Remarks by: Sherry Noble
Senior Vice-President, Business Solutions and Technology
Ottawa - February 2, 2010 

Ladies and gentlemen … Good afternoon and welcome. 

First let me thank CME for inviting me to share some of EDC’s ideas about the direction of trade financing, which has been called the lifeline for 90 per cent of global trade. 

A lot of talk at the renowned World Economic Forum in Davos last week was about fixing financial systems and overhauling bank regulations.  By contrast, while Canada too was hit hard by the recession, we were a model of financial strength and stability throughout the storm.  In 2009, for the second year in a row, the Forum named Canada home of the world’s soundest financial system. 

Some of that credit can go to the ready availability – and strong financial shape --of my own organization EDC, and our fellow-Crown BDC. Together, we helped alleviate the credit crunch for thousands of Canadian manufacturers and exporters.  No new institutions or complicated new processes had to be created. 

The Government turned to EDC, for one, to add much-needed loan and credit insurance capacity when even our relatively stable banks were drastically reducing these activities because of the exceptionally high costs and risks.   EDC became a lifeline for many Canadian businesses.  We partnered with BDC and commercial banks to increase the availability and amount of credit for Canadian companies of all sizes, in all sectors.

So before I look at the “new normal” in financing, from EDC’s perspective, I’d like to first take a look at where we are coming from over the past turbulent year -- including highlights of our 2009 financial results.  While these results may be interesting in themselves, better still, they indicate some new financing trends.  Then I’ll propose some ideas on how these trends could shape trade financing in the future.

2009 Results 

EDC has a unique perspective on the global trade situation because:

• We partner on lending with Canadian and international banks, including many of the banks represented here.
• We work with many of the world’s largest corporations - the customers of Canadian exporters.
• We support exports and investments by thousands of Canadian companies in more than 180 markets.

During the recession, our government gave EDC expanded powers to provide our services domestically too.  It also provided more capital to bolster EDC’s core business of encouraging global trade and investment.  

Through the Business Credit Availability Program, EDC and BDC came together with Canadian commercial banks and insurers to increase credit for companies of all sizes.

• EDC generally topped-up domestic loans, credit insurance and guarantees to mid-sized and larger businesses, as well as to its exporting clients of all sizes.
• Smaller companies came under BDC’s umbrella --as my fellow panelist may talk about further.
• Altogether, EDC added nearly $3 billion in domestic financing and insurance in 2009 –helping more than 200 companies.

In our overall business last year, EDC saw an incredible surge in new customers – more than 2,100 of them--especially for our credit insurance program.  That brought our total customers to its highest level ever, nearly 8,500.

• These are sure signs of the importance of credit insurance and guarantees to sustain business, grow trade or for companies to just survive through volatile times.
• The banks needed us more than ever too.  EDC ran up record partnership activity– nearly 5,000 deals with financial institutions across Canada.
• It builds on the risk-sharing approach we use to support Canadian business internationally.
• For example, in riskier markets and with less well-established creditors, private finance has a limit on how far it can get involved in a deal.
• In many situations, EDC can fill the gap between what private finance can do and what is needed to get the deal done for the Canadian exporter or investor.
• We can do so because our risk model and mandate are different from the private sector.
• Yes, we too have to recover our costs and maintain our capacity to grow. But we are not driven by shareholder expectations for quarterly profits.

Like most companies, however, EDC’s overall volume of business fell last year, from a record $86 billion in 2008 to some $83 billion.

• The good news:  that’s less than a 4 per cent drop.
• By contrast, Canada’s overall trade picture was much more dismal -- merchandise exports plunged almost 25 per cent!
• While EDC volumes were down across the board, notable exceptions were contract insurance, performance bonding guarantees, and political risk insurance.
• Again, these are important tools to free up a company’s working capital and ensure it doesn’t lose a crippling amount on an expensive operation in an unstable economy.
• In addition, our transactions facilitating Canadian direct investment abroad actually increased last year.
• I should also note that our multiple-product users increased last year.  This indicates that exporters are becoming more sophisticated in their use of trade financing.  And that applies to medium and smaller companies too.

What all this means is that companies using our types of credit services were able to continue to export and make some investments, even if those activities were more limited through the recession.  Imagine what they can do in a good environment!

Trends and Outlook 

First of all, the recovery is still shaky.  Risks are expected to remain high in all markets.

• Given the scale of government intervention and ongoing volatility, the private sector’s lending capacity and risk tolerance are lower than in the boom years.
• Governments worldwide are expected to be cautious about reversing stimulus packages too soon and may introduce new regulations to avoid a repeat crisis.
• While Canadian banks are in better shape than most, they too would be affected by greater global financial regulations and oversight.
• For example, new regulations could mean added costs for all banks – for more technology, personnel or provisioning – to meet global standards.
• At EDC, we will still see demand for our loans and credit insurance in the domestic market this year, but it is tapering off as our banks regain strength in this market.
• Instead, we expect our focus to return to helping domestic companies use our financing and credit insurance to increase their ability to trade or expand abroad.

Secondly, experts all tell us the next decade belongs to emerging economies.

• While Canadian trade in all markets plunged in 2009, we’ve seen a steady shift since 2000 to market diversification.  Whether by choice or necessity, we’re not putting all our exports in the U.S. basket anymore.
• For example: Canada exported 83 per cent of its goods and services to the U.S. in 2000; that fell to an estimated 71 per cent by 2009.
• EDC saw the same type of trend in our own business volumes prior to the recession--with a 30 per cent jump in our emerging market volume from 2007 to 2008.

The return to accelerated globalization has many implications for financing:

• For example, financial institutions will increasingly be asked to develop solutions to complex cross-border transactions.
• Firms that have a multi-country presence, or partner with those that do, will often be best-suited to develop those solutions.
• EDC already has representatives in 14 high-growth markets …which will expand further this year.
• By being located abroad, EDC can more quickly understand the needs of both trading parties and bring in public and private financial resources to close a deal.
• Even during the recession, EDC facilitated more transactions that helped Canadian companies invest in projects, operations and joint ventures abroad.
• We provided political risk insurance, contract insurance and bonding guarantees on major projects, and project financing itself.  These trends will continue as globalization heats up.

Finally, public and private sector financial partnerships are here to stay.

• If banks are more conservative, gaps in the credit market will require more involvement from export credit agencies and multi-lateral financial institutions.
• At the moment, relatively few export credit agencies have the flexibility to partner with private financial institutions in the way that EDC does.
• For example, some are lenders of last resort. Others can only provide guarantees, and cannot provide direct financing.
• But we are seeing some export credit agencies in Europe and in emerging markets adopt business models similar to ours.
• This can help move forward important investment projects around the world– in a responsible manner.
• As emerging markets continue to invest in crucial infrastructure, there will be much opportunity for public-private partnerships.
• Canadian companies big and small could participate, either directly or by partnering with global firms, using some of the financial tools and connections that EDC and the Canadian banking system can offer together.

Conclusion: 

This is the “new normal” and companies who fully understand the financing and other credit options available to them will have a competitive advantage in the new global economy.