An Exporter is More Competitive if He Insures His Business
Source: Newspaper DELO, author: Milka Bizovicar, 1st July 2014
Interview with Karim Nasrallah: “There are opportunities for companies in the Middle East, but there isn’t much financial information about the companies there.”
Ljubljana – “The challenge for export credit agencies is that their products are neither well-known nor well-developed in our club’s member states,” assessed Karim Nasrallah, president of the Prague Club, which unites export credit agencies from the countries of Southern and Eastern Europe, the Middle East and North Africa.
The SID bank is also a member of the club, which operates under the auspices of an international union of credit and investment insurers – the Berne Union. The bank hosted a Prague Club meeting in the middle of June, and it was on this occasion that we had a talk with the association’s president, who comes from Lebanon. “Our first challenge is to create awareness that the option of risk insurance for exports exists and then to explain the advantages of this product. The second challenge of our agencies is to be able to cover the risks that companies take when conducting business abroad. We need to have the right information about companies abroad in order to correctly access the risks,” said Karim Nasrallah and he explained that these kinds of insurance agencies usually only provide services to companies from their same country.
What is the purpose of the Prague Club and your regular semi-annual meetings?
One of the purposes of the club is to exchange information about the opportunities, difficulties and obstacles that individual members face. We put all this on the table and see what other members can learn from it and what advice they can offer. The fundamental objective of the club is to support the members with the development of insurance services for exporters and companies investing abroad.
The Prague Club was founded as a special association within the Berne Union that unites companies that are associated with you from countries such as Germany, France, and Great Britain. Why have you pursued this sort of arrangement?
The Prague Club is part of the Berne Union. The latter was founded 80 years ago, while the Prague Club was founded two decades ago, for newly founded (export insurance) agencies. Back then, every country had to set up its own export credit agency if it didn’t already have one, in accordance with new legislation. For example, that was when the Soviet Union and Yugoslavia collapsed and the new countries had to set up agencies. These agencies started conducting business from scratch, which is why they needed cooperation and support. And so the Prague Club was founded to meet the needs of smaller agencies. After that we expanded by accepting members from Asia, the Middle East and Africa.
Which export risks do agencies insure?
The first and most topical is commercial risk, which is a delay in payment from the exporter’s clients due to commercial reasons such as bankruptcy or delayed payment for a certain period. The second is political risk, for example if the exporter’s client cannot pay for the order due to political reasons, moratorium, transfer risk, war, etc. Investments can be insured as well. For example, if a Slovenian company is investing in a company based in another country, it insures its investment. That is investment risk.
How often do exporters choose credit insurance?
That depends on various factors. The exporter opts for it if he believes that he needs protection for his claims, especially if he cannot secure a guarantee of payment from the buyer. For example, when a Slovenian exporter asks a buyer in France to open a bank guarantee to secure payment obligations yet the buyer wishes to operate on an “open account”. That is when the exporter needs to use credit insurance.
What is the value of transactions that members of the Prague Club insured last year, and how many insurance policies were realised?
The data I have is for the year 2012. We supported export in the total value of 26.5 billion euros in 36 agencies, while having 151 million euros worth of claims. If we take a look at consolidated numbers, we see that the activity of Prague Club members is gradually rising since the year 2008. This is probably due to problems that are becoming increasingly more common. We’re also getting more claims.
Do you mean non-payments?
The economic cycle has affected companies, some have gone bankrupt, others cannot pay for what they bought. The reason could be the economic crisis or their political situation.
Based on insurance claims, which countries’ companies are less safe to do business with?
Looking at the financial and euro crisis, the countries in which bankruptcies have statistically increased are Spain, Greece and Italy. The companies there had more problems than, for example, the companies from Germany. The numbers are now improving.
In which countries do companies insure their business more frequently?
When talking about insurance penetration, it is obvious that companies in countries where credit insurance has been present for many years are more aware of this product and more used to utilising it than companies from other countries.
What does the exporter gain by insuring his business?
If anything happens, he won’t have problems with non-payments and will be able to search for new markets. He is also more competitive. Credit insurance isn’t just insurance, it also includes a number of services. Firstly, the insurance agency has access to credit information about companies. If a company carries out an operation without insurance, it needs time to get to know its partner and can get left behind by competition. Secondly, the company that insures its business may operate via “open account” payment – without demanding a bank guarantee from the buyer. The company also gets better financing terms from banks, since their balance sheet is protected, they recognise their higher liquidity.
Is there any sense in insuring new deals with a partner that the company has known for a long time?
An exporter that has been conducting business with a client for 20 years and never had any problems might ask himself, why would I get credit insurance now. But the reality is different. The economic situation may change, as may the conditions within a company. Therefore problems with a client may appear, even when there have been none before. And also: if you increase the scope of business with an existing client, you only stand to profit from insurance.
What are the costs of these kinds of insurance policies?
Usually a percentage of the realisation of the insured account.
The reputation of a country from which the business partner of the insured party comes must be very important for the insurance company?
Of course. Our approach is from the macro level to the micro level. First we take a look at the country, then at the sector that the company operates in, and then at the company itself. If we were to, for example, conduct an analysis of a Slovenian construction company, we would first assess that the Slovenian market is doing fine – not great, but fine. Then we would take a look at the construction sector and see that most of the big players are bankrupt, or gone from the market. In this case we would decide against insuring such a risk. However, we would still insure the risk of a company that operates in, for example, logistics or the food sector, as they are doing better than the rest. We would then also take a look at the company and assess whether it is good enough for operating via “open account” payments or not.
As the president of the Prague Club, you are familiar with the economic environment of the countries of your members. In which sectors of the of the Middle East and North Africa are there presently business opportunities for Slovenian export companies?
We must examine those areas separately. In some countries we have seen an Arab spring that has turned into an Arab winter. Markets such as Libya, Tunisia, Egypt, Syria, and Iraq are riskier for exporters, while Lebanon, Jordan, Saudi Arabia, Bahrain, Oman… are countries with high economic growth that offer many opportunities. When talking about sectors it is hard to highlight something specific. In general, trade and industry are promising: trade is growing very fast, the demand for goods is high. However, there are also many obstacles for trade there. One of the main issues in the region is transparency. Companies do not publish financial results because they are not obligated by the law to do so. That is why there isn’t a lot of information about them. A Slovenian exporter will be hard-pressed to find out who the client is, how they conduct business… That is why cooperation with a local consultant is very important.
You come from Lebanon and are also the president and founder of a credit insurance company there. There are some 60 Slovenian companies already exporting into your country, what are the areas where they can find opportunities?
Some sectors in Lebanon have lately been affected by the events transpiring in neighbouring countries. The Syrian problem especially has hurt our tourism, which is one of our most important economic areas, as are services in general. Good sectors are logistics, electronics, technology, nutrition, and the petrochemical industry.
Lebanon is traditionally known as a trading country and also as the Switzerland of the Middle East. What is the economic situation after the civil war that ended in the beginning of the ’90s and with the millions of refugees that are in your country because of the crisis in Syria?
The country, with its four million inhabitants, is small, so there is little export; our most important business is services. A lot of people have emigrated: the Lebanese diaspora numbers about 12 million people and supports the economy in its country of origin quite a bit. The country picked itself up quickly after the war, but the Syrian issue has a dramatic influence on our economy. We cannot afford for 25 percent of our population to be refugees. They’ve spread over the country and are getting employed, which has increased unemployment and lowered the price of the workforce. That is why foreign investments have currently gone into hiding. There is some concern that the trouble in Iraq and Syria will spread to Lebanon.
.