Ex-Im Bank Helps U.S. Exporters Stay Competitive in Cut-Throat World

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Software developer Group Logic Inc., a $10 million company based in Arlington, Va., had its best year ever in 2010, with overseas sales accounting for 10 percent of all revenues. Finance director Brian Kosem credits the Export-Import Bank of the United States for a big chunk of that success.

"It really gives us peace of mind when selling to overseas customers and resellers," said Kosem. "We just register with Ex-Im Bank online and pay them a fee to insure that we're going to get reimbursed for that receivable. If a customer in Belgium buys $10,000 worth of our software and then goes belly-up, we don't have to worry if he pays us or not. We'll get reimbursed."

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Credit: Larry Luxner

Likewise, BioElectronics Corp. of Frederick, Md., makes an anti-inflammatory medical device that delivers continuous electromagnetic therapy to restore damaged cells. The 12-employee company exports to 40 countries in Europe, Asia and the Middle East, and is now entering Colombia — its first foray into South America.

BioElectronics signed up for an Ex-Im Bank $500,000 small business multi-buyer policy in August 2009 and renewed the policy last June.

"Since we enrolled in Ex-Im's insurance program, our international business has more than doubled, and we've added two brand managers to help with distribution and sales," said finance director Sherri Mercer. "Besides allowing us to provide distributors with extended credit terms, which makes us more competitive, Ex-Im programs enable us to obtain equity financing on our international receivables."

Testimonials like that make Fred Hochberg's day.

Hochberg, 59, is chairman and president of the Ex-Im Bank, the official export credit agency of the United States whose mission is to assist in financing the export of U.S. goods and services to international markets. The bank does not compete with private lenders but provides financing products that fill gaps in trade financing, assuming credit and country risks that the private sector is unable or unwilling to accept, while also trying to level the playing field for U.S. exporters by matching the financing that other governments provide to their exporters.

A driving impetus behind the bank's work, Hochberg says, is to help bring to fruition President Obama's National Export Initiative, which aims to double U.S. exports in five years and create 2 million jobs. That initiative is taking center stage at the Ex-Im Bank's annual conference from March 31 to April 1 at Washington's Omni Shoreham Hotel.

The event — whose theme is "Government Moving at the Speed of Business" — features 30 confirmed speakers and moderators including the CEOs of Boeing, Siemens, Caterpillar, Citigroup and Honeywell. Also on the roster: Michael McKinley, U.S. ambassador to Colombia, Donald Gips, U.S. ambassador to South Africa, and Thomas Shannon, U.S. ambassador to Brazil, as well as other top officials from the U.S. government, the World Bank and media. (Last year President Obama spoke at the annual conference; no word as of press time if he'll appear this year.)

"Four things drive an economy: consumer demand, government spending, investment and exports," Hochberg told The Washington Diplomat. "We're focused on doubling exports. It's an achievable goal, but we also want to make sure small businesses are an important part of it."

He noted that every $1 billion in U.S. exports creates 7,400 jobs at home. "Selling overseas is more challenging for companies than selling domestically," he said. "What we do is provide guaranteed loans and insurance to help American companies sell abroad."

So far, Hochberg seems to be getting it right. During his first year in office, U.S. exports grew by 18 percent. And last year, the bank approved more authorizations to support U.S. exporters than any year since its founding 77 years ago.

Despite continuing economic difficulties around the world, January's exports of U.S. goods and services — $167.7 billion — was the largest monthly total ever recorded, surpassing the previous record of $165.7 billion set in July 2008. The Commerce Department's Bureau of Economic Analysis reported that U.S. exports totaled $1.8 trillion in 2010, a growth of 16.7 percent from 2009.

And in the first four months of fiscal 2011 (October 2010 through January 2011), the Ex-Im Bank authorized $8.25 billion in loans to support $10.3 billion in U.S. exports and roughly 75,000 American jobs. The bank's support of U.S. small-business exports also grew to $1.5 billion, compared with $1.4 billion for the same four-month period a year ago.

"Ex-Im Bank's strong performance shows there remains a critical need for financing by U.S. exporters and by helping meet that need we're supporting American jobs," said Hochberg. "We remain on track to help reach President Obama's goal of doubling U.S. exports and creating 2 million new jobs by 2015."

From his wooden desk on the 12th floor of the Lafayette Building on Vermont Avenue, Hochberg enjoys a commanding view of the White House — residence of the man who nominated him to his job in April 2009.

