ADB press release
ADB-EFIC risk-sharing pact to ease import of key Australian goods to frontier markets
The Asian Development Bank (ADB) and Australia’s Export Finance and Insurance Corporation (EFIC) have signed a risk-sharing agreement that should make it easier for some of Asia’s developing economies to import crucial Australian goods. The agreement is part of ADB’s Trade Finance Program (TFP).
Many companies, particularly those in the least-developed economies, or “frontier economies”, of Asia, struggle to get the trade finance they need to buy key inputs for export production or end products from overseas, including from Australia. This holds back business and means less job creation, ultimately restraining economic growth for developing Asian economies.
“Trade is the lifeblood of economic growth. Sharing risk with EFIC will mean ADB can increase its support for trade in Asia’s frontier markets,” said Philip Erquiaga, Director General of the Private Sector Operations Department at the triple A rated ADB. “We expect continued substantial demand for trade support in the coming years in the 14 emerging Asian countries already participating in the Trade Finance Program and as the program expands into the Pacific and Central Asia.”
Australia is a major exporter to Asian markets. In 2010, Australia’s exports totaled A$284.1 billion. Of that, A$155.9 billion, or 67.3%, went to East Asia. This agreement will see EFIC share the risk that ADB, through the TFP, takes in guaranteeing letters of credit for exports of Australian goods into Bangladesh, Pakistan, and Sri Lanka. This will provide the TFP with additional capacity to support trade in those three countries.
ADB’s TFP, which provides guarantees and loans through banks to support international trade, targets Asia’s most challenging markets and does not assume risk in relatively developed markets such as the People’s Republic of China, India, Malaysia, and Thailand.
“We’re delighted to work with ADB on its first risk-sharing agreement with an export credit agency,” said Andrea Govaert, EFIC’s Executive Director, SME and Mid-Market. “ADB’s increased capacity to support exports from Australia to emerging Asia should create many opportunities for Australian businesses, large and small, that trade with the region, and their banks.”
Last year, the TFP supported 783 trade transactions worth $2.8 billion, with most of that trade conducted in countries where international banks do little or no trade finance business. Around 35% of the trade deals supported by the TFP last year were conducted by small- and medium-sized enterprises, which collectively generate most jobs in many developing countries, while 49% of the transactions were between developing countries in Asia. Last year, the most active users of the program were Bangladesh, Pakistan, Viet Nam, Sri Lanka, and Nepal.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members – 48 from the region. In 2010, ADB approvals, including cofinancing, totaled $17.51 billion. In addition, ADB's ongoing Trade Finance Program supported $2.8 billion in trade.