SMEs could profit from government’s proposed changes to export bank

The SME sector could be one of the winners from the proposed changes to be made to the focus and operations of the Export Finance and Insurance Corporation.

A Senate inquiry into the controversial multibillion-dollar government body has recommended only minimal changes to its structure.

However, the government bill in response to the Senate inquiry calls for EFIC to lend more support to small and medium-sized enterprises, with special focus on those SMEs wanting to engage in export trade and activities.

An explanatory memorandum attached to the government bill outlines EFIC’s new mandate to support SMEs “participating in global and regional value chains”.

“The market failure test and the requirement to focus on small and medium-sized enterprises (SMEs) will reorient EFIC’s operations on its Commercial Account towards supporting commercially viable export-focused SMEs seeking to access export finance.”

The Senate Foreign Affairs, Defence and Trade Legislation Committee majority report, tabled in the Senate this week, followed a 2012 Productivity Commission probe into EFIC’s operations triggered by concerns the body was too focused on multinational companies.

Despite its referral to the committee and numerous Greens amendments, a government bill to respond to the recommendations, currently before the Senate, is expected to pass before the conclusion of the 43rd Parliament?—?the Labor-dominated committee recommending only that the government “make provision for an independent review of EFIC’s performance to be conducted three years after the bill has been passed”.

The parliamentary committee proposed sweeping transparency improvements and a re-orientation towards small and medium enterprises. However, the bill failed to tackle pressing points, including EFIC’s blanket exemption from freedom of information legislation and a cessation of finance for resource projects located in Australia.

EFIC provides loans and insurance to Australian businesses on the proviso the recipients are unable to source cash in the commercial market. It describes its role as helping “Australian-based businesses to win and finance export, offshore investment and onshore export-related opportunities” and is a major player in Asian development circles, more so, activists say, than AusAID or the Asian Development Bank.

EFIC holds two funds: a “commercial account” worth about $2.7 billion and a smaller $0.7 billion “national interest” account under the direct watch of the federal trade minister. Its board of directors is populated by blue-chip luminaries including Commonwealth Bank director and former ANZ CEO Andrew Mohl and Billabong director Sally Pitkin.

It has been responsible for funding multinational resource company projects including Rio Tinto’s Oyu Tolgoi mine in Mongolia (approved while the review was underway) and ExxonMobil’s liquefied natural gas project in the southern highlands of Papua New Guinea.

The parliamentary committee report criticised EFIC’s arm’s-length agreement with the minister and said it had strayed from its purpose by focusing on the big end of town. It recommended a tilt towards SMEs?—?currently around 25% of EFIC’s operations are focused on big-money “category A” resource projects in the developing world.

However, the government only agreed or “agreed in part” to 16 of the 22 recommendations and noted the remaining six. While disclosure was improved for projects on the commercial and national interest account, some specific financial details would remain hidden under commercial-in-confidence provisions. And some multinational projects could still be funded under a loophole allowing support for projects in emerging or frontier markets.

This is an edited version of an article which first appeared on Crikey.