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Marketing Philosophy:
A characteristic of any growing ECA including the PEFG is a willingness to adapt its range services to best address the needs of particular sectors and payment conditions. This adapting and customizing of services offered by an ECA has typically resulted in significant, frequent sustained increases in business volume. In certain cases an ECA must be willing to take a pioneering stance to lead by example thorough the provision of an and repayment guarantees. Another imperative for ECA success based on international 'best practice' is for it to provide a seamless, integrated range of services to the exporter and financial sectors. The third critical element for an ECA is a look forward approach in selling itself to target client groups, pro- active and not merely reactive. In brief in establishing and promoting the ECA as more then the institution to which a company can turn when normal channels have been exhausted, rather from the very inception of an export transaction is preferred. As a basic marketing principle, PEFG will recognize the need to reach out to its exporter, indirect exporter and financial sector client markets. Inter alias by using targeted direct mail-outs by hosting a regular series of PEFG information workshops throughout Pakistan, by enlisting financial institutions as full partners in the PEFG business process, including market selection, client prospecting, sharing of transactional database and customer histories to strengthen risk management and transaction review procedures. Proactive initiatives of this sort will heighten PEFG profile and its awareness in the marketplace.
Market Size Potential:
The potential market size of the PEFG market for guarantees appears considerable, even limiting PEFG to the present volume of Pakistan merchandise export orders. New ECA's typically represent 1%-5% of total national exports. Assuming a low-end proportion, 1% of all merchandise exports and for tradable services exports, this would account to US$85 million guarantee per year the agency. In combination viz guarantee cover for Pakistani merchandise export and for tradable services exports, the Agency projects a minimum achievable pre-shipment guarantee volume per annum of US$ 100 million. Further the agency expects to be an active participant in a number of other allied pre-shipment.
Market Situation / Characteristics:
In shipments to emerging markets like Asia-Pacific and transitional economics of East Europe and the NIS, as well as Pakistan's neighboring Gulf region, pre-shipment credit availability can be expected to be significantly enhanced by the very kind of third-party repayment guarantees the Agency proposes to offer.
Even for exports to OECD markets, where Pakistan financial institution appetite for provision of related credits is considerable, in absolute terms (current Export Finance Scheme, EFS, refinance is some US$4 Billion/annum, Pakistan Rupees equivalent, the majority of which is for exports to OECD markets), the Inception Team has confirmed appreciable scope for expansion of pre- shipment credit provided third-party repayment guarantees, of the PEFG type, are available.
- Support for equipment or plant upgrades, at the pre-shipment stage, in higher technology sectors (Korea Export-import Bank);
- Targeted involvement in small cap equity raising, to strengthen an exporter's capitalization and achieve minimum equity conditions periodically associated with larger orders (EDC- Canada);
- Twinning of small business and export loan guarantee programmes (US EXIMISBA, JLGC- Jordan);
- Recognition that supporting exports can be strengthened by increasing the maximum level of allowable imported inputs (US EXIM, EDC-Canada);
- Proactive pursuit of export sale opportunities involving International Tenders financed by International Financial Institutions (EIDIMITI-Japan, EDC-Canada, US EXIM).
Appreciation of and sensitivity to needs of target sectors will enhance PEFG's capacity to build the kind of business volume necessary for success.
- Sporting Goods
- Surgical Goods
- Handicrafts and Carpets
- Fruits and Vegetables
- Processed Fish and Food Products
- Software and Computer Services
- Adventure Travel and Ecotourism
- Entertainment
- Light Engineering
- Motor Vehicles
- Agricultural Machinery
- Tents and Canvases
- Ready-made Garment / Finished Textiles
SPORTING GOODS: Characterised by a large number of small and medium exporters and most commonly found in the Sialkot region, products are often made under prior arrangement with leading international brands. There are some 25 export suppliers deemed "full time" and these may account for 805 of total sectoral exports. With large multinationals accounting for a significant percentage of orders, buyer insolvency is a minor concern unless sales are direct to a foreign wholesaler or retailer. Working capital, especially for newer accounts, appears to be a more relevant issue. PEFG would target that end of the guarantee market, including offer of whole turnover guarantees for all types of transactions with a pre-approved list of such foreign buyers.
