The Export Credits Guarantee Department is an independent Government department responsible to the Secretary of State for Business, Innovation & Skills. It guarantees that companies and banks involved in an export deal will not lose out if the overseas buyer does not pay, or makes late payments. The ECGD charges the companies a premium and aims to break even, but any shortfall comes from the UK tax-payer. In 2005, the Government said the annual economic cost was £150million.
ECGD and arms exports
The ECGD's Annual Reports show that one business benefits more than any other from export credit guarantees - the arms business. Even though arms account for just 1.5% of total UK exports, in 2006-7, 42% of all export credits were for military goods and, in 2007-8, the figure was even higher, 57%. Arms manufacturer BAE Systems tops the list of companies receiving export credit guarantees.
This export credit support is given for very few deals. In 2006-7 the entire 42% was accounted for by BAE's arms sales to Saudi Arabia. At £750million this was also by far and away the ECGD's biggest liability in 2007-8, with VT Shipbuilding International's sale Offshore Patrol Vessels to Trinidad & Tobago coming second.
Strangely, in spring 2009 it was discovered that BAE had ended the support for its Saudi arms deals with effect from September 2008, just before the highly critical report, described under Corruption below, from the Organisation for Economic Cooperation and Development (OECD). BAE has kept ECGD cover for other military deals, including those with South Africa and Romania, but the removal of its Saudi Arabia business would have left the ECGD without about half its income. For the ECGD staff, it was fortuitous that the economic downturn gave the ECGD new roles.
Corruption
Given the level of support for its sales, it is of little surprise that BAE is keen to maintain the status quo as far as export credits are concerned.
In May 2004, the ECGD introduced tough anti-bribery procedures in an attempt to make sure that projects it supported were not tainted by corruption. However, following lobbying by BAE and engine maker Rolls Royce, these procedures were weakened in December 2004.
After a legal challenge by anti-corruption group, The Corner House, the Government agreed in January 2005 to hold a public consultation over the proposals. As a result, the ECGD reintroduced key anti-corruption measures in July 2006, including a requirement on exporters to name agents involved in the transaction.
The ECGD came in for considerable criticism in the OECD's October 2008 report into the UK (PDF 739kb), which followed from the Government's December 2006 decision to stop the Serious Fraud Office inquiry into BAE's Saudi deals. The report said that the SFO had handed the ECGD evidence of misrepresentations by BAE to the ECGD in connection with the issuance of insurance, but that the ECGD had done nothing about it. The OECD also raised questions about ECGD support where the recipient of the underwritten goods had interfered with criminal law proceedings as Saudi Arabia had done with the SFO inquiry.
Not only in the UK ..
About 40 other countries have an Export Credit Agency (ECA), including every major industrialised country. The exact roles and structures vary, but even where the ECA itself is private, as is the case with COFACE in France, there is state backing and guarantees. The extent to which other ECAs support arms exports varies, largely in parallel with the importance of the country's arms export industry.
The European Network Against Arms Trade has undertaken research into the role of Export Credit Agencies in supporting military exports in eleven European countries. A summary (PDF 1.22mb) of this research and the full report (PDF 412kb), published in July 2007, are available.
Many organisations, in the UK and beyond, work on export credit issues and more information can be found at Export Credit Agency Watch.
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