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Feb 06 2012

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Credit insurance and guarantee services give strong fillip to Omani non-oil exports

ECGA celebrates two decades of support to Omani exporters
MUSCAT -- Credit insurance and guarantee services extended by the Export Credit Guarantee Agency of Oman (SAOC) have played a key role in boosting Omani non-oil exports over the last 20 years -- from RO 79 million in 1991 to RO 2,448.2 million in 2010 (excluding re-exports).

Since it came into operation in November 2001, the Agency has contributed towards the remarkable growth of non-exports. The ECGA presently insures exports to 102 countries worldwide. With the credit insurance cover, it has allowed the Omani exporters to expand their sales not only to existing customers but also to venture into non-traditional markets and explore new buyers globally knowing that the credit risks are mitigated.

In view of the existing global turbulences including the Arab Spring in the MENA Region as well as the European Sovereign debt crisis and its contagion effect, there has been rising demand for credit insurance cover provided by ECAs in many countries including members of the Prague Club.

Last year, the Agency celebrated its 20th anniversary with a well-attended ceremony at the Al Bustan Palace, A Ritz Carlton Hotel. The event was attended by a number of guests, members of the Board of Directors and many other invited guests including the exporters. Also attending were foreign guests from other countries represented by their own ECAs who attended the Prague Club Berne Union meeting in Muscat. The President of the Berne Union also attended the anniversary celebration.

With credit insurance and guarantee schemes, the Omani exporters are provided not only protection against payment risks but also the Agency advises exporters on credit worthiness of overseas buyers and guides the exporters on their collection and recovery of overdue debts. It allows exporters to sell safely on credit terms and compete effectively against other suppliers. It also gives them the confidence of selling to new and far away or non-traditional markets. By insuring their exports with ECGA , it gives the policyholders better control on their export receivables by keeping tab on the buyers and credit limits approved for cover by the Agency.

The ECGA has achieved a number of important milestones over its 20-year history. The Agency has been involved in the promotion of Omani non-oil exports through its valuable credit insurance, guarantee and financing services in support of the exporters. The Agency has continued to extend its support to exporters of all sizes operating in various activities. It insures exporters against both commercial and non-commercial/political risks. These include protracted default, insolvency and non-acceptance of the goods by the buyers on ground of commercial risks. As for non-commercial or country risks, it protects the exporters against foreign exchange transfer delays, import bans or cancellation of import licence, payment moratorium, civil commotions, wars, natural disasters, and so on.

The credit limits issued to exporters by the Agency has increased from RO 10 million in 1992 when it commenced its normal operations to RO 280 million in 2010 which reflects its growing firm support to exporters. Moreover, the number of overseas buyers insured by ECGA to exporters has reached 4,935 to 102 different countries worldwide.

The Agency since its inception has paid claims to exporters for variety of products insured to countries worldwide including GCC and EU countries as listed and illustrated below:

As commercial banks are risks averse, it was natural that the Agency launched and marketed its services to exporters initially through them. Banks are comfortable dealing with the exporters who have credit insured their exports through ECGA of Oman as it gives them confidence by providing required financing facilities for their exporters as credit risks against the buyers are mitigated.

Moreover, the export credit policy can be assigned to banks. Thus in case of any claims lodged by the exporters, the proceeds of such claims can be paid directly to the banks considering that the banks have vested interest since they have provided working capital financing to the exporters in executing export orders of the buyers. Moreover, the exporters as indicated earlier can also discount their export bills insured with the commercial banks at attractive rates of interest. The Agency has paid a total of over RO 1.48 million as interest subsidy to credit insured exporters through their banks since 1991 to 2010.

The Agency had earlier (1993) executed a line of credit of $10 million from the Arab Trade Financing Program (ATFP) which is an affiliate of the Arab Monetary Fund for refinancing Omani exporters. In order to facilitate commercial banks to provide such financing to exporters as well as not to compete with the banks, the Agency has fully paid back such line of credit to ATFP and has encouraged banks to provide such financing/refinancing to credit insured exporters.

In 1999 the Agency introduced the Pre-shipment Export Credit Guarantee Scheme which is primarily aimed at small-sized exporters who lack the necessary adequate security, which the commercial banks normally require. The guarantee issued by the ECGA fills the security gap needed by commercial banks for extending pre-shipment financing to the credit insured exporters. It has been designed for exporters to obtain timely and adequate credit facilities from commercial banks at pre-shipment stage for purchasing of raw materials, manufacturing, processing and packing of goods to be exported, against contracts for sales ie irrevocable letters of credit or confirmed purchase orders. Hence the scheme allows the credit insured exporters to obtain the necessary working capital financing from their commercial banks in order to execute export orders abroad so as to avail more export business opportunities.

