UK Export Finance


The Export Credits Guarantee Department, branded as UK Export Finance, is the export credit agency and a ministerial department of the Government of the United Kingdom.
In 1920, UKEF had a maximum total exposure of just £26 million. Today, its maximum commitment stands at £80 billion.

Activities

UKEF derives its powers from the and undertakes its activities in accordance with specific consent from HM Treasury. ECGD was established in 1919 to promote UK exports, lost during the submarine blockade of World War I.
UKEF's aim is to benefit the UK economy by helping exporters of UK goods and services to win business, and UK firms to invest overseas by providing guarantees, insurance and reinsurance against loss, taking into account HM Government's wider international policy agenda. UKEF is required by the HM Government to operate slightly better than break even, by charging premiums from exporters at levels that match the perceived risks and costs in each case.
It has three broad product types:
  1. Guarantees on loans to buyers of UK goods and services outside the UK. Sometimes it will also fund these loans itself.
  2. Guarantees on trade finance facilities extended by UK banks to exporting companies in the UK.
  3. Insurance against the risk of non-payment for UK companies selling to buyers outside the UK.
The highest value part of UKEF's activities is the first type: underwriting long-term loans to support the sale of capital goods, principally for the export of aircraft, bridges, machinery, and services; it helps UK companies take part in major overseas projects such as the upgrading of hospitals, airports, and power stations. Some of the projects UKEF backs go well beyond the £1 billion mark.
As part of its risk management process, UKEF has to make a judgement on the ability of a buyer or borrower to meet its debt obligations. For country debt, department uses a "productive expenditure" test, undertaken in consultation with the Foreign, Commonwealth and Development Office, that makes sure that the countries defined as heavily indebted poor countries and those exclusively dependent on International Development Association financing only get official export credits from the UK for projects that help social and economic development without creating a new unsustainable debt burden. UKEF continues to check that the proposed borrowing is sustainable.

Support for smaller UK exporters

In 1991, ECGD's 'short term' credit business was sold to Dutch insurer NCM Group in 1991, later becoming part of Atradius in 2004. However, since 2011, due to the 2008 financial crisis, it re-entered the 'short term' market, with new products aimed at smaller UK exporters to help them access finance and trade credit insurance. It also introduced a network of Export Finance Managers specifically to support smaller UK exporters on the financial aspects of international trade.
This business tends to be lower value, but it supports a larger number of UK companies, typically small and medium businesses, which since 2015 have typically made up the majority of UKEF's customers.

Impact

UKEF publishes an annual report outlining its activities and its performance against financial objectives set for it by HM Treasury. It also estimates its contribution to UK GDP and jobs.

Historic criticisms of ECGD

The ECGD was the subject of criticism by UK-based NGOs; The Corner House claimed that the ECGD provided public subsidy for bribery; Campaign Against Arms Trade argued that the ECGD provided excessive levels of support for arms sales; Jubilee Debt Campaign argued that the cancellation of debts owed to the ECGD should not be counted towards UK Official Development Assistance figures; World Wide Fund for Nature argued that excessive greenhouse gases are emitted from ECGD-supported projects and that this is inconsistent with wider UK environmental policy. Such criticisms prompted ECGD to adopt stricter environmental and ethical standards in its financing decisions, ensuring that its support does not contribute to harmful social or ecological outcomes.

End of support for fossil fuels

In December 2020, UKEF ended all future support for the fossil fuel sector overseas and is now considered one of the Export Credit Agencies most closely aligned with the 2015 Paris Agreement.

Defence exports

While historically, the proportion of ECGD's business in support of weapons exports ranged from 30% to 50%, this declined to under 1% in 2009–10. However, it has since increased significantly following Russia's invasion of Ukraine, including a £7.7 billion of support for Poland’s NAREW air defence programme.
UKEF seeks advice on arms sales from the United Kingdom Export Control Organisation, part of the Department for Business and Trade. All applications are assessed, on a case-by-case basis, against the consolidated EU and National Arms Export Licensing criteria.
The ECO's advice is not always followed by the government, though. In February 2016, the head of the Export Control Organisation, Edward Bell, advised Business Secretary Sajid Javid that Britain should suspend arms sales to Saudi Arabia. This advice was not followed by the business secretary and prime minister.

Equivalent organisations abroad