annual report 2009 New Business

Transcription

1 annual report 2009

2 federal export credit guarantees at a glance in million eur Export Credit Guarantees of the Federal Republic of Germany Hermes Cover Statutory cover limit Cover applications (volume) * Small and medium-sized enterprises (share of exporters supported with guarantees in %) ** annual report 2009 New Business Covered export volume 20, ,379.6 of which for emerging and developing economies *** industrialized countries *** 17, , , ,279.4 Covered volume as % of total exports Covered exports for EU countries ,991.5 Results Revenues from Premiums and fees Recoveries from political claims from commercial claims Other income Expenses for Claims paid for political claims for commercial claims for exchange rate claims Management fee Annunal Result * Including tied loans ** Firms with up to 500 employees *** Classfication of countries see p. 92 Accrued Result (since 1951) 1, ,475.7 Amounts subrogated to Federal Goverment 4, ,369.9

3 Dear ladies and gentlemen, The global crisis in the financial markets presents us with huge challenges. The Federal Government is making its contribution here to ensure that our export-orientated companies can come out of this difficult period stronger than before. To this end we have launched a foreign trade initiative which will focus and bundle the foreign trade activities of the Federal Ministry of Economics and Technology. Open markets for exports and investment are crucially important for the German economy. But not only that: ensuring a sound base for export finance is just as vital for the success of exporting industry. This is where the federal export credit guarantee scheme comes in: in cases where insurance for export finance from the private market is not forthcoming, state export credit guarantees come into play. 70 % of applications for cover under Hermes guarantees come from small and medium-sized companies. We are therefore placing the main emphasis in our foreign trade initiative on tailoring export credit cover even more closely to the needs of the German Mittelstand, the backbone of the economy, in order to give small and medium-sized companies easier access to this instrument. On top of this, the foreign trade initiative will strengthen our efforts to achieve a level playing field in the international competitive arena. This applies first and foremost in view of the growing significance of the emerging economies in world trade, a development which we explicitly welcome. We cannot, however, accept a situation where German companies are put at a disadvantage simply because they are subject to stricter rules than their competitors from countries outside the OECD. For this reason I regard it as one of our central challenges to bring the emerging nations into a common framework which harmonizes the conditions for export credit guarantees and state export financing. This is not least true as regards standards regulating the environmental and social aspects of trade was a historical year for the export credit guarantee scheme of the Federal Republic of Germany. The scheme just like the Federal Republic itself turned 60. This respectable anniversary was duly celebrated in fitting style together with a host of exporters, banks and representatives of the Federal Government as well as the mandatary consortium in December The outstanding importance of the promotion scheme is already illustrated if we only look at the figures for last year. The Federal Government granted export credit cover to the tune of 22.4 billion euros. This marks an all-time high in the history of the Hermes guarantees. In the anniversary year 2009, the Hermes scheme wrote black figures for the Federal budget again, posting a surplus of 454 million euros. New business was up by 8 % year-on-year and that in the year of the economic and financial crisis. As in the preceding years, the main thrust of newly granted cover was business with the emerging economies and developing countries, but the demand for guarantees for the industrialized world rose markedly in Due to major single projects covered in South Korea and the USA, 2009 was a year in which, exceptionally, Russia did not head the list, instead coming in third. We have responded swiftly to the increased demand for insurance and refinancing options in the financial crisis. Sufficient capacity for Hermes Cover was also made available in Over and above that, the modifications to the Hermes products introduced in early 2009 to support exporting industry have proved their value in the crisis. We reduced the exporter s self-retention in supplier credit guarantees and increased the maximum guarantee amount per exporter in the Counter-guarantee. These new options have been avidly taken up by exporters. We have in addition made it possible to include the risk of confirming letters of credit in cover. These measures are valid for a limited period up to the end of We will evaluate their effects during the course of the year and then decide in the light of developments in the export markets whether they should be continued beyond Unfortunately it became apparent from the final quarter of 2008 on that it was becoming increasingly difficult, especially for small and medium-sized exporters, to obtain sufficient cover for short-term business from the private credit insurers. This also applied to exports to EU and OECD countries, which were out of bounds for short-term cover from state export credit insurers under the rules formulated by the EU Commission (marketable risks). At our instigation, and that of many of our European partners, the EU Commission relaxed the rules and adapted them to the current situation. In August 2009 it permitted the Federal Government to grant cover for short-term exports to EU and OECD countries up to the end of There is massive demand from exporters for this. The crucial point for me, however, is that the export credit guarantees are only allowed to be deployed in a subsidiary capacity: the state may only step in where cover from the private market is not available. As of September 2009 exporting industry, which has been especially hard hit by the economic and financial crisis, has the option of refinancing export credits under a programme made available by the KfW. The EU Commission had originally only authorized this programme till 15th March We were able to achieve an extension of the programme until the end of This enables us to free up additional room for manoeuvre in export finance, which is urgently necessary now, with demand for German exports picking up again. As we did most recently in 2008, we will again invite representatives of German exporting industry to a dialogue conference to be held on 24th June 2010 at the Federal Ministry of Economics and Technology. The meeting will take place very much under the aegis of the foreign trade initiative and, with its various workshops, will be devoted to an intensive exchange of views about the underwriting tools for promoting foreign trade. I am certain that the conference will once again give us a whole range of ideas on how to improve them. On top of this we will further expand our close links with industry associations, exporters and banks. I am very much looking forward to working together with them! Yours Rainer Brüderle, MdB Federal Minister of Economics and Technology

4 9 Business Overview 2009 The Interministerial 17 Committee 2009 New Developments 27 and Issues Countries and Country 39 Cover Policy of the IMC International 55 Cooperation 61 Business Development Export guarantee 79 portfolio 84 Annex 10 Business overview 2009 The 60th anniversary of the Export Credit 12 Guarantee scheme Main points in the work of the Interministerial 18 Committee Export credit guarantees prove their value in the 20 crisis Details of the economic 23 stimulus package II Cover from state credit insurers for short-term business to EU and OECD 24 countries The KfW refinancing 25 programme Ongoing new developments in the export credit 28 guarantee system 28 Assignment simplified Options for 100% cover for 28 buyer credits expanded Introduction of an export credit 29 guarantee for service providers 29 Sustainability Export credit guarantees 29 and sustainability Renewable energies and 29 environmental technology Outreach Including non-member states in 30 OECD agreements 31 The Ilisu Dam project 31 The prevention of bribery Country cover policy 40 of the IMC 42 CIS-states Central, Eastern, Southeast European countries and 44 Turkey 46 Africa 48 Latin America und Caribbean 50 Asia 52 The Middle East 56 OECD 57 European Union 57 Berne Union Cooperation with credit 58 insurers in other countries 63 Cover for new business Breakdown 65 by country groups Breakdown by horizon of risk 67 and type of cover 69 Number and volume of applications 69 Cover by business sectors Environmentally relevant aspects in the promotion of 71 projects Claim and recoveries, 71 rescheduling 71 Claims 73 Recoveries 75 Rescheduling 77 Profit and Loss Account Statutory cover limit and 81 total commitment level 81 Outstanding risk 83 Offers of cover Unrecovered amounts 83 under claims paid 84 Tables 88 Products 89 Definitions 92 Country classification 93 Photograph credits Export credit guarantees in 32 dialogue with Industry Best Export Credit 33 Agency Revenues 77 Expenses 77 Financial Result 34 Special forms of cover Project finance and 34 structured finance 36 Aircraft business 37 Shipping business

5 business overview the federal government granted export credit guarantees to the tune of 22.4 billion euros, posting the highest volume in the 60 years of the scheme s history. the scheme wrote black figures for the federal budget accounts for the eleventh year running. against the backdrop of the global financal and economic crisis the federal government implemented substantive measures to support the german export industry. state-supported export credit insurance has shown its value as a crucial instrument for exports, decisively mitigating the consequences of the financial and economic crisis.

6 Export Credit Guarantees of the Federal Republic of Germany Export credit guarantees safeguard companies from the risks of nonpayment in export business and strengthen the position of German exporters in the international competitive arena. They are of crucial importance, especially for exports to difficult and risky markets where no cover is available from the private market. On top of this, Hermes Cover makes it easier to obtain financing for export transactions. It is particularly in times of crisis that export credit guarantees can provide stability, thus making an important contribution to German export success. 10 The Federal Government is in an ongoing and intensive process of dialogue with exporters and banks. This close exchange of views guarantees a flexible and competitive range of underwriting tools tailored to the real needs of the market. Adaptations have been made in order to mitigate the impact of the financial and economic crisis and to support exporters and banks in the difficult situation currently prevailing on the export markets. The export credit guarantees have proved themselves as an important instrument for the promotion of foreign trade and export financing in the 60 years since the inception of the scheme. Over this period the Federal Government has supported export business with a total volume of 651 billion euros. business overview 2009 In a year characterized by the financial and economic crisis, the Federal Government granted cover under its export credit guarantee scheme (Hermes Cover) for export business with a value of 22.4 billion euros. Due to an increase of 8.2 % over the previous year, this was the all-time highest figure in the scheme s 60-year history. Since Germany s total exports went down by 17.9 % to billion euros at the same time due to the worldwide economic downturn, the share of exports insured by export credit guarantees rose from 2.1 % to 2.8 %. New cover was granted for exports to 178 countries. The lion s share of this, 71.9 % or 16.1 billion euros by volume of cover, once again went to the developing world and the emerging markets. The industrialized countries accounted for 28.1 % of covered exports was not a typical year for the export credit guarantee scheme: although the standard business fell steeply due to the decline in foreign demand, this was compensated by a number of guarantees for major transactions such as Airbus aircraft and in ship construction. More than half (55.3 %) of the entire volume of exports covered was accounted for by only ten countries. The highest cover volume was granted for South Korea with 2.1 billion euros, followed by the USA, Russia, Turkey and China. Cover for medium and long-term business increased by 11.9 % over the previous year to 9.4 billion euros. Its relative share of cover thus went up slightly from 41 % to 42 %. State cover for short-term business rose, due to a single large-scale transaction, by 5.7 % to reach 12.9 billion euros: this represents 58 % of newly granted cover. The export credit guarantee scheme of the Federal Republic of Germany wrote black figures in favour of the Federal budget accounts for the eleventh consecutive year, posting a plus of 454 million euros and bringing the accrued surplus to 1,476 million euros. Even against the background of the marked rise in demand for state protection against the risk of non-payment in 2009, the export credit guarantee cover made available by the Federal Republic proved adequate for all needs. In a close dialogue with exporters, the Federal Government also developed targeted measures at a very early stage of events to support companies in an environment in which it was increasingly difficult to obtain export finance. The adaptations to the Hermes products were already implemented in January 2009 as part of the economic stimulus package II, and will be available for a limited period up to the end of The option of reducing the exporter s self-retention in supplier credit guarantees, the increase of the maximum guarantee amount per exporter in the Counter-guarantee as well as the introduction of a guarantee insuring against the risks of confirming letters of credit gave much-needed support to exporters in overcoming the difficult economic environment. Besides these measures over a limited period, the facilitation of the assignment of Federal Government-insured receivables serves the same purpose. The measures described above are a particular boon to small and medium-sized enterprises in financing their export business. Following a decision of the EU Commission, exports on short payment terms to EU countries and the core OECD countries can once again be covered by state export credit insurers as of August In line with the principle of subsidiarity, this business had previously been reserved to the private credit insurers. In the wake of the financial crisis, however, the EU Commission recognized that inadequate cover was forthcoming from the private market and responded to an application from the Federal Government by permitting short-term Hermes guarantees for this circle of countries for a limited time up to the end of Since 15th September 2009 banks which have secured buyer credits by means of a securitization guarantee can participate in the refinancing programme operated by the KfW to support the export industry during the financial crisis. This model for insuring against risks and securing liquidity especially facilitates the long-term refinancing of state-insured export credits. In November the IMC expanded the cover options for tied buyer credits. Provided that they have a term of at least two years, these can be insured on a case-by-case basis with up to 100 % cover, in particular in the case of transactions involving the Ministry of Finance or the Central Bank as borrower or guarantor. The export credit guarantee for service providers introduced as of 1st January 2010 enables services to be covered in isolation, without the need for a connection to the export of physical goods, and secures professional services such as those of architects, engineers or consultants. 11