The New York-born businessman, a major contributor to Democratic Party causes, meets frequently with local movers and shakers. During our interview last month, Maryland Gov. Martin O'Malley paid Hochberg a visit to discuss ways the Ex-Im Bank could create jobs in his state. But he also has strong links with the diplomatic community.

"It's important for me to meet with foreign ambassadors here in Washington to think about ways to facilitate trade between our countries. These are the things that make for a more enduring relationship," he told The Washington Diplomat.

In the past few months alone, Hochberg has met with a dozen envoys including Mexico's Arturo Sarukhan, South Africa's Ebrahim Rasool, Nigeria's Ade Adefuye, India's Meera Shankar and Colombia's Gabriel Silva.

"One of the aspects that gets overlooked is trade. These ambassadors can play a role in their Diaspora communities," he said. "There are large pockets of Colombians and Indians here, for example, and that's a natural place for trade to begin. They understand their home markets while they're learning about markets in their adopted country, the United States."

The Ex-Im Bank, originally known as the Export-Import Bank of Washington, was established by President Franklin D. Roosevelt on Feb. 2, 1934, as a New Deal program to support his foreign policy. Its very first transaction was a $3.8 million loan to Cuba for U.S. silver ingots.

Only a month later, FDR created a Second Export-Import Bank of Washington with the specific aim of promoting trade with Cuba, though that entity was dissolved in 1936. (Interestingly, Cuba today is one of the very few countries with which the Ex-Im Bank has no dealings — a consequence of the 50-year-old U.S. trade embargo.)

Since taking office in May 2009, Hochberg has focused on opening new markets for U.S. goods and services in key emerging markets. Its loan guarantees help foreign buyers secure private financing to purchase U.S. exports. Its working capital guarantees help American exporters buy raw materials and supplies, while its export credit insurance eliminates the risk of non-payment from foreign companies.

"This array of services positions Ex-Im to help fuel an export boom driven by demand in emerging market economies such as China and India," Congress Daily wrote recently. "For years, Ex-Im was a minor player in the increasingly crowded world of official export finance, but Hochberg has closed the competitive gap."

A graduate of both New York University and Columbia University, Hochberg has more than 30 years of experience in business, government and philanthropy. Most recently he was dean of Milano, The New School for Management and Urban Policy in New York, before which he served as deputy and then acting administrator of the Small Business Administration, where he quadrupled lending to minority- and women-owned small businesses.

Hochberg got his start working for his mother, Lillian Vernon.

"She started her catalog company at her kitchen table. After getting my MBA at Columbia, I joined the company. It was doing $45 million in annual sales. By the time I left, we were doing $180 million a year. I was in the import business, and now I'm in the export business, so I've seen it from both sides."

With 400 employees and five regional offices (in New York, Miami, Chicago, Houston and Los Angeles), Ex-Im is only one of 60 or 70 export-import banks around the world, all of them promoting their countries' exports. All of them function similarly, though Hochberg stresses that his bank operates at "zero cost to taxpayers."

"One of the misconceptions about the Ex-Im Bank is that we give money to somebody so they can buy American. The fact is, taxpayers aren't giving anything to anybody. In most cases, the bank issues a guarantee, saying that if a loan goes into default, then the Ex-Im Bank will make the lender whole. The way we do that is by relying on the reserve funds from the fees we charge. There's no subsidy whatsoever."

The projects that spring from Ex-Im financing and loan guarantees run the global gamut. Recent endeavors include: a $100 million loan guarantee for GE Transportation to sell locomotives to South Africa's Transnet Ltd.; a nearly $35 million guarantee for the Dominican Republic to use U.S. equipment and services to build a 44-mile road linking Santo Domingo to the country's major eastern cities, promoting tourism to several resorts; and a $171.5 million direct loan to support the export of a Ku-band broadcast satellite by Space Systems/Loral of Palo Alto, Calif., to a company in Luxembourg.

Hochberg has also worked to increase the global footprint of key domestic industries in which U.S. exporters have a comparative advantage, such as industrial machinery, medical technology, agriculture and renewable energy.

At the moment, the Ex-Im Bank is helping a Spanish company, Gamesa Technology Corp., sell 51 wind turbines to Honduras that will be produced at a factory just outside Philadelphia. Ex-Im is financing $159 million of the $300 million total cost of the project.

