Ahead together

Finnvera’s new Receivables Purchase Guarantee speeds up the financing of small export transactionsHalf of Finnish SMEs engaged in exports believe that the value of their exports will rise this year. Equally many companies will also increase their investments in internationalisation. These are some of the findings of the SME Barometer Survey that was conducted this spring. The survey encompassed about 4,800 companies, of which 1,100 operate on the international market. However, export companies still face challenges in arranging financing for small export transactions and protecting themselves against export risks. In order to speed up financing, Finnvera has introduced a new Receivables Purchase Guarantee to complement the Bill of Exchange Guarantee and the Export Receivables Loan, which were launched a year ago.The Receivables Purchase Guarantee is typically applicable to continuous exports with a short payment period, when the export products are, for example, consumer goods, raw materials, services or semi-finished products. Finnvera bears the risks associated with financing and the bank is protected from the eventuality that the buyer fails to pay the invoice on the due date. The guarantee is granted directly to the bank that purchases receivables from its own client, i.e. the exporter, in connection with foreign trade.- The instruments used for financing small export transactions should be as simple and easy to use as possible for both the exporter and the bank. We continuously strive to develop our products so that banks would find it easy, with the help of our guarantees, to offer financing for even small export deals. For products aimed at contracts of under two million euros, Finnvera bears more of the risk itself and, by relaxing the terms, strives to speed up financing and promote the business opportunities of Finnish export companies irrespective of their size, says Minna Lindqvist, Development Manager at Finnvera.New products reduce the exporter’s and bank’s riskBoth the Receivables Purchase Guarantee and the Bill of Exchange Guarantee enable the exporter to grant payment time to the buyer while receiving the money for the transaction on cash terms. Both guarantees protect the bank against credit risks associated primarily with the buyer and the buyer’s country. A Bill of Exchange Guarantee can be granted for a payment period of up to five years and it is well suited, for instance, to an individual capital goods transaction, such as exports of machinery or equipment, whereas the Receivables Purchase Guarantee is suited to short payment periods. The products complement each other. For instance, Finnvera does not grant Bill of Exchange Guarantees for exports to Russia, but a Receivables Purchase Guarantee may be granted for this purpose.The Bill of Exchange Guarantee was launched a year ago, and its use is gradually increasing. Applicants for the guarantee include large, small and midcap companies that have exported primarily to European and South American markets. Calculated on the basis of the applications, the average contract value has been EUR 1.3 million. So far the smallest contract guaranteed by a Bill of Exchange Guarantee has been valued at EUR 200,000.  Only one in three export companies protect themselves against risksThe new products also provide exporters with additional means of protecting themselves against risks associated with export trade. According to the SME Barometer, Finnish SMEs export goods and services abroad at a high risk. As many as two thirds of export companies trust their customers’ ability and willingness to pay so much that they do not protect their sales receivables.This is the case even if a single credit loss may at its worst endanger the future of the entire company, especially if the company is just starting exports. Protection against export risks is also important now when exports are gaining momentum and the economy is at a very promising stage.- The more important and more tailored the transaction is for the company, the more crucial it is to protect receivables. We encourage export companies to contact us at an early stage of business negotiations if something about the export transaction puzzles them. We are glad to advise about selecting an applicable financing solution. Our goal is to help Finnish companies of all sizes to win contracts and protect themselves from risks associated with exports, says Lindqvist.Inquiries:Minna Lindqvist, Development Manager, Finnvera, +358 50 5267 639, firstname.lastname@finnvera.fiThe SME BarometerThe Federation of Finnish Enterprises, Finnvera and the Ministry of Economic Affairs and Employment jointly conduct an SME Barometer Survey twice a year. The barometer for spring 2017 is based on responses given by about 4,800 SMEs throughout Finland. Nearly 1,100 of the respondents are active on international markets.Read also:More about the Bill of Exchange Guarantee More about the Export Receivables Loan

Russians now believe in cautious economic growth, says Team Leader Anu-Leena Koskelainen.Finnish companies’ increasing interest in Russian markets is reflected as more frequent inquiries at Finnvera’s Representative Office in St. Petersburg. The Russian economy has had a slight upturn. Despite challenges, this is opening opportunities for Finnish companies. Finnvera estimates that demand for financing for Russian trade will pick up this year.The following tip sounds like a cliché but is absolutely true: A company aiming at Russian markets must do its homework well.