I move: "That the Bill be now read a Second Time".
The purpose of the Bill is to increase from £300 million to £500 million the aggregate amount of liabilities which I, as Minister for Industry and Commerce, may assume at any one time in respect of export guarantees under the Insurance Act, 1953, as amended.
The Insurance Act, 1953, enables the Minister for Industry and Commerce, with the consent of the Minister for Finance, to make arrangements for the giving of guarantees for the purposes of encouraging exports. This is the legislative basis for the export credit insurance and finance scheme. The principal aims of the scheme are to help maintain the competitiveness of Irish exports, to stimulate export growth and to encourage diversification into new markets. The scheme assists and supports Irish exporters by providing them with protection against non-payment for either commercial or political reasons by foreign buyers. It also provides access to export credit finance from the banks at preferential interest rates.
The demand for export credit insurance has increased considerably since the ceiling of £300 million was set in 1981 and as a result aggregate liabilities have now reached £298 million. Demand for export credit insurance is strong and I anticipate further growth in such demand in the years ahead with the continuing expansion which I hope and expect will be maintained in our overall exports.
The export credit scheme is administered by the Insurance Corporation of Ireland plc, as agent of the Minister for Industry and Commerce. The scheme is intended to run on a self-financing basis over time. In other words, any costs borne by the Exchequer by the payment of claims should be made good by premium income receipts and recoveries on outstanding claims. This is a very desirable commercial objective which this Government and previous Governments have pursued. Despite a commercial approach, however, it is not possible to eliminate entirely the risks associated with international trade, particularly in the difficult economic climate which has prevailed in recent years. The emergence of severe debt-servicing problems in many Third World and developing countries in the early eighties has compounded both the commercial and political risks in selling abroad. At the same time, we have seen growing competition among national export credit agencies in the drive to win new business.
Consequently, there has been a significant rise in the level of claims over the past few years and there was a cumulative deficit on the scheme of approximately £12.8 million to the end of 1987. This does not mean, however, and I stress this point, that our objective of breaking even has failed. The total value of exports insured since 1971 amounts to £4.5 billion which means that the deficit amounts to a mere 0.28 per cent of the value insured. It is my intention that the deficit which our scheme has accumulated will be reduced and eventually eliminated. For example, every effort is being and will continue to be made by me and my agents to secure a maximum recovery of outstanding debts on which claims were paid. At present we are owed approximatley £9 million in respect of debts arising from foreign currency shortages in debtor countries. These debts are really national or government debts of the countries concerned. While it would be unrealistic to expect a 100 per cent recovery there is a reasonable chance of recovering a proportion of these debts but possibly over a fairly lengthy period of time. The main debtor countries concerned are Nigeria, Argentina, Sudan, Tanzania and Sierra Leone. The prospects of recovering debts from Nigeria have been enhanced by the signing, in December 1987, of debt re-scheduling agreement between Ireland and that country. This agreement provides for a repayment of insured trade debts over the next six years. Significant progress has also been made in recovering debts in Argentina. Interest payments on outstanding debts were received from Argentina in the past few months; in addition, promissory notes have been received in respect of outstanding principal and some money should be recovered on these notes later this year. Prospects of recovering moneys from Sudan, Tanzania and Sierra Leone are less encouraging, though it is intended to negotiate a debt re-scheduling agreement with Tanzania this year.
A full recovery was made in March of this year in respect of a claim of some £1.7 million paid in September 1987, in respect of exports to China. Two large claims amounting to over £6 million arose from defaults by two US companies. Negotiations in regard to recovery of these debts, which have been difficult and complex, are now reaching a critical stage and I am hopeful that some recoveries can be made.
Claims are only one side of the equation. The other is premium income. The premium income obtained from exporters using the scheme goes to offset the cost of claims which have to be paid from time to time. Premium income in recent years has been insufficient to meet the cost of claims and hence the scheme is in deficit. It is likley, however, that premium income will increase in the next few years. Premium rates for the vast bulk of policy holders were increased by an average of 10 per cent at the beginning of this year, the previous increase having occurred in 1986. Premium rates for certain medium term credit policies were increased by over 50 per cent from January 1988, but this was the first increase in these rates since 1971. New charges for the provision of guarantees in respect of export credit finance took effect from 1 April 1988. Notwithstanding all these higher charges, premium rates charged for export credit insurance in Ireland compare favourably with other countries. A recent survey carried out by the OECD showed that Ireland was ranked sixth lowest out of 20 countries in terms of premium rates for export credit insurance. I am confident that we have managed to strike a balance between the need to operate the scheme according to commercial criteria on the one hand and the need to provide a competitive and attractive product for the exporter on the other.
The deficit, as I have said earlier, must be seen in perspective. It is quite small when compared with the total amount of exports insured under the scheme to date, approximately £4.5 billion.