In September 2003, the Agency supplemented its services to exporters based on their needs by introducing domestic credit insurance thus covering the credit risks of protracted default and insolvency of the local buyers. It was one of the first Arab ECAs to introduce such service which is made available to exporters with other ECAs in Europe. The total credit limits insured under the domestic credit insurance as at end of 2010 reached RO 13.4 million from RO 2 million in 2004 or significant cumulative growth of 57 per cent from 2004.

While actively engaged in extending its credit insurance, guarantee and financial support to exporters, the Agency has continued to remain profitable and self sustaining by promoting non oil exports through dependence from its own internal generated funds while meeting its growing commitments and needs of the exporters.

The Agency has also successfully managed through the years to reinsure its growing risks exposure with reputable reinsurers in the international private credit reinsurance market against both commercial as well as non-commercial/political risks. It has continued to attract interest among lead reinsurers through its international reinsurance treaties against both commercial and non-commercial risks which they highly commended its underwriting activities due to its past track record. The growing exposure of the Agency has been comprehensively covered and renewed for each of the underwriting years under the Quota Share Reinsurance Treaty with international and regional Lead Reinsurers Atradius and National Borg through local reinsurance broker -- Aon Majan LLC. It has successfully managed to enhance its quota share from 30 per cent in 1994 to 35 per cent in 1995 and 50 per cent from 1996 onwards. It also maintains Excess of Loss Treaty through its strategic association with COFACE in the Credit Alliance Network.

The reinsurance treaties provide protection against both commercial and non-commercial/political risk. Such reinsurance support is essential considering the rapid growth of the Agency's exposure while its own capital is limited. The success of the enhancements and renewals of its reinsurance treaties with international reputable reinsurers reflect on ECGA 's sound and professional underwriting on buyers' risks and lower claim loss ratio over the years. This compared favourably than claims experienced by other national and regional export credit agencies in other countries.

The Export Credit Guarantee Agency of Oman has been an active member of Credit Alliance Network since July 1996. The Alliance is an international organisation of credit insurers and ECAs as well as other credit management service providers including credit information agencies, debt collectors and factoring companies in 97 countries worldwide with a total number of 72 members operating under the auspices of Coface of France. ECGA of Oman has always retained its strategic relationship with the Alliance and with its respective members.

It actively accesses credit information reports from COFACE data base which has millions of buyers listed to which the Agency is linked on-line as well as obtain underwriting decisions for higher amounts which are reinsured through COFACE under its Excess of Loss Treaty. Also it benefits from technical collaboration as well as being provided training to its staff at COFACE offices in Paris. Other services which the Agency availed and benefited as being a member of the Credit Alliance Network included debt collection and assistance recoveries of paid claims.

The Agency was honoured to host the first meeting of Regional Group for Africa/Middle-East countries of the Credit Alliance in Muscat, Oman under the auspices and co-ordination with COFACE in March 2001.

It is worth mentioning that the General Manager of ECGA of Oman, Nasir bin Issa al Ismaily, was elected as its first Regional Co-ordinator and Chairman for Africa/Middle-East Group as well as member of the General Steering Committee of the Credit Alliance under the auspices of Coface for six consecutive terms that is from 2000 to 2006.

It was the first Arab Export Credit Agency to be represented in such an important committee. Al Ismaily was also awarded the John Manners Shield in October 1, 2001 and was the first recipient of this Award in memory of late John Manners of CUAL, South Africa, one of the original members of the Alliance.

The Export Credit Guarantee Agency of Oman was the first Arab ECA to be admitted as member of the Prague Club of the Berne Union in May 2001 which is an International Union of Credit & Investment Insurers of ECAs to various countries in Central and Eastern Europe, Africa, Asia and the Middle-East. It attended its first Prague Club meeting in Tashkent, Uzbekistan represented by Nasir al Ismaily.

The Agency subsequently was honoured to host the first meeting of the Prague Club in Muscat in the MENA Region in 2006. There are presently a total of 34 members of the Prague Club. Such prestigious club operating under the Berne Union provides networking, exchanges of experiences and information through workshops and bi-annual meetings.