- In Russia, one cannot think that a good product sells itself. Relations and the trading partner’s trust are important, says Team Leader Anu-Leena Koskelainen of Finnvera.Koskelainen was appointed to lead the management of country and environmental risks in the Large Corporates Unit of Finnvera in April 2017. Before that she had worked as an economic and financial adviser at the Embassy of Finland in Moscow, where she had an excellent view of the development of the Russian economy for three and a half years. She was already familiar with Russia and its neighbouring areas from her previous career at Nordea Bank and its predecessors, and she also knew Finnvera through corporate finance.Compared to the situation in 2014–15, the economic outlook in Russia has improved. The sanctions imposed by the West and Russia’s own counter-sanctions have undoubtedly had an effect, but maybe not as great as had been predicted, Anu-Leena Koskelainen says.- When the economy shrinks, it must also grow at some point.  Private consumption, previously the engine of economic growth, is showing a slight upswing after a steep decline.  Russia’s foreign trade is increasing after having decreased for two or three years. A turn in sentiments took place in early 2017, and Russians now believe in cautious economic growth.Investments need machines and equipment exported by FinlandFinnish companies also have a more positive view of Russia than before. Although Russia has turned to a more protectionist direction and has an import substitution policy that favours domestic production, opportunities may open for Finnish export companies. For instance, the sanctions imposed by the EU on trade with Russia are still in force, but trade is possible when the sanctions are taken into account.- The development of Russia’s own production calls for investments, and these require technology from abroad. There is then a need for machinery and equipment, the greatest of Finland’s exports, Koskelainen says.Russia is a very noteworthy trading partner despite the fact that exporters must know the local conditions and authorities, get used to the bureaucracy and ponder their attitude to corruption.- Russia encourages foreign companies to shift their production to Russia. Export trade, in turn, is easier without having to become established. However, there are challenges: finding partners; trust; and how to secure receivables from the goods sold.- Among established partners, trade is generally conducted against an invoice. Finnish exporters can insure their receivables from a foreign buyer by means of Finnvera’s export receivables guarantee which is well suited to the short-term exports of raw materials and consumables. At the moment Finnvera is covering credit risks connected to over 100 Russian buyers. When there’s a crisis in Russia, advance payments are common. Then the buyer must trust the seller. A letter of credit is often used to secure receivables, but in Russia it is also a financial instrument.No change in economic policy is foreseen for the next few yearsRussia’s economy is troubled by structural problems, such as the state’s strong role, a low productivity of work and demographic challenges. However, major changes in economic policy are hardly likely before the presidential election in March 2018. In recent years, funds collected from oil revenues have been used to cover the budget deficit.- The budget deficit is one of the biggest problems in the economy. In an economy dominated by the state, this affects the allocation of resources.  Now that the economic outlook is better, it is not absolutely necessary to carry out extensive reforms.From the Finnish perspective, Russia is near and geographically huge, when compared against many other export markets. Even though there are problems, Russia has improved its ranking in the Doing Business comparison conducted by the World Bank on business regulations.--“Inquiries keep coming about how Russia is doing”After a break of a few years, Finnish companies are again interested in trading with Russia.- Many clients inquire generally about the market and how Russia is doing. This is a positive feature. It’s also positive that more Russian tourists are again coming to Finland this year, giving a boost to Finnish business on this side of the border. The purchasing power of the rouble against the euro has improved, which makes Finland a more attractive destination for Russian tourists, says Timo Pietiläinen, Head of Finnvera’s Representative Office in St. Petersburg, who has been managing Finnish companies’ relations in the St. Petersburg area for about ten years. During this time, he has been stationed in St. Petersburg for a total of seven years. - I act as Finnvera’s eyes and ears in St. Petersburg, he says, characterising his role.Finnvera’s financing for exports to Russia kept rising in 2014–15, when Finnvera’s exposure in Russia increased 1.5-fold. Since then, the exposure has diminished slightly because Russians are paying back their loans.Tools for networking and efficient expert servicesAccording to Pietiläinen, the Finnish SMEs that invest in Russia at present are primarily those that already know Russian markets as exporters or that are already established in Russia. A production line in Russia helps a company now that Russia is restricting imports from outside its customs territory.Even now, many Finnish companies engaged in the building product industry, wood processing industry and the service sector are operating in Russia.In Russia, Finnvera works in cooperation with Team Finland actors. They help companies to network and create contacts, and guide companies for instance in the use of local expert services.  After the initial phase, companies themselves manage most of their contacts with the authorities and other Russian cooperation bodies.In Northwest Russia, Finns have a good reputation as reliable trading partners. Most Finnish companies active in Russia operate in the St. Petersburg area. Knowledge of Finland is not as solid in Moscow or further away. The Astana Expo 2017, being held in Kazakhstan from June to September, will offer Finland the opportunity to raise its profile also outside Russia.Read also:Country classification and mapCredit risks in export trade

