Financial creativity and innovative risk cover by EKN and its Danish sister agency also helps fuel green energy in the North Sea.
The Swedish Volvo brand is recognised for its high quality, reliable trucks, buses and other vehicles. These have gradually spread around the world, often with the help of distributors who are established in local markets where Volvo hasn’t had a presence.
One such distributor is the Belgian-based SMT, which has been distributing Volvo vehicles and equipment to mining and other customers in West, Central and North Africa since 1998. Selling in this part of the world comes with some unique challenges and, as the competition builds, manufacturers like Volvo must increasingly offer their distributors strong financial support to take on end-customer risk.
“Many of the countries in Africa where SMT is present are fragile economies, where the situation can change very quickly and hard currency shortage is the norm,” says Dzenan Hadziosmanagic, Sales Finance Advisor, Volvo Trucks.
Insurance is a key item
This currency shortage means that “the buying procedure takes longer than in Europe,” says SMT Africa’s CFO, Damien Comte, adding that another challenge is accessing accounting statements.
“The real challenge for us is to find financing solutions for our customers. Today in our industry, all players need to be able to offer these services to be a real partner,” says Comte. “The insurance is therefore a key item today when there are very few who want to take on that risk for our region. The support from export credit agencies like EKN is therefore of utmost importance.”
Since 2013, Volvo and EKN have been working very closely to help SMT with supplier credit solutions in Africa. “As one of EKN’s largest customers, Volvo has a lot of insight into the way EKN works and we know exactly what needs to be done,” says Hadziosmanagic. “We are able to have a smooth process and way of working with our distributors for their own purchases of stock units.”
Two ways to finance
EKN may work in two ways to finance an international business, Hadziosmanagic explains. “You can tap into EKN to guarantee your sales to your distributor to either reduce or manage the risk you are taking on, or to be able to offer more favourable terms for stock financing.”
Secondly, as in SMT’s case, EKN may also guarantee transactions between the distributor and end-customers in the country.
Volvo also works closely with banks that mainly help with discounting of receivables based on the guarantee provided by EKN. “It is not in our interest or SMT’s interest to be sitting with receivables for 3-5 years,” says Hadziosmanagic. “We need the money up front and the customer pays directly to the financing bank. The bank is often not taking a risk in the transaction because they have EKN as a part of the collateral and the second part comes from Volvo and SMT.”
With so much risk aversion, particularly among private companies today, state-owned EKN’s willingness to take on a risk is highly valued, adds Comte. At the same time, he believes that EKN is often stricter than other export credit agencies when it comes to assessing the health and environmental risks of end-customer operations.
“Still, without such financing we couldn’t do business,” he says. “On average we would have lost at least 10 per cent of our sales without EKN’s support.”