“Exports Support is a Top-Priority Line of Activity for us”

The Russian authorities are fulfilling their promise to create conditions for promoting Russian high-technology products to foreign markets by minimizing risks of financial losses as well as by improving conditions for funding exports on the part of banks. The creation of a comprehensive system of the state’s credit, insurance and guarantee support for Russian industrial exports is nearing completion. A key role in this system is assigned to Vnesheconombank. Director of the Export Financing Department Daniil Algulyan told AviaPort Agency about basic elements, mechanisms and instruments of the system to insure exports against entrepreneurial and political risks as well as about VEB’s role in supporting exports.

-To what extent is an issue of exports support topical for Russia?

-Russia is an integral part of the world economy and is permanently among the ten largest exporter countries. In 2012, the volume of Russian exports reached 18.5 trillion rubles. Exports account for a significant part of GDP, create jobs and increase production output. Promoting Russian companies internationally is a major factor of the country’s development. Despite the impressive growth in overall volumes of exports, we still depend significantly on exporting raw materials. A key challenge to further development of not only exports but also Russia’s whole economy is to urgently increase a proportion of high-technology products and services. This is a very difficult challenge. Nowadays, we are facing fiercer competition from producers from other countries.

At the same time, in many countries they put in place government export support systems. These instruments create additional advantages for these contries’ producers. For example, OECD countries commit in total more than 100 billion dollars a year in the form of government support for export mid and long-term financing. In this situation many Russian companies have to operate on international markets in unequal conditions. We should create a Russian exports support system to change such a situation.

-What VEB’s subsidiary institutions can participate in using mechanisms for supporting exports?

-A universal exports support system is being set up as part of Vnesheconombank Group. It will be comprised of VEB itself (the Export Financing Department) as well as a number of subsidiary institutions: OJSC the Export Insurance Agency of Russia (EXIAR), the largest Russian leasing company OJSC VEB-leasing and Roseximbank – an agent bank for providing government guarantees. It is assumed that each component of the structure would perform its special complementary functions.

EXIAR for example has already provided support for some Russian exporter companies. At the beginning of this year, Russian company RUSELPROM agreed to supply equipment and spare parts for modernizing two Cuban thermal power stations. EXIAR provided insurance coverage against commercial and political risks for this transaction. In its turn, RUSELPROM received funding to supply equipment to at a Russian bank by presenting its insurance agreement with EXIAR as a security for the credit.

Moreover, in spring of 2013, Rostselmash agreed with Kazakh company KazAgroFinance to export several hundred vehicle sets of grain harvesters to be assembled and leased out to local agricultural companies. Russian Rosselkhozbank extended a five-year credit to KazAgroFinance to purchase the grain harvesters. EXIAR insured this credit and it became the first insured long-term credit in Russia’s history for the export of agricultural machinery.

-Vnesheconombank’s subsidiary banks, namely, Prominvestbank, OJS BelVEB are operating in Ukraine and Belarus. We rely on their support in terms of enhancing trade and economic ties with the corresponding partner states. So, almost a full range of export support financial instruments is being formed for Russian supporters. In order to boost the system’s efficiency we are now introducing a one-window principle which will make it possible to significantly speed up procedures for processing applications for funding.

-What export support instruments are being used by Vnesheconombank?

-These are traditional financial products including credits to foreign buyers (export finance) to purchase Russian products, works and services as well as credits to Russian exporters (pre-export finance) to cover expenses on manufacturing products to be further exported.

Vnesheconombank also extends guarantees (due performance guarantees, advance repayment guarantees and others), sureties and other instruments for securing Russian exporters’ obligations to foreign buyers. Vnesheconombank’s wide international cooperation as part of extending export support guarantees allows Russian companies to participate in export projects in countries with high political risks and with objective obstacles to implementing contracts as well as in the countries where Russian commercial banks are not present.

-VEB and Roseximbank are responsible for extending export guarantees. In what way do their corresponding instruments differ? Why is it necessary to receive an export guarantee from VEB and export insurance from EXIAR? What risks do these instruments cover?

-Export guarantee and insurance products offered by Vnesheconombank, Roseximbank and EXIAR are designed to produce a synergetic effect. Vnesheconombank’s guarantees (for example, advance repayment guarantees, tender guarantees and due performance guarantees) are extended to secure Russian exporters’ obligations to foreign buyers. EXIAR’s insurance policies are designed to insure risks of foreign buyers of Russian products from exporters and creditors, for example, from Vnesheconombank. Roseximbank’s key function is to act as the agent bank for government guarantees. So, there are three various financial instruments each of which is important for supporting exports of Russian companies.

To what extent is the Bank geared to use best practices of leading foreign development institutions?

-In the course of setting up an exports support system we thoroughly study and analyze international best practices of both economically developed countries and growth-leading economies. In the last decades, they have put in place efficient exports support models in many leading exporter countries. Many foreign best practices prove to be useful for us. Nevertheless, we should not carbon copy foreign models but form an efficient Russian exports support system. Government exports support is regulated internationally that is why Vnesheconombank takes into account WTO and OECD rules upon developing new products.

-What was the reason for establishing an export financing department ?

-Non-raw materials exports are potential growth point and an important factor of diversifying the Russian economy. So, it’s not surprising that this line of activity became important for our development institution. In 2007, industrial exports support was included in Vnesheconombank’s main lines of activity. We have done a lot in the past years. The Bank participated in implementing major export projects, above all, in power engineering industry, aerospace sector and defense industrial complex. The Bank’s export finance portfolio amounted to 83 billion rubles as of late July 2013. From 2007 to July of 2013, the Bank has extended guarantees worth 164 billion rubles in favor of foreign purchasers of Russian high technology products. Nevertheless, we hope that in the coming years we’ll be able to significantly increase funding volumes.

Our own and foreign business experience shows that export finance is a very specific line of banking acclivity. So, the establishment of a separate export support department is designed to concentrate sectoral, country and financial competence on efficient comprehensive support for Russian exports.

-Could you tell us in more detail about the department’s mission and objectives?

-Vnesheconombank’s new special structural subdivision, namely, the Export Financing Department was established only in May of 2013. Its main functions are above all to extend export credits and guarantees and secure Vnesheconombank’s participation in projects implemented by Russian companies abroad. The Department is also responsible for exports support activities in Vnesheconombank Group. We are developing a range of financial products that are supposed to provide efficient support and level playing field in funding Russian exporters on highly competitive foreign markets.

-One of the Department’s main objectives is to support aviation industry’s exports. What sort of support mechanism is it? How is it going to be applied?

A key instrument is target funding of foreign purchasers of Russian aircraft. We often use credit-leasing schemes as a structural financing instrument.

Vnesheconombank’s important advantage in this sort of projects is its  capability to extend long-term credits as well as its competence and experience in financing exports in various parts of the world. All these factors allow us to be a reliable and long-term partner for Russian exporters.

-Would you tell us about supporting Russian aviation industry’s exports? Are other foreign and Russian banks going to participate in funding supplies of Russian aircraft?

-At present, Vnesheconombank is considering a whole number of applications for funding export supplies of aircraft to Latin American, African and Asian countries. I’m sure that in the near future I’ll be able to tell you about new specific transactions.

In a number of cases we work together with other leading Russian and foreign financing institutions as part of participating in implementing some planned projects.

Providing support for Russian aviation industry’s exports is one of our top-priority lines of activity. A whole number of promising and ambitious projects are being implemented in this sector. We are actively cooperating with Russia’s aviation industry in securing reliable and stable funding of Russian exports and we’ll be happy to expand the cooperation.