7 the 60th anniversary of the export credit guarantee scheme At the ceremony to celebrate the 60th anniversary of the export credit guarantee scheme on 15th December 2009 in Berlin, Rainer Brüderle, the Federal Minister of Economics and Technology, held the acclamatory speech (left-hand photo on the page to the left). The Chairman of the Interministerial Committee, Dr. Hans-Joachim Henckel praised the excellent cooperation over decades between the Federal Ministry and the mandataries (right-hand photo on the page to the left). Dr. Hans Janus, Member of the Board of Management of Euler Hermes Kreditversicherungs-AG, dealt with the successful cooperation with the exporting and financing community (right-hand page, photo in the centre). The 60th anniversary of the inception of the export credit guarantee scheme was the occasion for Federal Economics Minister Rainer Brüderle to hold a ceremony on 15th December 2009 in the Federal Ministry of Economics and Technology. Some 300 representatives of the exporting industries and the finance world, as well as from industry associations, the Federal ministries and the mandatary consortium came at his invitation in order not only to celebrate the achievements of the past six decades, but also to hazard a glimpse of the challenges facing the scheme in the future. Minister Brüderle underlined the importance of the export credit guarantees for exports in his speech, together with their crucial role in safeguarding jobs: Export credit guarantees are a sea anchor for our companies. This was never truer than in the financial crisis. It is these guarantees which often make foreign business possible in the first place. This secures hundreds of thousands of jobs. We have honed the instrument of the export credit guarantees to new effectiveness again and again in a constant dialogue with the business community. That is what makes the export credit guarantees so successful. The story of the Hermes guarantees began with the first meeting of the Interministerial Committee (IMC) in Frankfurt-Hoechst on 9th November The 1,349th IMC Meeting took place almost exactly 60 years later to the day on 12th November 2009 in Berlin. Since 1949, export business to the value of more than 651 billion euros has been insured. The paramount goal of state promotion of exports has for six decades now been to safeguard jobs in Germany by means of support mainly targeted at small and medium-sized enterprises in their exports to markets which involve difficulties or an elevated risk. The changing fortunes of the global economy have only just recently taught us how important it is to stick to our principles over time and to keep the tools of promotion in good working order." commented Prof. Dr. Hermut Kormann. Dr. Hans Janus, Member of the Board of Management of Euler Hermes Kreditversicherungs-AG, emphasized that the Hermes guarantees had once again shown themselves to be an indispensable help for exporting companies in the financial crisis, enabling them to maintain trading relationships in times of economic or political instability. The cooperation here between the Federal Ministries and the mandataries Euler Hermes Kreditversicherungs-AG and PricewaterhouseCoopers AG WPG, taking the form of a highly successful public private partnership, had proved its quality in exemplary fashion. The combination of public promotion and private enterprise management was also one of the central reasons for the justified reputation enjoyed today by Hermes Cover of being service-orientated and in touch with the practical needs of industry. The high esteem in which the German export credit guarantee scheme is held internationally has been demonstrated again and again by the award of the title Best Export Credit Agency.

8 14 A Chronicle of the Export Credit Guarantee Scheme 1949 The Law on the Granting of Securities and Guarantees in Foreign Trade is passed. The Federal Government mandates a private consortium to handle the scheme. 9th November: first meeting of the IMC in Frankfurt-Hoechst 1952 Introduction of the wholeturnover policy 1956 First meeting of the Paris Club to discuss a rescheduling agreement for Argentina 1963 First comprehensive reduction in the uninsured portions for cover 1973 Creation of cover options for leasing transactions 1975 First guarantee for Airbus business 1977 The statutory cover limit exceeds the 100 billion DM threshold for the first time 1978 Signing of the Arrangement on Officially Supported Export Credits (the OECD Consensus) 1979 Creation of the so-called Deckblattbürgschaft, today designated securitisation guarantee 1980 Reform of the wholeturnover policy (APG) 1981 Beginning of the international debt crisis with the rescheduling of debt for Poland, Mexico and Brazil (1983) as well as for African countries in the Paris Club 1985 First offers of cover for project finance deals 1987 The decisions of the IMC are regularly published in the AGA Report 1990 Granting of Federal Government cover on behalf of GDR companies 1993 First rescheduling of old Soviet debt in the Paris Club 1994 New version of the OECD Consensus. Revision of the German premium system from a flat-rate premium to premium rates differentiated by five country risk categories 1996 Reduction of uninsured portions for protracted default. Signing of the all-time largest rescheduling agreement at the Paris Club, with Russia 1997 The Federal Government withdraws from the cover of "marketable risks" in short-term business with private buyers. The export credit guarantees go online on the World Wide Web 1998 Introduction of the OECD-wide harmonized premium system for political risks. First reinsurance treaties with ECGD, OeKB and COFACE 1999 Euler Hermes and PwC are voted Best Export Credit Agency worldwide. Black figures are posted for the first time again after 13 years 2001 Introduction of the environmental guidelines within the OECD Recommandation on Common Approaches on Environment and Officially supported Credits. Online Service for the wholeturnover policy enables turnover declarations via the Internet 2003 Introduction of the wholeturnover policy light 2004 The EU expansion eastwards adds to the group of countries with marketable risks. New website design ( AGA Report appears as an newsletter and on the Internet. Start of the series of events The Federal export credit guarantees in dialogue with industry at the Federal Ministry of Economics and Technology 2005 Accolade as Best Export Credit Agency received for the second time. Reduction of uninsured portions in the wholeturnover policy light 2006 Introduction of the Counter-guarantee. Introduction of a risk-based premium system. Early repayment of debt under the rescheduling agreement with Russia leads to the complete discharge of the accumulated deficit of the scheme 2007 Third award as Best Export Credit Agency. Signing of the OECD Sector Understanding on Export Credits for Civil Aircraft 2008 Introduction of a revolving buyer credit guarantee. Flexibilization of rules on cover of foreign goods and local costs. Voted Best Export Credit Agency for the fourth time 2009 Measures to strengthen the export credit guarantees form part of the economic stimulus package II. Voted Best Export Credit Agency in the newly constituted category state export credit agencies and development banks. Insurance of exports on short payment terms to all EU and OECD countries possible again as an exception up to the end of 2010 The export credit guarantees have been a constant companion over the 60 years of their history to the rise of the Federal Republic of Germany to the world s leading export nation. Crises have put the instrument to the test over and over again and honed its effectiveness for dealing with the practical needs of the moment. The Federal Government makes sure that cover options can be upheld as far as possible in troubled times too. We couldn t hope for a better position to start from, for there are massive challenges facing us, which we will only be able to surmount through the prompt and coordinated efforts of the government, the mandataries and the business community, in the words of Anton F. Börner, President of the Federation of German Wholesalers, Foreign Trade and the Service Sector (Bundesverband Großhandel, Außenhandel, Dienstleistungen e.v.). Cathrina Claas-Mühlhäuser, Deputy Chairwoman of the Shareholders Committee of Claas KGaA mbh described Photo on the left: Federal Economics Minister Rainer Brüderle (on the left) in conversation with Cathrina Claas-Mühlhäuser, Deputy Chairwoman of the Shareholders Committee of Claas KGaA mbh, and the Chairman of the Interministerial Committee, Dr. Hans-Joachim Henckel Right-hand photo: Anton F. Börner, President of the Federation of German Wholesalers, Foreign Trade and the Service Sector, underlined the great value of the export credit guarantee scheme for exporting industry in his speech. business overview 2009 the history and practice of the Hermes guarantees from the perspective of an exporter and eloquently made the point that the export credit guarantees were not least indispensable for the reason that they were always available, and not subject to the exigencies of short-term economic or political developments. Judiciously applied risk management principles tailored to the real needs of the exporting industries and in line with international rules are the hallmark of today s export credit guarantees, making them a flexible element of modern export finance. Andreas Schmitz, President of the Association of German Banks, underlined that German industry is only able to demonstrate its competitive excellence if all the countries involved in international trade operate their cover policy on a level playing field. All in all, the representatives of the exporting industries present at the meeting were very confident that the system had sufficient flexibility to provide decisive support to keep German exports competitive in the light of the challenges facing us in the years to come. Further information on the figures, history and projects under Hermes Cover can be found on the website 15

9 the interministerial committee the interministerial committee sets the scope and conditions of cover for the individual countries and decides on basic questions of policy as well as on all major applications for cover. as part of the economic stimulus package ii the interministerial committee introduced far-reaching adaptations in the products to support exporters in the crisis. till the end of 2010 short-term export business to countries in the eu and oecd can receive state cover.

10 main points in the work of the interministerial committee 18 An Interministerial Committee (IMC), chaired by the Federal Ministry of Economics and Technology, examines all major applications and decides on questions of basic policy. It oversees the modernisation of the export credit guarantees and formulates cover policy, which stipulates the scope and conditions of cover available for the individual countries. The Federal Government bears the budgetary responsibility for the export credit guarantee scheme, under which it has supported export business with a total volume of von 651 billion euros over the past 60 years. The Federal Government has entrusted the administration and handling of the export credit guarantee scheme to a private consortium (the mandatary consortium) comprising Euler Hermes Kreditversicherungs-AG as lead partner and PricewaterhouseCoopers AG WPG. The staff of the two companies are the contact persons for the exporters and banks and prepare decisions on applications for consideration at the meetings of the IMC. In addition they advise the Federal Government during the decision-making process. Experts from the exporting and banking world appointed by the Federal Ministry of Economics and Technology support the Committee s work, in order to ensure that direct input from these sectors is factored into the decisions. Only the representatives of the four ministries involved have a vote. The representatives of the Federal Ministry of Economics and Technology (lead ministry), the Federal Ministry of Finance, the Federal Foreign Office and the Federal Ministry for Economic Cooperation and Development reach their decisions on a consensus basis. The IMC takes account of the economic and political situation of the importer s country when fixing country cover policy, and stipulates the scope and conditions of cover accordingly. General criteria for granting a guarantee are the eligibility of the export transaction for cover and the acceptability of the risk involved. One of the aspects checked in arriving at a decision is therefore the creditworthiness of the foreign buyer. The wider framework is set by budget law, which authorizes an amount for guarantees to promote and support foreign trade, and international rules (in particular the OECD Consensus, the Arrangement on Officially Supported Export Credits). 19 interministerial committee imc BMWi Federal Ministry of Economics and Technology lead BMF Federal Ministry of AA Federal Foreign BMZ Federal Ministry of Economic Cooperation and Development The IMC held its annual outside meeting in 2009 in Donauwörth and paid a visit to the works of Eurocopter Deutschland GmbH. Euler Hermes Kredit PricewaterhouseCoopers AG WPG representatives of the exporting industries and the banking KfW AKA Ausfuhrkreditgesellschaft Federal Audit Office

