Seanad Éireann debate -
Wednesday, 29 Jun 1988

Vol. 120 No. 10

Insurance (Export Guarantees) Bill, 1988 [ Certified Money Bill ] : Second Stage.

Question proposed: "That the Bill be now read a Second Time."

Minister for Industry and Commerce (Mr. A. Reynolds)

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 existing ceiling on liabilities of £300 million was set in 1981. However, demand for export credit insurance has increased considerably over the past year or two and as a result aggregate liabilities are now approximately £298 million.

This is a positive development because it comes as a direct consequence of the growth in Irish exports generally. This House will be well aware that export growth is central to the Government's programme of economic recovery. Last year Irish exports reached an all time high of £10.7 billion and the indications are that export performance in 1988 will be even better than 1987. We now expect total exports to reach a record £12 billion this year. In order that we might continue to facilitiate this growth, the Government consider it necessary to increase the statutory limit on liabilities from £330 million to £500 million. Growth in demand for export credit not only reflects the growth in our exports but also the diversification of exports into non-traditional markets.

The export credit scheme is intended to run on a self-financing basis over time. Any costs borne by the Exchequer should be made good by premium income and recoveries on outstanding claims. This is a very desirable policy objective which this Government and previous Governments have pursued. However, it is impossible to eliminate the risks associated with international trade. Changing political situations and the emergence of severe debt servicing problems in many Third World and developing countries are factors which are outside of our control. Such factors greatly compound the commercial and political risks in selling abroad. Consequently, there has been a rise in the level of claims over the past few years to the extent that there is a cumulative deficit on the scheme of approximately £12.8 million as at 31 December 1987. This deficit must be seen in its proper context, however. It is very small when compared with the £4.5 billion worth of goods insured under the scheme in the same period. A significant amount of this £4.5 billion worth of exports would not have taken place without the support of the export credit scheme. With the deficit representing less than 0.3 per cent of total insured exports, there has clearly been considerable economic benefits derived from the scheme.

However, I am still anxious that our commercial objective of ensuring a break-even situation in the scheme be achieved through careful management of both premium levels and debt recovery practices.

Every effort shall continue to be made to ensure a maximum recovery of outstanding debts. Export credit claims arise from either commercial default or political default. Typical examples of commercial default would be where the overseas buyer becomes insolvent, gets into financial trouble or simply refuses to pay. A typical example of political default would be where the buyer has the local currency to pay for the goods or services, but due to foreign exchange shortages in the buyer country, the Central Bank in that country is not able to release the equivalent foreign exchange. Up to end 1987, commercial claims amounted to approximately 62 per cent of total net claims, whereas political claims amounted to 38 per cent.

Approximately £9 million of the current deficit is made up of political claims arising from foreign exchange shortages in debtor countries. The main countries involved are Nigeria, Argentina, Sudan, Tanzania and Sierra Leone. These debts are really sovereign or Government debts of the countries concerned. While it would be unrealistic to expect a 100 per cent recovery of such debts, there is a reasonable chance of securing some recoveries but probably over a fairly lengthy period of time. Prospects of recovering moneys from Nigeria have been enhanced by the signing of a Bilateral Debt Rescheduling Agreement with the country in December 1987. This agreement provides for repayment of insured trade debts over the next six years. Progress has also been made in Argentina with interest payments on outstanding debts received in the past few months. In addition promissory notes have been received in respect of these debts and some money should be recovered on these promissory notes later this year. The prospects of recovering outstanding debts in Sudan, Tanzania and Sierra Leone are less favourable, although it is hoped to conclude a debt rescheduling agreement with Tanzania later in 1988.

As regards commercial claims, I anticipate that some recoveries will be obtained on claims incurred and I can assure the House that every effort is being made in this regard. We have had some progress already. A full recovery was made in March of this year in respect of an Irish export order for China where a claim of some £1.7 million was paid in September 1987. Two large claims of approximately £6 million arose from defaults by two US companies. Negotiations in regard to recovery of these debts, which have been both difficult and complex, are reaching a critical stage. While I am unable to give the House today an indication of how much we are likely to recover, I do however expect that some recoveries will be made.

I am also confident that a proportion of the deficit can be offset through increased premium income. I anticipate that the increase in premium income will arise in two ways. First, the growth in demand for export insurance is likely to be sustained, and this in itself will give rise to higher receipts. Secondly, and more important, 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 reasonable 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.

I commented earlier on the fact that the need for this legislation arises from the growth in our exports generally. In terms of providing insurance against non-payment, I think it is quite clear how the scheme facilitates this growth in exports.

Many companies, particularly small indigenous companies endeavouring to break into new and unfamiliar markets, simply would not be able to carry the risk of non-payment and would not even contemplate quoting for export contracts if it were not for the services provided through the scheme. However, export credit insurance 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 important, 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 relates to exports sold on credit terms of up to one year and the medium term finance scheme which relates to exports of capital goods and credits of up to five years. The short term finance scheme has not been used by exporters as much as I would have liked. I believe that there must be scope for getting more exporters to use this facility. With this in mind I have asked my Department and ICI to carry out a detailed review of the short term finance scheme to see where the problems lie. However, the review will have to take into account the requirement that the scheme should not make a loss.

I have also asked 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 and supportive approach to financing exports, particularly in the area of risk sharing. They have made a number of suggestions as to how the scheme might be improved and these are being considered at present by my department and ICI.

