David Stanton (Cork East, Fine Gael)
Link to this: Individually | In context

Last night I met the representative of a large exporting company in Munster who was extremely concerned at what he described as the drying up of export credit insurance. Export credit insurance works in the following way. If a company is exporting products abroad, while it may not be paid straight away, its payment is insured.

Export credit insurance, however, is drying up making it difficult for companies to export their products. The Irish Exporters Association is concerned that credit insurance underwriters have cancelled or substantially reduced the credit cover extended to exporters in Ireland. It has pointed out that this has put the €9 billion of exports covered by credit insurance on a rolling six-month basis, and a further €10 billion of home-based trading covered by credit insurance. It has described it as a crisis, affecting the supply of locally produced goods and services to exporting companies.

France, the UK, Belgium and Portugal have put in place state-backed export credit insurance schemes in recent weeks. The Irish Exporters Association and the IFA have come together to press the Government to bring forward a similar scheme. It is important this is done soon as exporting companies are under intense pressure.

I am pleased the Minister of State with responsibility for this area, Deputy McGuinness, is present in the Chamber. I look forward to his reply and hope he will inform the House the Government will move quickly on this matter. The survival of exporting companies is at stake. We know of the perilous state of the economy and how important it is to support companies to trade out of this situation. If the export credit insurance issue can be resolved, it will assist these companies. The representative of the large company I met last night told me that if this is not sorted soon, his company will be in serious trouble.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
Link to this: Individually | In context

I thank the Deputy for raising this important matter, with which I am familiar and which is of great concern to the exporters and companies he mentioned.

Since the State withdrew from the provision of export credit insurance in 1998, exporters have been able to avail of such insurance on the open market as commercial operators made such cover easily available and there was significant take-up of policies by exporters. However, there appears to be evidence that in recent months insurers have been reducing or withdrawing cover and that, therefore, there has been some market failure in this sector. In recent weeks, this lack of affordable credit insurance, including export credit insurance, has been strongly highlighted by exporters as presenting a significant problem. As a result, business groups have requested that the State assist in the provision of such insurance cover. Some weeks ago the Tánaiste and Minister for Enterprise, Trade and Employment met business representatives and listened to their concerns on this issue. Like the Deputy, I also met groups and individual representatives in respect of this matter.

This problem is not unique to Ireland. The underlying reasons are linked to the global financial crisis and the lack of credit generally available. Other EU member states are facing similar problems and we have been engaging with them and the European Commission with a view to helping our understanding of the issues so that we can develop a fast and informed response.

While the concept of State support should be considered, it is important, in the current difficult financial environment, that in the first instance we establish the facts of the matter by engaging with the key stakeholders, including the insurance providers, before committing the State to taking any initiatives in this regard. In bringing forward proposals in this area, it is important that the State should not be left exposed to unacceptably high risks. The Deputy will appreciate that a key requirement of any such initiative would be that it should be designed to be self-financing and time limited. In addition, a financial cap to limit the exposure of the State in the event of significant losses developing would have to be imposed.

To properly assess what is an extremely complex issue, the Tánaiste and Minister for Enterprise, Trade and Employment has asked Forfás and Enterprise Ireland, working closely with officials in the Department, to expedite a detailed analysis of the position. This work is well advanced and a report will be ready for her consideration by the end of the month.

I am sure the Deputy appreciates that a thorough analysis of the facts must be undertaken in the assessment to which I refer. Early indications are that in light of the current economic uncertainty, with rapidly increasing default rates, the issue is unlikely to be as simple and cost-neutral as portrayed by some business interests. Analysis to date of one particular proposal has pointed to the State being exposed to very high costs, both in terms of default payments and administration. In addition to potentially significant operating costs, a new administrative structure would need to be devised, legislation may be necessary and EU state aid rules may be an issue. The actual cost-benefit of this type of scheme must also be fully assessed.

The impression has been given that most other EU and OECD states are operating short-term export credit insurance schemes and that Ireland is, therefore, very much alone in not doing so. However, the vast majority of schemes operated by these other countries are in respect of longer-term strategic capital and infrastructural projects, and usually only cover very limited sectors. It is not correct to state that the type of short-term insurance scheme being sought by Irish exporters is generally available in our competitor countries.

A number of other OECD countries are approaching the issue from an alternative perspective through the banking system. Such initiatives have focused on the provision of some form of credit or working capital guarantees for exporting companies. Forfás, Enterprise Ireland and my Department, in co-operation with the Department of Finance, are examining a number of these initiatives. Should this examination prove that a new insurance scheme is not realistic or feasible for a variety of strategic reasons, including costs, both to companies and the State, and effectiveness, it may be appropriate to look at securing alternative assistance to credit-worthy trading companies through the banking system, which already provides a number of trade finance alternatives to credit insurance. This could be considered in the context of the assistance being provided by the Government to the banking sector.

I assure the Deputy that we are working quickly and thoroughly to establish the facts and set out the options. The Tánaiste and Minister for Enterprise, Trade and Employment intends to bring this matter to the Cabinet as a priority next month when she has received and considered the report currently under preparation. A final decision will then be made.