11 export credit guarantees prove their value in the crisis 20 In a year which sees the 60th anniversary of their introduction, the export credit guarantees have moved to a greater extent than ever before into the focus of attention in the debate on economic policy. The financial and economic crisis has presented exporters with enormous challenges and led to a steep rise in the demand for state cover. Offering a stable range of cover options and with its underwriting tools adapted to target the current needs in financing export orders, the export credit guarantee scheme provided reliable support. This compensatory anti-cyclical effect makes a contribution towards stabilizing trading relations, strengthening the position of German companies in the international competitive arena and thus helping to safeguard jobs in Germany. German exports have experienced a slump of historic dimensions since the beginning of the crisis in autumn of An increase in the level of commercial as well as political risks all over the world, a rise in corporate failures and a persistent loss of confidence among banks were defining factors in They led to more restrictive lending by banks as well as to more expensive conditions, as a consequence making it much more difficult to finance export orders. In the absence of adequate refinancing capacity on the side of the banks, liquidity was tight, especially for transactions planned over the long term and in the implementation of large- Something like 20 million used tyres lie in storage in Dubai Industrial City. The Federal Government is supporting the environmentally friendly disposal of these stocks of tyres by granting a manufacturing risk guarantee for the export of a recycling facility. The plant, delivered to Dubai by Amandus Kahl GmbH & Co. KG and in the process of construction, shreds old scrap tyres and removes their steel and textile components. The resulting rubber granulate is used to manufacture a wide range of products, including flooring material, soles for shoes, rubber-modified asphalt or new tyres. The deal is regarded as being especially eligible for cover since the plant provides a very environmentally friendly way of disposing of scrap tyres. The photos illustrate comparable plants. scale projects. The deterioration in the risk situation also led to a restricted availability of insurance cover for export risks in the private market, further aggravating the financing conditions for companies. It was these developments, already foreseeable in the autumn of 2008, which prompted the Federal Government to deploy its tried and tested scheme for export promotion, enhanced by flexible measures tailored to the needs of the moment, as an efficient instrument of crisis management. Important innovations and improvements to the export credit guarantees came into effect with the economic stimulus package II in January The crisis drastically changed the fundamentals for the use of export credit guarantees. Despite historically low interest rates, it was frequently only possible for companies to finance export orders with the help of state export credit guarantees. Many companies made use of the Hermes guarantees for the first time in 2009, after not regarding them as necessary to protect their export receivables in the past. Whereas, before the crisis, cash payment had often been agreed or projects had been refinanced on the capital markets, now deferred payment terms and supplier credits frequently have to be granted in order to win orders. The target markets for granting export credit guarantees, too, have changed. Financing conditions and export risks have not only changed in emerging markets and the developing countries; they are also different for business with buyers in the industrialized world. As a result, Hermes Cover has also taken on much greater importance for this group of countries. BIOWORKS Verfahrenstechnik GmbH, an SME in Putzbrunn in Southern Germany, is a major contributor to the construction of the first sewage treatment plant in Wulashan Town (population: 340,000) in China: they are responsible for the installation and overseeing installation work and have supplied most of the technical equipment. The sewage treatment plant will purify the effluent produced by the town s inhabitants, thus significantly improving the environmental situation and the living quality of the people of the region. The Federal Government is supporting the project with an export credit guarantee for the technical equipment. 21

12 details of the economic stimulus package ii 22 Following the decision taken by the European Commission on 5th August 2009, state export insurance cover is permissible again for short-term business to EU and OECD countries for a limited period up to the end of This type of business has been the exclusive province of the private credit insurance market over the past twelve years. The EU Commission was prompted to take this decision by a marked reluctance on the part of the private insurers to give cover. As a consequence, applications for short-term cover, e.g. for wholeturnover policies, have almost tripled since August Exporters and banks have made extensive use of the temporarily expanded cover options offered by the Federal Government as part of the economic stimulus package II in order to withstand the effects of the crisis. The increase in the maximum guarantee amount in the Counter-guarantee from 80 million euros to 300 million euros per company, the option to reduce the uninsured portion in supplier credit cover from 15 % to 5 % and the new form of guarantee against the risks of confirming letters of credit generated brisk demand. The refinancing programme for loans secured by Hermes Cover introduced in September 2009 by the KfW with a view to making increased funding available for export finance, too, helps to widen the refinancing options open to companies. Besides the swiftly implemented adaptations intended to support exporting industry in the current situation, it is first and foremost the rock-steady stability afforded by the underwriting tools of the export credit guarantee scheme which has demonstrated how the instrument contributes to the long-term success of German exports, also and especially in times of crisis. By using export credit guarantees, exporters can offset the selective underwriting policy of the private credit insurers as well as temporary cashflow shortages and less favourable conditions for finance showed that the availability of a sophisticated system of state export credit guarantees is a central element in counteracting the impact of a financial and economic crisis. The Federal Government already introduced adaptations planned for a limited period within the framework of the economic stimulus package II in January 2009, to run till the end of These measures are intended to facilitate the financing of exports under the difficult conditions currently pertaining, or indeed to make it possible in the first place. Support for small and mediumsized enterprises is the main focus of the measures. Supplier credit cover reduction of the uninsured portion possible In order to make it easier to refinance the receivables from a covered transaction, the exporter can apply to have the uninsured portion for the commercial risks in a supplier credit guarantee reduced from 15 % to 5 % in return for a higher premium (if he has a wholeturnover policy, this would be from 10 % to 5 %). This option was very frequently chosen by the exporters. 23 SAXONIA EuroCoin GmbH is a speciality producer of blanks for coins and medallions from non-ferrous metals, galvanized metal and precious metals. The company, which is located in Saxony, supplies coin blanks to central banks all over the world and secures its export business under a wholeturnover policy. At the moment Vietnam s first wind farm is under construction. The Westerwald-based Fuhrländer AG is supplying 20 wind turbines for this, each with an output of 1.5 megawatts, to the site in Binh Thuan Province on the coast of the South China Sea. By substituting for conventionally produced energy some 58,000 tonnes of CO² emissions a year can be prevented. The plant is planned to be expanded to 80 turbines in two further steps, then having an aggregate output of 120 megawatts. The first five turbines are already feeding into the grid. Due to the global financial crisis it has not been possible up to now to complete the project. Now the entire wind farm is planned to be carried through on credit terms. The lender for the buyer credit is the Landesbank Baden-Württemberg in Leipzig. The Federal Government is granting export credit guarantees and a buyer credit guarantee for the project.

13 Counter-guarantee maximum guarantee amount increased cover from state credit insurers for short-term business to eu and oecd countries the kfw refinancing programme 24 The Counter-guarantee improves the liquidity position of SMEs by taking the strain off their credit lines with the banks in the amount of the guaranteed sum. This means that the contract bonds often required in international business can thus be provided with less effect on the company s liquidity. The Federal Government raised the maximum volume for its Counter-guarantees from 80 million euros to 300 million euros per company. The Counter-guarantee can also be granted without the prerequisite of primary cover, i.e. without preexisting cover for the other risks of the export transaction if and when cover for these other risks is not possible, not acceptable or not wished by the exporter. Cover for so-called marketable risks, e.g. short-term exports with a risk horizon of up to two years to buyers in EU countries and most OECD countries, was up till now only permitted to the private insurers under a directive from the EU Commission published in Following a decision made by the Commission on 5th August 2009, marketable risks have been opened again for state export credit cover for a limited period up to the end of The EU Commission acceded here to a request from the Federal Government. The Commission had recognized that the cover available from the private market was, as a result of the financial and economic crisis, temporarily not adequate for the needs of shortterm business to the countries concerned. There is very strong demand from exporters for this expanded cover capacity. On average, something like 100 limit applications for the wholeturnover policy have been received every day since 6th August, many of them from exporters who have previously never had any contact with the export credit guarantee scheme. A credit-worthiness check is made in every single case and the limit decision follows the normal criteria of eligibility for cover and acceptability of the risk. As of 15th September 2009, banks have been able to take advantage of a programme operated by the KfW which is intended to facilitate the refinancing of stateinsured export credits and to increase the capacity for export lending in general. The prerequisite for participating in the refinancing programme is that the exporter already has an export credit insured by a buyer credit guarantee and a securitisation guarantee. The proceeds made available by selling this export credit to the KfW are then freed up to finance new business secured by Hermes guarantees. For more details, see the website ( under the header KfW Programm Refinanzierung bundesgedeckter Exportkredite. 25 Confirmation of letters of credit risks can now be covered Cover for the risks involved in confirming letters of credit makes it easier for the banks to confirm L/Cs from foreign banks, since the Federal Government will now take over the risks involved. The Government here insures, in the form of a short-term buyer credit guarantee, the risk for the confirming bank of not having the amount it has paid out reimbursed by the foreign issuing bank for commercial or political reasons. Wietmarscher Ambulanz- und Sonderfahrzeug GmbH (WAS) has netted a major order to deliver emergency vehicles: the SME is supplying 600 ambulances with a reinforced chassis, a particularly high-performance air-conditioning system and a complete set of medical equipment to Egypt. The basis for the vehicle is the Mercedes Sprinter van. Rommelag Kunststoff-Maschinen Vertriebsgesellschaft mbh used export credit and manufacturing risk guarantees for the export of blow-fill-seal bottlepack packaging and cap-welding plants to Peru and Uruguay. Pharmaceutical companies in the two South American countries use the bottlepack plants to manufacture sterile medical infusions. Thanks to the innovative blow-fill-seal technology developed by rommelag, the plants are capable of manufacturing sterile plastic containers, filling them aseptically with infusion and hermetically sealing the bottles, all in a single production cycle. The Egyptian Ministry of Health will deploy the emergency ambulances both in big cities and in rural areas. The order has a value of more than 30 million euros and makes a substantial contribution to securing jobs at WAS. The Federal Government is supporting the deal by granting a counter-guarantee for an advance payment guarantee, a contract bond and a maintenance bond.

14 new developments and issues 27 as part of the ongoing process of development of the export credit guarantees the federal government has adapted the system to cope with needs of the changing economic fundamentals. expanded cover options were discussed in an intensive dialogue with exporters and banks. the federal government and the members of the mandatary consortium advocate a harmonized environmental screening procedure, to include non-oecd countries as well. various aspects of sustainability are a priority in supporting climate-friendly exports. the german export credit guarantee scheme was once again voted best export credit agency.

15 sustainability ongoing new developments in the export credit guarantee system export credit guarantees and sustainability 28 DTEC Engineering & Consulting GmbH was general contractor in charge of the erection of a facility for the production of plate glass in Belarus. The equipment supplied included a flue gas purification system and a CHP cogeneration plant. Many small and medium-sized German companies were involved as subcontractors in the project. The technology used here enables highquality and almost flawless plate glass to be manufactured, which is intended both to cover the needs of the domestic market and for export in particular to Russia. The Federal Government granted a manufacturing risk guarantee, an export credit guarantee and a buyer credit guarantee for the project Besides introducing temporary measures to support the exporting industries in the current crisis, the Federal Government is constantly developing new underwriting tools for the cover system to adapt it to the changing economic environment. The principal driving force in this ongoing process of developing Hermes Cover to meet the requirements of the market is an intensive dialogue with exporters, banks and industry associations. assignment simplified In order to further improve the financing options open to exporters, the IMC has simplified the assignment of receivables covered by Hermes guarantees (including the assignment of the benefits under the policy as loss payee). Here the consent of the Federal Government is generally deemed to have been given when assignment of covered receivables is to a defined circle of recognized assignees. Banks who are the loss payees under the assignment can also process the claim directly with the Federal Government. These simplifications to the procedure were decided as part of the economic stimulus package II, but will be incorporated as a permanent feature. options for 100 % buyer credit cover expanded Tied buyer credits with a term of more than two years can be insured up to 100 % as of November 2009 on a case-by-case basis if a ministry of finance or a central bank is involved as a borrower or guarantor and the country risk concerned permits the increased percentage of cover. With this step the IMC is further expanding the ruling on 100 % cover which has applied since 1999, and which has up to now mostly only been used in Airbus business, transactions with a reinsurance construction or in cases of matching. introduction of an export credit guarantee for service providers It was already possible in the past to give accompanying cover for exports of services by means of a supplier credit guarantee, albeit using a form of cover originally designed for and more suited to deliveries of goods. The export credit guarantee for service providers introduced from 1st January 2010 both takes into account the specific features of service transactions and employs the normally used terminology. The guarantee for service providers can be used to cover one-off service transactions provided by German companies e.g. architects and design engineer firms as well as consultants. The main criterion of eligibility for cover is that the service transaction concerned is for export. According to these parameters, business can be covered if the service to be insured predominantly originates in Germany or, in cases where the service is primarily provided in the foreign country, the value-added accrues to the German exporter. The IMC regularly examines the environmental and social aspects of export projects when assessing applications for export credit guarantees and their eligibility for cover. The guideline here is the recommendations of the OECD on the environmental screening of projects covered by officially supported export credits (known as the Common Approaches). These environmental guidelines are applied in comparable form in all member states of the OECD. The high quality technological standards in products and plant exported from Germany already comply with the main environmental requirements. On top of this, however, the wider ecological and social impacts of the overall project as well as, in some cases, the context of the project must be taken into account, particularly in major projects. renewable energies and environmental technology The Federal Government continues to place a particular emphasis in its support for German exporters on the promotion of renewable energies and environmentally friendly technology. The published information material has been added to with a new issue on this in the series Hermes Guarantees Special. At the OECD level, Germany supported the improvements to the permissible financing conditions which were agreed internationally in the Sector Understanding on Export Credits for Renewable Energies and Water Projects (Annex IV to the OECD Consensus). Such transactions with a credit period of 12 to 15 years can be insured as of February 2009 with more flexible repayment conditions. In addition, the extension of the maximum permissible credit period to 18 years was agreed in the middle of the year and the 29