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 £10.7 billion in 1987. One of the reasons 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 have often built up long-term relationships with buyers. Another is the fact that inter-company sales are not insurable. The facilities available under the export credit scheme are relatively straightforward. If exporters are concerned about devoting too much time and resources in attending to details of export insurance cover, they can employ a suitable insurance broker to handle such matters at no extra cost to themselves. I would encourage exporters to think about using the facilities under the scheme. They may find that it opens up a whole new range of business opportunities for them which they might not otherwise be in a position to exploit. However, the availability of this service does not mean, of course, that a company can do away with its own credit control department.

Since 1971 the export credit scheme has been administered by the Insurance Corporation of Ireland plc as agent for the Minister for Industry and Commerce. Exporters considering availing of the scheme should in the first instance make their approach to ICI. In November 1987 a new comprehensive agreement was concluded by my Department with ICI. The agreement provides for close cooperation between the Department and ICI in the day-to-day operation of the export credit scheme. This new agreement should enhance the administration of the scheme and will enable my Department and its agents to continue to provide valuable service to exporters. At my request ICI are installing 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. Of course, while I recognise fully the need for a fast, efficient export credit service, this need must be balanced against the need for careful, judicious underwriting to minimise the risk to the Exchequer.

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 the scheme as some sort of expensive luxury. It is a vital tool in encouraging continued growth in exports, particularly in more non-traditional markets, and generating industrial prosperity with, hopefully, more jobs for the future. For example, as a result of the development of new business opportunities in Iraq and in the context of the Irish-Iraqi Joint Commission, it was decided to provide export credit facilities in respect of that country. This is a positive development in terms of sustaining export growth in the long term.

When comparison is made with other OECD countries, our scheme has performed quite well. Other export credit agencies have suffered massive losses in recent years mainly because of the severe debt crisis affecting developing and Third World countries. Fortunately, because most of our exports are directed to OECD countries, we have not suffered losses to the same degree as other credit agencies. A recent survey of export credit facilities on OECD countries showed that for 1986 Ireland was ranked fifth out of 20 in terms of profitability, that is in terms of premium income relative to claims paid. I believe that the availability of export credit insurance and finance can in very many cases be the deciding factor in whether or not a company will 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 compny's limited resources.

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 this Bill to the House.

Mr. G. Reynolds

First, I welcome the Bill. I think it is a very positive step basically. The increasing of the limit from £300 million to £500 million for the purpose of guaranteeing payment for goods by foreign countries through the export credit insurance system is a very forward looking approach. I am also glad to note that the Minister outlined the problems that can be created in international trade and that he will try to minimise the risk to the Exchequer which is very important. It gives greater incentives to the exporter to find that £200 million more is guaranteed. It will make clear to business entreprenuers who have been quite slow to try to get into the export market that this increase could be very beneficial to them.

It would be remiss of us to speak on the Bill without paying tribute to the people who have already been in the export trade in this country for quite a number of years, people who have gone to developing countries and Third World countries and who have got markets for themselves no doubt with the help of State-sponsored bodies. They have, however, taken the initiative themselves and gone out and worked in conditions that were not very good; they have been away from their families for quite a long time, under a lot of pressure to make deals, especially when they are not sure of the market. They should be congratulated on the work they have done, especially in the last number of years when exports increased dramatically. They have made great personal sacrifices and they have been very beneficial to our country.

The internal market in 1992 seems to be on everybody's lips. This is another positive step forward that manufacturers should be made aware of. It should help them be more competitive coming up to 1992 and the internal market. There is a great opportunity for Irish industry to be ready to grab. They have to be made aware of the need to export. That is a very important part of the Government's job and I have no doubt that the Minister will undertake it with a lot of enthusiasm and I believe he will get help from all political parties in that task.

Another aspect of it is that Irish industry should be far more aware of the potential that there is in marketing their goods. I know it can be very expensive but in marketing the goods — obviously in other countries — the awareness should be there. Irish exporters should be encouraged to spend more money on marketing. It is very beneficial for the expansion of their businesses.

I was going through a newsletter from the Confederation of Irish Industry and they made one particular suggestion about an Export Marketing Services Association which, I think, would have a lot of recommendations for Irish industry. They state that:

The confederation plans to establish an Export Marketing Services Association with the following objectives and structures.

Objectives

To provide representation on policy issues specific to international trade

To provide a forum for co-ordinating representation on issues affecting export trade in goods and services

To promote specific action to increase exports

To promote development of firms engaged in the provision of export marketing services

To promote public and political awareness of the strategic importance of expanding exports.

Structure

Members of the Association would be confined to firms who provide direct marketing services to manufacturing and traded services industries in Ireland.

That could be a very worthwhile system to take on board and whatever help the Minister's Department could give in the creation of it would be very beneficial.

Another positive step in this Bill—and the Minister mentioned it in his speech — is job creation. There can be quite a lot of job creation in the export trade. Local communities and small businesses could become involved. There are prohibitive costs in public and employers' liability insurance and many small industries are afraid to start up because of this. I know the Minister is quite aware of this and I would be grateful if he would consider taking action on it as soon as possible. Many local communities in my own county, and certainly in rural Ireland, would quite willingly try to go into small developments in manufacturing industries but for the prohibitive costs which are sometimes frightening. Better deals from finance agencies, more venture capital, etc., would also be worth looking at.

That is all I have to say on the Bill. It is very positive legislation and I hope it will be very successful in benefiting our exporters.

Mr. Mulroy

The Bill is non-contentious and it should have the support of all parties. I believe it will. The purpose of the Bill is to increase from £300 million to £500 million the aggregate amount of liabilities which the Minister for Industry and Commerce may assume at any one time in respect of export guarantees under the Insurance Act, 1953, as amended. The fact that there is a need to increase these levels is a logical outcome of recent growth in the economy. In 1987 the country's exports reached an all-time high, amounting to £10.7 billion, and it is anticipated that 1988 will be another record year with exports exceeding the 12 billion mark.

