Executive Vice President Jussi Haarasilta: Finnvera’s role remains strong
Uncertainty, the threat of protectionism and trade policy crises characterised the world economy in 2018. Nevertheless, from the perspective of our business operations, the year was as successful as expected. We still granted more than EUR 3 billion in export credit guarantees and special guarantees and more than EUR 2 billion in export credits. Financing solutions offered to buyers play a pivotal role in the exports of large corporates’ capital goods. This could also be seen in the export financing impact study we commissioned.
We expect demand for export financing to remain high in 2019. The materialisation of individual major export transactions has a major impact on the forecast and also explains the annual variation in financing volumes. We expect demand to remain strong in the main sectors: cruise shipping, telecommunications and pulp and paper.
When talking about export financing, the topics that often come up include the total exposure related to export credit guarantees that has increased during the past few years as well as the concentration of financing in a couple of sectors. The larger scale underlines the importance of risk management as Finnvera’s operations must be self-sustainable in the long term. To ensure this, we have, to an increasing extent, shared credit risks with other countries’ export credit agencies and the private market, in particular to mitigate concentration risks.
In the allocation of financing, an important indicator is the impact, or how the financing of export transactions as a whole boosts the Finnish economy. The Research Institute of the Finnish Economy’s (Etla) review of export financing projects related to Nokia and Meyer Turku and their impact also shed light on this topic. Cruise ships are large individual projects, and strong demand for financing in the past few years, especially in the cruise ship sector, has contributed to the need for raising our financing authorisations. Globally, large cruise ships are hardly ever sold without state export credit guarantees, and Finland’s competitor countries offer these guarantees actively. Added value amounting to more than EUR 600 million and an impact on employment totalling nearly 10,000 jobs show how significant cruise ship projects with their positive cascade effects are.
A competitive export financing system is our tool in ensuring that the export sectors have at least equal development opportunities as the competitor countries. This is a task assigned to us by our owner, the State of Finland.
During the past few years, our clients have indicated that the CIRR interest rate system used in export financing needs to be developed. The Ministry of Economic Affairs and Employment appointed a consultant to study the functionality of the CIRR system, and the report was published in late 2018. The report served as a basis for setting up a working group that is currently contemplating the development of the export financing system. We are happy that, as a member of the working group, we have the chance to develop the conditions of our operations.
We aim to help Finnish enterprises conclude sales contracts by meeting regularly with not only export companies but their foreign clients and domestic and foreign providers of financing. The feedback we have received from our clients has been very positive. We are very happy about the international TXF Importer’s Choice award that rated Finnvera as the export credit agency that succeeded best in serving foreign buyers dealing with export companies in 2017. We also received an award based on the exporters’ ratings.
Economic cycle forecasts indicate that world trade will slow down in 2019. The trade outlook will become shorter and, as a result, it is possible that there will be less demand for financing. On the other hand, uncertainty in the market may increase demand for guarantees offered by Finnvera.
“Finnvera was created to bear political risks and promote trade. Risk management and self-sustainability are the cornerstones of our operations.”
Protectionist agendas pose challenges to all trading parties. The aim is that the minimum terms and conditions set by the OECD for export credit guarantee operations are adhered to. An international trend is that the focus is shifting from competition between enterprises to competition between value chains and states, in which the significance of joint agreements decreases. Numerous countries have developed financial instruments outside export credit agreements, and China, for instance, has strengthened its role. In many countries, organisations that provide export financing are to an increasing extent tools in their countries’ trade policies.
For a small economy that is dependent on exports, such as Finland, the situation is challenging. Our raised authorisations have provided us with the resources required for boosting Finnish exports. In export financing, we evaluate how Finnish interests are realised, and we encourage export companies to enter international markets. Finnvera was created to bear political risks and promote trade in any economic circumstances. Risk management and self-sustainability are the cornerstones of our operations.
Executive Vice President, Large Corporates