The Swedish Export Credits Guarantee Board’s new, broadened mandate reflects Swedish firms’ increased participation in global value chains. Despite this, the reform has not led to notable changes to the Board’s guarantee portfolio.
The Swedish Agency for Growth Policy Analysis, Growth Analysis, has studied the effects of the Export Credits Guarantee Board’s new mandate. In this study we have investigated whether the broadened mandate has affected how the guarantees are used. In broadening the mandate, the Swedish government’s objective was to give both Swedish multinational companies’ (MNC) subsidiaries abroad as well as small and medium sized enterprises greater access to guarantees. This objective has been partially achieved. Although changes to the guidelines allow for the specified types of firms to qualify for guarantees, we can see that these firms have not used the guarantees to a significant extent.
According to our data, firms’ use of guarantees under the new mandate has been limited. Two recent exogenous factors have had a more significant impact on the Board’s portfolio – the financial crisis and sale of Saab’s JAS Gripen to Brazil.
The number of SMEs that use guarantees has increased steadily since 2000. Since the new mandate was adopted in 2007, SME’s use of guarantees for operating lines of credit has increased much faster than their use of export credit guarantees. The new mandate allows for both exporting firms and suppliers to other exporters to use guarantees for operating lines of credit. This specific product’s popularity can likely be explained both by SME’s increased difficulty in gaining access to credit after the financial crisis and by the fact that SMEs less often have sales of the type that qualify for export credit guarantees (large orders with a long buyer credit period and sales to more difficult markets).
We have not been able determine the extent of Swedish MNC subsidiaries’ use of guarantees as the parent company registered in Sweden can take guarantees on a subsidiary’s behalf. This was also the case prior to adoption of the new mandate. Nine large Swedish MNCs account for eighty per cent of the volume of the Board’s guarantees during 2000–16. Roughly as many employees in Swedish MNCs are based in markets where export credits may be used (even for orders with short buyer credit periods) as are based in in Sweden. In total, Swedish MNCs have about twice as many employees abroad as in Sweden. Therefore, we should reasonably expect to see a demand for guarantees among these subsidiaries.
The new mandate has led to a shift in how the Swedish Export Credits Guarantee Board determines what types of exports and which firms may use its guarantee products. Under the previous mandate, companies registered abroad could only use guarantees for export sales with at least 50 per cent Swedish content, meaning that at least half of the products in a given order were required to be produced in Sweden. However the definition of Swedish content used by the Board differed from standard value-added measures. Thus, no consideration was given to the total value originating from Sweden in export products. Today the Board assesses the Swedish interest in foreign exporters’ sales instead. An order can be guaranteed if knowledge-intensive and high value-added services in the beginning and end of the value chain originate from Sweden – regardless of where the final product is manufactured. This shift is in line with the government’s ambitions for a knowledge-driven economy.
Further analysis is required in order estimate the effects of guarantees on firms’ exports. Even if we see that the use of guarantees as a percentage of export volumes is positively correlated with risk level on export markets and that the use of guarantees increases markedly during crises, we do not know what effects guarantees have. In the absence of public guarantees, would firms have exported anyway using internal financing and risk management strategies or with other less risk-averse private financing? Do the effects of guarantees differ for different types of firms and products?
Serial number: PM 2017:09
Reference number: 2016/149