Finnish companies’ business deals with Brazil are traditionally very large. SMEs also have good export prospects.The tunes of the samba, Brazil’s national dance, are gradually turning from a minor key to a major key. The economy of the country with the world’s fifth largest population and area has emerged from the worst recession of its history. In 2015, the economy shrank by nearly four per cent, and last year was not much better.- Brazil has traditionally been a strong exporter of raw materials, but both the recession sparked by the global downturn and the political crisis have shaken the business environment in recent years. Modest growth is finally expected for this year, and more growth is predicted for next year, says Mika Relander, Senior Adviser responsible for Latin America at Finnvera.What’s more, statistics support Relander’s view. Brazil’s gross domestic product turned positive early this year. According to Relander, protectionism and bureaucracy still hold sway and issues related to corruption are in the public eye, but attitudes to free trade are gradually becoming more favourable. At the same time, the United States is going in a different direction.- Brazil has a huge internal market, and domestic demand has traditionally been the engine for economic growth. Demand has suffered slightly as unemployment has risen, but there has been a turn for the better even in that respect.Brazil has long been Finland’s most important trading partner in South America. Individual contracts are very large in monetary terms. Finnish exports to Brazil have mainly been machines and equipment for heavy industry, various chemicals and fertilisers. The country also offers enormous opportunities for the exports of SMEs.Relander points out that, with regard to Finnvera’s export credit guarantee exposure, Brazil is still among the three countries with the highest political risks.- Demand for guarantees is continuous and fairly extensive, even though it has been quieter than before in the pulp and telecommunications sectors. Investments in Brazil’s infrastructure are expected to pick up in the coming years. This will create opportunities for Finnish exporters, says Relander.Growth keeps Valmet in BrazilThe developing economy attracted Valmet to Brazil over 50 years ago.Valmet’s current focus in Brazil is on pulp production technologies and the associated automation and service solutions. During the past five years, Valmet has delivered two large pulp mills to Brazil. The value of the deliveries has been hundreds of millions of euros. In addition, Valmet has established service business in the region. At present, the company has about 500 employees in Brazil, divided among five locations. Bertel Karlstedt, President of Pulp and Energy at Valmet, says that Brazil’s economy and political system are much less stable than those in Europe.- The instability naturally has an impact on us and our customers. Brazil has had periods of strong growth, for instance from 2002 to 2011. On the other hand, the country has also gone through periods of recession, like those of the past couple of years. The business environment is still attractive to us, as we operate on global markets and seek growth in developing regions.Karlstedt says that much of the pulp produced by their customers is exported.- Our customers’ investments and profitability of business are largely dependent on global markets. The pulp mills built in Brazil during a period of over ten years have been among the world’s largest.According to Karlstedt, Brazil’s annual inflation has recently been around six per cent. However, in 2015 inflation exceeded ten per cent.- High inflation affects both wages and various supply contracts.Brazil has not been the easiest possible operating environment for Valmet. Competition among pulp technology suppliers is very stiff.- Valmet is one of the leading players in Brazil, but new competitors are also entering the market. We have developed both our own local production and production with a partner network. We must act in this way so that we can ensure competitiveness and, on the other hand, can pay import duties and taxes.Karlstedt remarks that the Brazilian administration has striven to steer production into the country by means of import duties and taxes.- There is pressure to dismantle duties. The internal situation in the country may also drive things to another direction.In Karlstedt’s opinion, a company planning to locate in Brazil should also be prepared for the fact that companies in Brazil bear social responsibility by investing in charity, especially in the company’s own operating area.- Valmet gives significant support to local charity organisations, such as Instituto Ayrton Senna and Instituto Ecofuturo. The goal of the programmes supported is to promote basic education and environmental protection. In addition, we have donated old computers to a school and collected funds for a daycare centre.FACT: Brazil The country category determined by Finnvera for Brazil’s credit quality is 5/7 (questionable credit quality). Gross domestic product: About EUR 1,603 billion (2015). Finland’s gross domestic product is EUR 207 billion (2015). Gross domestic product per capita: EUR 7,838 (2015). Finland’s gross domestic product per capita is EUR 37,827 (2015). Economic growth: -3.6% (2016). The growth expected for this year is 0.6 per cent. Inflation: 10.7% (2015). Exports: EUR 170 billion (2015). Imports: EUR 152 billion (2015). The total value of Finnish exports to Brazil in 2016 was about EUR 381 million. Principal sectors: agriculture, mining industry and pulp industry. Currency: Brazilian Real: The exchange rate is EUR 1 to BRL 3.3. Links:Country classification and mapExport Credit GuaranteesSources: Ministry for Foreign Affairs, Focus Economics, Finnish CustomsMain photo: Mika Relander, Finnvera