"Renewable energy is frequently more costly than fossil fuel, but in this case, wind power for Honduras is a low-cost solution," Hochberg said. "We're about creating U.S. jobs, and it doesn't matter whether the company is American-owned or Spanish-owned. It's not that easy for a Central American power company to get an 18-year loan on its own, and by our guaranteeing it, we make that transaction happen."

The transaction was among the first exports from Gamesa's two Pennsylvania factories and marked the first time the company has used Ex-Im Bank financing. It was also Ex-Im's first renewable energy deal utilizing the bank's new carbon-policy incentives, including an 18-year repayment term.

"Local companies need to have working capital loans to buy equipment or inventory. If they're selling overseas, one of their big concerns is getting paid. We know how to enforce laws at home, in New Jersey, New York or New Mexico, but if you're selling to New Zealand or New Delhi, how do you collect?

"We provide insurance policies on overseas receivables. We're in the business of taking away the risk of selling overseas," Hochberg explained. "Third, when selling capital equipment that might be paid for over 10 or 20 years, we can provide a guarantee to the bank to make a 10- to 18-year loan so that the financing is in place to purchase that equipment."

Another overarching goal is to include small businesses whenever possible. To that end, in January, the Ex-Im Bank announced its Global Access for Small Business initiative in partnership with the U.S. Chamber of Commerce, the National Association of Manufacturers, the Small Business Administration and half a dozen private entities.

Global Access has very concrete aims. By 2015, Ex-Im aims to double its annual small-business export finance volume from $4.5 billion to $9 billion, add 5,000 small businesses to its portfolio, and approve at least $30 billion in small-business transactions. To reach these benchmarks, Ex-Im Bank is offering new financing and insurance products that complement existing bank programs.

The bank has also identified nine key target countries for promotion of U.S. exports: Brazil, Colombia, India, Indonesia, Mexico, Nigeria, South Africa, Turkey and Vietnam.

"We looked around the globe, at countries that were growing rapidly, making big investments in their infrastructure, and where our financing could help make a difference in the purchase of U.S. goods and services," Hochberg told us. "Although we operate in 180 countries, we asked where the greatest concentration of those three factors were, and that's how we identified these nine countries."

Interestingly, China — the world's second-largest economy — is not on the list (although the bank has pursued other partnerships with Beijing to boost U.S. goods and services to that country). Nor is South Korea, which has signed a free trade agreement with the United States but is waiting for Congress to ratify it.

"Although Korea is growing, it's not where I see opportunities to dramatically ramp up our exports, though with a U.S.-Korea FTA, that may change," Hochberg said. "Colombia is on the list, and even though we're still working out that FTA, we're actually seeing a surge in financing of exports to Colombia, mostly oilfield equipment. We need to put a business plan together, so that in the event Congress ratifies that treaty, we can really go full force and show people what an FTA can do."

On that note, Hochberg said he hopes Congress will get moving on both of those pending FTAs (along with a third one between the United States and Panama).

"When it comes to FTAs, they're a factor in doubling exports, but by no means the only factor," he said. "Removing trade barriers enhances the exchange of goods and services and gives us a very level, open playing field. We all have jobs to do, and my job is to finance exports and create jobs."

That explains why Hochberg's bank recently approved $100 million in financing for South Africa's Transnet Ltd., so it could buy 10 General Electric Model C30ACi locomotives manufactured at a GE plant in Erie, Pa. The transaction will create more than 600 jobs at both the Erie factory and another one in Grove City, Pa.

"Ex-Im Bank financing for Transnet, the first of what we hope will be many more to come, is a win-win for both South Africa and the United States. This sale ensures high-skill, high-wage jobs will remain here in the U.S., and it strengthens commercial ties between our two countries," Hochberg said in a prepared statement.

Last year, Hochberg visited a dozen nations. Asked which one impressed him the most, he replied without hesitation: Vietnam.

"The capitalism and commercial energy that I saw in Vietnam was startling. We had just been in China a little earlier, and the contrast was remarkable," he said, ticking off a list of infrastructure projects the Vietnamese Development Bank is hoping Ex-Im will help finance. "China is more serious and austere, like Germany, while Vietnam is like Italy — teeming with life and energy and enthusiasm."

Hochberg added: "Americans frequently become friends with people from other countries after doing business with them. If we do business with Vietnam, it will improve their economy. And the better their economy is, the more they'll buy from us."

 


 

About the Author

Larry Luxner is news editor of The Washington Diplomat.

Last Edited on June 24, 2014