UK Export Finance (UKEF), known until November 2011 as the Export Credits Guarantee Department (ECGD), 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. Companies are charged a premium and UK Export Finance aims to break even, but any shortfall comes from the UK tax-payer.
Export credits and arms exports
The UKEF / ECGD Annual Reports show that one business benefitted more than any other from export credit guarantees - the arms business. This is 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 topped the list of companies receiving export credit guarantees. 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 of Offshore Patrol Vessels to Trinidad & Tobago coming second. However, all changed in 2008-9 when just 1% of ECGD support was for military deals. A few months earlier it had been revealed 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).
The ECGD's support for military deals remained low for several years - 1% in 2009/10; 4% in 2010/11 after cover was given to Airbus for a multi-role tanker transport plane sold to the armed forces of the United Arab Emirates; and less than 1% in 2011/12 when military vehicles sold to Turkey were underwritten for £680,000.
However, backing for military deals soared to 47% of all export credits in 2012/13. This included £2billon cover for the purchase of BAE Eurofighter Typhoons by the dictatorship in Oman; £4.2million for the export of intelligence equipment to Indonesian Ministry of Defence and £1.1million for the purchase of hovercraft by the Pakistani navy.
Sometimes the purchasers do not pay.In October 2012 UKEF published information on Sovereign Debt. This showed debts for military equipment and projects owed by Mubarak's Eygpt, Galtieri's Argentina and Saddam Hussein's Iraq.
Pressure for change
CAAT is one of a number of organisations, including Amnesty International UK, The Corner House, Jubilee Debt Campaign and WWF UK, which are working for reform of export finance as Clean Up Britain's Exports.
Pressure from CUBE and others led the All Party Parliamentary Group on International Corporate Responsibility to begin an inquiry into the workings of UKEF in May 2011. Its report was published in November 2012. CAAT's submission to inquiry can he found here. Among the report's recommendations was that there should be a consultation on a prohibitions list (ending of export credits) for arms.
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. In March 2010, the Labour government relaxed the procedures where the application to the ECGD was one to a number of different national Export Credit Agencies.
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.