EKN’s most recent annual report reflects a world economy on the upturn. Economic growth has increased, world trade has increased, and so has the private sector’s liquidity and willingness to take risks. EKN’s role in the market has changed, in line with changing economic trends. Towards the end of the year, uncertainty about the world economy grew – which could again affect EKN’s role.

EKN’s role has traditionally been more important during recessions. The opportunities for laying off risk on the private market become as a rule much more limited when the general risk picture on the finance market seems more gloomy. In good times, the opposite is true. Even so, EKN’s issuing of guarantees has increased during the economic boom in recent years.

The world economy in recent years

In 2002 and 2003, world economic growth was very weak. Both the US and the EU had weak economies. Japan’s economy was going into reverse, and Latin America was in the throes of economic crisis. But 2004 saw the greatest growth in the world economy for 20 years, and ever since then EKN has had a constant upturn in guarantee issuing. The US and emerging markets were the fastest growing markets. Growth was weaker in Japan and the EU. The telecom sector recovered, primarily because of fast expanding economies in Asia. High oil prices gave good growth to countries in the Middle East and Africa, enabling them to increase imports, and Latin America saw a strong recovery.

EKN’s guarantee issuing increased, while losses and loss payments as good as disappeared, enabling EKN to reduce premiums and make improvements in the country risk classifications for a record number of countries. 2006 followed the same trend. But in the middle of 2007, the world economy weakened and uncertainty increased.

It is difficult to show any pattern in EKN’s business, as in some years one or two very large transactions overshadow any pattern. 2007 saw an increase in activity measured by the number of offers and guarantees, but a reduction in the amounts compared to the previous year. But in the previous year, 40% of the guaranteed amounts came from one single transaction.

New products and changes in the risk market

Trends at EKN during the 2002-2007 period from recession to boom appear to contradict the traditional ’truism’ that there is a greater need for EKN in recessions than in booms. The demand for EKN’s guarantees increased instead during the period. There are several explanations for this. One is the increase in exports. Between 2002 and 2007, the proportion of exports in Sweden’s GNP increased from 43% to more than 50%.

One explanation is that EKN has developed new products, and has been able to meet exporters’ needs for finance by guarantees in which EKN shares various risks with the banks. The best example of this is the counter guarantee, for which there was strong demand. Another explanation is that EKN has switched to different risk markets. At the start of the period, there was a demand for EKN’s facility to take on risks in countries like India and China. When the risk outlook in those countries improved, risk coverage for Mexico and Brazil grew in importance for EKN’s customers. In the last few years, EKN’s guarantee issuing has increased for African countries, and also for difficult risk markets like Cuba. Yet another explanation is EKN’s role in transactions in Iran.

The tables below show at least partially how EKN’s role has evolved and changed, even though particular transactions in particular years muddy the pattern somewhat.

The situation at the year-end

Uncertainties about the world economy are now greater than for some time. This has arisen primarily from the far-reaching credit crunch on the international financial markets, and fears that this might spread beyond the financial sector. A slowing down of economic growth is now on the way, particularly in the US but also in other industrial countries.

There are therefore strong indications that the credit cycle has turned. After several years of greater liquidity and low risk premiums, there is now a correction to the market’s appetite for risk. This is increasing the costs of financing and the risks of refinancing among borrowers all over the world, but particularly those with weak creditworthiness. The number of borrowers unable to repay is expected to rise.

The growth in developing countries is expected to flatten somewhat, but to remain at a continuing high level, particularly in China and India. Financing of export transactions is expected to be done mostly in the private sector. Looking a little further ahead, there are however question-marks about the sustainability of these countries’ fast pace of economic expansion. The continuing substantial demand for oil, occasional fluctuations of supply and the geopolitical uncertainty mean continuing high and occasionally volatile oil prices.

Increased issue of guarantees for African countries

The geopolitical battle for a range of strategic raw materials is expected to continue. However, the prices of certain raw materials such as metals are tending to flatten out from the record high levels of recent years. Continuing good growth is expected above all from the energy-exporting countries, as well as in many other countries producing raw materials – the so-called Emerging markets. This applies not least to Africa, where the debt situation continues to improve in a number of previously heavily indebted countries. This is likely to lead to greater business volumes for EKN, as the private sector remains very cautious about taking on risks in African countries.

There is a great need of infrastructure investment, above all in Latin America, Africa and in some parts of Asia. A growing focus on the climate issues all over the world is contributing to this. There are still challenges to finding sustainable financing solutions, and it is here that export credit agencies like EKN can play an important role.

Globalisation and a new mandate

Stiffer international competition on the export markets has contributed to downward pressure on prices of goods, above all on standardised products. It is therefore becoming all the more important to reprocess and to increase the knowledge content of company exports, in order to meet this global competition. Small and medium-sized enterprises have an important role to play – to diversify Sweden’s economic base, and foster future growth.

Another clear trend is that the export of services from Sweden is increasing, and there is good potential for a more extensive global trade in services. At the same time, an increased production of capital goods from non-OECD countries means increased competition from export credit agencies outside the OECD circle. A growing number of agencies, including EKN, have adapted or are adapting their activities to meet the needs of national companies that have moved their production abroad.

The mandate that EKN has been given in the new ordinance from the Government offers significantly greater opportunities for guaranteeing export transactions where a major part of the production takes place abroad. Under the new mandate, EKN can issue guarantees if the transaction has a direct or indirect connection with exports, and is significantly in Sweden’s interests. This means that it will become easier for EKN to provide cover for transactions carried out abroad by Swedish subsidiaries.

• To the top
• To next page
• Print-friendly page