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BACK             Issue No. 1/2007
I am pleased to introduce the first quarterly issue of the year 2006 of ECGA's News Bulletin. As with many other previous issues, the primary purpose of this Bulletin is to continue to disseminate relevant and useful information on the export credit insurance field to existing and potential policyholders, other exporters and the public at large so as to enlighten them of the services being provided by the Agency.

An article entitled "Your Credit Management Technique Can Determine Whether You Sink or Swim" from the Communicator provides insights, hints and techniques which exporters should be aware on their credit management to their overseas buyers considering competitiveness in the international market.

Under Hints to Exporters, the importance of careful credit control is highlighted as well as the system of trade credit or open account and its implication to the supplier is explained.

The recognition of the needs and realization of credit insurance services and benefits for cover has allowed exporters to sell to new buyers as well as venture into far away foreign markets while providing better credit control, greater financial liquidity and flexibility in managing receivables more effectively.

Among important events In the News included significant increases of Omani non-oil exports for the first 8 months of 2005 compared to corresponding period in 2004 by more than 34.1%, encouraging performance of ECGA's operational and financial results as well as the Sultanate being awarded with the "Overall Arab Economic Freedom Award" as well as the "Sound Money Award"

Our expanded popular spot forum of Questions & Answers (Q & A) has constantly been appreciated by our policyholders as they tend to clarify important issues which assist them in managing their Export Credit Policy more effectively. In this issue, Q & A focuses on domestic credit insurance services and appropriate answers and explanation provided. The number of exporters availing domestic credit insurance has grown up significantly since it was introduced more than two years ago, thus realizing the importance of credit insurance as an important tool of risks minimization for both local as well as export markets.

The Country Profile of Buyers of Omani Insured Exports focused on the level of exports and imports between Oman and Syria as well as the extent of ECGA's credit insurance cover to Omani exporters to that market. It is encouraging that Omani exports to that country has been growing by more than 161% between 2003 and 2004.

As per the section on the Omani Insured Exporter by ECGA, the Bulletin provides profile of National Aluminium Products Co. SAOG (NAPCO) as one of the first Omani exporters to avail ECGA's credit insurance service in 1991. The company has experienced highly successful growth on its exports through the years.

Finally, the Agency is pleased that four credit insured exporters have won His Majesty's Cup for Best Five Factories and five others were awarded with Certificate of Appreciation.

We hope our policyholders, exporters and other readers will find the contents of this issue of ECGA's News Bulletin interesting and useful. We always welcome your comments and feedbacks.

Thanking You,
Nasir bin Issa Al-Ismaily
General Manager
 
THIS ISSUE

PAGE 1
Foreword

Pages 2-4

Your Credit Management Technique can Determine Whether you Sink or Swim

Pages 5
In the News

Page 6
Country Profile of Buyers of Omani Insured Exports
Syria

Pages 7
Questions Answers

Pages 8
Omani Insured Exporter by ECGA National Aluminium Products Co. SAOG

Page 9
Congratulatory Message of His Majesty's Cup Winners


YOUR CREDIT MANAGEMENT TECHNIQUE CAN
DETERMINE WHETHER YOU SINK OR SWIM

ECGA always emphasizes the importance of prudent credit management to its policyholders while considering insuring their export business. The exporters should act responsibly in extending credit to buyers in international markets as if they are not credit insured in their risks. This is important in minimizing the risks of non payment by the buyers considering that the exporters have vested interest with ECGA in the risks.

   


In recent years, the international marketplace has become increasingly competitive as more and more companies worldwide are finding it necessary to "go global" in order to maintain profitability and growth. Today there are more companies with more products entering more markets than at any other time in history.

Selling goods overseas presents an ever growing challenge to credit/export managers who increasingly have to contend with diverse cultures, conventions, laws and languages, as well as the difficulty in obtaining accurate and up-to-date information on foreign companies in order to make the decision of whether or not to extend credit.

Playing It Safe? Don't Go In Over Your Head
The decision to extend credit to foreign buyers is quite often a matter of company policy and culture. Some business have traditionally refused to even consider the idea of open account terms in their international transactions, relying solely on irrevocable letters of credit. Letters of Credit still remain high on the list of preferred methods of negotiating international transactions. And, letters of credit should continue to be the payment method of choice when dealing with companies located in countries with balance of payments problems and/or otherwise presenting a "country risk". In the latter case, Letters of Credit should unquestionably be confirmed by a prime bank in the seller's country.