16 30 The Equator Principles The Equator Principles are a voluntary code of practice set up by banks for the compliance with environmental and social standards in the area of project finance. The participating banks undertake only to finance projects in which the borrower complies with the agreed environmental and social standards. The rules are based on the social and environmental standards of the World Bank and the social standards of the International Finance Corporation (IFC), a World Bank subsidiary, and apply to projects with a finance volume already beginning at 10 million US dollars. Although the Equator Principles are in principle restricted to project finance, they have nevertheless given a boost to the development of checking for sustainability aspects in other parts of the finance and banking sector. STRABAG Umweltanlagen GmbH in Dresden has built a plant for the bio-mechanical treatment of sewage sludge for the sewage works in the city of Brest (Belarus). The biogas released by the bacterial digestion of the sewage sludge is used in an integrated cogeneration unit. Some 67 % of the order value comes from German SMEs, most of them located in the new federal states. The Federal Government is supporting this project, which is especially eligible for cover in terms of its environmental value, and is providing an isolated buyer credit guarantee to the financing bank. decision taken to make the sector understanding permanent. On top of this, the member states continued their discussions on expanding the scope of the agreement to include sectors connected with climate-friendly technologies and on developing it into a more comprehensive climate protection sector agreement. These discussions will probably be brought to a conclusion in In view of their high competency in this area, German exporters stand to benefit to a particular extent from the new sector agreement. outreach including non-member states in oecd agreements tions such as the bank for foreign trade (China Ex-Im) or the export credit agency Sinosure in discussing issues of environmental audit procedures and risk assessment. the ilisu dam project The offer of cover for the Ilisu dam project in Turkey was contingent on a number of conditions to ensure compliance with international standards in the realization of the project. At the beginning of July 2009 the three export credit agencies involved, from Germany (Euler Hermes), Austria (OeKB) and Switzerland (SERV) declared that they were withdrawing from the project because the conditions on which insurance cover had been given regarding the impact on the environment, the cultural heritage of the region and the relocation of the local population had not been fulfilled within the contractually agreed period. Is the environmental audit a competitive disadvantage? The Centre for Sustainability Management (CSM) of the Leuphana University in Lüneburg was commissioned by the mandatary consortium to carry out a study investigating to what extent the environmental audit prescribed by the OECD environmental guidelines in the granting of export credit guarantees constitutes a disadvantage for German exporters competing for business with companies from non-oecd countries. The main finding of the study *, entitled Sustainability as a challenge for the exporting industries is by and large that the environmental audit has only a minimal influence on the competitiveness of German exporting companies. A much more decisive advantage for companies from non-oecd countries, says the study, lies in their lower costs and more attractive financing schemes. The results of this research were presented at a conference held with experts from the export and banking industries, politics, industry associations, NGOs as well as from Euler Hermes in Lüneburg on 9th March 2009, and were a topic of discussion in a series of workshops at which a critical spotlight was focussed in particular on the fact that the exporters themselves often have so little influence on the overall project. 31 The exchange of information with representatives of state export credit insurers from non-oecd countries was continued in 2009 with the goal of achieving a greater degree of harmonization in the approach to checking the sustainability aspects of global trade. The Federal Government is also pursuing the aim of bringing about a constructive integration and involvement of the most important non-oecd member states in the review of the OECD Common Approaches coming up in The mandatary consortium is also a participant in initiatives of the World Wide Fund For Nature (WWF) and a group of the so-called Equator Principles Banks to implement environmental standards in non-oecd countries. This took first and foremost the form of a dialogue with representatives of Chinese financing institu- the prevention of bribery A further focus in the sustainability programme of the Federal Government is its efforts to combat bribery in export business too. The export credit guarantee scheme therefore only supports export transactions in which no bribery was involved. The procedure when deciding whether to grant export credit guarantees and the declarations which must be made by the applicant are based on the criteria of the OECD Recommendation on Bribery and Officially Supported Export Credits, which are binding on all OECD member countries. The Federal Ministry of Economics and Technology and the mandatary consortium continued their regular exchange of information with the non-governmental organization Transparency International in *

17 32 the export credit guarantees in dialogue with industry In view of the changed economic fundamentals due to the financial crisis, the Federal Government intensified its dialogue with exporters and lenders. As a result of the increased demand for consultation the number of information meetings on the export credit guarantees went up to 234. Whereas in the first half of the year the focus of consultation was the expanded cover options under the economic stimulus package II, the emphasis shifted in the second half to the availability of insurance for short-term business. For many exporters, this was their first contact with the export credit guarantee scheme. Representatives of the Federal Ministry of Economics and Technology together with the mandataries came in person to inform both exporters and banks about developments and to discuss their experience and to exchange information with them. The majority of such meetings took place in cooperation with Chambers of Commerce, industry associations and banks. A calendar of planned events can be found on our website at The fourth Export Dialogue on the export credit and investment guarantees of the Federal Republic of Germany will be held on 24th June 2010 at the Federal Ministry of Economics and Technology, with a wide range of participants from German exporting industry attending. Deals of the Year 2008 For the third time running the readers of the British specialist magazine Trade Finance elected the state export credit guarantee scheme in Germany once again as best export credit agency of the year. On top of this, ten projects insured by means of Hermes Cover were awarded the title of "Deal of the Year Jordan: construction of a cement factory Nigeria: interim financing scheme for an Airbus aircraft USA: construction of cruise liners for the Aida Line South Korea: major project encompassing eight steel production facilities Belarus: export of a plant for the manufacture of plate glass Brazil: a revolving buyer credit guarantee for the export of fertilizer Russia: delivery of a cold steel rolling mill Vietnam: financing scheme for the delivery of a combined-cycle power station Russia: construction of container ships with icebreaker class Yemen: expansion of the mobile telephony network best export credit agency 2009 After 1999, 2005, 2007 and 2008, the German export credit guarantee scheme has once again been elected "Best Export Credit Agency/Development Financing Institution Europe 2009" for the fifth time. In an annual poll, the readers of the British Trade Finance Magazine evaluate ECAs performance in the field of export financing, export credit insurance, project structuring and financial and legal advice. 56 projects in 25 different countries which were submitted to Trade Finance Magazine received the accolade of Deal of the Year Among them were ten projects supported by Hermes Cover. All of these posed a particular challenge in constructing the financing scheme and insurance cover. 33 Whether at the Bavarian Export Day (photo on the right) or at an information meeting held by the VDMA (photo on the left) exporters and banks had the opportunity to inform themselves about the state export credit guarantees at a total of 234 events during Dr. Hans Janus (Euler Hermes, r.) and Manfred Bruer (PWC, l.) accepted the prize in the newly introduced category Best ECA/DFI (Europe) 2009 in London as well as for ten further projects ("Deals of the Year 2008") on behalf of the Federal Ministry of Economics and Technology.

18 special forms of cover project finance and structured finance 34 The demand for export credit guarantees for project finance continued unabated in Besides numerous preliminary enquiries and new applications, however, several projects were put on hold due to the changed economic environment. The restricted availability of external funding in particular hindered the realization of large-scale projects. There is nevertheless great interest in new transactions, as is clearly apparent from the more than 100 consultations which the mandataries held with exporters, banks and project sponsors. A wind farm in Taiwan with an overall volume of 51 million euros was insured in Offers of cover were given for three project finance deals involving a German order volume of 2.1 billion euros. This includes the German export portion of the pipeline under the Baltic (Nord Stream), which is supported by a project finance scheme with Hermes Cover. A further 14 applications for project finance deals with a volume of 3.2 billion euros received a positive answer after a preliminary review, so that the structuring of the financing scheme as well as the expertise for the offer of cover were initiated by the IMC. From the applications made in 2009 as well as the large number of exploratory enquiries and project presentations it is apparent that there is increased demand for cover for large-scale and long-term projects. As a result of the financial crisis, the OECD Consensus on officially supported export credits is offering special terms, limited until 31st December 2010, for project finance deals in OECD high income countries. These allow state credit insurance to be given for up to 50 % of the financing from banks instead of the maximum of 35 % previously possible, with a credit horizon of up to 14 years. Projects in the field of renewable energies such as offshore wind power plants, solar thermal power stations and photovoltaic technology are also increasingly being struc- tured as project finance deals with part of the finance insured under Hermes Cover. In the similar field of structured finance, the Interministerial Committee gave commitments of cover for four deals with a total volume of 793 million euros. A number of projects whose realization has been delayed by the changes in the economic situation are additionally in preparation. Structured finance constructions enable investments exceeding the normal parameters as well as export transactions to be realized in cases where the buyer has inadequate creditworthiness and conventional security schemes are not available, by integrating additional elements such as the proceeds of offtake agreements into the collateral setup. 35 MFT Membran Filtrationstechnik GmbH delivered eight ultrafiltration plants for the purification of drinking water from rivers to Madagascar. The project is part of an overall programme to upgrade the drinking water supply network of the capital, Antananarivo, and is intended to supply drinking water to the suburbs. After treatment in the ultrafiltration plants the water is microbiologically of drinking water standard. Viruses, bacteria, spores, parasites, legionella and discolouring material are removed from the river water using filter membranes. The Federal Government granted a manufacturing risk and an export credit guarantee for this export transaction. The project is 50 % financed by the European Investment Bank. An Indian manufacturer of synthetic fibres is expanding production capacity and the vertical integration of production as part of an investment programme. Oerlikon Barmag supplies a number of plants in this context for the production of various types of chemical fibre thread and is constructing a condensation polymerization facility to manufacture the precursor material for producing the thread. After the realization of the project the company will be the only one on the Indian market to boast complete coverage of the production cycle, from the manufacture of the raw material up to the production of specialized synthetic fibres. The innovative and state-of-the-art plants delivered by Oerlikon Barmag in Remscheid will be integrated into the existing works in India. The Federal Government is supporting the deal by assuming an export credit and a buyer credit guarantee.

19 aircraft business shipping business 36 The financial and economic crisis faced the entire aviation industry with enormous challenges. The airlines in particular suffered substantial falls in their profits. At Airbus, as with the other aircraft manufacturers, the crisis led to a noticeable decline in new orders. Despite this, Airbus was able to increase the total number of aircraft delivered to 498 thanks to the strong position of its full order books, outperforming its previous record result in 2008 by a further 15 aircraft. It was especially the lack of availability of finance from commercial lenders which led to a marked rise in the number of aircraft financed with state insurance. All in all, 157 aircraft were insured by the governments of Germany, France and Great Britain (2008: 75). The German share of production covered by export credit guarantees here had a volume of 2.8 billion euros (2008: 1.0 billion euros). International cooperation between the three ECAs involved was further intensified during The majority of transactions were handled under the existing reinsurance agreements. Besides the Airbus deals mentioned above, the Federal Government insured other aircraft business, in particular the export of helicopters, to the tune of 415 million euros. Airbus handed over 498 aircraft to their owners in 2009, 157 of them covered by export credit guarantees. The crisis on the financial markets led to a substantial increase in the state-insured aircraft delivered. The cover volume for civil and naval shipping business, at 2.9 billion euros, exceeded the level of the previous year, itself already extraordinarily high (2.7 billion euros). Besides a major deal to supply assembly sets for naval vessels with a volume of 1.7 billion euros, the Federal Government also gave cover for, among others, several special purpose ships with relatively high investment costs. The volume of cover in the civil shipping segment, some 1.2 billion euros, once again followed the long-term average. Among the ships insured were e.g. offshore supply vessels with 428 million euros as well as modern ro-ro ferries with a value of 531 million euros, which could in fact only be financed with the support of Hermes Cover. Numerous other orders for shipping construction, some of them quite small, received cover, many of which would not have survived till the delivery of the ship without state insurance, due to the threatened cancellation of the order by the shipowners or the withdrawal of financing undertakings by the banks. After the demand for container ships and freighters had already fallen off drastically at the end of 2008, many shipping lines attempted to cancel orders in 2009 or to postpone them for the time being. This caused considerable difficulties to the shipyards affected, since funds already disbursed to pay for construction phases of ships already begun or completed but not handed over could not be repaid or not repaid on schedule out of payments from the buyer. The Federal Government, in close cooperation with the shipyards and the banks, successfully secured financing in the short term in four cases through granting export credit guarantees, thus avoiding severe consequences for the jobs of the shipyard workers. The Aker Yards in Wismar and Rostock- Warnemünde delivered four container ships with a value of 328 million euros to the Russian mining company Norilsk Nickel. The highly specialized vessels are able to sail all year round on routes in the Arctic Ocean and to transport up to 650 standard containers. When navigating in waters with difficult ice conditions they can force a passage in reverse through ice up to 1.50 metres thick. They replace the obsolescent and worn out merchant ships previously used, which depended on the help of the Russian fleet of atomic-powered icebreakers. The Federal Government provided an isolated buyer credit guarantee to the bank consortium under the lead of ING Bank which is financing the deal. The project was awarded a prize as Deal of the Year 2008 by the readers of the British Trade Finance Magazine. 37

20 countries and country cover policy of the imc 39 the target markets of german exporters were hit to varying degrees by the effects of the financial and economic crisis. commodity exporting countries were able to cushion themselves from the negative impact of the crisis thanks to the hard currency reserves they had been able to build up over the precending years. other economies experienced a deep recession. the federal government upheld cover options at an almost unchanged level despite the financial crisis.

