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Presentation to the Portfolio Committee on Trade and Industry Rollout of the Interest Make-up export incentive scheme. Export Credit Insurance Corporation of South Africa SOC Limited (ECIC). 2 4 July 2013. Ecic representatives. Mandisi Nkuhlu Acting Chief Executive Officer - PowerPoint PPT Presentation
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Presentation to thePresentation to thePortfolio Committee on Trade Portfolio Committee on Trade
and Industryand IndustryRollout of the Interest Make-up Rollout of the Interest Make-up
export incentive schemeexport incentive scheme
Export Credit Insurance Export Credit Insurance Corporation of South Africa Corporation of South Africa
SOC Limited (ECIC)SOC Limited (ECIC)
24 July 201324 July 2013
2
ECIC REPRESENTATIVESECIC REPRESENTATIVES
Mandisi Nkuhlu
Acting Chief Executive Officer
Tel: 012 471 3812 or 082 906 3705
Lesego Mosupye
Chief Risk Officer
Tel: 012 471 3817 or 082 558 4106
BACKGROUND ON THE IMU SCHEMEBACKGROUND ON THE IMU SCHEME
• The Interest Make-Up (“IMU”) scheme has evolved since 1994.
• The 1994 IMU Scheme was a Rand based scheme.• Given that most export transactions are priced and
funded in US Dollars, it became necessary in 2003 to redesign the IMU scheme into a US Dollar based scheme.
• Since then the IMU Scheme has been reviewed in 2007, 2009 and more recently in 2012 to benchmark it against international best practice and the prevailing market conditions (e.g. impact of the 2008 financial crisis on US Dollar liquidity and the cost of capital)
3
RATIONALE FOR THE IMU SCHEMERATIONALE FOR THE IMU SCHEME
• The nature of international competition in global trade entails at least three key elements:
a) Competition on the quality and price of goods offered by our exporters
b) Ability of our exporters to offer a technical solution and a funding solution as one package.Funding solution speaks to the availability of long term
finance for the foreign buyers to buy SA goods at competitive interest rates.
c) Availability of the Political and Commercial risk insurance capacity for the different host countries to unlock the provision of long-term finance.
4
IMU AND ECIC INSURANCE AS ONE IMU AND ECIC INSURANCE AS ONE PACKAGEPACKAGE
• There are four key players in the South African export credit scheme.
• Exporters/contractors who can produce quality goods or services that can compete internationally.
• Financial institutions (banks or development finance institutions) who have access to US Dollar liquidity and risk appetite to provide long-term finance into cross-border markets (which may be viewed as politically more challenging than the domestic market).
• ECIC political and commercial risk insurance to crowd in the financiers to go to markets and countries which ordinarily they would avoid.
• Government funded IMU support (managed by ECIC) to ensure that the export credit loans are priced competitively.
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LINK WITH SA CONTENTLINK WITH SA CONTENT
• IMU support is not offered on a stand alone basis.• IMU is linked to projects that are eligible for ECIC
support.• The relevant eligibility criterion is that the exporter must
achieve at least 50% SA Content under the export contract.
• Effectively, IMU support and ECIC insurance support is tied to local manufacturing and utilization of SA technology and services to enhance the sustainability of existing jobs and the creation of new ones.
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• The dti annual budget allocations/transfers.• Special IMU dispensation for the MOZAL
transactions which had a formula that required IMU profits to be paid over to ECIC as part of the Interest Make-Up Fund. (“Mozal IMU Profits”)
• Interest earned on the Surplus Funds sitting in the Interest Make-Up bank account.
• The surplus funds have been utilised to cover sudden spikes in disbursements that exceed the annual budget allocation/transfers from the dti.