There is a move away from the cumbersome and expensive Letters of Credit process as the barriers to trade fall and competition increases. Also, many exporters are discovering that Letters of Credit are not as safe as they once thought. According to the Mantissa Letters of Credit web site, statistics indicate that, in as many as 50% of the transactions governed by letters of credit, the seller's documents are rejected by the receiving bank at presentation. Rejection can often be on account of discrepancies considered minor by the seller. However, if the buyer refuses to accept the discrepancies, the Letters of Credit becomes infructuous (i.e. the bank guarantee ceases to be valid)

Once the bank has rejected the documents, the seller is put in the position of being forced, for expediency's sake, to authorize release of the goods to the buyer on open account terms.

Since the seller was relying on the letter of credit to secure the sale, he often finds himself extending the open account terms without adequate information on the buyer. Now he could become subject to major collection problems. In fact, some of the international past due accounts received by some of the Debt Collectors were originally sold on Letters of Credit basis. If a letter of credit is not going to adequately protect the exporter from trade credit loss, what is?

For conservative companies not ready to take chances with overseas buyers and not able or willing to invest the time and money required to make a thorough credit evaluation, insisting on cash in advance is one option. However, it is likely that this policy is going to greatly hamper the sales staffs efforts as many potential customers will be "turned off'. Also, if involved in a very competitive market, it's unlikely that such terms will produce much business. Buyers are sure to find companies willing to take a risk and offer them more appealing payment options.

Therefore, it is important for the exporter to make an informed decision before extending credit terms to an overseas buyer through the following:


Get to know your customer
Overseas visits are expensive, but so are unpaid receivables. If planning to sell large dollar amounts of goods to a single customer, by all means make a visit. Meet the principals and staff, take a look at the offices and/or factory. Spend enough time to form an impression of the overall health of the company and the integrity of the ownership.


Do a proper and complete credit evaluation
Insist on a signed credit application from the potential customer which provides trade and bank references and, ideally, audited financial information. Make sure to check all the references and thoroughly review the financial. Then, get an independent credit report to check the data received from the customer.

Credit information is not equal in all parts of the world. In some areas, such as the United States, Canada, Australia and Western Europe, the credit information business is highly developed and sophisticated. In others, such as China, India, or Latin America, and particularly the Middle East information is much harder to obtain

Most important step is to determine what type of credit terms should be applicable. A company's standard domestic terms are not necessarily the best choice with foreign customers. And, terms which may be suitable for one overseas buyer, may not be at all suitable for another customer in another country


How long can you wait for your money? Typical credit terms on international transactions vary widely, from 30 to 180 days or even more. Considerations, besides time delays if products are shipped via surface mail, can include delays caused by the necessity of the buyer to obtain foreign exchange, bank delays, language barriers, etc. All of these added together can increase a 120 day payment window to 6-9 months, even when the customer is financially healthy and wants to pay.

Awareness of the actual time frame involved in collecting payment in any given country, as opposed to the theoretical terms, can help the exporter determine his realistic costs in the transaction and the price he must reasonably charge to make a profit. Careful attention to this critical detail can keep a paid for sale from ultimately becoming a loss item on the balance sheet. While on the topic of terms, it is imperative that you specify up-front (in the credit application or sales contract/purchase order) if you plan to charge interest on past due accounts and if you expect that cost of collection (including agency and attorney fees) will be paid by the debtor.

Statement of these terms in your sales documents will not guarantee that a particular jurisdiction anywhere in the world will honor them. But, if they are not included, you have pretty much guaranteed yourself no such recourse in case of a default

A sale is a gift until the money is collected. Collecting past due accounts overseas is really not much different from collecting domestically and should be handled in similar manner. The most important consideration is time. The older an account, the less likely it will be paid. Active follow-up as soon as an account goes past due is absolutely imperative. People are the same the world over. If they can't pay everyone, they will pay the ones who make them the most uncomfortable
The debtor must get an ever growing bellyache. Any signs of weakness on the creditor's part will undermine the collection process. The terms which were so carefully negotiated before the sale must be just as carefully enforced. While it's generous (and sometimes necessary) to give a debtor the benefit of the doubt and re-negotiate payment terms, it also often proves to be disastrous. Unfortunately, many will string you along with sob stories and continuous requests for extensions until you suddenly find they have disappeared or gone out of business. Yet many companies which assiduously follow up on overdue domestic accounts let international receivable slide. Why? Perhaps due to the hassles involved with time zones and language differences. May be because they don't know where to turn for assistance.