As an island country, of necessity we must be export-orientated and so the availability of export credit insurance is essential to Irish companies who are endeavouring to compete on the world market. The principal aim of the scheme is to help maintain the competitiveness of Irish exports and to encourage and assist export companies to diversify into new markets which will in itself stimulate export growth. The scheme gives Irish companies guarantees of payment if, for whatever reason, be it commercial or political, a buyer fails to honour the terms of payment. This guarantee also provides access to export credit finance from banks at preferential interest rates.

I must say that until the Minister's address I was not aware that the Irish pound financing exporter can borrow at AAA interest rate by the assignment of the exporter's insurance policy or by the provision of a State guarantee to the bank. The majority of small businesses are usually charged the A or the AA interest rate which involves additional interest charges. Let me ask the Minister is it mandatory for the banks to extend the AAA facility to all companies when they use export credit collateral or do they have to ask specifically for this special rate of interest? The problem for most medium to small companies when they win a large export order is to finance the manufacture and delivery of the goods.

In the early seventies it was possible when dealing with companies in developing countries to negotiate advance payments with the order or, alternatively, you could obtain a letter of credit confirmed by an international bank which would in itself give you a guarantee of payment. However, with increased international competition such conditions are no longer readily available. I believe more and more companies will take out export credit insurance to cover their risks and will need to be in a position to offer extended credit to their customers which this insurance allows.

Also, under this scheme the export credit insurance has the added facility which allows the exporters to obtain working capital from the banks at competive interest rates. These additional facilities do not interfere with the company's standard agreed credit terms or limits. The scheme in itself is not unique to Ireland, as other Governments have similar facilities such as the ECGD in the UK, Coface in France and Hermes Credit in Germany. In fact, all our major trading competitors provide similar Government-supported credit insurance and finance schemes to assist their exporters. It is essential that the Irish Government provide such a scheme.

The Minister has stated that the level of usage by exporters has been disappointingly low and he believes that there is scope for getting more exporters to use this facility and he has promised to carry out a detailed review of the scheme. He also said that he hopes that the banks will play a more active role in supporting the exporter and that he will also share the risk with the Government. I believe that the majority of people in the country would agree that the banks should be more supportive and that any advances that the Minister makes in getting the banks more actively involved in giving unsecured credit to exporters would be a very welcome initiative. Also, I would add that exporters would be a very welcome initiative. Also, I would add that export credit insurance should be widely advertised because I believe that there are small companies who are not aware of its existence.

I am pleased that the Government's special trading house scheme, which was approved by the European Commission last February and which is designed to promote the growth of exports of Irish-manufactured goods, will qualify for the 10 per cent rate of corporation profit tax as well as benefiting from investments under the business expansion scheme. The trading houses can also avail of the full range of facilities under the export credit insurance and finance schemes. I believe that this is very necessary and it will be a tremendous asset to the licensed trading houses in achieving their set objectives.

The scheme is administered by the Insurance Corporation of Ireland as agent of the Minister for Industry and Commerce and is intended to be self-financing. However, despite the best efforts of the Insurance Corporation there is a cumulative deficit on the scheme of £12.8 million. I am aware that this is a small fraction of the total exports which have been insured since the scheme was started in 1971 and I am pleased that the Minister is committed to reducing and to eventually eliminating this deficit.

There is no doubt that the commercial risks in selling to Third World and developing countries are substantial. However, it must also be recognised that these countries can provide a very lucrative market for our exporters. I would like to ask the Minister what alternative methods of payment are available. For example, is it possible for the Government to procure, say, oil from Nigeria in exchange for Irish-manufactured products? I refer to Nigeria specifically because I am aware of one multi-national company operating in Ireland and employing several hundred people who are currently reviewing their sales policy to Nigeria and to other such countries because of the financial risks involved.

The Minister also referred to the export performance of small indigenous companies, the important role that they would need to play in the Government's strategy of export-led growth and how the availability of export credit insurance and finance will assist them in fulfilling their role. I would ask the Minister has he considered setting up a similar type insurance scheme to protect manufacturers supplying goods on the home market and in particular supplying goods under Government contracts. I am aware that there is an insurance scheme available but it is very, very expensive. I believe there is a need for such a scheme or such a Government initiative. In the last five or six years, due to the recession in the building industry and increased competition among contractors, many companies are submitting tenders at well below cost and they are hoping that variations and extras and the expenditure of prime cost and provisional sums will make up the shortfall. Subsequently, many of these companies are getting into financial difficulties.

I accept it is only fair that in a competitive situation, all things being equal, the lowest tender should be accepted. However, design teams, I believe, such as architects, engineers and quantity surveyors, have a grave responsibility to ensure that the tender accepted is not below the actual cost required to carry out a contract in full compliance with the drawings and specification. I believe that the design team have a responsibility to advise the Government Department, when making a recommendation in appointing a contractor or a subcontractor, that the tender complies with the cost plan and is sufficient to complete that contract. It is a known fact that tenders are being accepted for Government contracts which are well below cost and subsequently manufacturers and small businesses and suppliers have been caught by what can only be described as fly-by-night operators, they have been caught for goods supplied and installed by these contractors and they have not been paid for them. I believe that a nominated supplier in such an instance should be compensated by the Government for any loss incurred by him and in turn——

Acting Chairman (Mr. J. O'Toole)

This is not relevant to the Bill before us. This is an enabling Bill to increase the liabilities that may be incurred on the export market and you are talking about internal matters.

