Mary Coughlan (Donegal South West, Fianna Fail)

I propose to take Questions Nos. 39, 50, 73, 74 and 87 together.

As part of the forensic analysis of the Irish credit insurance market I commissioned last July, KPMG consulted both large business groupings and also a range of individual companies which embraced a wide spectrum of business sectors, including the food sector, engineering and plastics. These companies operated in a range of export markets and involved various patterns of exports. This engagement enabled the consultants to get first-hand knowledge of the experience of companies in seeking export credit insurance cover.

The KPMG report established that only a very small level of Irish exports are insured, that the existing cover is heavily concentrated on a single sector and a single market, that total withdrawals of cover are much more prevalent than reductions. It also found that the introduction of a State-backed short-term top-up scheme, where the risk period is less than two years, and where the market is prepared to provide partial cover, would be expensive and of very limited impact, and that a negligible number of jobs would be supported by such an initiative. In addition, it was established there are indications that this market is showing signs of recovery and that insurance companies should therefore begin to provide better levels of cover from now on. Accordingly, based on the overwhelming weight of evidence in the KPMG report, the Government decided that a State-supported scheme of short-term export credit insurance should not be introduced.

It must be appreciated that in these difficult times the Government must assess very carefully whether new proposed schemes and initiatives justify the expenditure involved. In this case, it clearly would not. As the KPMG report established, significant ongoing costs to the State would arise. Annual costs in respect of quite a low level of intervention would be about €1.7 million and this cost would rise to tens of millions of euro if risk profiles shifted upwards.

In any event, the wider issue of credit availability for business is much more significant for business and work is underway to address this, as part of the bank recapitalisation process. In addition, schemes initiated by the Government earlier this year, such as the enterprise stabilisation fund and the employment subsidy scheme, have been established.

With regard to the fact that other EU member states have introduced State-supported schemes, this development was fully considered. Under EU State–aid rules, each such scheme must be approved by the European Commission and such approvals have included a condition that the level of premia to be paid by companies under any such scheme, should be a multiple of regular premium levels. These high premia have made such schemes very expensive for business and, as result, take-up has been less than anticipated. In some cases other restrictive conditions have also been imposed, for example, the destination countries that can be covered. In several countries, including France and the UK, the schemes had to be altered in order to encourage companies to avail of them. Last month the UK Government signalled its intention to discontinue that scheme at the end of this month, because there are now signs of market recovery.

The KPMG report also suggested that we should investigate a possible medium-term intervention. This is very distinct from short-term cover, where the risk period is less than two years. It should be appreciated that most Irish exports do not fall into the medium-term category, which caters more for large projects or infrastructural goods and services, but this may be relevant to some companies. I am considering this option in the context of the action plan for trade, investment and tourism, which is being prepared at present, as recommended in the smart economy strategy. It is not possible at this stage to give an exact date for anticipated completion of this work and the publication of the plan, although significant progress will have been made by the end of the year, with an expected final draft to be presented to the Cabinet Committee on Economic Renewal very early in the new year.

See this speech in context