If active monitoring and follow-up is the creditor's first line of defense, early referral to a professional agency specializing in international collections should be the second line "pulling out the big guns," so to speak. Procrastination is not merely the thief of time, it could give an irretrievably harmful blow to a company's cash flow.

Don't allow an international account to slide past 30 days delinquent (except in the case of legitimate delays). If you haven't been able to convince your debtor to pay up in those first 30 days, it's unlikely you'll convince him in the next 90.

In handling overdue accounts or claims for credit insured exporters, ECGA maintains contact with several international debt collection agencies to assist for the recoveries. This is in addition to the availability of debt collection services through its association as a fully fledged partner of the Credit Alliance Network.
 
 
Acknowledgment due to ABC Companies, Inc of the USA as portion of this article reproduced from its publication - Communicator – Spring/Summer Issue 1996






 
HINTS TO EXPORTERS
1
Careful credit control is needed where supplier deals with many small buyers as they should expect to face a certain level of bad debts each year.
2
Trade Credit is a system of credit in which the supplier of a good to a business allows that business a period of time before it has to pay for the goods that it has received. The usual period is 30 days, and this can act as an important source of short-term finance for a business. It might be that the business is able to sell its finished goods before having to pay off the trade credit, thus avoiding the need to borrow further money from the bank. The level of trade credit owned by a business appears as a liability (that is current liabilities) on its balance sheet. If the creditor wishes to receive the cash before the debt is due, then the debt may be sold to another agency at a discount, which will collect the money when it is due. This is known as factoring a debt. It is often normal practice within the industry for trade credit to be given, especially to larger customers.


1. Omani Non-oil Exports increased
The growth of Omani non-oil exports has been remarkable as per the latest export statistics issued by the Ministry of National Economy. Total Omani non-oil exports of Omani origin (excluding re-exports) for the 8 months period as of end of August 2005 were RO.370.9 million compared to RO.276.6 million as for corresponding 8 months period of 2004 or significant increases of 34.1%.

2. Board of Directors Reviewed ECGA's Performance
The Board of Directors of Export Credit Guarantee Agency SAOC, presided by HE the Chairman Sheikh Yaqoob bin Hamed Al Harthy reviewed the performance highlight report of the Agency during the year 2005 in its meeting. The report highlighted the assessment of the performance of the Agency's operational as well as financial position. The Board has commended the performance of the Agency as evidenced with various encouraging operational and financial indicators. The Agency remained self – sustaining while extending its credit insurance services, to increasing number of Omani exporters. The Board also approved the Budget of the Agency for the year 2006.

3. General Steering Committee Meeting & Country Risk Conference held in Paris
The General Steering Committee of the Credit Alliance Network held its meeting on 23rd January 2006 followed by Country Risk Conference on 24th January respectively. The General Manager of ECGA Mr. Nasir bin Issa Al-Ismaily who is also a member of the General Steering Committee and Regional Coordinator for Africa-Middle East Group attended the meeting and the conference. The country risk conference discussed and assessed the developments of the past year and main trends shaping the world economy.

4. ECGA Participated in the Prague Club meeting in Bangkok, Thailand
The Prague Club held its meeting for the second half of the year 2005 in Bangkok, Thailand hosted by Exim Bank of Thailand from 14th Nov. to 16th Nov. 2005 in coordination with the Secretariat of the Berne Union. The General Manager of the ECGA Mr. Nasir bin Issa Al-Ismaily participated in its meeting. The members reviewed the updates of development of member ECAs following its May 2005 meeting held in Tallinn, Estonia. Also, the highlights of the performance of the ECA members for the year were discussed which includes matters related to underwriting, claims, recoveries. In addition, various presentation from a number of ECAs and other international and regional organization were discussed during the meeting.

5. ECGA of Oman Signed Memorandum of Understanding with Jordan Loan Guarantee Corporation
Export Credit Guarantee Agency SAOC, of the Sultanate of Oman has signed Memorandum of Understanding (MOU) with Jordan Loan Guarantee Corporation. The Memorandum include various areas of cooperation towards its activities and services such as exchanges of information of buyers and banks, assistance in recoveries, exchanges of experiences and claim payments, training etc. The Jordan Loan Guarantee Corporation as with ECGA of Oman are both members of the Credit Alliance Network of Coface as well as the Prague Club.