Mr. Mulroy

My point is that the home market is the important market for the manufacturer and unless the home market is secured it is very difficult for that exporter to develop an export market as such. If the Chair will let me finish, briefly, I may get the point across a little more clearly. As I said earlier, I believe that a nominated supplier in such an instance should be compensated for any loss incurred and that in turn the Government should be indemnified by the professional team if it can be proved that they recommended the below-cost tender which resulted in the contractor incurring a substantial loss and subsequently going into liquidation. This may not be relevant but it is all part of insurance which is necessary for the small manufacturer. A situation now exists whereby a nominated manufacturer supplying goods to a subcontractor on a Government contract must sign a vesting certificate relinquishing all title to the goods as soon as they are delivered. This is unfair and inequitable. I would be pleased if the Minister could look into this matter and maybe take some corrective action on it. It is most important that small indigenous manufacturing companies are given a fair and level playing field, at least on the home market, if we are to expect them to go abroad and win valuable contracts.

In conclusion, I fully agree with the Minister that increasing the statutory limit on export credit guarantee liabilities to £500 million will make a valuable contribution to the further growth of Irish exports. It will prove very helpful, particularly to small indigenous companies. I understand that a total of 350 companies employing 40,000 people are using this scheme and that 80 per cent of these companies are Irish. I am confident that this export insurance credit facility will continue to be a valuable instrument in protecting jobs, generating new export orders, and, in turn, creating further employment. I am pleased to support the Bill.

Mr. B. Ryan

One of the benefits of being a Member of the Oireachtas is that it contributes substantially to one's education.

Mr. Fallon

Hopefully.

Mr. B. Ryan

Fortunately, Senator Fallon, it is other people who will have to judge on it and not you.

An Leas-Chathaoirleach

That is not relevant to the Bill.

Mr. B. Ryan

I must be the first person who has been accused of being irrelevant in the first sentence he spoke. I accept that it may well be necessary to have export guarantee insurance. I wonder what are our banks doing? They claim that the reason for their profits is because of the risks they take. The justification, at least in Central Bank terms, for fairly substantial profits by our major banks is because of the risk-taking involved, that they are using other people's money, lending it and taking considerable risks and that there should be a proportion between the profitability and the risk. The extreme example is the oil exploration industry where high risks are taken, in some cases with justification, to justify quite substantial profits in those companies that are successful. There has to be a proportion between risk and profitability. When you read the Minister's speech — this is not a criticism of the Minister, although I am quite capable of being critical — you discover that what this really is about is guaranteeing credit to many exporters from the banks so that the banks do not have to feel that they are overly-exposed by funding exports. Among other things mentioned is the fact that it enables people to be given a triple A rating rather than a single A rating of interest for borrowings incurred in financing exports.

It is a well-known fact among small business people with whom I am acquainted, some of them successful in the high tech area, that the one thing a bank will not lend money on is orders. You can own substantial property which is totally unrelated to your business and they will lend you money but if you happen to have a full order book, whether it be for domestic or export purposes, you will not persuade most Irish banks to lend on it. This is by way of contrast with the experience of the same business people in dealing with American companies. They will tell you that the one thing a bank in the United States will be impressed with and will lend money against, where people actually take risks and operate as unprotected commercial entities, is a full order book. That ought to be the criterion a bank uses to determine whether it will lend to a company or not, rather than the property and the buildings they own or have a chargeable interest in. It should be based on the actual success of the company of doing what they are good at. We end up with banks encouraging everybody who has a company to become a property developer in order to facilitate them instead of encouraging people to do what they are good at, which is to produce goods or indeed services that can be sold on the international market at a profit for the company.

At the core of all this is yet another guarantee to the Irish banks that whatever they do they take no risk and they will be protected. The Minister's speech does not address some of the more serious questions about Irish exports. What we are actually doing is copperfastening the banks yet again. This exposes the myth that there is a thing called Irish enterprise which is out there competing in the market place, deserving of high reward because of the high achievement and the high risks involved. It appears that the risks involved in exporting are far less than perhaps the risks of actually selling on the home market. Anybody who sells on the home market cannot, unfortunately, have access to similar guarantees against loss, as the Minister said, if somebody simply refuses to pay. It appears that the sort of image of Irish enterprise that we are asked to accept is totally at variance with the facts. As the chief executive of the ESB said on one occasion, there is no such thing as a private sector in this country. There are those who are protected directly by the State, which are the State organisations, and those who are indirectly protected by the State, the so-called private sector. This is the classic example here.

A couple of interesting questions arise from this. This will perhaps sound strange coming from me but I think the State ought not to be involved in guaranteeing the interest of a private sector who claim the right to generate the profitability as an index of the risks they take. Why does this have to be done by the State? Why can the banks, who are major sources of funds, not take on the risk of setting up an export credit insurance scheme such as this instead of it being left to the State to take the risk? The only reason I can think of is that with the banks, in spite of the rhetoric they go on with, the last thing they want to do is take on a risk of any kind. Therefore, the State is left with all the serious risks while the banks manage to sidle in and generate most of the profits from the risks. There is a serious and consistent case for arguing that the whole Irish financial sector ought to be able to develop a scheme like this and get this potential liability — I know it is not real — of £500 million off the back of the State.

At a time when the State is allegedly strapped for money even the actual deficit mentioned by the Minister of over £12 million is a significant sum of money. It is a sum of money that could bail out one of our health boards, for instance; it could build a considerable number of schools or it could extend a considerable number of hospitals. Many things could be done with £12 million rather than simply bail out Irish exporters who should be borrowing money from banks who should ultimately be taking the risk for it. We are yet again cosseting a largely unproductive Irish sector which seems to be prepared to do everything except take a risk. Once they take a risk they expect the State to protect them from it.

