Business renews calls for credit backing

By DITA DE BONI

A lack of government-backed export-credit insurance has again flared up as a hot issue for small and medium businesses looking for the best deal from political parties this election.

The issue pitches free market ideologues who believe export receivables risk should be taken by private enterprise and private-sector insurers, against those claiming the lack of government-backed insurance for exporters has caused New Zealand businesses to suffer on the global stage.

Proponents of reviving the insurance - which did exist prior to 1991 - point to the case of airport baggage handling systems company Glidepath Ltd.

The Glen Eden-based company claims $400 million worth of international contracts for their products are jeapordised because the government will not guarantee payment for exports or support project finance packages.

Glidepath, a company with annual sales of $20 million and a workforce of 30, says the $200 million worth of contracts it is currently tendering for and $200 million worth of prospective contracts identified would allow it to double its workforce over the next two years.

The company, which is responsible for domestic and international airport baggage conveyor belts, as well as the Kelly Tarlton human conveyor belt in Mission Bay, competes with only eight large international conglomerates around the world for the contracts to design, build and install the systems.

But chief executive Neil Sayer says not only would a government-backed scheme provide more affordable coverage for businesses like Glidepath, but could also allow banks to relax asset cover requirements for credit facilities.

New Zealand had government-backed export credit insurance after 1964 under the Exports Guarantees Act of 1964, but the insurer - called Exgo - was privatised and sold to State Insurance in 1991.

Four years after the shift to privatised insurance cover, a survey conducted by Coopers & Lybrand found New Zealand companies had lost up to $1 billion dollars in project-related business schemes because of the lack of a government-backed export-credit insurance facility.

But prevailing philosophy in favour of a completely free market has kept New Zealand the only OECD country , besides Luxembourg, not to have some type of government-backed country-risk cover for large export projects.

All remaining 24 OECD countries have set common terms and interest rates for member countries to allow companies to become globally competitive.

Project insurance is now privately provided in New Zealand by Exgo - owned by British-based Norich Union Insurance Group, QBE Trade Indemnity, Swiss-based HIH Group and American-based AIG.

Andrew Baker, a commercial underwriter for QBE Trade Indemnity, says small and medium businesses have latched on to the idea of help with long term financing rather than strictly needing government-backed export-credit insurance.

"The private credit insurers are offering pretty fine prices right now. The premiums have come down 30 to 40 per cent in the last three years," he says.

"Of course there will be markets that attract higher premiums from exporters - like Indonesia is less attractive for us than Australia - but we would still cover someone for [Indonesia] in the right circumstances."

"It's a very competitive market and I can't believe the Government would want to go back into it."

While Labour is campaigning on a platform of packages for small and medium business including export-credit government schemes, saying it will help grow the number of international exporters , National's Treasurer Bill English says the measures are simply an attempt to "curry favour" with business.

"These schemes are in place in a number of countries and have been tried in New Zealand, but the experience is that the generally loose oodles of money," he said in a statement.

But Glidepath chairman Ken Stevens disagrees, saying that without some form of government-backed export credit, Glidepath will be turning business away, and after that will be "dead in the water".

He says: "We are asking the Government to be the insurer of last resort and we would pay premiums on shipments making the system self-funding."

Small and medium businesses are not looking for a hand-out of any sort, he says. "We've invested in people and technology for 27 years, and for us to win contracts from that investment in resources is jobs and foreign exchange earnings for the entire country."