6. Arab World Economic Freedom Awards
The first annual "Arab World Economic Freedom Award" ceremony was held on 20th November 2005 at Al Bustan Palace Hotel which was organized by International Research Foundation in association with Fraser Institute Network. The purpose of this event was to celebrate and award for the achievements of governments of 16 countries in the Arab world in the creation of wealth through the promotion of economic freedom. The Sultanate of Oman was presented with "The Overall Arab Economic Freedom Award" as well as "Sound Money Award".

7. ECGA Staff Participated in Customer Service Workshop
Two of the ECGA's officers – Mr. Ahmed bin Mohd Al Abdaly and Mr. Ahmed bin Khalfan Al Baloushi, participated in workshop on "Customer Services" conducted by Ideas Management Consultants held on 22nd and 23rd of November 2005 at Haffa House Hotel.

8. Arab 10th Meeting of Arab Export Credit Agencies
The tenth meeting of Arab Export Credit Agencies was held from 9th – 10th November 2005 organized by Inter-Arab Investment Guarantee Corporation – Kuwait. ECGA was represented by its Senior Underwriting Officer - Mr. Ahmed bin Khalfan Al Baloushi. It is worth mentioning that this meeting was in continuation for the success achieved through the previous meetings. The meeting discussed various areas such as exchange of information, underwriting , credit information, reinsurance etc.

9. ECGA officer attended Seminar on Export Development in Arab Countries in Cairo
One of the Agency’s officers i.e. Mr. Saif bin Nasir Al-Mahdi, Underwriting Officer attended a seminar held in Cairo from 22nd to 23rd November 2005 on "Export Development in Arab Member Countries" organized and hosted by The Islamic Development Bank. The main objective of this seminar was to discuss the main obstacles faced by Arab countries towards export development and the role of Islamic Development Bank in promoting exports among Arab countries.

COUNTRY PROFILE OF BUYERS OF OMANI INSURED EXPORTS
SYRIA
Syria is situated in the Middle East, between Lebanon and Turkey. The total area of the country is 185,180 square kilometers. The capital city is Damascus. The population of Syria is 18,448,752 (July 2005 est.).

Export Credit Guarantee Agency (SAOC) has insured Omani exports to various products to Syria including chemicals products, air conditioners, computer software, polypropylene products, baby diapers, HDPE pipes and fittings, automotive batteries, safety shoes and boots, tea, ceramic tiles, plastic households, tomato ketchup and hot sauces etc. The total credit limits issued by the Agency to date amounted to RO.1.6 million in which RO.1,366,000/- or almost 85.3% under letters of credit and remaining 14.7% R.O.229,700/- are on Open Credit. The Agency has not paid any claims to insured Omani exporters to Syria yet.

During the year 2004, total Omani exports (excluding oil) to Syria were R.O.12,645,525/-, while imports were R.O.1,997,556/-. The Omani exports and imports to Syria for the last 5 years are listed below.
Year
2000
2001
2002
2003
2004

Exports

2,010,089

2,996,271

3,091,274

4,803,235

12,645,525

Imports

5,227,701

4,458,827

3,322,435

2,032,991

1,997,556

Defict/Surplus

-3,217,612

-1,462,556

-231,161

2,770,244

10,647,969

Source: Extracted from Foreign Trade Statistics.

 
 
As per the latest publication of International Trade Finance Magazine September 2004, issue No. 452, in its survey highlights in Syria it states as follows:-



"Importer are evenly divided between those who open account privileges, a third who are required to pay in advance, and others using draft acceptances. Buyers generally pay locally within two weeks of due date, while banks require two months before transferring foreign exchange payments.”

As per D&B COUNTRY RISK INDICATOR, for the month of March 2005 a number of ECAs provide short and medium terms cover for Syria including Atradius, ECGD and Euler Hermes UK. The maximum terms of payment are L/C’s with usual terms of 120 - 180 days.

Questions and Answers

Q- Why does ECGA sometimes refuse cover on domestic buyer?
A- ECGA may refuse cover on a domestic buyer for various reasons based on available updated information. For example, it could be due to the fact that the buyer may not sufficiently credit worthy or his total commitments with other suppliers are already too high in relation to its size and financial capability. Also the buyer may have recorded adverse payment experience and working capital constraints.