21 the imc s country cover policy 40 The Interministerial Committee sets an appropriate cover policy commensurate with the country risk in the various export markets, which then forms the basis for the many individual decisions. The primary emphasis here is on fostering long-term cooperation and stable trading relations with the target countries while maintaining an acceptable level of risk. For most countries, there are no formal restrictions on short-term cover with credit periods up to one year. While short-term business was only insurable outside the EU and the OECD core countries up to August 2009, following the decision of the EU Commission the granting of short-term export credit guarantees is permitted again for all countries worldwide up to the end of Various security instruments may be required here from case to case. With the exception of a very small number of countries which pose a particularly high risk, shortterm export credits can be covered for all relevant export markets. Where an unrestricted open country policy for medium and long-term cover is not justifiable due to specific country risks, the IMC may decide to take risk mitigation measures, requiring appropriate security. Such risk management instruments may include setting a country cover ceiling with a maximum credit limit and a limit on the size of the individual transaction. 11 countries were subject to a cover ceiling in When a cover ceiling is exhausted, the IMC examines the possibility of setting a further ceiling or considers whether other cover options are possible or necessary. Project and structured finance deals are generally unaffected by the restrictions of a cover ceiling. In projects of this type the credit risks are located outside the country of the buyer and depend on the economic viability of the project or the stability of the financial security scheme rather than the risk rating of the country. Although every country worldwide has been exposed to the effects of the economic and financial crisis, the IMC upheld cover options at an almost unchanged level during Since the risk situation has changed in many countries, however, the OECD country risk experts revised the category for a number of countries. country risk category Botswana Bulgaria Croatia Estonia Hungary* Iceland * Kazakhstan Latvia Lithuania Maledives Mexico Pakistan Romania Russia R.F. Slovak Republic Syria Ukraine Venezuela Vietnam new previously * Country risk category deviating from the OECD categorization; they were fixed by the IMC as a result of the risk development The demand for malt in South America is higher than the quantity produced. Cargill is one of the leading market players worldwide in malt production and set up a new malting facility in Rosario in Argentina with an annual capacity of 163,000 megatons. This is an expansion of an already existing malt factory at the location. Schmidt-Seeger AG supplied a malting tower and equipment for a roaster as part of the project. 41

22 the cis-states 42 The financial and economic crisis affected the countries of the Commonwealth of Independent States (CIS) in very different ways in Energy-exporting countries such as Russia, Azerbaijan or Turkmenistan were able to cushion themselves from the negative impact of the crisis thanks to the buffer of hard currency reserves they had built up over the preceding years. Countries which depend on energy imports, such as the Ukraine or Armenia, in contrast, posted a drastic slump in economic output. In many CIS states the finance sector has been severely hit, in the Ukraine and Kazakhstan the insolvency of banks triggered claims for export transactions covered under Hermes guarantees. The banking crisis in kazakhstan had particularly severe effects on export business with the country. After BTA Bank, Astana Finance and the Alliance Bank had suspended payments, the Interministerial Committee heavily restricted the cover options for Kazakhstan. Since July 2009 business on credit terms can only be accepted with security from a bank which is majority owned by foreign shareholders or with a guarantee from the state. In spite of the difficult economic situation in the region the IMC maintained the availability of cover for the other CIS states. Two country cover ceilings of 100 million euros each were put in place for belarus during the course of the year. In the case of azerbaijan it was even possible to remove the ceiling imposed to lower the risks due to the positive economic upswing in the country. As a result of weak export revenues, the demand for German export goods in the CIS states fell steeply. The income for oil and gas exporters or metallurgical companies was not available to buy machinery and plant from abroad. As a consequence, the volume of Hermes Cover was down on the previous year by 24 % to 3.1 billion euros. The share of this region in newly granted cover dropped accordingly to 14 % after 20 % in As was already the case in the preceding years, russia once again led the field in the region in terms of newly covered business. The volume of covered business was nevertheless 31 % down year-on-year. Besides the reduced demand due to the economic downturn, a substantial depreciation of the rouble, making imports considerably more expensive, played a role here. The biggest project covered was the supply and installation of a production line for heavy plate with an order volume of 330 million euros. With a rise of 28 % over the year before in the volume of covered business, belarus posted an all-time high in new cover. The demand for export credit guarantees had already risen steeply over recent years. Third place in the CIS was held, despite a fall of 14 %, by the ukraine. Here the Federal Government insured, among other business, the export of a production facility for MDF (medium density fibreboard) with an order value of 44.7 million. A wind farm with an order volume of 104 million euros was covered in azerbaijan. Cover volume for kazakhstan plunged by more than two thirds (-68 %) as a result of the banking crisis. country ceilings in million eur Azerbaijan Belarus Ukraine Uzbekistan newly covered exports for cis countries 2009/2008 in million eur Russia Belarus Ukraine Azerbaijan Kazakhstan , ,878.1 SMS Siemag AG is building a cold steel rolling mill in the Russian city of Magnitogorsk which will be unique in Russia in terms of size and technological standard. The complex will go into production successively from mid-2011 and will produce something like two million tons of steel annually when working at full capacity. SMS Siemag AG has taken out a manufacturing risk guarantee for the supplies and services involved, while the financing banks are insuring their risks by means of a buyer credit and a securitisation guarantee. The portion of supplies coming from Belgium is covered under a reinsurance agreement with the Belgian ECA ONDD. The project was awarded the accolade Deal of the Year 2008 by the British Trade Finance Magazine. 43

23 central, eastern, south-east european countries and turkey 44 The countries of Central, Eastern and South-Eastern Europe as well as Turkey were also impacted by the effects of the financial crisis, in some cases quite severely. A number of economies went deep into recession, with economic output falling by as much as 18 %. The three Baltic States were especially hard hit, while poland posted a slight rise in growth, the only country of the region to do so. Cover volume for the region posted a positive trend against this background, going up by 22 % to total 2.4 billion euros. The share of total cover volume thus rose slightly to 10.5 % (2008: 9.5 %). This growth is attributable to a marked increase in cover volume for Romania. The biggest deal covered here was the supply of 139 wind turbines with an order volume of 232 million euros. Export credit guarantees for turkey were down slightly (-8 %), but Turkey still remains far and away the most important market in this region. The highest cover was given for the delivery of three ro-ro ferries for a total of million euros. In addition, the export of a number of wind power projects was supported by means of Hermes Cover. In the rest of South-East Europe, new cover shrank in tandem with exports. There is usually a relatively high fluctuation in the volume of cover for the individual countries due to single major transactions. bulgaria posted the lowest cover volume of recent years, 24.9 million euros. Newly covered business in croatia was 25 % down on 2008, falling to the lowest value since In serbia there was only a slight fall of 4 %. The reopening of cover for exports to EU countries and core OECD countries for business with a risk horizon of below two years had no significant influence in the region on cover volume for An increase is on the cards for 2010 here, when the numerous credit limits granted under wholeturnover policies begin to be utilized with actual turnover being made. The countries heading the league in terms of credit limit applications were romania before poland and the czech republic. country ceiling in million eur newly covered exports for central, eastern and south-east european countries and turkey in million eur Turkey Romania Croatia Serbia Cyprus Serbia , ,479.4 In Romania, on a 150 hectare site to the south of the town of Fantanele, a windfarm was erected. 120 wind turbines, each with an output of 2.5 megawatts, have been feeding electricity into the Romanian national power grid since March The wind turbines were built by GE Wind Energy GmbH in Salzbergen. Two Romanian subsidiaries of CEZ Group, Prague, are operating the wind farm. A consortium consisting of four banks with the Bayerische Landesbank as lead arranger is financing the project. The Federal Government is putting up an isolated buyer credit guarantee for this project with a credit period of 14 years. The project is regarded as being especially eligible for promotion since it will prevent some 1.1 million tons of CO2 emissions every year. 45

24 africa 46 The relatively low level of integration of the African countries into international capital markets meant that they were largely insulated from the direct impact of the financial crisis in The collapse in the demand for commodities in the downturn, however, hit producers hard. The dynamic expansion of recent years ground to a halt, so that the region posted growth of only 1.7 %. All in all, the countries of Africa made a better showing in the face of the economic downturn than in the past. The hard currency reserves accumulated during the years of high commodity prices were employed to stabilize exchange rates and maintain solvency. Nevertheless, the altered risk awareness has in some cases made it considerably more expensive to obtain financing for trade with Africa. Demand for export credit guarantees for business with Africa decreased steeply in tandem with exports to the continent. Cover volume halved year-on-year, since only a few major projects were insured, in contrast to the record figure for Goods insured under Hermes Cover delivered to the countries of North Africa were 60 % down, the decline being greatest in algeria, with 80 %. The picture was similar in south africa, which posted 70 % less. Cover volume for the other Sub-Saharan countries bucked this trend, rising markedly by 35 %, albeit from a low baseline. fell short of the previous year s extraordinary level. Large-scale deliveries to North African countries included machinery for the plastics and the electrical engineering sectors in egypt, plants for irrigation and waste water treatment in morocco and transport vehicles for libya. As a result of regular large consignments of goods insured under wholeturnover policies, Algeria was again among the three most important markets in Africa. The increase for the Sub-Saharan region was due primarily to guarantees for nigeria and gabon. For Nigeria, cover was granted mainly for building machinery and passenger aircraft. In Gabon, Hermes guarantees to the tune of more than 43 million euros were granted for the construction of a hospital and a run-ofriver power station. The Interministerial Committee modified its cover policy for angola against the backdrop of the continuing political and economic stability of the country, putting in place a country ceiling of 300 million euros. It also proved possible to expand cover for gambia and liberia, so that it is no longer mandatory to put up bank guarantees for small-scale business on short payment terms. newly covered exports for african countries 2009/2008 in million eur South Africa country ceilings in million eur Angola 300 Nigeria 200 Egypt Algeria Nigeria Marocco ,120.5 In South Africa, power cuts are a recurring problem due to the lack of power reserves. This precarious energy supply situation is now about to be remedied: the Duisburg-based firm Hitachi Power Europe GmbH is building together with its South African subsidiary Hitachi Power Africa (pty) Ltd. twelve coal-fired large steam generators at two locations with a capacity of 800 megawatts each, deploying state-of-the-art technology. The power stations will come online successively within a space of four years starting in The Federal Government granted manufacturing risk, export credit and buyer credit guarantees for this project. The projects, worth billions, are extremely important for Germany as an industrial location from a structural economic perspective. More than 15 % of the order value covered by Hermes guarantees comes from small and medium-sized enterprises, who act as subcontractors in the transactions. 47 The highest volume of cover from the Federal Government, 330 million euros, went once again to South Africa, although the orders for power station technology

