Export Credit Insurance Still Left Open

Exporters are indifferent to the credit insurance
According to Nguyen Hong Ha, Vice Director of VCCI-HCM, the interest rate is a difficult issue for enterprises. In recent times though interest rates have been lowered, businesses still find it a difficulty. The export market has not recovered, especially the European market. To sustain markets and keep customers, many enterprises had to reduce prices and choose flexible payment methods. This means more risk to their business. Currently, the seafood and agricultural enterprises are struggling. One of the solutions that businesses can adopt in the difficult context is the use of export credit insurance.

According to Mr Phung Dac Loc, General Secretary of Vietnam Insurance Association, in 2011, total import and export turnover of Vietnamese goods were over US$200 billion, of which export was US$96 billion and import over US$110 billion, but goods insurance gained only VND1,100 billion (US$50 million). The charge was too small compared to the total export turnover, accounting for only 0.02 percent. This is a disadvantage for Vietnam’s economy.

According to Mr Loc, the current economic situation is under pressure with reduced purchasing power, high inventory levels, and the remained number of business dissolutions. To address these urgent problems, the government and other departments and agencies have issued many solutions such as lowering interest rates, discussing ways to remove difficulties for enterprises, especially the issue of capital and inventory releasing, while they can still obtain profit and the participation on export credit.

"When exporters faced difficulties such as getting stuck at the port, or being sued for dumping goods, or selling poor quality products, or exceeding the allowed amount of goods, or when the manufacturer does not specify the 100kg capacity of an exported chair which is broken by a heavier user, the manufacturer must pay compensation according to the country’s regulations. These are times when business credit insurance will help reduce difficulty," Mr Loc stressed.

Export credit insurance will improve the competitiveness of Vietnam, which is the competitive weapon that helps businesses reduce the gap between them and foreign firms. According to Mr Loc, in developed countries, they sell goods on credit, because they already have had export credit insurance to avoid the risk of loss. Why doesn’t Vietnam use this form, an effective form for Vietnamese goods to be distributed to foreign countries?

Mr Loc said that export credit insurance is the "property" for enterprises to access bank loans. Because once companies buy export credit insurance, when they face risks, insurance companies will pay for them. Therefore, enterprises can negotiate with banks without any collateral.

The sad reality is that importers of Vietnam have formed the habit of importing goods under CIF price, which means that importers always ask the seller to buy insurance and rent carriers. This means a small amount of foreign currency flowing abroad, added Mr Loc.

According to the Ministry of Finance, despite the financial aid policy, buying export/import insurance is a decision of business leaders. As for insurers, the Ministry of Finance does not require businesses to sell this package if they find the insurance package not beneficial for business.

As representatives of an insurance enterprise there are two ways to buy export credit insurance. The first is that businesses buy export credit insurance for the whole fiscal year for all export goods. The second is that businesses only select specific items to buy export credit insurance. The value of each contract to buy export credit insurance usually depends on the total value of export goods, as well as on the market of the importing country.

Export credit insurance not fully understood
Representatives of a seafood business said that actually, businesses are aware of the risks in the export process, but in the context of the current difficulties spending a large amount on insurance would not be feasible. Meanwhile, to maintain operations, many firms have to borrow loans with high interest rates, and face many other financial expenses, now if they pay additional fee for export credit insurance, they would be hardly able to stay in business.

According to this business, currently, enterprises still have other traditional options such as opening L/C payment via bank, paying advanced money, or selecting a form of financial insurance although the reliability is lower than the export credit insurance. However, when there appear big risks in international payment, the enterprise will suffer severe consequences.

According to many insurance experts, when operating in high-risk areas such as China or Hong Kong, business should buy export credit insurance.

Along with that is the necessity to have specific solutions and the joint support of all four sides of the Ministry of Finance, banks, insurers and exporters. In current conditions, the role of regulating and facilitating of the Ministry of Finance and the State Bank to remove the credit mechanism is crucial to the success of implementing a pilot export credit insurance project as well as protecting the interests of export enterprises, the State and banks.

Currently, there are 23 commodity groups encouraged to participate in export insurance. In particular, group 1 is 9 agricultural, forestry and fishery products including seafood, rice, cashew, coffee, tea, cassava and vegetables; group 2 includes textiles, footwear, electronics and electronic components, rattan, and wood. Hopefully, this move will work to encourage enterprises to participate in export credit insurance.

Ha Linh