16.06.2008
Traditionally, and yet differently

When insuring the export of Czech goods, services and investments with state support we see evidence of increasing success of Czech exporters in the international field. While several years ago, they were able to win mostly smaller sub-deliveries in international consortia or contracts for the delivery of spare parts only, participation by Czech suppliers in large projects worth hundreds of millions of EUR has now been becoming a common occurrence. Simultaneously, Czech companies are more frequently than before general contractors of capital goods for various sectors, most often energy, chemistry, precision engineering, the glass industry, production of building materials, the food industry and the like.

We in EGAP do our utmost to react flexibly to the changing needs of Czech exporters and to offer them such forms of insurance which enable optimal financing of concluded contracts. A combination of insurance of pre-export financing, of risk of withdrawal from the contract, of a buyer credit and/or of a credit for procurement of an investment abroad is in high demand. The biggest share in insured export credits is currently falling on the Russian Federation. Recently, there have been fundamental changes in the structure of business deals specifically in this territory. Russian importers more and more often try to become debtors of foreign suppliers and to leave out local banks from the entire transaction. Their participation in the business deal raises the overall financial costs of transactions. It means a transition for us to corporate risk where the analysis and assessment are more complicated than in the case of a known bank. However, a number of successfully completed contracts confirm that this way has a very good perspective. Another change is the increasingly frequent requirement of Czech exporters for insurance of project financing where repayment of the credit is based on the sales of goods and services of a new company specifically established for this purpose. In such cases, we assess in an analysis of the risks very thoroughly as well as the outlook of future sales and the overall operating economics of the company. This requires, among others, a detailed knowledge of the local market.

From the perspective of the structure of insurance products, there is continuously growing demand for insurance of export buyer credits (type D) extended by banks either directly to foreign buyers or to their banks. As much as almost one-half out of the total insured volume of CZK 50 billion was this type insurance last year. In the investment insurance, there is great interest recorded in insurance of a credit for the financing of investments abroad (type If). This insurance was a novelty in our offer last year and immediately, in the first year, it participated significantly with a 16% share in our best result thus far. Insurance of a credit for investment abroad enables investors to supplement flexibly their own resources by a credit from a bank which can be used both for acquisition of long-term tangible, intangible or financial assets of a foreign company, as well as for enlargement of inventories of the foreign company or for financing its operations. The insurance is unique in the way it also covers commercial risk of the investment in a foreign country, i.e. it guarantees the financing bank that the credit for acquisition or operation of the investment will be properly and in due time repaid. In this way we already helped Czech investments in Russia, Georgia, China, Mongolia and Vietnam to come into the world. Simultaneously with insurance of a credit for the financing of investments, we extended our offer by two other insurance products for insurance of ceded receivables from export supplier credits (types Bf and Cf) which enable banks to purchase export receivables without recourse against the exporter. Insurance of pre-export credits (type F) for small and medium sized companies is continually growing as a part of our support for this category of businesses which allows for easier access to credit financing of exports by the way of a substantial simplification and unification of analysis processes made by banks and us. An agreement on co-operation in this direction has been signed with a number of commercial banks, and we are negotiating it with other banks so we are able to meet the potential demand in a maximum way. Insurance of bank guarantees (type Z), which plays an important role primarily in the participation of Czech companies in competitive tendering and significantly influences multiplier effect of state-supported insurance, remains significant by volume. This means that insurance of a relatively small guarantee often opens doors to a contract having several times higher value.

This year we are starting implementation of a strategic vision of further development of state-supported credit insurance with respect to the overall economic growth of the Czech Republic and the related increased ability of producers and exporters to win contracts for extensive deliveries of machinery and power generation equipment, construction materials technology and large investment units with complicated financing schemes, usually to countries with a higher level of risk. We will concentrate primarily on further improvement of conditions for insurance and on increasing the user-friendliness of its utilizing for our clients, primarily by:

  • lowering costs for insured by optimizing insurance premium rates within the framework of the OECD Arrangement regime and extending insurance coverage of risks, e.g. manufacturing risk insured separately will newly become a part of insurance of export buyer credit while present insurance premium rates remain unchanged,
  • expanding insurance services and modifying general insurance conditions; insurance of risks related to pre-export financing will be extended by insuring of investments in science, research and development for subsequent utilization of the achieved export results (pre-export financing of intangible exports),
  • further liberalizing requirements on origin of goods and services as a reaction to globalization trends; transition from the current "Made in" principle to "Made by" one or to the principle of national interest, and extension of insurance coverage on subsidiaries of Czech exporters abroad.

Rapidly changing forms of international trade together with widening, deepening and more varied forms of entry of Czech exporters in international cooperation processes have positioned EGAP before new tasks. A strategic vision of further development of credit state-supported insurance is a guarantee that the Czech exporters will have a reliable partner in EGAP which is also willing and able to support their international activities to the maximum possible extent in the future.

Vlastimil Nesrsta
EGAP

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