25 latin america and the caribbean 48 Most of the economies in Latin America and the Caribbean proved resilient to the impact of the financial crisis thanks to the stability-orientated economic policies they had pursued in recent years. The reserves accumulated during the boom years for commodity prices were used for the most part to provide an economic growth stimulus, and strong internal demand within the region was able to largely offset the decline in demand for exports. The diminished importance of the United States as the main trading partner, which has shrunk considerably over recent years, proved to be an advantage in this situation. Following several years of retrenchment, the volume of export credit guarantees for Latin America and the Caribbean rose markedly again in 2009 by 26 % to reach almost three billion euros. The share of the region in worldwide cover by volume thus went up from 11 % to 13 %. A stable banking sector, unabated domestic demand and a brisk increase in investment activity are signs that brazil seems already to have left the financial crisis largely behind it, and is acting at least on a regional scale as a driver of economic growth. The insured volume of German exports to Brazil climbed 15 % year-onyear. This meant that Brazil, in 6th place (2008: 8th) once again earned a place among the Top Ten countries worldwide with the highest cover. The IMC maintained its open country cover policy with no formal restrictions in 2009 too. The second most important market in the region for the export credit guarantees was colombia. The steep rise in cover volume was largely accounted for by Airbus transactions. Here too, the country cover policy does not foresee any formal restrictions in granting cover. mexico, because of the close integration of its economy with the usa via exports, subcontracting for American firms and private remittances from workers in the country, slid deeply into recession. Despite being downgraded into Premium Category 3, there are still no formal restrictions on the cover options available and the volume of new cover was up 7 % on A guarantee was given for the construction of a freight and passenger ferry for bermuda. Further major markets in the region were argentina (135.3 million euros) and venezuela (132.5 million euros). newly covered exports for latin american countries 2009/2008 in million eur country ceilings in million eur Argentina Cuba Cuba (short-term) Dominican Republic Brazil Colombia Mexico Bermuda Argentina Gottwald Port Technology GmbH used export credit guarantees to insure the delivery of two mobile port cranes to Brazil. The cranes will be put into service in two Brazilian ports for the offloading of containers and general cargo. Thanks to their undercarriage, which runs on rubber tyres, they can quickly be moved to the required location for unloading ships. They possess diesel-electric motors, thus reducing operating and maintenance costs. The mobile port cranes on the photo are an identical model. 49

26 asia 50 The financial and economic crisis weighed heavily on the economies of the Asia-Pacific Region due to their close linkage with international markets. The downside of high dependency on exports and relatively weak private consumption became apparent in many countries. The Asian emerging markets did, certainly, post positive growth rates, led by china and india, but these fell far short of those of recent years. In comparison to China with its high export quota of some 40 % of GDP, India, where exports account for much less (about 15 %) and domestic demand is considerably higher, was less severely impacted by the global crisis. Stimulus programmes mobilizing sums in the three-digit billions helped to mitigate the collapse in growth. cover volume in the Asia-Pacific Region presented a mixed picture, however, being determined in many cases by single major deals. While south korea, singapore and taiwan, for instance, posted significant rises, the cover volumes for china, indonesia and malaysia stayed more or less constant. The marked increase in cover for the former countries can be attributed to major projects in naval construction for South Korea, the conversion of a ro-ro ferry for Singapore and the construction of two wind farms in Taiwan. Exports insured under Hermes Cover to thailand, pakistan, india, hongkong and vietnam went down year-on-year by between 44 % and 58 %. country ceiling in million eur Pakistan 50 The Vietnamese construction sector is booming. The implementation of a large number of infrastructure projects is leading to rising demand for cement, which the existing cement factories cannot keep pace with. For this reason Vietnam is investing in the construction of new cement facilities and the expansion of existing ones. 51 Overall the volume of export credit cover for the Asian countries went up 5 % to 6.6 billion euros. This rise was mostly accounted for by the countries of the Middle East, which generated most turnover of the Asian region. South and Central Asia (-45 %) and East Asia (-10 %), in contrast, posted steep declines in cover volume. Only coming in at 2.6 billion euros after 2.9 billion euros a year earlier, East Asia no longer heads the Asian league table. south korea, china and india belonged to the ten most important countries for the export guarantee scheme, as in the previous year. The development of Despite the global financial and economic crisis, the Interministerial Committee made no substantial changes to its country cover policy for the countries of the South-East Asian region. Open cover is still available on numerous markets, including China, India, Malaysia, South Korea, Taiwan, Thailand and Vietnam. newly covered exports for asian countries 2009/2008 in million eur South Korea China PR India Malaysia Singapore , , , ,552.4 Loesche GmbH, based in Düsseldorf, delivered complete clinker grinding mills for a number of cement works in Vietnam. They have a low energy consumption and comply with World Bank standards on emissions. The firm Haver & Boecker was also involved in the projects, supplying silo equipment as well as the packaging lines and truck-loading plants to Vietnam. The Federal Government is supporting these export deals by granting export credit guarantees. Mills of the same production series built by Loesche can be seen on the photos.

27 the middle east 52 For most countries in the Middle East, 2009 was the year in which the oil price plummeted drastically. Real growth in the region more than halved, dropping to 2 %. The infrastructure programmes already begun were, with the support of state economic stimulus packages, in most cases continued according to plan. Since those countries with a similar focus in their development strategies are increasingly in competition with each other as trading hubs, financial centres and destinations for tourism, however, the future prospects for growth have to be regarded with greater reservation than hitherto. Not least as a result of the state economic stimulus programmes, the volume of export credit guarantees for the primarily public buyers in the region more than doubled in the year just finished. The five countries with the highest turnover were the united arab emirates (uae), israel, saudi arabia, iraq and kuwait. Whereas regular trade insured under wholeturnover policies stabilized at a high level, a number of major projects on the Arabian Peninsula generated high increases in single transaction cover. Infrastructure development in the uae (electricity, public transport, ports, bridges and waste water plants) resulted in a tripling of cover volume. For qatar Hermes Cover doubled due to insurance for several passenger aircraft. The cover volume for israel, too, increased almost threefold due to support for a power station project. The supply of a production line for piping for oil pipelines meant that export credit guarantees for saudi arabia, which already led the field in the region as the country with the highest turnover in 2008, went up by a further 26 %. Due to the relatively stable economic development in the Middle East, there was no need to impose any restrictions on cover in the past year. Indeed, the IMC extended the cover options for syria, in particular for small projects and commercial business. In view of the high necessity for the country to import goods in order to rebuild its devastated infrastructure, the IMC tentatively opened cover policy for exports to iraq. Deliveries secured by letters of credit issued by Iraqi banks can now be covered on a case-by-case basis. Cover volume for iran has been steadily diminishing since 2004 (2.3 billion euros) by a substantial amount. After posting 133 million euros in the previous year, cover for short-term business was granted to the tune of 68 million euros in newly covered exports for middle east countries 2009/2008 in million eur Dubai UAE Israel Saudi Arabia Iraq Abu Dhabi UAE KHD Humboldt Wedag GmbH, a Cologne-based firm, erects a cement works with a capacity of 5,000 tons a day in the limestone belt near the Jordanian city of Al- Katrana. Many German SMEs are involved as subcontractors in this project. The building of the cement works is being supported by an export credit guarantee from the Federal Government which also includes supplies from the Indian subsidiary Humboldt Wedag India, which is delivering 49 % of the materials. Further supplies from Switzerland are covered in the framework of a reinsurance treaty with the Swiss ECA SERV. The export deal is based on an Islamic finance structure, so-called murabahah financing, which complies with all the rules stipulated by the Sharia, including the ban on interest under Islamic law. The murabahah is covered by means of a buyer credit guarantee from the Federal Government just like a buyer credit. 53

28 international cooperation 55 the federal government uses its influence to secure a level playing field for german exporters internationally. in view of the impacts of the financial crisis the oecd extended the enhanced cover available for project finance till the end of cover options for projects in the field of renewable energy were also expanded. since august 2009 it has also been possible to insure export business on short payment terms to all eu and oecd countries again for a limited period up to the end of 2010.

29 56 oecd Discussions were held at the OECD in the framework of the oecd consensus group and the oecd export credit group to determine how the state export credit insurers can help to overcome the consequences of the financial crisis. In close consultation with the G20 countries and other international organizations, the OECD member countries as well as Brazil, China, Estonia, Indonesia, Israel, Romania und Slovenia reaffirmed their determination to provide the necessary capacity in future too to support the granting of export credits. The G20 countries had previously committed themselves to making available a sum of at least 250 billion US dollars via their ECAs to support international trade over the next two years. In view of the impacts of the financial crisis, the member states had decided to increase the permissible percentage of external funds insured by state export credit insurers in project finance deals in OECD High Income Countries from 35 % to 50 %. This measure, originally due to run out on 31 January 2010, has now been extended until 31st December The OECD has agreed to a new allocation of Country Categories I and II pursuant to Article 11 of the Consensus, dealing with the maximum permissible credit horizons. Longer credit horizons will now be possible for many countries. Only the OECD High Income Countries will be allocated to Consensus Category 1 (maximum credit horizon 5 years, after prior notification to the other state export credit insurers 8.5 years) in future. All other countries fall into Category II. A maximum credit horizon of 10 years applies here. Country classifications are performed on a rotational basis by the Group of Country Risk Experts: January: Europe, CIS, North Africa Spring: Asia, Middle East Summer: Latin America, the Caribbean October: Sub-Saharan Africa The OECD further resolved to introduce more attractive credit conditions for projects in the field of renewable energies and for hydrological projects. Credit horizons of up to 18 years can now be insured for such projects. The repayment profile has in addition been made more flexible. The maximum permissible credit horizon has also been raised from 15 to 18 years for nuclear power stations. The global financial crisis also affects the allocation of countries by the group of oecd country risk experts to the eight risk categories which determine premium rates. In consequence the important markets Russia, Kazakhstan and Mexico were downgraded by one category in each case. The classifications of other major markets such as China, Brazil and India, in contrast, remained unchanged. Classification is based on an econometric country risk model in which the underlying empirical data is regularly updated. european union The EU holds consultations on its common policy on issues of international trade as regards export credits in the eu council working group on export credits and coordinates the common negotiating positions of the EU at the OECD. The focus here was on new developments in the OECD Consensus and its various sector agreements in 2009 too. It is the aim of the consultations in Brussels to give the Commission a mandate for these negotiations. Over and above this, the EU Council Working Group once again provided an important forum for the ongoing exchange of views between the member states. A central role was played here by the measures taken by them to mitigate the impact of the financial crisis. Since it became increasingly more difficult in 2009 for exporters to obtain sufficient cover from the private market, the General Directorate for Competition of the Commission granted the requests from a number of member states to make use of the escape clause for short-term business contained in the Commission s Communication. Pursuant to a positive decision by the Commission, it has also been permissible since 5th August 2009 for Germany to insure short-term receivables of German exporters with payment terms up to 24 months due from buyers in all EU and OECD countries by means of state export credit guarantees. The private export credit insurance market still has priority before state cover even after this decision by the Commission. For this reason government cover is only intended to be granted for business where the exporter is unable to obtain sufficient cover on the private export credit insurance market. This exceptional rule is valid for a limited period till the end of berne union In view of the international distribution of production processes, the worldwide integration of the export credit agencies is taking on ever greater importance. A uniquely effective forum for this process already exists in the shape of the Berne Union (BU), the largest association worldwide of state and private export credit and investment insurers from more than 40 countries, which can look back on a history spanning 75 years. The primary aim of the BU is to achieve a harmonization of the conditions for export credit insurance all over the world, also taking into account the environmentally relevant and ethical aspects in trade. To this end, besides the ongoing exchange of information on country-specific issues and particular themes, various meetings are held. The regular sessions of the BU include the Committee Meetings (CM) in spring and the Annual General Meeting (AGM) in autumn. The CMs were hosted in May 2009 by TURK EXIMBANK in Istanbul, the AGM took place in Seoul at the invitation of the Korean KEIC in mid-october. The focus was on the continuing financial crisis and its impacts on international trade, the anticyclical role of the ECAs as well as the measures taken by the members of the BU to support exporters. Questions relating to new financing options as well as risk transfer were topics of wide-ranging discussion here. A workshop lasting several days intended to intensify cooperation in the field of claims and recovery took place in Hamburg at the end of June. This aroused great interest in the over 70 participants from 30 countries. At 57

