19 January 2010 | Paul Snell
UK suppliers are missing out on foreign contracts because the government won’t provide the financial backup required by overseas buyers.
The reluctance of to provide finance to vendors has prompted the British Exporters Association (Bexa) to demand that the government underwrite bonds to support UK suppliers.
Foreign buyers using UK suppliers often demand a guarantee – called a performance bond – for orders of capital goods such as aircraft, manufacturing, telecoms and power generation equipment. The bond compensates the buyer if the order is not delivered on time or to specification.
However with the financial crisis and the reduction in lending, businesses are reaching their credit limit far earlier, and do not have enough left to cover bonds. Bexa highlighted one manufacturer who missed out on a £3.5 million contract because it failed to secure the performance bond.
“If we are to retain sustainable jobs in this country, we need to be exporting more,” said Susan Ross, chairman of Bexa. “Other countries’ governments recognise the problem and provide bond issue support. The UK government doesn’t even have this on its radar.”
Governments across the European Union, the US and China and elsewhere currently provide this facility to domestic vendors.
“Bond issue support should generate cash because the government receives a margin (equivalent to an insurance premium) from the manufacturer in return for the use of the government’s capital to underwrite the guarantee,” Ross added.
A spokesman for the Export Credits Guarantee Department (ECGD), a government agency, told SM
: “We have not shut the door on anything, and are prepared to discuss any form of support that can deliver real help. But we have yet to see hard evidence of significant market failure on the support of bonds.”
He added there were issues of risk that would need to be satisfied if ECGD was to support bonds.
At the end of last year ECGD launched a “letter of credit guarantee scheme”
where banks guaranteed payment from foreign buyers for UK suppliers.