At the autumn bi-annual meeting of the Prague Club which was held from June 8 to 10, 2009 hosted by Exim-Grant of Belarus in co-ordination with Secretariat of the Berne Union, the General Manager of ECGA , Al Ismaily was elected as the new Chairman of the Prague Club succeeding Simon Csaba of MEHIB Hungary. This was the first time in its history that the Chairmanship was bestowed to elected nominee outside Europe.

Al Ismaily as Chair of the Prague Club also hosted respective meetings in Cape Town -- South Africa, Zagreb -- Croatia and Phuket, Thailand. The last one was here in Muscat with our Prague Club members.

In November 2011, the Agency hosted the bi-annual meeting of the Prague Club in Muscat. It was represented by national and multilateral Export Credit Agencies (ECAs) from 37 countries. The Prague Club operates under the auspices of the Berne Union based in London. The meeting of the Prague Club coincided with the 20th Anniversary since the inception of the operations of the Export Credit Guarantee Agency of Oman in November 1991.

Export Credit Guarantee Agency of Oman hosted this meeting for the second time following the earlier meeting in December 2006. ECGA of the Sultanate of Oman was the first ECA from the Region to qualify for membership since 2000. Nasir al Ismaily, the Chairman of the Prague Club stated that many other ECAs especially from the MENA Region have since joined the Prague Club. Other most recent ECA members who have been admitted for the first time include ECAs from Latvia and Greece as members and Singapore as an observer. A total of 37 ECAs attended the Muscat meeting with total participants at 70 which is the largest attendees in the history of the Prague Club. Also attending were multilateral ECAs including the Inter-Arab Investment Guarantee Corporation (Dhaman) which is based in Kuwait, the Islamic Corporation of the Insurance of Investment and Export Credit (ICIEC) based in Jeddah as well as Africa Trade Insurance Agency (ATI) based in Nairobi. It is worth mentioning that the Prague Club has grown from only five founding European ECAs that is from Czech Republic, Hungary, Poland, Slovakia and Slovenia to many other members joining especially from newly established ECAs from the Middle-East, Africa and Asia. The ECAs which attended the Prague Club meeting in Muscat included national ECAs from Belarus, Bosnia and Herzegovina, Botswana, Bulgaria, Croatia, Czech Republic, Egypt, Estonia, Greece, Hungary, Iran, Jordan, Kazakhstan, Kenya, Kuwait, Latvia, Lebanon, Macedonia, New Zealand, Philippines, Poland, Qatar, Romania, Russia, Saudi Arabia, Serbia, Singapore, Slovak Republic, Slovenia, South Africa, Sudan, Thailand, Ukraine, United Arab Emirates and Uzbekistan. These are in addition to multilateral ECAs as cited earlier.

The Agency also benefits through bilateral and professional exchanges as well as sharing essential information in the credit insurance field with other ECAs from both developed and emerging markets.

ECGA of Oman also signed Co-operation Agreements with a number of the ECAs of the Prague Club including Slovenia, Egypt, Jordan, Iran, Saudi Arabia, Sudan, UAE, Romania, Uzbekistan, Belarus, SEP of Saudi Arabia, IAIGC in Kuwait, Bulgaria, Kazakhstan and Thailand. Most recently following Oman joining ICIEC as member country, ECGA of Oman signed co-operation agreement with ICIEC in Jeddah in 2010.

ECGA of Oman joined the newly established (2009) Aman Union which is the Union for Arab and Islamic ECAs under the joint auspices of the Islamic Corporation of Export and Investment Credit (ICEIC) -- a member group of Islamic Development Bank and The Arab Investment and Export Credit Guarantee Corporation (Daman). Among the founding members of the Aman Union were the Export Credit Guarantee Agency of Oman , Malaysia, Tunisia, Turkey, Algeria, Egypt, Indonesia, Jordan, Lebanon, Sudan and UAE. The objective of the Aman Union is to develop the commercial and non-commercial risks insurance industry in member countries.

The ECGA has been admitted as member of the Association of Development Financing Institutions in Asia and Pacific (ADFIAP) in June 2009. The membership has grown to 108 members in 41 countries and territories. It has attended its first meeting in Vancouver, Canada in 2010 followed by Kyrenia, Cyprus in 2011.

Furthermore, the country benefits from generation of higher foreign exchange earnings due to rises in the level of non-oil exports generated as well as diversifying its economy away from oil.

The Agency is presently constructing its own building at the Airport Heights where a number of ministries will be located. The new location will be ideal as the premise will be spacious as well as in meeting its future needs.