30 cooperation agreements 58 a workshop held in Rome in July, representatives of 18 ECAs held an exchange of views with banks concerning direct financing by the ECAs and refinancing options for lenders. At the AGM Angus Armour von EFIC (Australia) was elected new President of the BU. He succeeded Hidehiro Konno of NEXI (Japan) after a two-year tenure. Johan Schrijver of Atradius (Netherlands) was elected as the new Vice-President. The Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), which has its Head Office in Jeddah, Saudi Arabia, was accepted as a full member following a two-year period with observer status. It represents 37 countries stretching from North Africa to South-East Asia. cooperation with credit insurers in other countries Besides the multilateral contacts at EU and OECD level and in the BU, bilateral contacts with other ECAs from OECD as well as non-oecd countries were further intensified. There were additionally two meetings of the G7 export credit insurers in Florence and Paris. The overriding theme at all these meetings was the impact of the financial crisis on the national export credit insurance systems and the challenges ensuing from it. Besides these activities, ongoing discussions took place on joint projects carried out on the basis of the reinsurance agreements which have been concluded to date with 22 other, mainly European, ECAs. The reinsurance treaty already signed in October 1999 with the Finnish FINNVERA generated especially brisk activity due to several major telecommunications projects. This was the occasion for a two-day workshop in Hamburg. This workshop is just one example for the intensification of. Euler Hermes and the Finnish ECA FINNVERA were able to intensify their cooperation at a bilateral workshop on reinsurance. Australia Austria Belgium Brazil Bulgaria Canada Cyprus Czech Republic Denmark Estonia Finland France Greece Hungary Israel Italy Japan Latvia Lithuania Luxembourg Malta Netherlands Norway Poland Portugal Romania Russia Slovak Republic Slovenia South Korea Spain Sweden Switzerland Turkey United Kingdom United States S* S* C* S* C* C R R R R R R R R R R R R R R R R R R R R R R B B B B B 59 The Claims & Recoveries Meeting of the Berne Union took place at the end of June representatives of private and state export credit insurers from all over the world followed the invitation from Euler Hermes and PwC to Hamburg S deliveries from subcontractors accounting for % can be included pursuant to decision of the Council of the EU (up to 40 % in the case of order values up to a maximum of 7m EUR) S* deliveries from subcontractors up to 30 % can be included according to bilateral agreement C coinsurance agreement under EU regulations C* coinsurance under bilateral agreement R B reinsurance agreement on a bilateral basis bilateral cooperation agreement

31 61 the federal government granted guarantees for export business to 178 countries in south korea and the usa belonged to the top ten export countries followed by russia, turkey and china. some 72 % of covered exports went to the developing countries and emerging economies. officially supported exports to the industrialized world increased due to the financial and economic crisis. while political claims declined, commercial claims went up by more than two thirds. the surplus of 454 million euros brought the accumulated balance up to 1.5 billion euros in the year under review.

32 cover for new business 62 top markets for new guarantees 2009/2008 in billion eur South Korea volume of cover in billion eur Covered exports United States Russia R.F. Turkey China P.R. Brazil India Dubai UAE Romania Israel , Total 2009: (100 %) Subtotal 2009: (55,3 %) 22.4 '05 '06 '07 '08 '09 Newly covered business, at 22.4 billion euros, was 8.2 % up year-on-year, thus reaching the all-time highest figure in the history of the export credit guarantees. This means that Hermes guarantees covered 2.8 % of total German exports in 2009, which fell by 18.4 % from billion euros to billion euros as a result of the global economic crisis. The number of countries for which the Federal Republic of Germany granted export credit guarantees rose from 152 to 178. The ten countries with the highest cover volume accounted together for a share of 55.3 % of insured orders by value. The highest volume of newly granted cover was for south korea, due among other things to a major transaction in naval construction with a covered volume of 1.7 billion euros on short payment terms, as well as a coking plant (132 million euros). Export credit guarantees for the construction of a steelworks to the tune of 772 million euros as well as various Airbus guarantees led to an increase in cover volume for the usa. russia still holds third place among the countries with the highest volume of newly granted export credit cover despite a decrease of 31 % year-on-year. Here the Federal Government granted large-scale guarantees for equipment for steelworks, power stations and other transactions in the mechanical engineering and plant construction sectors. Cover for business with buyers in turkey, in contrast, only declined slightly, by 8 %. Here the Federal Government insured short-term trade, but mainly granted medium and long-term export guarantees for machinery and equipment. Large volumes were for the delivery of ferries and container ships as well as for Airbus aircraft. Export credit guarantees granted for business with china remained constant at the previous year s level. Once again, capital goods transactions were done exclusively on short payment terms. Major transactions were in respect of railway cranes, for the expansion and modernisation of steelworks and for plant construction and machinery. Cover volume for brazil was up 15 %. The exports here were mostly (77 %) covered on short payment terms under wholeturnover policies. Extended term export credit guarantees were used to insure Airbus aircraft and deliveries in the mechanical engineering sector. The volume of insured exports to india fell steeply (-54 %). Alongside a number of major projects in the steel sector, cover was mainly given for exports on short payment terms (88 %). Export credit guarantees for major projects such as power stations and electricity distribution networks, urban buses and a seawater desalination plant generated a steep rise in cover volume for dubai. Cover volume for romania went up due to a guarantee for the export of wind turbines to the tune of some 450 million euros. For israel cover was granted for sets of gas turbines and for container bridges. 63

33 cover percentage of total export volume by country groups* in % new guarantees 2009 for emerging and developing countries in million eur America america Africa Asia Brazil Colombia Mexico Bermuda breakdown by country groups volume of cover by country groups* in billion eur Emerging and developing countries Industrialized countries Europe Industrialized countries '06 '07 '08 '09 volume of cover by country groups* Countries Emerging and developing countries America Africa Asia Middle East Southern/Central Asia Est Asia Oceania Europe 2008 million EUR 17, , , , , , , ,624.7 in % million EUR 16, , , , , , , , in % africa europe Argentina Total: 2,923.2 (100 %) Subtotal: 2,137.1 (73,1 %) South Africa Egypt Algeria Nigeria Morocco Total: 1,422.7 (100 %) Subtotal: (68,9 %) asia China P.R. India Dubai UAE Israel Saudi Arabia Russia R.F. Turkey Romania Belarus Ukraine Total: 6,601.2 (100 %) Subtotal: 3,638.7 (55,1 %) 1,362.8 Total: 5,152.4 (100 %) Subtotal: 4,870.8 (94,5 %) new guarantees 2009 for industrialized countries in million eur , ,991.2 The breakdown of the countries into groups has been slightly modified in comparison with the criteria used in the preceding years. The group of industrialized countries comprises those in the OECD Premium Category 0, i.e., the OECD high income countries (according to the World Bank definition those with a per capita gross income of more than 11,906 US dollars in 2009), countries of the European Monetary Union (EMU) including their affiliated territories and Singapore. The group of developing and emerging nations consists of all others and is further divided by regions (cf. the country list on p. 92). In the year under review 71.9 % of covered exports were accounted for by the emerging and developing nations. Total exports from Germany to these countries fell by 22.1 % to billion euros after billion euros in the previous year. Exports to the tune of 16.1 billion euros were insured here by means of Hermes Cover representing a share of 7.7 %. The main emphasis of cover in 2009 was on exports to the Asian and European emerging markets and developing countries. As in previous years, the share of officially supported exports to industrialized countries was very small in comparison to the total volume of exports to these countries in 2009 as well. A difficult economic environment, increased risk awareness and tight liquidity in the industrialized countries led, however, to an increase of export credit guarantees for such countries, primarily for major projects, ships and aircraft. Due to these effects of the global financial crisis the share of the industrialized countries in total cover went up from 16.9 % in 2008 to 28.1 %. The temporary option to grant Hermes guarantees for marketable risks will only have an impact on cover volume for the industrialized countries in 2010, however. Goods to the value of billion euros were exported to industrialized countries in the year under review (2008: billion euros), representing 73.8 % of total German exports. 6.3 billion euros of this was insured by the Federal Government export credit scheme (2008: 3.5 billion euros). In terms of the total exports to these countries, this gives a covered share of 1.1 %.. 65 Industrialized countries Total 3, , , , South Korea United States 2, ,065.5 Thereof EU-countries , Denmark Singapore * see country classifications p. 92 Netherlands Total: 6,279.4 (100 %) Subtotal: 5,151.5 (82,0%)

34 covered exports by horizon of risk in billion eur Single transaction policies over 5 years Single transaction policies 1-5 years Single transaction policies up to 1 year Wholeturnover and revolving policies '05 '06 '07 '08 '09 66 wholeturnover policies 2009/2008 in million eur Brazil Russia R.F. China P.R. Turkey Saudi Arabia Total 2009: 6,978.4 (100 %) Subtotal 2009: 2,475.1 (35,5 %) short-term single transaction policies 2009/2008 in million eur medium and long-term policies 2009/2008 in million eur United States Russia R.F. Turkey Romania Dubai UAE 1, , , , Total 2009: 9,445.1 (100 %) Subtotal 2009: 4,435.7 (47,0 %) guarantees 2009 by horizon of risk in billion eur Wholeturnover policies: Revolving policies: Single transaction policies up to 1 year: Single transaction policies 1-5 years: Single transaction policies over 5 years: South Korea China P.R. United States India Iraq 36.2 % 96.3 Total 2009: 5,710.5 (100 %) Subtotal 2009: 4,265.9 (74,7 %) % % 1, % 1.1 % breakdown by horizon of risk and type of cover The cover volume for short-term business with credit periods of up to one year increased slightly by 5.7 % to 12.9 billion euros, representing 58 % of total cover granted (2008: 59 %). This is attributable to a rise in demand for short-term single transaction policies. After 60 % in the preceding year, just under 54 % of newly covered short-term business was on the basis of wholeturnover policies in The volume of cover under wholeturnover policies thus went down by 4 % from 7.3 billion euros to 7.0 billion euros. This reflects the decline in exports, in some cases dramatic, in existing wholeturnover policies, which was not compensated by new policies and business with previously marketable countries in the second half. The increased demand for cover for such risks had no significant impact on the annual result of the wholeturnover policies in The slump in turnover was especially marked in Russia (-25 %) and Turkey (-19 %). Turnover was up, in contrast, for Brazil, which has thus regained its position as the country with the highest turnover under wholeturnover policies for the first time since The number of wholeturnover policies rose from 800 a year earlier to Of the total number of 17,000 limit requests, some 10,500 under 455 wholeturnover policies were made for buyers in previously marketable countries from August 2009 till the end of the year. The main thrust of demand here was for insurance for Italy, the UK, the USA and Spain. Two thirds of limit decisions were positive. Under these limits, turnover of 264 million euros was booked till year-end. The premium income for the wholeturnover policies, at 32.9 million euros, was 3 million euros down year-onyear. Amounts paid out for claims have already risen significantly. revolving single transaction policies, with an increase of 11 %, reached a volume of 246 million euros. Their share of total cover remained constant at 1.1 %, as in the previous year. short-term business with a credit period up to one year posted a rise of 21 % to 5.7 billion euros. This figure also includes short-term receivables due in respect of progress payments in constructional works contracts. As well as trade goods it also includes cover for capital goods which were delivered on short-term conditions. The strong surge in short-term single transaction policies was, besides the one-off transaction in South Korea, due above all to increased demand for supplies to China, the USA and India. The volume of cover under medium and long term policies rose by 12 % as a result of several major projects. Order values covered rose to 9.4 billion euros after 8.4 billion euros in the preceding year, bringing the share of medium and long-term business in total business up to 42 %. The countries with the highest cover volume in this segment were the USA, Russia and Turkey. The share of exports financed by means of tied buyer credits rose from 81 % in 2008 to 85 %. 67 Total: 22.4