SURGICAL GOODS: Sales are to range of buyers who act as agents in transacting sales to foreign health sector institutions (e.g. US HM0s). Exports have been as high as US$ 125 million/annum. Pakistan suppliers are receiving US FDA clearance with the number of suppliers (FDA and non-FDA cleared) estimated to be as high as 175. Payment defaults on the part of buyers are said to be rare though the public sector nature of some accounts can be impacted by budgetary approvals and allocations and lead to payment delays. PEFG believes an important issue is to leverage existing business activity and re-deploy as repayment security and by doing so permit better access to the credit needed to expand facilities. PEFG will also work with the industry and EPB and other stakeholders to better target ICB tendered business (VMO, ICRC, UNHCR, UNICEF etc.) which are interested in nontraditional sources for basic high use goods and to date have not been targets for organized proactive business development by stakeholders within Pakistan.
HANDICRAFTS & CARPETS: Carpet exporters have remained static around US$200 Million/annum for the past ten years, now withstanding the opportunity for additional sales to USA due to the recently lifted embargo on items originating from Iran. Carpet Association of Pakistan has some 500 members, of whom 350 are in Punjab and NWFP and more then 150 in Karachi, 85% of members are exporters, to one extent or another. Payment terms are typically DA, credit defaults in foreign markets are not common but the nature of many foreign buyers (small importers, against peak season merchandisers) clearly influence bankers willingness to consider pre-shipment credit.
FRUITS & VEGETABLES: Export quality niches have been identified, including fancy and extra fancy table fruit categories. Compared to potential, especially for shipments during off-season to EU and USA, exports remain well below maximum.
The world export market for mango is expanding rapidly as USA (almost one-half total world imports of +456000 Tones/annum) and EU consumers acquire greater interest in this table fruit snack/cooking ingredient option. Success in this niche will be defined by quality, consistency, appearance and freshness at time of delivery to the foreign buyer.
Clearly,, to increase the exportable proportion will require funding for a series of pre-shipment improvements to position Pakistan product competitively vs. alternative suppliers. This focus would directly correspond with a broad definition of PEFG's pre-shipment guarantee mandate. This would include guarantees related to credits for post-harvest handling and storage, improved grading, packaging and handling systems; E-Commerce b2b and b2c.
Apples represent another potential sector for targeted PEFG involvement. Pakistan production by late 1990's was 570000 Tones/annum. The focus would be similar to mangoes - upgrading facilities, improving post-harvest storage and extend the marketing period, better fruit handling (orchards, packers), pre-shipment preparation of fruit (tray-pack, etc.) for immediate resale by the trade, pest-free certification full supply chain ( orchard-packer- shopping dock). Parallel initiatives are under way, supported by NDFC and by SMEDA, and PEFG is in active dialogue with these organizations to ensure direct involvement by PEFG, as and where appropriate.
Kino citrus fruit are a separate export fruit category. Product specifications and export-related facilities upgrading may be less demanding, in the case of Kino, as at least one-third of exports are to low and middle income markets in South East Asia. There is however, substantial volume of Kino also being shipped to Dubai, Saudi Arabia and some OECD markets where delivery specifications may be more demanding and require further improvement to Pakistan packing facilities. In the 1999 year, Kino fruit exports totaled 51,000 Tones and some US$9 Million, a niche market in which PEFG could play an especially useful role.
PROCESSED FISH AND FOOD PRODUCTS: In areas of plant upgrading, PEFG anticipates receiving financing guarantee requests. PEFG certificate of guarantee would be used as a credit enhancement device to lower related borrowing costs and access funds for initiatives which banks might potentially be reticent to consider i.e. new market entry or for borrowers, such as fishing boat operators, who are Indirect Exporters and dependent on the forces of nature to generate cash-flow.
SOFTWARE AND COMPUTER SERVICES: This sector represents a potential growth area, both for Pakistan and for PEFG. Exports on an unofficial basis are US$25 to US$50 Million per year, which is a fraction of those from India and well short of what is possible. There are said to be some 200 software exporters in Pakistan, with 70 belonging to PASHA (Pakistan Software Houses Association).
