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Navigating Risk: Charting a Safe Course for Your Exports
March 15, 2018 Suhail Karim Beg, Business Development Specialist, Office of Small Business

The economic landscape looks bright, both domestically and internationally. According to the Economist Intelligence Unit (EIU) January Global Forecast Brief, the global economy is experiencing the fastest rate of growth since the financial crisis. Gross Domestic Product for 2017 was revised upwards to 2.9 percent from 2.7 percent, a growth rate not seen since the beginning of the financial crisis.

Positive global growth conditions present export opportunities for U.S. businesses in 2018. Yet there is an undercurrent of concern to this optimism. This anxiety has more to do with political risk than business risk, according to the EIU’s 2018 report, “Cause for Concern? The Top 10 Risks to the Global Economy.”

Fair Winds: Optimism Abounds

U.S. businesses are gearing up to embrace these export opportunities. The National Association of Manufacturing (NAM) reported record levels of optimism amongst U.S. manufacturers. NAM’s Fourth Quarter 2017 Survey of Businesses reached a historical high of 94.6 percent of respondents having a favorable outlook on their company’s prospects. This cheerful outlook is shared by U.S. consumers. The Conference Board Consumer Confidence Index stands at a 17 year high. Even foreigners are feeling more confident. Foreigners bought $2.3 trillion “Made in U.S.A” products in 2017, up 5.5 percent over 2016 according to Census Bureau data. Both large and small firms are planning bigger capital expenditures to meet higher demand growth. The National Federation of Independent Business (NFIB) reports a record number of small businesses are saying now is the best time to grow and expand business.

The retooling of U.S. manufacturing coupled with surging domestic confidence and increased foreign demand suggests good times ahead. Yet the ability of U.S. businesses to grow revenues and expand into new markets depends upon how well they have protected their bottom line if conditions turn bad, particularly for small business exporters. The effects of the financial crisis of 2008 may be waning but the lessons learned about protecting your bottom line against risks should not be forgotten. 

Storm Clouds on the Horizon: Political Risks Still On

Economic optimism has not made risks disappear according to Laurence Boone, Head of Research at AXA IM, a global insurance firm. She cautions us to beware of “economic euphoria” in an AXA January 2018 Risk Briefing.  What is the cause of this concern?

According to the EUI report, the global economy is facing “the most elevated level of risks in years.”

Here are a few of the risks identified. 

Geopolitical Tensions

Threat levels in the Korean Peninsula remain elevated.  Russia and the United States are at odds and the Arabian Peninsula and the Middle East are still a hot bed of conflict with no end in sight.

Global Trade Issues

Standing trade agreements are in a state of flux. Renegotiation of the North American Free Trade Agreement (NAFTA) and economic sanctions present increased uncertainty in trade relations. It should be noted that the 2017 increase in exports was eclipsed by imports, underscoring unresolved issues with our balance of trade. The outcome of Brexit on the United Kingdom and what it means for the future of the European Union also remains unclear.

Business Risks

China’s strong growth rests on it successfully orchestrating a deleveraging of the banking sector. In the West, the end of cheap money and rising sovereign debt levels present “significant challenges,” according to the Organization for Economic Co-operation and Development, Sovereign Borrowing Outlook 2018. Inflation and rising interest rates coupled with high levels of government debt requiring refinancing threaten to put pressure on the world’s financial system.

Charting a Safe Course

EXIM provides U.S. exporters with export credit insurance solutions to protect against these kinds of risks. We offer comprehensive risk insurance, covering both commercial and political risks, protecting the U.S. exporter against foreign buyer nonpayment.  

Political Risks Covered
  • War, Revolution, Insurrection
  • Currency Transfer Risk
  • Cancellation of an Import or Export License

Commercial Risks Covered

  • Insolvency
  • Bankruptcy
  • Protracted Default

While export credit insurance is available in the private sector, some emerging and risky markets might not be covered. EXIM is open in over 180 countries. Navigate risk safely and protect your bottom line by calling EXIM for a no-cost consultation on our export credit insurance solutions.

Get a Free Export Finance Consultation Today!