What role does the ECGA currently play in Oman’s export market?
AL-ISMAILY: Export Credit Guarantee Agency of Oman (ECGA) plays a very important role. We commenced operations in 1991. The agency has played a catalyst role in terms of the promotion and the development of Omani non-oil exports through credit insurance, guarantee, and financial services to exporters. Such valuable services provided by ECGA of Oman have to a certain extent contributed in the promotion of Omani non-oil exports, which have grown substantially. When we started, the level of Omani non-oil exports was very low and it has increased between 2010 and 2011 by almost 24%, from $2,448m to over $3,000m. This is a very substantial growth despite the global economic crisis and the contraction of world trade. When we started in 1991, the level of Omani non-oil exports was less than $100m. This is a very remarkable improvement.
How has the ECGA contributed to the government’s efforts of boosting Oman’s non-oil exports? What are the key factors that are currently driving growth of the non-oil export sector?
AL-ISMAILY: One of the important things to recognize is the need to diversify our economy away from oil and gas. Undoubtedly, the increase of prices of oil and gas in the last years was instrumental and provided the necessary spin-off effect for the economy. Capital expenditures, in terms of new developments, have been taking place in infrastructure. In addition, polices have been laid down to attract FDI to the country. All these factors have secured growth in business in general as well as in the development of Omani non-oil exports and re-exports from the Sultanate.
What are Oman’s largest traditional and non-traditional export markets? What are the biggest commercial and non-commercial risks that Omani exporters are facing as they ease into these markets?
AL-ISMAILY: In terms of the traditional markets, they are our neighboring countries because of geographical proximity. These include the UAE and Saudi Arabia. The services that we provide allows our exporters, credit ensured policy holders, to explore non-traditional markets such as OECD (Organization for Economic Co-operation and Development) markets and other countries none GCC region. This is very important because it allows them to venture into new buyers at ease, knowing that ECGA Oman is supporting and will indemnify them in case the buyer fails to pay.
It is very important to have credit insurance, especially now with the turbulences prevailing due to the European debt crisis, the slowdown on the US economy, as well as lower growth in the emerging markets including China. The exporters have to realize the need to insure both the commercial, as well as non-commercial risk. In terms of the commercial risk, we provide the opportunity to insure against default from the buyers or insolvencies, or in certain cases non-acceptance of the goods by the buyer. As far as the non-commercial or political risk, such factors are beyond the control of the exporter or the buyer. They include situations such as civil commotion, riots, civil wars, or difficulties in transfer payments from the buyers’ countries to the exporters’ countries. There are a number of events, which require the need for the exporter to mitigate such risk.
How would you describe the current state of demand for export credit insurance here in Oman?
AL-ISMAILY: The need is great. We have been working on so many applications from our existing policy holders, as well as potential exporters. As a matter of fact, Oman was the first country in the region to establish such an agency. We received a lot of attention from our neighbor, the UAE. However, our scheme is designed specifically for Omani exporters. Interestingly enough, a number of our neighbors have realized the need for such organizations and they have emulated Oman’s example by setting up their own national agencies. In view of the problems that the world is facing, especially in the EU with default being on the rise, exporters are in need of our services and protection. Therefore, we are there to support them in good or in bad times.
How has existing global turbulence, such as the EU debt crisis, Arab Spring, and economic downturn, impacted ECGA’s number of credit commitments to Omani exporters?
AL-ISMAILY: Our commitment is always there because we, as a government agency, need to support and encourage our exporters. Definitely, we analyze the risk and recommend the credit limits accordingly. If we have any negative information on the buyer, we advise our exporters to be very careful. The concept of credit insurance is that even though exporters are insured with us, they still have to be very cautious in the selection of the buyers. Since we are not insuring them 100%, they need to bare some of the risk. As far as the commercial risk, we are insuring up to 80%. In terms of the non-commercial / political risk, we cover 85% of it. Thus exporters have a vested interest in the risk. They appreciate our underwriting decision because we are very careful in the assessment of the buyers. In addition, we appreciate our exporters to share with us any past business experiences with their buyers as this is one of the important factors in underwriting new credit limit request or enhancing existing cover. That is very critical in terms of our consideration in the decision making process.