A number of other issues arise from this, particularly the illusory nature of Irish exports. There are an increasing number of economists who would raise serious questions about the idea of using GNP growth as an index of economic well-being. There are also a number of economists who would raise serious questions about using financial services as an instrument of growth. Many of them would feel that the job creation potential in that area is both illusory and temporary. The figure of £10.7 billion worth of exports for last year and the estimated figure of £12 billion for next year are among the most imaginative figures that this country has ever seen. Nobody could really believe that we are generating the sort of growth rates in exports in real terms which would leave us ahead of the Japanese, for instance, and still look around at the state of unemployment in the country, the levels of investment, and the deteriorating quality of our public services and believe we are a country with exports growing faster than virtually every other country in the OECD and doing that consistently over the past seven or eight years. Because we are talking about insurance against risk for exporters, we ought to also look at whether we are actually really measuring our exports or whether we are actually measuring the figures supplied to us by people who have a particular interest in putting a particular figure on the exports.

The Minister probably knows more than I do about how multinationals can alter their prices to suit the tax conditions in various countries. In a country which has problems of such a fundamental nature, the most fundamental one of all being the lack of enterprise in the Irish private sector, to generate illusory numbers which suggest that there is an export boom which this country is benefiting from does nothing other than to distract our attention from the fundamental reality, which is that our manufacturing industry is largely antiquated. A considerable proportion of it outside the high tech areas has hardly expanded in the last seven or eight years. I am referring, from memory, to the Department of Finance's briefing document on the budget which clearly indicated the difference in the levels of growth of the high tech and the other areas of manufacturing industry. Of course, the figures in the high tech industry are, to my mind, as much fiction as they are fact, because they are the products of companies who choose transfer pricing policies which suit those companies. It is an unfortunate basis for any industrial policy that we have to use numbers which are largely mythological and which bear no relationship to the economic realities.

It would be advisable for politicians of all political persuasions to take a few steps back from the numbers that are waved around by economists and actually ask themselves do they really believe that what is being said about Irish exports reflect's anybody's experience in this country. The truth is that they do not, because most of our exports are not really Irish exports. They pass through an almost insulated, independent economy, which is unrelated to the realities of the Irish economy. Therefore, to suggest that the continual growth of exports will somehow generate extra wealth or, more importantly, extra employment here is nothing less than an illusion.

A Bill like this, while it is simply an enabling Bill to enable the level of guarantees to be extended and expanded, needs to be addressed for two reasons. First of all, it refers to the illusion of Irish exports. The one thing which this Bill identifies is perhaps the one part of Irish export achievement which is real, that is, the contribution of indigenous Irish manufacturing industry to our exports. I accept that the exports to the value of £750 million or so a year by indigenous manufacturers selling Irish products to an international market are real exports. To that extent that is to be welcomed, but to presume that we would get the same economic benefit from what I would regard as the mythological figure of £10.7 billion is nothing more than an illusion which can cost us dearly if we build our future plans for economic growth upon it.

The second issue which needs to be addressed is whether this is something that the State should be accepting the risk for. Our two biggest banks now see themselves as international banks with an interest in the international marketplace. If that interest in the international market-place cannot take them to the stage where they can assess risk for a client or a customer in a new market, then serious questions arise about their actual expertise. If they cannot give customers reliable advice about the extent of the risk a customer is undertaking either in political or commercial terms in doing business with a particular country or with a particular customer, then I am not sure they have the expertise that they claim to have and that goes with their alleged participation in the international market-place. It seems that what underlines this is yet another protection in another area of life for the Irish banks.

I would encourage the Minister, on the Companies Bill, to make it an offence for lending institution to look for personal guarantees from the members of limited companies. The idea of financial institutions looking for such guarantees is totally at variance with the whole idea of a limited company and puts the banks at a profound advantage vis-a-vis all other creditors of a limited company. It is typical of our banks that in that area they take no risks while all other customers of a limited company have to accept the risks involved in dealing with the limited company. It is similar here. The banks will finance exports as long as they are guaranteed against risk.

I would like somebody to tell me where in the Irish marketplace, other than in the small area of personal lending for consumer goods, do the banks take any risk. It seems that there has to be copperfastened security available to them, often unrelated to the enterprise they are claiming to aid, before they will condescend to lend any money.

I know, as I have said at the beginning, that they are unwilling to lend on the basis of order books, which is as much a reflection on their extraordinary conservatism as it is on anything else. I know that they probably would not guarantee or lend money for exports to any country other than to half a dozen of the most secure in the world if they did not have this scheme to protect them. I would like to know where do they actually take any risks. The risks they take are very often the risks that their own incompetence does not make them aware of — for instance, the attempt by AIB to take over ICI. The irony there is that, while many innocent people who have done their best will lose their jobs when companies go bust, when AIB make a mess like that nobody loses his job. It shows how unreal the idea is that these banks are actually entities competing in the marketplace, subject to the rewards and penalties of the marketplace. The one great argument for the market economy is that it both rewards success and penalises failure and, in that process, encourages efficiency. Once you claim to operate a market economy and protect those who are most culpable from a commercial failure, you are actually guaranteeing inefficiency and incompetence. Underlying legislation such as this and underlying the philosophy behind it is one more demand by the Irish financial sector to be protected from the risks they ought to be taking if they really were what they claim to be: vigorous commercial entities operating in the real world.

Mr. Fallon

Very briefly I would like to welcome this Bill. As the Minister has indicated, the purpose of the Bill is to increase from £300 million to £500 million the aggregate amount of liabilities which the Minister may assume at any one time in respect of export guarantees under the Insurance Act, 1953. Like other speakers, I feel that this is a very important scheme for many companies who are exporting at present. There are not enough companies participating in the scheme and indeed this has been referred to briefly by the Minister in his address.

