State export insurer EGAP has been given a main role in helping diversify Czech exports. That task has just got a lot more challenging with trade sanctions between the EU and Russia and the even more urgent need to shift business and contracts to new destinations.
A bigger budget and more flexibility in insuring against the risks faced by exporters, and the bank loans often drawn on for their business, to some countries have been proposed as one of the Czech state’s responses to trade disruption caused by the knock-on effect of sanctions connected with the Ukraine crisis.
The state insurer, Export Guarantee and Insurance Corporation (EGAP), offers insurance terms to companies selling goods and services or making investments abroad. And it says it is prepared to raise the prospect of more generous overall ceilings for covering risks in selected countries this year on account of the looming crisis and more difficult export conditions. A proposal along these lines would have to be cleared by the supervisory board.
So far this year, no national limits for insurance cover have yet been reached, but in some countries, such as Azerbaijan and Belarus, more than 80 of the initial totals earmarked as available have already been drawn on.
EGAP spokeswoman Hana Hikelová told the Czech News Agency that this means that there is still around 8.5 billion crowns worth of cover that can still be sought in the case of Azerbaijan and 1.5 billion crowns for Belarus.
Azerbijan ranks fifth on the zero to seven ranking of export insurance risk, with seven being the highest level. Belarus is at the top seventh level. Both countries have nonetheless represented a strong source of demand and orders for Czech manufacturers and technology companies.
Exporters can get an indicative idea of the costs of insuring prospective deals based on the destination country from EGAP’s own website. Final terms also depend on the export company’s own credentials. Two year coverage for a 1 billion crown deal in a category seven country such as Belarus would cost a maximum 5.16 percent or 51,600 crowns a year, according to the EGAP calculator.
The state institution has also indicated that it could also free up more coverage by drawing on its ability to call in reinsurance companies and brokers in financial centers such as London for commercial risk in some specific cases. That route already paved the way for 15 billion crowns of insurance to be provided over the past two years.
Russia, a fairly moderate category three risk according to EGAP’s current evaluation, has historically represented a large slice of its risk cover with outstanding contracts totalling around 60 billion crowns, or a third of the total outstanding coverage on its books.
EGAP’s general manager Jan Procházka admitted recently in an interview on Czech Radio that the EU sanctions against Russia and the retaliatory measures from Moscow have increased the likelihood that EGAP insurance will be called upon in the case of past coverage and that cooperation with Russian banks and financial institutions has become more problematic.
EGAP has been given a more central role under the government’s policy of diversifying exports away from the European Union, where around 80 percent of Czech goods and services are currently headed.