US Exim Bank shutdown affects Middle East projects

26 August 2015

Paralysis at export credit agency will damage US more than Middle East

  • The Export-Import Bank of the United States (Exim Bank) has been unable to engage in new business since 1 July
  • Projects in the Middle East are waiting for the bank’s reauthorisation or finding other sources for procurement
  • The US politicians may reauthorise Exim Bank in the autumn

The lapse in authorisation for the Export-Import Bank of the US (Exim Bank) is causing frustration in the Middle East and North Africa projects markets.

The bank has been unable to engage in new business or process applications since 1 July, after the US Congress did not renew its charter.

The situation is especially affecting the hi-tech, renewable energy, conventional energy and aviation sectors.

One multibillion-dollar project in Egypt, which is relying on Exim Bank as the main financier, is now unable to reach financial close.

“We are in a holding pattern,” says a senior manager at the project company. “For us the delay is very annoying, but Exim Bank will continue in some form.”

Other smaller projects have also felt the effects of the shutdown. These would have used Exim Bank to finance the purchase of US products, but have had to find alternatives. For example, other export credit agencies (ECAs) might cover US products as part of a wider package. But the main disadvantage will be for US manufacturing.

“We produce the same products in the EU and China as in the US,” says a sales manager at a major US company. “So we are sourcing from there instead, and clients can still get financing leverage with their ECAs.”

However, smaller US-based exporters may not have the same flexibility, and will be at a disadvantage to suppliers from other countries than can access credit guarantees and export loans.

“Several projects globally would have included US procurement in the sourcing competition, but couldn’t without the prospect of support from Exim Bank,” says Ken Hansen, partner at US-based law firm Chadbourne & Parke, and formerly general counsel at Exim Bank.

“Not every business can reallocate production to Europe and Asia, so this unilateral disarmament has left US businesses – especially smaller businesses without offshore production facilities – unable to compete with other countries.”

With the US Congress and Senate returning for their autumn sessions in September, the business community is hopeful that a renewal of Exim Bank’s authorisation can be passed. But right-wing politicians continue to oppose the bank’s existence.

“It’s theology over reality,” says Hansen, “They’re in the intellectual camp of Islamic extremists, pursuing their philosophy of small government in disregard of the collateral damage to US workers and the US economy.”

There is some pressure on Exim Bank to sell off its loan portfolio and wind itself up. In this case, companies exporting from the US could look to find other sources of finance. But commercial banks may not be interested in emerging markets and small-scale deals.

Most observers predict that Exim Bank will continue to exist in some form, and are hoping that Congress will reauthorise the bank soon. It is likely political supporters will attach an amendment to another bill, as has previously been attempted.

“This will be temporary,” says Hansen. “Even if the bank was abolished, they would would likely see the problem, and the opportunity, and establish a new [ECA] within a few years. But it would be silly to lose the momentum and infrastructure we have now.”

Stay informed with the latest in the Middle East
Download the MEED app today, available on Apple and Android devices

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.