Export Credit Norway: Fishing for new ECA ideas
TXF spoke with Ivar Slengesol, director of strategy and business development at Export Credit Norway, to discuss his newly created role and how the Norwegian ECA plans to find new growth markets in 2019.
Export Credit Norway has ambitious plans for 2019 – and beyond. The Norwegian ECA aims to grow its exporters’ client base to markets outside Europe and the US, with new found support for non-ocean based industries and increased accessibility to export finance for SMEs at the heart of its mission statement.
For example, Export Credit Norway has been looking to increase its market share in renewables, while keeping an eye on neighbouring Nordic ECAs to stay competitive. However, a one-stop-shop, like Finland’s ECA Finnvera, is still some way off, and the Norwegian ECA wants to be more creative in terms of its product offering. In fact, a new online customer interface, which automates loan application procedures, is already streamlining the previously lengthy loan application process for its exporters.
TXF spoke with Ivar Slengesol, director of strategy and business development at Export Credit Norway, to discuss his move from director of lending for industry and renewable energy, and what he plans to achieve with the new role.
TXF: How has this newly created role changed the structure of Export Credit Norway?
Ivar Slengesol (IS): It has divided the internal value chain into three parts: strategy and business development, origination and structuring, and the documentation and closing of transactions at the end.
TXF: How has the organisation’s role and products evolved over the last five years?
IS: A couple of big changes have occurred since we were established in 2012. For example, we have actively worked to diversify our offering outside traditional core segments, such as ships and oil rigs, with our focus now on information and communications technology (ICT), agriculture, health, and renewable energy.
These industries accounted for about 40% of the number of new disbursements in 2017 and 2018. In 2012, this figure was less than 10%, so we've diversified outside the main segments of maritime and oil and gas. We’re also diversifying in terms of geography, with more loans in emerging markets and developing countries, as well as increased SME support, now a much larger segment after we adjusted our offering in export contracts.
The maritime segment has also evolved over the past three to four years. Ship financing, which used to be dominated by offshore ships, is now dominated by other types of vessels, including expedition cruise vessels, ferries, passenger vessels, fishing boats, and small boats. In addition, within the last four years there has been a dramatic shift from oil rigs to production units like FPSOs and FSRUs, subsea equipment and general frame agreements with oil companies and large contractors. So a lot of change.
TXF: What’s your ticket size range in terms of highest, lowest, mean and median?
IS: The average is 430 million NOK ($47/€42 million) in terms of all new disbursements since 2012. But the median is much lower at NOK 230 million and reflects the larger share of very small transactions of less than €10 million. And, we've done a number that range from €200,000 to €400,000. So we pride ourselves in trying to do very, very small loans too.
TXF: Oil and gas was historically a huge part of your business. How important is it today?
IS: It's important, but less so than it was prior to 2014 when the price of oil fell. Oil and gas, including offshore ships, used to account for 50% or more in terms of the number of applications and a much larger percentage if you looked at volumes. In 2018, these segments accounted for about 30% of the number of applications and in volume roughly 40%.
TXF: Where does your Norwegian ECA offering diverge from other Nordic ECAs?
IS: Well the Nordic ECAs are organised in different ways, for instance in Finland you have a one-stop-shop comprising various agencies and organisations under one umbrella, Finnvera.
The Swedish setup is the closest to the Norwegian setup where you have a funding organisation and a guarantee agency. But unlike SEK, Export Credit Norway is not funded in the bond market. We have funding directly from the state treasury of Norway. However, both SEK and Export Credit Norway are wholly-owned by the government.
In Denmark, EKF is mainly in the guarantee business, although it has some funding instruments, it is much more focused on cover. Sweden has a wider product offering than we do in Export Credit Norway, especially SEK. We really only offer ‘arrangement’ compliant customer financing, whereas a good chunk of SEK’s business is financing Swedish companies. EKF has quite a bit of business for working capital guarantees for Danish companies, whereas we are generally more focused on the customer side in Norway.
If you look at their various export industries there are some similarities. For Norway and Denmark it is energy (Norway more oil and gas), and for Denmark it is the wind industry and other renewable energy. Shipbuilding is still an industry in Norway, Finland and Denmark. But in many ways we supplement each other or supplement the industries. Denmark has the pharmaceutical industry, Sweden is historically quite diversified in terms of industries and Finland and Norway are more concentrated on a few segments. So that’s why we don't see the other ECAs in many common deals because we are playing on different fields. But I also think there is room for doing more to collaborate.