Exporters to non-OECD countries are to be congratulated. It is a well known fact that they export at great risk. Great credit is due to them for being what I would regard as the pioneers, paying the way into these new countries, hoping that they will make a profit and in the process creating jobs. Clearly, there is a great link between the creation of jobs and the scheme in question. Obviously, if a company incur debts and are unable to collect what is due to them, it could result in very serious problems in terms of loss of jobs, liquidation and so on. The risk is far greater for those companies than for the companies exporting to the countries of the EC or the other OECD countries.

With regard to non-OECD countries there are problems with political upheavals and foreign currency and that is all the more reason why companies operating in this new area should get involved in this scheme. It is a good and effective scheme. In particular, it should prove effective for a company who are breaking into these new markets for the first time and should help them until they get a proper track record and until they get used to the trading conditions. The scheme is almost essential for beginners in this kind of situation and for the initial years they must take part in it. It is vital for Irish exporters to have a guarantee of protection against non-payment for whatever reason.

The role of the banks has been referred to by a number of speakers and also by the Minister. Their role is important in this area. There is no question about that. We are dealing with jobs and the more we export the more jobs will be created. The banks have a role in the financing of exports. As the previous speaker said, they tend to resort to what appears to be non-risk areas of banking. Because the creation of jobs is part and parcel of the activity, the banks should take the extra risk involved. They ought to be big enough now to accept that they have a major role to play in the financing of this project.

The question of the export scheme has been referred to by the Minister. He said that not enough companies are involved in this scheme. He indicated that annually about £750 million worth of exports are covered under the export credit scheme. That is quite a small figure when one considers that the overall figure for 1987 was £10.7 billion. The principal aim of the Bill is to help Irish companies exporting to those countries that have been referred to to maintain the competitive aspect of the Irish export industry, to increase export growth and to diversify into new markets. That is very important.

The premiums involved have been referred to by the Minister. He indicated that in this regard we are the sixth cheapest of 20 countries that were surveyed. I know from my own experience that premiums are quite reasonable compared to the risk involved. I hope that more exporting companies will become involved in the scheme. It is vital if they are to survive. Certainly my wish would be that the new measures which the Minister is now introducing will result in more companies becoming active in this area. It goes without saying that this is a Bill that I welcome and support.

Mr. Ross

I would also like to welcome this Bill, not so much in its detail but because of the reasons why it is necessary to bring it before the House. It is very refreshing to see that there is a necessity to increase from £300 million to £500 million the aggregate amount of liabilities which the Government have to guarantee. It is indicative of what many are becoming convinced is an upturn in confidence in this economy and in the basic and fundamental pointers in the economy, one of which is exports. I do not congratulate the Government because I do not think they should take all the credit for the increase in exports, just as I do not think Governments should take credits or debits for everything that happens. They have played a part in the upturn of exports and as a result it is necessary to bring this Bill before the House. It is very welcome and it is encouraging to see such a pointer.

I read the Minister's speech with a great deal of interest. I was not convinced, before I read it, of the need for a scheme of this sort. Philosophically, it is difficult to justify the continuous pampering of Irish industry, Irish banks and Irish exporters. I can see from what the Minister says that if everybody else is at it then we better be at it too, to put it simply. The OECD countries are practising such a scheme, as are all our competitors. It would appear that we would be at a competitive disadvantage if we did not have a scheme of this sort. We shall have to accept this scheme. There is all-party support for it in this House.

We should examine this scheme as it stands to see why it is not more profitable and if it can be improved in any way. The Minister said that he hopes that this scheme will be self-financing over time. The first problem that arises is that it is not self-financing now. I would have thought that a scheme like this should operate on a profitable, self-financing basis from day one. It should be possible not only for the Government to give these guarantees but to run this as a normal insurance operation. The Minister would say to that — I will be interested to hear what he says in his reply — that the premiums would be too high if this were to be the case. I would have thought that if the income to the scheme would have to be increased then there is something fundamentally wrong with the scheme. I would like to see this scheme being run on a commercial basis and if it means an increase in premiums then that should be done. It also means that the debt recovery, which is such an important part of this scheme, would undoubtedly be pursued with a great deal more vigour.

The Minister referred to the debt owed to foreign countries. He outlined very frankly and honestly where he thought recovery was possible and where he thought it was not possible. There are lessons to be learned from this Bill. One of the lessons is that where debt is considered to be irrecoverable, something should be done in the near future about not trading with those countries who cannot pay us. I do not see anything in his speech about that, but the Minister can correct me if I am wrong. I do not particularly want to pick out the countries involved but the Minister has named them. I would have thought that the lesson from that is that with countries like Sudan, Tanzania and Sierra Leone, it would be right that we consider very carefully before exporting to those countries in future. We should not only organise a debt rescheduling arrangement with countries who have not paid us in the past but also put up the premiums enormously for anyone who wants to be part of this scheme and still exports to those countries. I do not see any signs of that. Alternatively we could ensure that anybody who exports to those countries would not join the scheme but rather would export completely at their own risk. I would have thought that that would be the principal lesson to be learned from this. If this scheme is to be self-financing over time, the premiums will, unfortunately, have to be increased. The countries who have registered the bad debts should be barred from the scheme or very special precautions should be taken about trading with them.