35 number and volume of applications cover by industrial sectors 68 The number of new applications for cover for all The breakdown of single transaction policies is by 69 applications Number of applications of which single transaction policies Wholeturnover Applications in million EUR new guarantees Number of single transaction policies of which for private buyers of which for public buyers Volume of cover in million EUR of which single transaction policies volume in million EUR of which for private buyers of which for public buyers ,519 2,176 11,343 42, , ,683 13,181 11,093 2, ,489 2,422 26,067 48, , ,380 single transaction policies 2009 by industrial sectors in million eur 15,156 11,085 4,071 Change in % Change in % types of cover together more than doubled in the year under review. This is principally due to the increase in demand for wholeturnover policies since August Parallel to this, the volume of applications went up by 12.2 %. The number of new single transaction policies, too, was more than 10 % up. The volume of underlying orders covered here even went up by 15 %. The number of major transactions with an order value in excess of 50 million euros showed only a slight increase. After 44 projects a year earlier, 47 projects received cover, representing 57.3 % of covered volume under single transaction policies (2008: 56.5 %). The number of private buyers in newly granted cover has increased again. Thus the ratio between cover for public and private buyer risks has shifted in favour of private buyers: 89 % of single transaction policies were accounted for by private and 11 % by public buyers. In terms of the volume of business covered, the ratio between private (73 %) and public (27 %) buyers changed to the advantage of the latter (2008: 84 % private buyers and 16 % public buyers). sectors. The infrastructure sector posted a decrease of 7.1 % in Order values for aircraft covered by export credit guarantees more than tripled, increasing from one billion euros to 3.2 billion euros. Aircraft thus accounted for 21.4 % of single transaction cover, or 14.5 % of total new business covered. Export credit guarantees for shipping business climbed by 7 % to 2.9 billion euros. Their contribution to the total volume of cover in the year under review remained constant at 13.0 % (2008:13.2 %). Cover for the energy sector e.g. renewable energies and power stations fired with fossil fuels went up, as did guarantees for the service sector and environmental technology (see p. 86). While the share of military goods is normally minimal as a share of covered transactions, this went up first and foremost due to a single ship construction deal from 0.1 % in the previous year to 10.3 %. Infrastructure: Aircraft: Ships: Manufacturing industry: Energy: Paper, timber, leather and textile industry: Services: Mining Industry : Agriculture and food industrie: Others: 1,496 3,244 2,919 3,046 1, % 2.2 % 4.0 % 3.3 % 6.2 % 12.2 % 20.1 % 9.9 % 19.3 % 21.4 % Total: 15,156

36 claims and recoveries, rescheduling environmentally relevant aspects in the promotion of projects claims 70 officially supported, environmentally relevant projects 2009 by categories and industrial sectors Category A Power generation and distribution Steel Total Category A Category B Power generation and distribution of which renewables: 6 projects 606 million EUR Steel Wood processing and paper other industries The highest payments were accounted for by turkey with 31.7 million euros. This steep rise was mainly attributable to claims in the textile and paper industries. russia follows in second place with payments totalling 28.8 million euros, largely due to the regulation of a single major claim. A considerable rise was similarly posted in claims payments for brazil, with 21.7 million euros. Losses have mainly occurred in the agrochemical sector and the food industry. While no claims were regclaims payments in millon eur Political risk claims Commercial risk claims Exchange rate risk claims Total: Total Category B claims payments 2009 in million eur Number 14.3 % Volume in million EUR , , , Applications with medium and long payment terms and an order value upwards of 15 million euros are subject to the recommendations of the OECD on a screening procedure to determine their environmental impacts (the Common Approaches). In 2009 a total of 211 applications with a total volume of 25.1 billion euros underwent preliminary screening (2008: 156 applications with a volume of 13.8 billion euros). This resulted in indepth environmental audits under the OECD environmental guidelines for 79 transactions with a total volume of 11.8 billion euros assigned to environmental impact categories A and B (2008: 59 transactions with 4.6 billion euros). The projects in Categories A and B which received a firm commitment on cover in 2009 were notified to the OECD and their details summarized on the website of Hermes Cover ( These were 6 Category A projects with a covered order value totalling 1.47 billion euros as well as 31 Category B projects with a total order value of 2.52 billion euros. Supplies delivered to existing projects which do not lead to any material changes in the output or the functioning of the project are exempted from detailed indepth screening under the rules of the Common Approaches in force since July 2007, only an evaluation of the environmental risks being required. The order volume of such supplies in the year under review was 160 million euros. The amounts paid out for claims were up 15 % to million euros (2008: million euros). The main reason for this increase was a steep rise in commercial claims by more than two thirds as a result of the financial and economic crisis. Claims paid out nevertheless remained at a moderate level, it proved possible to secure deferred payment for many overdues or to restructure the debt. Payments for political claims were down again (-60 %). Argentina, with 24.3 million euros, once again accounted for the lion s share of payments for political claims totalling 29.2 million euros, although it must be noted that claims payments in respect of the country actually declined by 56 % over the previous year (55.2 million euros). Payments in respect of commercial claims increased by 69 % to million euros. The number of claims submitted also climbed steeply. An increase of 65 % in the segment of wholeturnover and revolving cover clearly illustrates the impact of the crisis. 71 Commercial risk claims: Political risk claims: % Total: 203.6

37 72 claims payments under commercial risk cover 2009/2008 in million eur Turkey Russia R.F. Brazil Indonesia Canada Ukraine Kazakhstan Spain Mexico Malaysia recoveries for claims paid (excl. interest) in million eur Total 2009: (100 %) Subtotal 2009: (86.7 %) istered for the ukraine and kazakhstan in the previous year, they returned in 2009 to the tune of 12.6 million euros and 9.3 million euros respectively. In the Ukraine this is due to the insolvency of two banks, while in Kazakhstan three banks suspended payments. The largest number of claims applications was submitted in respect of these two countries. In view of the medium-term impact of the financial and economic crisis payments must be expected to remain at a high level in 2010 too. Here, further applications are expected in respect of amounts due from Ukrainian and Kazhak banks. recoveries recoveries on commercial claims rose slightly year-on-year. Overall 5 % more, million euros, was received for the Federal Government account than in the previous year. Besides payments under long-term restructuring schemes, one-off effects also led to a result which, considering the background of the global crisis, was a very good one. Recoveries from china to the tune of 60.5 million euros are explained by the conclusion of new agreements in a major claim in the paper industry. Further payments of principal and interest are expected under this over the next few years. Negotiations to secure a restructuring scheme with a view to a resumption of payments in a parallel case in Indonesia are ongoing. 73 under political risk over thereof rescheduled amounts under commercial risk over Total: , , , , , , The second largest share of recoveries from south korea, 12.5 million euros, was the result of payments under a restructuring scheme in the automobile industry. recoveries under commercial claims 2009 in million eur China P.R. South Korea Payments of 11.6 million euros from canada came from the proceeds of a restructuring agreement in the printing sector. Besides the one-off payments, it is also intended to issue shares in this case, which still have to be realized. Canada Indonesia Brazil Singapore Belgium India United States Thailand Recoveries from all other countries came in much lower than the year before. The largest decrease (-70 %) was in payments from indonesia with a mere 7.2 million euros. Against the background of the global crisis this decline is, however, not surprising, and it is on the cards that it will continue to be difficult to secure receipt of payments under outstanding commercial claims. Total: (100 %) Subtotal: (89.4 %)

38 74 The focus in 2009 was on discharging the debt of the The biggest rescheduling agreement in volume terms in 75 volume of multilateral reschedulings poorest countries in the world, the so-called HIPC the year under review was that concluded with côte 2009 in million us-dollar (Heavily Indebted Poor Countries). In this context the d ivoire. The country had already qualified for the first Côte d Ivoire 4,690 Paris Club demonstrated that it is prepared to uphold HIPC initiative in Only a short time later it was no Seychelles Haiti Burundi Central African Republic Togo Comoros its support for these countries even when they prove unable to fulfil the goals stipulated in the programmes worked out together with the IMF and the World Bank to reduce poverty. A precondition for this is, however, that the country concerned has been brought back into the HIPC process via appropriate new agreements with the IMF and World Bank. longer involved in the HIPC programmes as a result of political destabilization and a virtual state of civil war. In May 2009 the Paris Club was able to give help again in the HIPC process on the basis of a new IMF-supported poverty eradication programme and to agree the rescheduling of 4.7 billion US dollars of debt. The German share of this was 44.1 million euros. Total: 5,232 rescheduling The Paris Club is pursuing with its outreach activities the aim of improving cooperation between all the external creditors of a debtor country. Efforts are being made to involve, besides the private creditors, also the creditor countries not represented in the Paris Club. For nine years now, argentina has failed to meet its payment obligations to the creditor countries organized in the Paris Club. The outstanding amounts due to the Paris Club at the end of 2009 were some 8 billion US dollars. German claims made up about 1.9 billion euros of this sum. At the turn of the year 2009/2010, Argentina initiated a settlement with its bondholders who had refused to accept the bond swap of 2005, involving a haircut of 75 %. Agreements regulating the debt repayment of seven countries were made in the Paris Club during the year under review, covering a total of some 5.2 billion US dollars in repayments. Germany was involved in these as a creditor with 46.5 million euros of trade debts. Germany concluded bilateral debt forgiveness and rescheduling agreements with three HIPCs in 2009, (the republic of the congo, the central african republic and togo) involving a volume of 54 million euros in all, of which 44 million euros were debt forgiveness. Although the efforts made to discharge the debt of the HIPC countries often grab the headlines, the agreements with those debtor countries which pay their instalments regularly also deserve mention. The biggest amounts repaid in the year under review were from Egypt, the Ukraine, Serbia and Gabon. These countries have all maintained a reliable payment record up to now. They, together with a large number of other countries, have contributed with their substantial payments to achieving a positive financial result for the export credit guarantee scheme.

39 revenues 2009 in million eur profit and loss account 12.0 % 27.3 % revenues expenses 76 Amortisation and recoveries: Premium/fees earned: Interest received: Exchange gains: Total: % The revenues for the Federal budget accounts from the export credit guarantee scheme went up by 8 % in the year under review to million euros. premiums and fees received posted a rise of 14 % to million euros after million euros in Expenses went up during the year under review by 13 % to million euros. They comprise claims payment totalling million euros and costs of 71.4 million euros for the administration of the export credit guarantee scheme. 77 financial result in million eur Interest received Annual result excluding interest highest interest payments 2009 in million eur Egypt Gabon Serbia Pakistan Ukraine 12.1 Total: 99.4 (100 %) Subtotal: 80.9 (81,4 %) 1,981 1,284 1,120 1,173 1, ,624 2,432 6, '01 '02 '03 '04 '05 '06 '07 '08 '09 annual result and results accrued (excluding interest) in million eur + 5,000 The recoveries in respect of already indemnified claims and debt repayment under rescheduling agreements in a total amount of million euros must be added to the premium income. The highest recoveries came from China (60.5 million euros), the Ukraine (29.2 million euros), Gabon (21.5 million euros), Egypt (20.7 million euros) and South Korea (12.5 million euros). On top of this there was interest income totalling 99.2 million euros (2008: million euros), which was generated almost exclusively by rescheduling agreements. Egypt contributed the lion s share here, accounting for a quarter. In addition, as in the previous year exchange rate gains amounting to 0.2 million euros were posted. financial result The export credit guarantee scheme of the Federal Republic of Germany posted a positive result for the Federal budget accounts for the eleventh consecutive year, with a cash surplus of 454 million euros. Following the complete discharge in 2006 of the accumulated deficit of 13.5 billion euros previously built up by the export credit guarantee scheme, the overall positive balance of the scheme rose to just under billion euros at the end of In addition to this, interest of 99.2 million euros (2008: 110 million euros), mainly under rescheduling agreements, was transferred directly to the Federal budget accounts. For methodical reasons, this is excluded when calculating the financial result, since the refinancing costs incurred by the Federal Government in respect of claims paid are also not included. 0-5,000 Annual result Results accrued - 10,000-15,000 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '09

40 export guarantee portfolio 79 the statutory cover limit set by the federal government for the budget year 2009 was 117 billion euros % of this had been utilized at year-end. the federal government s actual outstanding risk rose by 5.9 % to 66 billion euros. half of the entire risk here was accounted for by eight countries. unrecovered outstandings of the federal government under already indemnified claims went down again. debt forgivness on 9.8 million euros of capital repayment due to the federal government became effective in since the scheme was set up, the federal government has granted debt relief totalling 4.2 billion euros to the poorest countries under rescheduling agreements.