TXF: How do you propose more effective collaboration and prevent costly duplication in efforts for research and development (R&D)?
IS: If you look at the big picture, the Nordic countries are known for quality and innovation. We're small countries with small companies, but with a few exceptions we have similar cultures and similar languages. We also have similar challenges: we need to help develop our SMEs to enable more exports.
We need to grow our exports to markets outside Europe and the US. So that's why my personal opinion is that if those groups were collaborating more, and R&D is one area which you could map what's happening in universities and see what the various institutions are doing in terms of who's doing what, this will help us to bundle the efforts within countries and across borders. And that's one example.
There’s also room to build Pan-Nordic industry clusters across borders to create the critical mass that you need to compete internationally and grow smaller companies to be medium-sized, and to grow those companies to be larger companies with turnkey solutions. So there are many efforts going on. For example, the Nordic Innovation House recently opened in Hong Kong as a bridge builder and platform for Nordic companies to go into Asian markets.
TXF: How have you developed financial products specifically for the maritime sector?
IS: We collaborate a lot with banks and with GIEK in terms of streamlining documentation and processes to make things as simple as possible, particularly for smaller transactions.
We are working on what we call retro fittings, for example scrubbers and ballast water treatment systems. We also got a new mandate recently to finance domestic vessels, ferries, and domestic ship owners, for example, and those are often relatively small companies. We need to adjust to the customer needs by simplifying documentation and processes to meet the market expectations.
TXF: In what direction is the renewables industry headed in Norway?
IS: Well, there is huge potential. Today, oil and gas plus related technology, equipment and services accounts for nearly 50% of our total exports. Renewable energy, that's green power exported via subsea cables plus related supply industry, accounts for 1-2% of Norwegian exports. So there is still a large a gap there, but I think that gap will be closing over the next few years.
Norway has suppliers, companies, investors in all the major renewable energy technologies, like hydro, solar, wind and particularly offshore wind and also bio energy.
We’ve seen quite strong growth in terms of exports for supply industry equipment services in the past few years and that figure has doubled over the past four years.
So, you will see strong growth particularly with offshore wind which already accounts for about 50% of our renewable energy exports out of Norway. Not only traditional bottom fixed offshore wind, but also floating offshore wind is a very exciting space to follow. Norwegian companies are not only on the development side but also on the supplier side, so they are in a very strong position. Therefore, we will see strong growth for Norwegian companies and an increasing market share over the next five to 10 years.
TXF: The fishing and aquaculture industries distinguish Norway from the other Nordic countries. What kind of financial instruments do they need to support them?
IS: We support suppliers and their sales processes and meet customer needs and customer demands. Many of the transactions within fish farming are relatively small with relatively small borrowers. So again, simplifying processes and documentation is extremely important and we'll see strong growth here.
We are also dependent on the banks, while projects with new and emerging technologies are a bit high risk in the early stages. But fish farming in general has so much going for it, if you look at CO2 emissions from one kilo of fish from salmon, it basically requires only 10% of the investment required to raise one kilo of cattle. So in terms of sustainability, fish farming represents an opportunity in a world where we need to grow more food. So I am sure it's an area that will show strong growth over the next five to 10 to 20 years.
TXF: What is Export Credit Norway actively doing in the digitisation space?
IS: We can divide it up into two areas, the external and internal. For example, externally, we've been working to digitalise our customer interface by introducing online applications to automate the process. And because our customers are so diverse in terms of global location and nationality, making an interface suitable for all is challenging.
We need to be aware of the customer needs in this area and I'm sure it's finding a balance and experimenting. Internally, we have done a lot to digitalise and streamline how we work and interact with our ERP system, CRM system, and how our staff are interacting with the systems and benchmarking with our peers and businesses in Norway. We're also looking to see what other ECAs and banks are doing and trying to learn from others as we go along, which is a continuous learning exercise.
TXF: What are you doing to support SMEs?
IS: Well it's really about three things: simplify, simplify, simplify. Since we were established [in 2012], we've worked along two lines. One is product development and two is marketing and origination. Simplifying documentation processes – and how we interact with customers and sales and marketing to ensure that we reach out to the relevant SMEs based on the export side and on the buyer side, as well as being able to explain what we can offer in a way that's understandable – can be challenging.
Obviously, ECAs are trying to get their heads around how to serve their SMEs. We've increased our share over the past few years but we also see the need for other types of products that we don't have today, which can support SMEs.
