A financier’s forecast: Five countries to get special attention from companies
India’s telecommunications sector is experiencing aggressive competition.
Finnvera believes that export companies will set their sights this year on five countries, in particular.
Among the new, opening markets, the greatest demand will focus on Argentina and Iran. In addition, demand for Finnvera’s guarantees is predicted to increase in India and Mexico. The fifth country on the list is Russia.
In these countries, investments associated with the modernisation of infrastructure, in particular, will provide export opportunities for Finnish companies as well.
- In India, for instance, export credit guarantees at their best exceeded 600 million euros, but exports have been declining during the past three years, says Senior Adviser Outi Homanen of Finnvera, who specialises in Asia.
- However, it has been gratifying to note during the past six months that demand is picking up.
She points out that Iran is in a different position from the rest of the quintet. The country is still subject to broad sanctions that hinder exports and restrict the financing of exports. Sanctions against Russia are not as restricting in this regard.
Finnvera guarantees export credits granted to foreign companies so that Finnish enterprises can trade with them. One contract may involve hundreds of millions of euros. According to Homanen, Finnvera is needed especially when the repayment period of export credits is too long for the bank’s risk-taking.
- In other respects too, the importance of guarantee institutions has risen in the 2010s. Banks are still cautious after the last economic crisis, Homanen explains.
Demand for Finnvera’s export credit guarantees and special guarantees rose last year by 50 per cent, to almost EUR 15 billion. Demand for export credits, in turn, increased by as much as 74 per cent, to EUR 12.5 billion. In particular, the increased demand was driven by shipyards and the telecommunications and forest sectors.
Risk assessments also on site
With respect to export credit guarantees, Finnvera’s task is to understand what is happening on the market, while also assessing risks. Some risk assessments are conducted on site.
Last year, Finnvera’s representatives together with client enterprises in the telecommunications sector alone visited India, Russia, Nigeria, Dubai, Mexico, Argentina and Brazil.
In India, telecommunications operators have seen a fivefold increase in 3G and 4G customers within a few years. New competitors have emerged among the operators, such as the extremely aggressively campaigning Reliance Jio, which has operated in India for about a year.
Reliance Jio was one reason why Finnvera and Nokia set off on a joint trip to India last autumn.
- India has always been an extremely competed and price sensitive market. With many people, the volumes are large. Major investments for operators are now underway in India. For instance, the 3G network is being updated to a 4G network. Such situations often require discussions on financing, which Finnvera is also asked to attend, says Finance Manager Antti Saviaho, who is responsible for the telecommunications sector in Finnvera.
However, not all local operators need export credit agencies.
- Internationally large players often have access to their own financing options, Saviaho points out.
During the visit last autumn, Finnvera met about half a dozen Nokia customers. Some of them were old customers, some newer acquaintances.
- We had good meetings together with the exporter, and we got much additional information about the market situation in India. We actually met all of the operators, and it was interesting to note that they all saw the market situation and the related big changes in a slightly different way.
According to Gergely Abraham, responsible for Asia Regional Treasury & Structured Finance at Nokia, Finnvera’s presence in the target country benefits all parties.
- It is often vital for Nokia’s local customers and pivotal for Nokia’s competitiveness in terms of financing. In a way this is a question of highly efficient door-to-door marketing, which helps us to meet all the principal parties to the contract, Abraham says.
FACT: This is how export financing operates
- Finnvera strives to ensure the competitiveness of Finnish companies on the export market by providing exporters and their financiers with an export financing system that is of the same level as in Finland’s main competitor countries. The buyer benefits from competitive financing terms.
- With regard to export credit guarantees, Finnvera’s task is to understand what is happening on the market. Trips taken together with clients help Finnvera to assess risks, improve Finnvera’s recognisability and promote Finnish exports. The service model is the same for all large exporters in various sectors.
- For granting export credit guarantees, countries are classified into eight categories on the basis of their assessed credit quality.
- Export credit guarantee activities are regulated by a number of international rules and agreements.
- Finnvera’s authorisation to provide export financing was raised at the turn of the year. The authorisation to grant export credit guarantees rose from EUR 19 billion to EUR 27 billion, while the authorisation to finance export credits and to provide interest equalisation rose from EUR 13 billion to EUR 22 billion.
- Each financing decision is always based on careful assessment and analysis. In addition, Finnvera assesses its portfolio on a regular basis. So far, operations have generated nearly EUR 1.8 billion in buffers to cover any losses that might be realised in the future.