Fi­nanc­ing from ex­port credit agen­cies is vi­tal

The National - News - - BUSINESS - ALESSAN­DRO DECIO Alessan­dro Decio is chief ex­ec­u­tive of Ital­ian Ex­port Credit Agency Sace

The coun­tries of the GCC are un­der­go­ing im­pres­sive trans­for­ma­tions that are shap­ing their fu­ture, and un­lock­ing po­ten­tial through am­bi­tious pol­icy, large-scale in­vest­ment and a ca­pac­ity for in­no­va­tion.

But this is be­ing ac­com­plished in an in­creas­ingly tight eco­nomic en­vi­ron­ment – par­tic­u­larly in terms of gov­ern­ment bud­get con­straints. None­the­less, gov­ern­ments across the re­gion are plough­ing ahead with large-scale strategic projects in sec­tors such as trans­porta­tion, in­fra­struc­ture and en­ergy.

In Dubai, to use just an ex­am­ple, over $8 bil­lion in in­vest­ment has been al­lo­cated for trans­port and in­fra­struc­ture projects in and around the Expo 2020 site so far. The Dubai 2020 Ur­ban Mas­ter Plan en­vi­sions a thriv­ing metropoli­tan dis­trict con­nected by mod­ern in­fra­struc­ture – such as the $2.9bn Dubai Metro Red Line ex­ten­sion, the $32bn Al Mak­toum In­ter­na­tional Air­port and $390m in planned road works.

Meed has cal­cu­lated that there is a $2 tril­lion pipe­line of yet to be awarded projects across the GCC, in ad­di­tion to $3.4tn worth of projects planned or un­der way in the same re­gion – a 10.7 per cent in­crease year-on-year from 2017 to 2018.

Per­haps the most am­bi­tious of these projects is Neom, a $500bn planned mega city on Saudi Ara­bia’s Red Sea coast. The 26,500 square kilo­me­tre-zone in­cludes a bridge span­ning the Red Sea, con­nect­ing the proposed city to Egypt and the rest of Africa. Some 25,900 square kilo­me­tres have been al­lo­cated for the de­vel­op­ment of an ur­ban area that will ex­tend into Jor­dan and Egypt.

These fig­ures il­lus­trate the level of ac­tiv­ity tak­ing place across the re­gion. But how can these large fi­nanc­ing needs still be met ef­fi­ciently in an en­vi­ron­ment of flag­ging liq­uid­ity?

The an­swer may lie with Ex­port Credit Agency-backed fi­nanc­ing. ECAs are gov­ern­ment-af­fil­i­ated in­sti­tu­tions, found pri­mar­ily in coun­tries that are ex­port-friendly, like the United States, Ger­many, or – in the con­text of our own agency – Italy.

With the wors­en­ing credit en­vi­ron­ment, in­ter­na­tional banks may hes­i­tate to fund large projects with­out the ben­e­fit of credit risk mit­i­ga­tion. But ECAs, ef­fec­tively act­ing as an in­surer, are able to cover – through guar­an­tees from their gov­ern­ments – the ex­port and sup­ply of do­mes­tic goods or con­trac­tors, en­abling present and fu­ture projects in the re­gion to ac­cess much larger long-term fa­cil­i­ties.

High-pro­file gov­ern­ment projects that have ben­e­fit­ted from ECA fund­ing in the past in­clude the Al Su­fouh tramway project in Dubai, which re­ceived loan guar­an­tees from ECAs in France and Bel­gium in sup­port of con­struc­tion con­tracts won by their do­mes­tic com­pa­nies.

Mov­ing for­ward, there are a num­ber of projects in the UAE that have been ear­marked for debt fund­ing backed by in­ter­na­tional ECAs. These in­clude the ex­pan­sion of both the Al Mak­toum In­ter­na­tional Air­port, as well as the $2.45bn RTA Metro Red Line project con­nect­ing the World Expo 2020 site. This project will ben­e­fit from a 17-year $1.42bn loan guar­an­teed by the French and the Span­ish ECAs, partly re-in­sured by Italy’s ECA, Sace. Over­all, the Gov­ern­ment is ex­pected to re­quire roughly $7bn for projects linked to the Expo 2020, and ECA fi­nanc­ing is likely to rep­re­sent a large part of this.

At Sace, we have seen a growth in de­mand for ECAbacked fi­nanc­ing first-hand. We opened our of­fice in Dubai two years ago, and in that time, have seen our port­fo­lio in the Mena Re­gion grow from €4.4bn to €12bn. This in­cludes a num­ber of re­cent in­vest­ments such as a $300 mil­lion credit fa­cil­ity for the sup­ply con­tracts for the com­ple­tion of the first phase of the up­com­ing Mey­dan One Mall in Dubai and a $625m loan in favour of the Kuwait Na­tional Petroleum Com­pany.

All of this re­in­forces Italy’s historic po­si­tion as an ex­port­ing coun­try, with a lot of this ac­tiv­ity be­ing the re­sult of our gov­ern­ment’s fo­cus to sup­port ex­ports and the broad in­ter­na­tion­al­i­sa­tion of Ital­ian com­pa­nies.

But none of it would be pos­si­ble if not for the re­spect that gov­ern­ments in the re­gion, and in­deed around the world, have for the breadth of Ital­ian in­dus­trial ex­per­tise – across sec­tors like in­fra­struc­ture and also oil and gas, in ad­di­tion to the more pop­u­lar sec­tors like fash­ion, food and de­sign.

In this new en­vi­ron­ment, ECAs will play an im­por­tant role in large-scale fi­nanc­ing of re­gional projects. The ex­tent of their par­tic­i­pa­tion is dif­fi­cult to de­ter­mine at this junc­ture, but it is clear that if gov­ern­ments are com­mit­ted to achiev­ing their am­bi­tions, a va­ri­ety of fi­nanc­ing solutions will be re­quired – with ECAs a sig­nif­i­cant part of this equa­tion.

Jef­frey E Biteng / The Na­tional

The ex­ten­sion of the Dubai metro line is a mega-project that can ben­e­fit from ECAs

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