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SOURCES OF IMU FUNDING AND THE SOURCES OF IMU FUNDING AND THE SURPLUS FUNDSSURPLUS FUNDS
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FUNDING OF IMU PAYMENTSFUNDING OF IMU PAYMENTS
Inflation adjusted dti transfers and payments to financial institutions using 2013 prices
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IMU FUND ACCOUNTIMU FUND ACCOUNT
Inflation adjusted dti transfers and payments to financial institutions
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OVER THE NEXT 3 YEARS THE SURPLUS FUNDS IN THE IMU FUND ACCOUNT WILL BE DEPLETED
(this graph shows IMU payments incl. new business)
PARTICIPANTS AND THE PARTICIPANTS AND THE BENEFICIARIES OF THE IMU SCHEMEBENEFICIARIES OF THE IMU SCHEME
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EXPORTERS
MAIN CONTRACTORS
SUB-CONTRACTORS
SELL MORE GOODS AND SERVICES
FOREIGN BUYERS
DIFFERENT COUNTRIES & VARIETY
OF SECTORS
BUY AND BORROW AT
CHEAPER INTEREST
RATES
S.A. FINANCIAL INSTITUTIONS
LOCAL BANKS
INTERNATIONAL BANKS WITH SA
BANKING LICENCE
IDC
DIVERSIFY PORTFOLIO
AND ACCESS NEW MARKETS
SA ECONOMY
MORE EXPORTS
HARD CURRENCY EARNINGS FROM
EXPORTS AND INTERNATIONAL
LOANS
SUSTAIN EXISITING JOBS
AND CREATE NEW JOB
OPPORTUNITIES
BENEFICIARIES – EXPORTERSBENEFICIARIES – EXPORTERS
Since inception, 65 export credit policies have been issued by ECIC
Out of these policies, 41 exporters were employed on projects that were supported by ECIC and benefited from the IMU scheme
Some of these Exporters Included:•QStar Trading CC, Gauteng – SMT black owned
•Omega Risk Solutions, Gauteng - SMT
•Likusasa Trading CC, Gauteng
•Veecraft Marine CC, Cape Town - SMT
•Logichem Equipment Trust, Western Cape
•Bell Equipment, Richards Bay KZN
•SAAB Grintek, Gauteng
•Bateman Engineering, Gauteng
•JHI Properties, Gauteng
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• Financial institutions receiving IMU support are– Industrial Development Corporation of SA Ltd – ABSA Bank Ltd– FirstRand Bank Ltd– NedBank Ltd– Standard Bank of SA Ltd (SBSA)– Investec Bank Ltd– CitiBank SA Branch– Standard Chartered SA Bank (SC)– HSBC Ltd SA Branch
13
BENEFICIARIES – FINANCIAL BENEFICIARIES – FINANCIAL INSTITUTIONSINSTITUTIONS
Contract price: US$106 million
Buyer: Lumwana Copper Mining Company
Project: Engineering, procurement & commissioning of a copper mine & processing plant
Main Contractor: Bateman Engineering based in Gauteng
Goods and Services amounting to 88.2% of contract price sourced from South Africa
More than 30 sub-contractors involved from all over South Africa for contracts worth R100,000 to R150 million
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TYPICAL TRANSACTIONTYPICAL TRANSACTIONCOPPER MINE IN ZAMBIA - LUMWANACOPPER MINE IN ZAMBIA - LUMWANA
ECONOMIC IMPACT OF THE IMU ECONOMIC IMPACT OF THE IMU SCHEMESCHEME
Over the period 2008-2012, the ECIC supported projects to the value of R13.9 billion
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ECONOMIC IMPACT OF THE IMU ECONOMIC IMPACT OF THE IMU SCHEMESCHEME
A significant amount of capital investment is destined for mining & infrastructure projects with Zambia, Zimbabwe & Tanzania being beneficiaries
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ECONOMIC IMPACT OF THE IMU ECONOMIC IMPACT OF THE IMU SCHEMESCHEME
R15.1 billion is estimated to have been added to the South African GDP
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ECONOMIC IMPACT OF THE IMU ECONOMIC IMPACT OF THE IMU SCHEMESCHEME
Over 55,000 job opportunities are estimated to have been created/sustained
18
ECONOMIC IMPACT OF THE IMU ECONOMIC IMPACT OF THE IMU SCHEMESCHEME
In line with IPAP objectives, R6.9 billion of value added exports were facilitated
19
ECONOMIC IMPACT OF THE IMU ECONOMIC IMPACT OF THE IMU SCHEMESCHEME
Approximately R4.0 billion was added to the national fiscus compared with R631 million paid out under the IMU scheme and net claims of R133 million that were paid by ECIC.
20
FEATURES OF THE NEW IMU SCHEMEFEATURES OF THE NEW IMU SCHEME
• It is an evergreen scheme.
• May be reviewed every three years without interrupting its operation.
• Loans with a shorter repayment period (e.g. 5yrs are much more cheaper than loans with a very long repayment term).
• Smaller contracts which generally have shorter repayments will benefit from the cheaper interest rates under the new IMU scheme.
• Fixed term interest rates are also available for big infrastructure projects that require long-term fixed funding.
21
OUTLOOK FOR THE NEAR TERMOUTLOOK FOR THE NEAR TERM
• The price competitiveness of the new IMU scheme will lead to increased utilisation.
• The projected increase in the pipeline of projects and new commitments will stretch and exceed the current budget allocations made in the MTEF (Medium Term Expenditure Framework).
• Given the two year lead time before the surplus funds in the IMU bank account run out, there is time and space to revisit the budget assumptions and future budget allocations.
22
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CONCLUDING REMARKSCONCLUDING REMARKS• The demonstrable positive economic impact of the IMU export
incentive scheme creates a strong basis and justification for an increased budget allocation going forward.
• The increased demand and improvements in the efficiency of the disbursements of the funds bodes well for the effective rollout of this export incentive scheme.
• ECIC’s strong focus on the African continent makes the IMU export incentive scheme a critical component of the strategic interventions required to access new export markets on the continent.
• It is important to diversify the country’s export basket and lessen over reliance on our traditional markets such as the EU.