Another point of interest in this scheme is whether there are any limits on the cost to the Exchequer. There is a cost of £500 million but what would happen if we were hit by an absolute disaster in this scheme? The Minister said we have been rather successful in this scheme, we have only a deficit of £12.8 million while other countries have hit disasters. I suggest that that is just because we are lucky and that sooner or later we will be hit by a major disaster. I would have thought that what is necessary is that very strict ground rules be laid down about the operation of the scheme in the future so that we can, if possible, prevent such a disaster, the sort which other countries suffered. It is all very well going to the Houses of the Oireachtas and saying we want to be able to guarantee these liabilities, that it is not really going to happen. There is always the possibility that exactly that will happen. That is why the Minister is here.

This is a sort of doomsday Bill in some ways. It is most unlikely, but it is just possible that at some stage we will have to pay out £40 million, £50 million or £100 million. It would be interesting to hear what the Government have in mind for preventing this and for taking precautions against this in the future and for seeing that we do not suffer the same fate as other countries.

In summary, I welcome the Bill although I think we should be reluctant to give industry or exporters any great preferential treatment in trading. It is a pity if they feel they are protected to a greater extent than any other traders. Certainly, let us encourage exports. It is part of the philosophy of every country that any recovery should be export-led. I would welcome in that area the trading houses set up by the Government as an initiative which shows a great deal of enthusiasm. It shows that they know the direction in which they are going. Will the Minister give us an indication of how they got off the ground? I welcome that initiative. We could look at other areas where exports could be encouraged. The export sales relief dividends were a great success in their time, and perhaps something could be renewed on a basis like that to encourage people to invest in export-led companies. The danger in this Bill is that exporters will just feel too readily and too easily protected. It is a one-way bet. They are obviously getting very cheap insurance, otherwise the Government would not be making a loss.

Minister for Industry and Commerce (Mr. A. Reynolds)

I welcome the contributions by the various Senators and the concluding remarks of Senator Ross. I concur with him that our future lies in the further developing of exports. We will do what we can in the form of new initiatives, in addition to moves we have already taken. The House can be assured that we are continually seeking out new initiatives to try to increase our exports, because we all know that our economic future depends on the development of our exports. Two out of every three jobs in this economy depend on exports. Senator Ryan may have certain question marks in relation to export figures but in general terms we will have to continue to pursue and develop our exports.

I am only too well aware of the new ground rules Senator Ross mentioned, having reviewed this scheme in 1987. We have taken off cover the countries mentioned in my address to the House, countries where we have incurred bad debts except for one, the United States. It is interesting to note that of the £12 million deficit on this scheme £6 million represents one single bad debt in the United States, a case that one could say was probably bordering on fraud. That case is being pursued through different channels. The United States of America is not a country one would expect to run into those problems. One could expect such a problem in the developing countries. Those developing countries mentioned are off cover and will remain off cover until the position improves. That is one aspect. The other aspect is that, as I have mentioned in my speech, we have rescheduled some of those debts to recover them over a period of time.

I would like to remind Senators Ross and Brendan Ryan that the Government do not carry the 100 per cent risk in relation to these exports. There are different ground rules for different countries, depending on the risk taken. We do not carry a 100 per cent risk. In some cases we carry a 90 per cent risk while in others it is 80 per cent of the risk and in others it is 70 per cent of the risk. At all times the exporter is carrying a share of that risk, depending on the judgment we make of the risk involved and the country to which we are exporting.

I was asked if the Government should be carrying any part of the risk. It is precisely to help the smaller exporters that this scheme is in being. We are not concerned about the big multi-national exporters. They are capable of looking after their own business. There are schemes in existence in the private sector that carry those types of risks; but this scheme is specifically to help small exporters get into new markets. They would not be able to carry the risk. The most fundamental point that was missed by many contributors was that this scheme is basically to fund the credit period required in those foreign markets. In some cases it is six months, in others it is 12 months and in others it is 18 months. It is wrong to suggest that some of our smaller indigenous Irish companies would be able to carry that sort of risk on their own.

Senator Mulroy pointed out that when the Government give the guarantee behind the export insurance scheme the company covered could then go to the bank and get a triple "A" rate. That is there to be got and that is what should be got by an exporter who is a participant in this scheme, who has his credit insurance policy and a guarantee from the State. He is entitled to the triple "A" rate and he is very foolish if he takes anything less. That is not to say that the bank would not try to pawn him off with a lesser rate. But he is entitled to the triple "A" rate and he should go and get it.

We should all join with Senator Gerry Reynolds in complimenting the people in the export field, those who are abroad for maybe six months of the year, who leave their families and have to live in foreign lands. I have seen them working abroad. They have a tough job to do in very uncomfortable circumstances from time to time in some of the developing countries. We should all salute them on their achievements and wish them success in the future.

Senator Ryan raised a question about overall export performance and the economic benfits to the country. It is not an area I can get into too deeply but I can say that this country loses out to a large extent in relation to our export performance. I have to agree that after a lot of raw materials are brought in here a certain amount of value is added before the product is sent out again. This country, and this economy, is losing out to a large extent by not taking up the opportunities that exist in the large companies that have set up here. We are only suppliers of goods and services to the tune of about 26 per cent or 27 per cent to all the large companies in Ireland. It is not their fault. It is because we have not grasped the opportunities that are there in import substitution and in goods and services. That is why the economy is not benefiting to the extent that it should benefit by a GNP rate of 5 per cent or by £10.7 billion in exports. We cannot blame multi-national companies for that.

There are 900 foreign companies operating here employing 80,000 people. They brought new management and new technology here. It is up to us to ensure that we grasp the full opportunities that exist both in import substitution and in the supply of goods and services. It is not that we do not have the ability and the technical expertise to do that. It is for that reason that I looked at the whole linkage scheme and decided to involve the Irish Goods Council more in it, to adopt a more marketing approach to grasp the opportunities that exist.