For example, customers that spend less on these are telling us that they need private capital. And there's one area which is very important, making export financing a good fit for those who start to end-customers, compared to those capital intensive deliveries. But it's not such a good fit.
New emerging business segments such as ICT and tech in general, which does not have capital intensive deliveries, have to meet on the customer side – but they still very much have a need to support internationalisation and export efforts.
So, we need to be more creative in this space as well and see how we can support emerging business segments in general. The more traditional business capital intensive segments, for which the arrangement dates back from the ‘70s, was more set up to support this.
TXF: Moving on to more recent developments in the international market, the last year has been marked by trade wars and tariffs, how has this impacted your activities at Export Credit Norway?
IS: Well, it's something that we are asking ourselves all the time and we've seen in 2018 that the number of applications are up compared to last year, though the conversion rate is probably down. It’s getting a bit harder to close deals.
We're also talking to a lot of peers and banks to see if we have the same picture. Also, there’s a lot of liquidity out there, a lot of dollar liquidity also from local banks even in low income countries, or more middle income countries – so that's a positive thing. While there's competition, on the other side, there seems to be some reluctance in terms of new investments at least in some segments and it takes longer to do new projects, and to get projects to finance reports.
What I hear from other EU states, as well as banks, is that the deals are slowing down a bit and that's primarily linked to some nervousness regarding volatility in the markets in general. It’s a mixed picture.
TXF: Moving into 2019 what have you got your eye on internationally?
Well, it's been 10 years of basically a very positive market and a period of positive market developments globally. Are there asset bubbles that are bigger than some people think? What are the trade developments? What about the political developments? Populism in general impacts trade as well. So there are a number of relatively major macro risks that we, and probably everybody else, are keeping their eyes on.
But we also know that if there is a more negative shift, more negative press, more negative sentiment that we will have an important role to play there with the banks. If you look back to the financial crisis, all day around the world these rates had a much more important role. Very quickly the banks were pulling back and closing their doors. So that is also something we need to be ready for. What we can do is to keep an eye on what's going on in the world and keep doing a good job for the region’s exports, while continuing to adjust our offerings in terms of customer needs.
TXF: On to the big question, how will Brexit impact your operations?
IS: It’s very difficult to say. Obviously Norwegian exports towards the UK could be impacted. In the past, we haven't had that many deals in the UK in general from our side. So the impact wouldn’t be that significant but there's a lot of unknowns out there.
In terms of where the UK will fit in with our stuff for example, they are Norway's product markets, so we're keeping an eye like everybody else on what's going on in the UK. But it must be more frustrating for you in the UK, and there’s not much we can do from our side. So relax, and pray that you have an orderly Brexit at some point!
TXF: How does Norway’s relationship with the EU impact your activities with other EU countries?
IS: The European Economic Area Agreement is extremely important and has been very important for Norway and for Norwegian business. So that's more than a foot in the door of the EU.
One difference is that within the new OECD [the EU] speaks with one voice. So I do not envy those people that have had to coordinate that single voice! When we first discussed making changes to the arrangement, Norway of course speaks on behalf of itself in the OECD. So that's one sort of very practical difference.
But of course countries in the EU have their interests and they use other channels to continue to promote these in terms of changing the way the arrangement is practised or interpreted in different agencies and countries. So we speak independently about what we are upset with, which is perhaps easier. But of course, the EU speaks with one voice, which while more tricky to harmonise, carries a lot more weight in these types of negotiations.
TXF: Where do you see Export Credit Norway in five years’ time?
IS: We’ve seen changes in recent years and those will continue. And also we have worked to meet the demand and the export instruments and moving towards non-ocean industries across different geographies to the growth markets.
So those efforts will continue to support the newly emerging industries and newly emerging export industries. It's been quite dynamic and it will be dynamic. But now we need to be more creative in terms of our product offering and support for the export industry, particularly the SME sector over the next five years.
The key is, can we also offer some products apart from customer financing? Meeting customer needs means meeting the demand, and meeting the export industry’s needs an internal dynamic in any field. And that's our task, to be up there, and to be a dynamic opportunity to meet more of our exporters’ destinies.
Ivar will be speaking on the 25th of April at TXF Nordics 2019: Exporting Forum in Stockholm, discussing how best to support the internationalisation of SMEs within the region. Whether you're an exporter who wants to learn more about the ECA landscape, or an investor looking for opportunities in this exciting region, this event has something for you!