Okay – so what is an Export Credit Agency (ECA) and why should you care?
While you wouldn’t think that Export Credit Agencies are a fascinating topic for cocktail parties, you’d be surprised how often I’m asked about them. Most people understand ECAs help companies export (“export” is right in the name, after all), but what exactly do ECAs do?
In a nutshell, ECAs can help you access global business opportunities so you can sell more of your products and services. In practical terms, they provide loans, guarantees and insurance to help reduce risks when you sell outside Canada. They can also guarantee payment when you face political or commercial risks such as expropriation or being unable to get your cash out of a country. Typically, most ECAs are arms of government and partner with banks and insurance companies to extend loans and insurance.
Export Development Canada (EDC), is Canada’s official export credit agency.
Why do we need ECAs?
Trade makes up more than 30% of the Canadian economy. As the world economy globalizes, our future increasingly depends on trade. ECAs like EDC are here to keep on top of those global markets and make trade possible for Canadian companies.
Finance is the lubricant of commerce.
Today there are approximately 85 official ECAs in the world
ECAs share a broad mission to increase trade and build their economies through international sales. We work together to create equal opportunities by ensuring that no country unfairly subsidizes its domestic companies. We’re all governed through agreements reached through involvement in the Organization for Economic Cooperation and Development (OECD) and the International Union of Credit and InvestmentInsurers (The Berne Union).
ECAs play 3 critical roles:
- Level the playing field. When the world’s governments offer their own domestic companies below-market, fixed-rate financing, it’s hard for foreign companies to compete. ECAs work to ensure that competition is based on price and product rather than financial terms.
- Finance global customers when banks can’t. Many will provide loans directly to your customers so they are encouraged to buy your product or service.
- Take on more risk. ECAs typically provide guarantees to banks to encourage them to provide more cash to companies and insurance to help protect against two of the main risks involved in selling internationally. The first is political risk, meaning things that happen due to government action. The second is commercial risk, such as a customer not paying your invoice.
Are ECAs all the same?
While the financial practices of ECAs are similar because of the OECD and the Berne Union agreements, ECAs are supported by governments in different ways and follow various models.
For example, UK Export Finance is a division of the government Department for International Trade; Euler Hermes Aktiengesellschaft is a private company that manages trade credit insurance for the German government; EDC is a Crown corporation that operates on commercial principles and at arm’s length from the Canadian government.
How is EDC different?
Unlike many ECAs, we are self-financing and operate on commercial principles. In fact, we pay an annual dividend to the Canadian government. Since 2011, we’ve paid $3.6 billion.
Recognized as experts on international trade, we offer our customers global market knowledge, financial support and connections. We provide insurance, direct loans and guarantees to banks to encourage them to provide more cash to Canadian companies.
Our goal is to support small and medium-sized businesses as they grow into the leading companies of tomorrow. To do this, we’ve had to change as an organization to meet the changing needs of Canadian companies.
Our challenge has been, and continues to be, to keep on top of the increasing pace of change so we can keep up with our innovative Canadian industries and the shifting global market.
When we were established in 1944, EDC had 13 customers and supported $3.75 million in sales to 52 countries.
Today, we serve over 7,000 customers in more than 200 markets. In 2016, we enabled over $102 billion in international sales and global investments.
As well as continuing to support traditional sales such as automobiles and resources, we work with leading-edge companies laying the foundation for the future, such as in the clean technology, high tech and engineering sectors.
EDC believes that good business is good for business. We work hard to conduct business with transparency and integrity. We include social and environmental concerns into our finance processes and advocate for social responsibility. We focus on priorities such as combatting corruption, climate change, human rights and investing in our community.
Our job is to help companies take advantage of global business opportunities because trade is critical to Canada. We do this by being actively engaged on the world stage and using our knowledge and experience to provide the support Canadian companies need to be globally competitive. As the importance of trade to our economy grows, you can be sure that we will be working even harder. We want to ensure that you and all Canadian companies can compete in a fair marketplace and have the support you need to go, grow and succeed internationally.
How we served Canadian exporters in 2016
- $102 billion in exports and international investments
- Canadian companies grew their global business with $12.4 billion in investments abroad
- $1 billion provided in support of clean technologies
- 5,749 small and medium-sized businesses undertook $14.2 billion in sales with our help
- $107 million in growth capital provided for small businesses
- Over $550 million in direct financing for SMEs
- 27 cents out of every dollar went to pay our expenses. 73 cents available for reinvestment to help Canadian companies take advantage of trade opportunities
- $786 million dividend to the government of Canada
If you want to know more about how EDC can help your company grow internationally, feel free to learn more about our trade solutions.
EDC through the decades
- 1950s – Provide long-term financing in the form of direct guarantees and insurance coverage for sales made abroad by international subsidiaries.
- 1960s – Authorized to administer a loans program and started insuring exports to the U.S.
- 1970s – Start to fund ourselves through private capital markets, removing the need to be funded by the government.
- 1980s – Start to gear our products towards small and medium-sized companies. Established our smallest line of credit and introduced three new products.
- 1990s – Reengineer to become more customer focused. Expanded powers means we can respond to customer needs with a broader set of products, greater speed and flexibility.
- 2000s – Establish our first regional representation in Mexico and incorporate corporate social responsibility practices into our business models.
- 2010s – Clean technology becomes a corporate priority; by 2016 EDC had facilitated more than $3.4 billion worth of cleantech export business.