The Irish market, in relation to our partners in the EC, is 57 per cent supplied by outsiders. In other words, 57 per cent of the requirements of the Irish economy come from imports and we supply only 43 per cent of the home market. If we could lift that 43 per cent to 50 per cent, which is not a major objective to set ourselves, we could create an extra £1 billion worth of business and many thousands of jobs. In the case of our partners in Europe, only 25 per cent of their home requirements are imported. A gap has opened up here and it is a matter for ourselves to get our act together.

A Senator said that these small exporters, for whom the scheme is tailored, should be able to do everything on their own; but I cannot accept that argument. They are basically indigenous companies. The scheme is not availed of by multinational companies who are capable of looking after themselves.

Senator Mulroy mentioned an insurance scheme for the home market. Under the scheme, run by ICI, and various other companies, Irish manufacturers and suppliers to the home market can insure their debts. It is a matter for themselves to work out their own terms with ICI or any of the insurance companies that run it.

I should like to tell Deputy Ross that the countries I mentioned in my speech, with the exception of the United States of America, were taken off cover. I reviewed this scheme in 1987 and those countries were taken off cover, except the United States of America. For his information I should like to say that half of the £12 million was incurred by one bad debt in the United States of America, £6 million out of the £12 million. It is true that when one looks at the performance of this scheme since 1971 one will see that less than .3 per cent represents the deficit on the scheme. It should be a proposition for the private sector. Indeed, I am looking at the possibility of having it operate in the private sector, because with a low deficit of .3 per cent it should be possible to put a package together. As far as I am concerned I will take any burden I can off the State but I have to ensure that small exporters get the opportunity, especially indigenous exporters, to cover the credit period more so than the risk. The entire risk is not carried by the Government, not 100 per cent in any case, but 90 per cent, 80 per cent or 70 per cent, depending on the country, depending on the risk.

More exports leads to more jobs, as Senator Reynolds said. He raised a question CII have raised, about an export marketing service. We have in recent times set up a marketing group and I am putting together a company — it should come to fruition very shortly — with 25 per cent each held by the IDA, CTT, SFADCo and ICC. I want them to sell a package to developing countries on international services. The four bodies will be in one company rather than the four of them going in different directions. Deputy Seamus Brennan, Minister for Trade and Marketing, has also set up a marketing group to sell international consultancy services.

A question has been raised in regard to trading houses. We have already approved three or four and there are many others on line. This is another area that can help our small indigenous companies to market their goods abroad, companies that would not have either the financial strength or the marketing expertise or be able to sustain a presence in an international market-place if they got themselves in. Now they can do what they are good at, the production of goods, and let the experts in international trade and marketing feed back the information to them on the changes in the market and the goods that are required.

Disasters were mentioned by Senator Ross. The ground rules are being continuously tightened but, despite our best efforts, and in the most unlikely countries we did incur a bad debt. We have to watch other OECD countries from a competitive angle. When there is talk about pushing premiums up through the roof there is no point in having an uncompetitive scheme because it is not going to do the job. We want to strike that balance all the time. It is true that premiums were not increased in one specific part of the scheme for quite a long time; but, as I said in my speech, we have increased it. We will continue to watch the scheme and, if I can unload it, I will certainly do so. However, I want to see it retained so that exporters, smaller exporters in particular, can avail of it.

Lack of enterprise in the country was referred to by Senator Ryan. I do not accept that good, bad or indifferent. There is a great air and mood of confidence building up in the country. As to why it was not there up to now I would certainly put down the marker and say that no investor is going to invest, or think of investing, in a country that had such a perspective as we had. That was the position whether one was talking about international investment or local investment. Interest rates were so high that there was little chance of people getting return on investment. One cannot go out and borrow money if one cannot hope to repay it. It is as simple as that, they are the ground rules, the foundation that has to be laid for investment to start. We have been doing that since we came into Government and the country is beginning to see the benefits of it.

The question of banks is a thorny one. I would agree with certain sentiments expressed by Senator Ryan that the Irish banking system is too much orientated towards bricks and mortar, plant and machinery. We have already started to make the switch away from buildings, plant and machinery in the budget by reducing capital allowances and slanting it more towards employment because one could not sustain accelerated capital allowances while unemployment was at such a high level. That is a welcome shift.

In relation to security, I agree with him that the Irish banking system seem to look for the kitchen sink, and everything else. The more enterprising economies in the United States, Hong Kong and other countries, take a different approach to banking than we do in Ireland. They tend to back the idea and the person rather than the building in which a business is situated. I would certainly welcome any change along those lines. Personal guarantees I abhor and always did. It is up to a bank to make a prudent judgment on whether a loan should be granted and having made that judgment I do not think they are entitled to everything thrown in such as personal guarantees. I am not so sure about the Senator's suggestion. I have looked at it and we will come back to it on a different Bill.

I would like to see Irish banks doing more in taking risks on exporters and in the other areas where knowledge-based industries are finding it very difficult to get finance. It is not a building one can stick a security on; nevertheless, it is a very valuable product and ways and means of financing it are going to have to be found.

The scheme is not really a risk against getting paid but is as much to cover the credit terms as anything else.

Senator Mulroy raised a question about dealing with counter trade or barter, or what have you. I should like to tell him that I am aware that some countries dealing with certain African states, and other countries, make specific arrangements in relation to counter trade. I have taken an initiative recently in relation to counter trade and I will certainly look at any possibility of helping an Irish company in that regard. We are beginning to show some successes on the initiative.

I should like to thank the Senators who welcome the Bill. It does reflect the growing confidence that is in the country and the great increase in exports with a consequent demand for more export credit.

Question put and agreed to.

Agreed to take remaining Stages today.