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23 February 2023

What 2022’s export finance volumes say about its unsettled politics

When poring over the data for borrower location in TXF Intelligence’s Full Year 2022 export finance report it is important not to confuse correlation and causation. But some connections are just too tempting to ignore.

Russia’s 2022 invasion of Ukraine brought human misery to its western neighbour, and economic dislocation to global commodity markets, particularly in the form of higher commodities prices. That ultimately brought huge benefits to Russia’s balance of payments, and a headache for western governments trying to enforce sanctions.

But the effect on investment in Russia was both immediate and profound. The volumes of export financings for borrowers in Russia and the CIS collapsed from just over $18 billion to around $930 million. Russia’s status as a high-income country with large hydrocarbons reserves and an opaque legal system has long made it a favourite destination for ECA-supported exports. The tap of ECA cash is now firmly off. 

The gains in export finance volumes in large part occurred in other high-income countries. Europe’s increased from $27 billion to $33 billion between 2021 and 2022, and North America’s from $6 billion to $10 billion. Africa’s volumes decreased slightly - from $16 billion to $15 billion. 

For the two best performing countries it is tempting, but almost certainly wrong, to look at ECA-supported activity through the prism of domestic politics. The best performer - by a squeak - was the United States, which chalked up $8.4 billion in volumes thanks to large domestic corporates Ford and Verizon, as well as foreign-owned Enel Green Power, Toyota, Mitsui and Viking Cruises. 

The US has posted strong economic growth and employment figures, despite weak stock market and credit market conditions. One cause for optimism was the Inflation Reduction Act, which passed in August 2022, and is explicitly designed both to stimulate domestic manufacturing in the service of the energy transition. Its effects on export finance activity for US borrowers - whether good or bad - will probably play out over 2023 and later rather than the third quarter of 2022. 

And narrowly beaten to second place, in declining from over $10 billion to $8.1 billion, was the United Kingdom, which went through three prime ministers and endured a relentless series of bad economic news in 2022. This culminated in a September 2022 budget that crashed the pound, hiked UK borrowing costs and led to the resignation of the second of those three prime ministers. 

It might be tempting to link demand for export finance in the UK to the idea of a “moron premium” that the government had to pay in the aftermath of the shambolic budget announcements. The truth is probably moore prosaic and reassuring - the ECA-supported investments in transmission and offshore generation have generally continued undisturbed. Decarbonisation seem to be immune to both party politics and a poor macroeconomic outlook.

TXF Intelligence’s 2022 data report will be available to TXF subscribers shortly from our data reports homepage. Meanwhile our market survey is currently underway and is open for responses. We want to hear from borrowers, banks and ECAs active in export finance. You can fill out the survey here.

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