The UK government is failing exporters by refusing to underwrite the issue of bonds needed to win overseas orders and guarantee the performance of export contracts, according to Susan Ross – Aon Trade Credit director and chair of the British Exporters Association (BExA). As banks cut their lending limits and concentrate on shoring up their balance sheets, Mrs Ross is calling for the government to follow in the footsteps of its continental counterparts and play its part in providing bond support to boost UK exports and lead us out of the recession.
Capital goods orders – such as aircraft, new manufacturing lines and equipment for telecommunications or power generation – regularly require a financial guarantee, known as a performance bond. This is issued by the company’s bank to provide compensation if the equipment is not delivered on time or according to specification.
However, banks are rebuilding their balance sheets and taking a more cautious approach to lending and will only agree to issue such bonds if they have sufficient capacity in their overall limit on the company. Exporters are finding that banks are reaching their lending limits rather sooner than before the credit crunch. For example, one manufacturer lost a £3.5 million export contract as it failed to secure the issue of a bond.
Government assistance is allowed under European competition laws and the UK’s continental and North American competitors have access to bond support*.
Susan Ross, Aon Trade Credit director and chair of the British Exporters Association (BExA), said: “If we are to retain sustainable jobs in this country, we need to be exporting more. We should be capitalising on the low pound now that the economic fortunes of our main trading partners, Northern Europe and the USA are picking up. Other countries’ governments recognise the problem and provide bond issue support. The UK government doesn’t even have this on its radar.
“At BExA, we have been aware for several years of the crucial nature of the support that is needed, which our continental European cousins have from their governments. We have been lobbying government at every opportunity but they just don’t want to listen. This has to change.”
Bond issue support should generate cash because the government receives a margin (equivalent to an insurance premium) from the manufacturer in return for the use of the government’s capital to underwrite the guarantee.
*Table of global government bond facilities available on request.