How are Omani exporters analyzing the risk? What are your recommendations to ease the overall insurance process?
AL-ISMAILY: Experience is important and we do take that into consideration. More than that, new applicant should know their buyer or at least have some basic information about origin, the physical address, and the legal structure. By providing such information to the ECGA of Oman, we will be in better position to contact the credit information agencies, from which we will obtain the information reports on these buyers. This will allow us to assess the risk of the buyer. The more information we receive from our policy holders about the buyers, the better we will supplement our underwriting. Furthermore, this will expedite the process of approval. In many cases it is very difficult to get financial information on small companies, thus, experience will be a primary factor in our decision.
When we started, the level of Omani non-oil exports was very low and it has increased between 2010 and 2011 by almost 24%, from $2,448m to over $3,000m. This is a very substantial growth despite the global economic crisis and the contraction of world trade. When we started in 1991, the level of Omani non-oil exports was less than $100m. This is a very remarkable improvement.
How has the ECGA contributed to the growth of local SMEs? What services are currently being implemented in order to instil confidence and boost exports amongst SMEs throughout Oman?
AL-ISMAILY: Our program is also designed for SMEs. The services that we provide are very user friendly because it allows SMEs to get the necessary financing from the commercial banks since our policy can be assigned to fill a security gap to the banks. Therefore, the banks are more comfortable in terms of providing financing to the SMEs. Moreover, the SMEs can mitigate the risks of payment from their buyers. This is very important for SMEs because it allows them to do more business with the buyers, knowing that ECGA Oman is providing the support needed in guarantees in case something goes wrong. They can also discount their export bills with the commercial banks, where they do not have to wait for the credit period to be paid. Since they can be paid instantly, their liquidity and cash flow position is improved. A lot of these SMEs lack traditional collateral and banks normally demand such collateral. Our policy can be assigned to the banks to fill the security gap, for which the SMEs can benefit immensely.
What other services is the ECGA providing in the domestic market?
AL-ISMAILY: The basic product, which we currently provide, is domestic credit insurance. We introduced this service 10 years ago and it is a reflection of meeting the needs to protect our policyholders against risks of non-payment from local buyers as well.. Most of our claims are on the export markets. Paradoxically, ECAs when they included domestic credit insurance in their schemes, they felt it as something very risky despite the fact that the buyers are close to you. In our experience, it is the other way around. So far all of our paid claims were on exports. We also provide pre-shipment financing though the commercial banks, whereby we provide guarantees to the commercial banks for extending financing to the credit insured exporters. Exporters can also benefit from financing their receivables.
ECGA was the first Arab export credit agency (ECA) to be admitted as member of the Prague Club of the Berne Union. What are the key elements that set ECGA Oman apart from other ECAs throughout the region?
AL-ISMAILY: When we started in the early 90s, a number of Central and Eastern European ECAs were already established. Our contacts with them in the early stages of development were very important. In Oman, unlike its neighbors, we do not produce that much oil. Therefore, the necessity of diversifying to other exports is very critical. When we started our operations it was important that we maintain strategic alliance with a number of associations, including the Prague Club of the Berne Union, of which I had the opportunity and honor to be the Chairman for the last 3 years. We had our meeting last November 2011 in Muscat with a great turnout from ECAs from across Europe, Africa, Asia, and the Middle East. We are also a founding member of the Aman Union, which is an association of ECAs from the Islamic countries, as well as the Credit Alliance Network. This is an international association of a number of ECAs all over the world, including credit information agencies under the auspices of Coface of France. This strategic partnership with various international organizations is very important for us at ECGA Oman. Being a national and dynamic ECA allows us to benefit from such alliances with regional and multilateral ECAs in various areas including exchanges on credit information on buyers, debt collection services, reinsurance, as well as technical collaboration and training. The benefits in terms of economies of scale from such associations help us to grow as a matured and vibrant organization by contributing towards the growth of Omani non-oil exports while remaining self-sustaining.