriers they could encounter when expanding their global operations.

To fill this need the agency has launched its first-ever Global Readiness index (GRi), the first in an annual series of reports examining the opportunities and challenges on the path to participating in global supply chains. Almost 500 globally active Australian companies participated in the Global Readiness index survey.

“There’s good news,” said Armour, “…offshore investments by Australian companies are now almost equal to foreign businesses’ investments in Australia – a gap that is closing rapidly.”

But with some three quarters of survey respondents using retained earnings to finance their export business and offshore growth, and over half stating that access to additional funding would enable them to grow faster in current markets, there remains great opportunity for the Australian business community to make further and faster strides on the globalisation journey.

Inadequate knowledge of overseas markets and lack of finance are the two biggest obstacles Australian companies face when seeking to expand overseas, according to the GRi.

The number one driver for offshore expansion is to ‘increase revenues/ expand market share’. Equal second was ‘take control of the supply chain’ and ‘decrease costs’. These results strongly suggest that Australian businesses primarily regard offshore expansion as a strategic path to market and revenue growth rather than a defensive ploy to protect what they already have.

When it comes to barriers to international expansion, GRi survey respondents said that ‘lack of local business and market knowledge’ and ‘finance’ were their biggest concerns – 31% the first, 29% the second. The importance of finance as a barrier was even more apparent among respondents currently planning their first steps offshore with fully 43% nominating finance as the major barrier to their plans.

Over half (56%) of respondents said that with better access to finance they would expand further and faster.

To access the full EFIC Global Readiness index report, visit: www.efic.gov.au/gri/report.