The year with the pandemic has been like a roller coaster ride for entrepreneurs. Developments in the economy closely follow the rise and fall of viral activity.
One of the groups of companies that has shown an almost incredible ability to adapt is exporting companies. A year ago, exporters were one of the first to be hit by the virus, but at the end of the year, Latvia’s exports even reached unprecedented levels, mainly at the expense of increasing the value of goods.
As our exporters look from high point of view? Since April last year high export guarantees became available to a much wider range of exporters. For example, it was also possible to insure transactions in the European Union and some OECD countries, where this area was well covered by private insurers before the pandemic and there was no need for state support. Data show that demand in 2020 after high export guarantees has convincingly tripled compared to 2019.
Currently with high With the help of guarantees, the value of safely exported cargo during the crisis exceeds 34 million euros and the value of secured cargo is significantly increasing every day. In addition, if in the past exporters more often chose to insure their transactions in so-called third countries by hedging against exports to new and distant countries (not only new partners were insured, often existing direct partners, which could indicate the maturity of exporters, as the industry solvency risk management of foreign partners), interest in transactions in European “stable” countries has also grown rapidly in the last year.
For example, 43% of all export credit guarantee transactions to developed countries high last year it was issued to three countries: the United Kingdom (20%), Lithuania (15%) and Switzerland (8%). Transactions are also insured in the Baltic States, Sweden, Poland, the Czech Republic, Italy, Spain and elsewhere in Europe.
Behind these statistics are many well-known companies. For example, “Limbažu piens” with high The aid was able to maintain factoring financing by replacing the private insurer’s policy with an export guarantee, thus maintaining a stable cash flow for the company and cooperation with its long-term buyer in Italy. Limbažu piens exports 98% of its production, and its largest export market is Italy, which is one of the epicenters of the outbreak in Europe in both the first and second pandemic waves. “Limbažu piena” foreign partners, taking care of the availability of their working capital, extended the payment terms. In Latvia, on the other hand, local farmers were waiting for payment for their products, who cannot keep the cows idle. As a result, in a crisis situation, there was a moment when raw materials were purchased and paid for, but the sales market became very limited. The saved factoring funding helped to endure the difficult moment not only for themselves, but also to settle with farmers. In turn, the export guarantee gave the company and the factoring provider a sense of security that in the event of a potential insolvency of a foreign partner, the losses will be covered.
The situation was different for Cido Grupa, whose domestic sales decreased due to Covid-19 restrictions. The decrease in volume in Latvia was compensated by Cido Grupa with sales promotion in export markets, moreover, the increase in export volumes was quite significant, in the first half of 2020 the company’s export volumes increased by more than 50% compared to the previous half-year. The company acknowledges that export guarantees were an opportunity to receive payment for shipped products without undue risk and to focus on business development in the domestic market.
Another example is one of Latvia’s export flagships, Elko Grupa, which insures its transactions with foreign partners and uses the crisis to strengthen its position in Central and Eastern European markets, as well as to increase its presence in the Nordic countries. Such stories show that export guarantees can help to deal with rather difficult and unpredictable situations and also support growth at the right time.
Export insurance means protecting yourself from the threat of buyer’s insolvency or prolonged non-payment. In times of crisis, even over the years, proven and reliable export partners may find themselves in a situation where they are unable to pay for the product.
If in the spring of last year the restrictions were physically imposed, now it is a growing gap of mutual trust between foreign buyers and suppliers. Concerns about the wave of bankruptcies are growing, payment terms are being extended. Previously, it was an average of 45 days, but now it is already 60 days. There are even worries about the hitherto stable and long-term late payment of each bill at the expense of buyers, and in general, one of the biggest problems for companies today is the lack of working capital. Buyers’ habits have also changed, exporters admit that foreign partners are becoming more inaccessible, communication habits are changing. If responses to requests become slower, this is often the first warning that the partner will be a potential debtor.
In these situations, it may be too late to save the money invested, but it is worth remembering this when preparing for future export transactions. If we cannot influence the ups and downs of the roller coaster itself, then a safe landing is in everyone’s hands, using a state aid instrument such as an export guarantee. Unfortunately, fraudulent activities persist during the crisis, if not their risk increases. Over the past year, fraudulent transactions have been recorded more than under normal market conditions. Very often exporters do not notice the characteristics of fraudulent transactions, therefore high The trading partner research network is the filter that unnecessarily makes it necessary to interview a potential partner and make sure that there is no risk of a counterfeit buyer’s identity on the buyer’s side. Last year, most of these cases were in the UK, possibly in line with the planned restrictions on trade in Brexit, so many were still in a hurry to seize the opportunity while goods were still moving freely between countries.
However, it must be admitted that Latvian entrepreneurs are quite reluctant to insure the risks of their partners. Although accurate statistics are not available, it is estimated that Latvian exporters insure on average less than 5% of export transactions, compared to Western European exporters, where in some countries the level of insurance of export transactions reaches almost 50%.
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