Work is contractual and cash advances are small, as a norm. Contract payments are benchmarked, against delivery rnilestones. Exporters sometimes experience 6 months pre- shipment overhead before an actual contract of sale, and payments, become effective. Banks are likely to remain cautious about extending credit. On a pre-shipment basis, since most perceive this sector as undercapitalized, risk-prone and venture capital-type play.
PEFG is strongly persuaded that Group-Wide cover and Group-Wide pre-shipment offer-in-principle of cover could enhance this sector's access to trade finance and to small cap equity PEFG has begun discussions in this sector and results, to date, are encouraging.
ADVENTURE TRAVEL AND ECOTOURISM: These constitute major international growth fields in which neighbouring countries, such as India and Nepal and some of the Central Asian Newly Independent States (NIS), are deriving export revenue. Total worldwide tourism is now in excess of 600 Million arrival year vs. 400 Million arrivals/year at the end of the 1980's.
PEFG will seek to use its pre-shipment guarantees to permit better access by SMEs to credits for such purposes. As a re-condition of such repayment guarantee support, PEFG will work with the applicants and organizations active in the field tp prepare properly scoped and effective Business Plans.
ENTERTAINMENT: Unlike India ie 'Bollywood', the Pakistan entertainment export industry (movies, short films, TV serials) is current small. Nevertheless, eith broadband-based Internet distribution direct to the consumer, some potential may exist in the coming period for new market openings and easier overseas product distribution. Early stage funding guarantees may play a useful role and PEFG would be open for cover case-by-case.
LIGHT ENGINEERING: This sector is characterised by a diverse range of enterprises, typically single establishment operation, with either current or historic links to established multinationals. Regional export markets are being served. Supplies to EU, and other Tier One and Tier Two OEMs (Original Equipment Manufacturers) are also reported. Shipments to buyers in such countries as Iran will involve political as well as commercial risk, even at the pre-shipment stage, PEFG's main activity. Continous inventory replenishment to foreign OEMs is another area PEFG anticipates requests for guarantee cover.
MOTOR VEHICLES: Small volumes of exports to regional markets are reported, viz. Nepal and Bangladesh, typically by local units of multinational enterprises - exports include light pickup trucks A slight volume of bus and chassis exports are also reported, with buyers including Mauritania. Pre-shipment credit may not be an issue, in the main. Post-shipment buyer risk may be; PEFG would serve as a conduit for such post-shipment repayment requests, where and when needed.
Spare parts manufacture is a separate field and registering an increasing trend. During the last two years have risen from US$4 Million to US$10 Million. There are + twenty-five exporters; destinations include the OECD countries (EU, USA). Exporters advise that pre-shipment credit is an issue, owing to collateral requirements. PEFG pre-shipment guarantees may thus well play a significant role in this specialized sub-niche. PEFG will be offering both specific transaction and whole turnover guarantee cover, as well as arranging post-shipment buyer repayment cover with international underwriters.
AGRICULTURAL MACHINERY: There is potential for light implement exports, focusing on regional markets and other end-use applications where technology needs are mid-market i.e. 'appropriate technology'. PEFG cover would include both specific transaction and whole turnover options. Also, arranging post-shipment cover for both private and public sector buyers.
TENTS AND CANVASES: Exports of tents and canvas have been increasing, from US$36 Million (1996) to US$58 Million (1998). These items are used in defense purposes, Hajj and disaster relief. There are 60 to 70 exporters, 20 being considered major suppliers. Terms of payment are variable and Pakistan Tents Association advise that EFS-Part 1 support (specific transaction refinance) is availed. PEFG intervention, on a proactive basis and through Group-Wide cover, could offer an ideal product to lessen financing cost and enhance speedy credit access.
READY-MADE GARMENTS / FINISHED TEXTILES: PEFG's objective will be to leverage PEFG guarantees to access bank credits for smaller exporters, indirect exporters and focusing on newer markets and higher value-addition. Further, at the pre-shipment stage to enhance credit access for larger exporters when foreign business conditions warrant, provided post-shipment export credits cover can be prior agreed.