I mentioned briefly at the outset that the need for this legislation arises from an increase in the demand for export credit insurance for markets worldwide and that this trend is likely to continue in the years to come. At present the export credit scheme is covering about £750 million worth of exports annually. This is actually quite small relative to our total exports, which amounted to £10,700 million in 1987. The reason for this is that the bulk of our exports are to OECD countries which many exporters consider to be reasonably safe markets and where they believe that there is little or no political risk. The facilities available under the export credit scheme are relatively straightforward and easy to use. If exporters are concerned about devoting too much time and resources in attending to export credit limits and other such details of insurance cover, they can employ a suitable insurance broker to handle all these matters at no extra cost to them. Exporters should think about using the facilities under the scheme.
Many exporters claim that it is difficult to get quick decisions from ICI on export credit insurance and claim that export sales can be lost as a result. I agree fully that there is a need for decisions to be taken quickly, but often the problem lies with the exporter not providing sufficient information to enable a decision to be taken on the application. In many cases the exporter approaches ICI at the last minute and expects to be given export credit insurance instantly. Exporters must appreciate, however, that where information is not readily available on overseas buyers, credit checks need to be carried out by ICI before a decision can be made as to the level of cover which can be granted. While ICI have many buyers on their files, they are installing, at my request, computerised facilities to enable detailed buyer information to be stored in a readily available format. This should improve the speed of response within ICI to the benefit of the exporter. To conclude on this point, I would say that I recognise fully the need for a fast efficient export credit service to be available at all times to the exporter. At the same time, however, this need must be balanced against the need for careful, judicious underwriting to minimise the risk to the Exchequer.
Export credit insurance not only affords protection against non-payment from abroad, it also provides access to finance from the banks at preferential interest rates. Access to such finance is made possible either by means of assignment of the exporter's insurance policy or the provision of a State guarantee to a bank. For Irish pound financing the exporter can borrow at AAA interest rates. Many small to medium sized exporters would not otherwise be able to obtain finance at such competitive rates. Small or medium sized exporters are often charged A or AA interest rates which involve significant additional interest costs. Export credit insurance therefore has the added attraction of opening the door to otherwise unaffordable working capital to finance exports. More importantly, this export credit finance should not normally interfere with other credit facilities or limits which may be available to exporters from the banks.
There are two finance schemes in operation at present; the short-term finance scheme which normally relates to exports sold on credit terms of up to one year and the medium-term finance scheme which normally relates to credits of up to five years. Both of these schemes can be of benefit to the exporter and can provide a further boost to export growth. The short-term scheme is perhaps of greater importance to the majority of Irish exporters than the medium-term scheme which relates exclusively to capital goods. The level of usage of the short-term scheme by exporters has however been disappointingly low, and I believe there is scope for getting more exporters to use this facility. With this in mind, my Department and ICI are carrying out a detailed review of this scheme, which has been in operation now since 1981. Once this review has been completed, I will ask officials of my Department and ICI to discuss the operation of the scheme with the banks. The banks have a major role to play in this area and I would like to see them taking on a more active, aggressive and supportive approach to financing exports. They have made a number of suggestions as to how the scheme might be improved and these are being considered at present by the Department and ICI. What I require, however, is for the banks to help share the risk involved and not simply rely on Government guarantees before releasing finance.
Deputies will be aware of the Government's special trading house scheme which was approved by the European Commission in February of this year. The scheme is designed to promote the growth of exports of Irish manufactured goods though the establishment of centres of marketing expertise which will specialise in the exports of such goods. I am pleased to say that in addition to qualifying for the 10 per cent rate of corporation profits tax as well as benefiting from investments under the business expansion scheme, licensed trading houses will be eligible to avail of the full range of facilities under the export credit insurance and finance scheme. This will certainly be a significant added asset to trading houses in their task of selling Irish manufactured products abroad. So far special trading house licences have been issued to two companies and a number of other applications for licences are currently being examined in my Department.
Export growth is central to the Government's programme of economic recovery. Last year Irish exports reached an all-time high of £10,700 million and the indications are that export performance in 1988 will be even better than it was in 1987. We now expect total exports to reach a record of £12,000 million this year. Growth in demand for export credit reflects the growth in our exports and also the diversification of Irish exports into non-traditional markets. For example, as a result of successful growth in business contacts in Iraq and in the context of the Irish-Iraqi Joint Commission, it was decided to provide export credit facilities in respect of Iraq. This is a positive development in terms of sustaining export growth in the long term.
I believe that the export credit scheme has an important role to play in the Government's strategy of export-led growth. This is particularly so in the context of improving the export performance of small indigenous companies. The availability of export credit insurance and finance can in very many cases be the deciding factor in whether or not a company should proceed with an export contract. It can eliminate the risk which might otherwise be unacceptable and provide access to valuable working capital which might not otherwise be within the company's limited resources.
All our major trading competitors provide Government supported export credit insurance and finance schemes to assist their exporters in winning valuable contracts abroad. If the Irish Government did not operate a similar scheme it would mean that our trading competitors would have a competitive edge over Irish industry particularly in certain international markets. We simply cannot allow this to happen. I do not see this scheme as some sort of expensive luxury; it is a vital tool in encouraging continued growth in exports and generating industrial prosperity with, hopefully, more jobs for the future.
I am satisfied, that by increasing the statutory limit on export guarantee liabilities to £500 million, this Bill will make a valuable contribution to the further growth of Irish exports. I therefore recommend the Bill to the House.