Q- What are the risks that are not covered by ECGA under Domestic Credit Insurance?
A- ECGA does not cover disputes between the seller and buyer regarding the goods supplied. Also it does not cover any sales made to an associated company or government/ public buyers.

Q- What are the documents ECGA requires while lodging a claim under Domestic Policy?
A-The documentation required by ECGA are as follows:-
- Invoice.
- The buyers purchase order and your confirmation.
- Acceptance of goods (Delivery order).
- Correspondences related to the debt towards minimizing loss.
- Evidence of insolvency if applicable.

Q-Who is eligible to apply for domestic credit insurance?
A-Any of the supplier of Omani products goods be it a manufacturer, wholesaler, or distributor provided they have already availed the Export Credit Policy of ECGA, that is they are also insuring their export business of Omani products with the Agency.

Q- What type of risks covered under the domestic credit insurance?
A-ECGA covers the risks on the insolvency of the buyer as well as failure of the buyer to pay the seller of the value of goods sold and accepted by the buyer.

Q-What constitutes default?
A- It is the failure by the buyer/debtor to make payment for delivered goods/services as per the sale contract. It is one of the causes of the commercial risks being covered by ECGA under its Export Credit Policy as well as Domestic Credit Policy.

Q-What is the credit limit issued by ECGA under Domestic Policy?
A- The credit limit amount is the maximum exposure on a domestic buyer that ECGA is prepared to insure in case of loss.

Q-Do I need a written contract of sales with the local buyer before supply?
A- Yes it is important to have a written contract of sale in writing. This will facilitate to avoid any future disputes with regard to the price, specification of goods, etc. Any verbal contracts which are not supported by documentary evident are not acceptable.

Q-What are the main benefits to policyholders for availing domestic credit insurance?
A-The sellers can comfortably extend credit to many buyers in the local market considering the risks of non-payment against commercial risks are covered by ECGA, thus contributing in the management of credit sales effectively and therefore improving on cash flows as well as the ability to compete with the imported goods from other countries by offering liberal credit terms to buyers.


The Omani Insured Exporter by ECGA
National Aluminium Products Co. SAOG. (NAPCO)


   

National Aluminium Products Co. SAOG is a Public Joint Stock Company established in 1984 and is one of the leading manufacturers of aluminium profile extrusions located at Rusayl Industrial Estate. The NAPCO offers various range of products that include aluminium extrusions in mill furnish, anodized, powder coated and NATURALL wood/ marble finish to suit the architectural and manufacturing industry for customers against their own designs. NAPCO's own brands include Al SADD Window and Kitchen Systems. The company is certified under ISO 9001 : 2000 and has been awarded His Majesty's Cup for Best Five Factories in Oman as one of the top five best factories in 1995 and Certificate of Appreciation in 2005. National Aluminium Products Co. SAOG was the first exporter to avail ECGA's credit insurance services since 1991 and one of the active Omani exporters availing ECGA services effectively since its inception. It is worth mentioning that National Aluminium Products Co. SAOG was awarded with "Business Association Award" by ECGA for availing ECGA's services for more than 10 years and has been administering the policy very effectively.

National Aluminium Products Co. SAOG exports range of products to all GCC countries. Apart from a very strong presence in GCC countries, National Aluminium Products Co. SAOG has managed to market its products successfully to other Arab, European and African countries.

The graph below illustrates the level of the company's exports during the past years since 1988.

EXPORT PERFORMANCE OF
NATIONAL ALUMINIUM PRODUCTS CO. SAOG

CONGRATULATORY MESSAGE
ECGA takes this opportunity to congratulate the following companies that have won His Majesty's Cup for Best Five Factories in Oman for the year 2005:-

 
REEM BATTERIES & POWER APPLIANCES CO. SAOC
OMAN CABLES INDUSTRIES LTD SAOG
AL INTAJ SULPHOCEMICALSINDUSTRIES CO. LLC.
MOHSIN HAIDER DARWISH LLC.
OMAN REFINERY COMPANY LLC

The Agency also extends its compliments to the following credit insured exporters of ECGA for being awarded the Certificates of Appreciation for the year 2005

JOTUN PAINTS CO. LLC.
NATIONAL ALUMINIUM PRODUCTS CO. SAOG.
NATIONAL HEATERS INDUSTRIES CO. LLC.
AL WAQIA SHOES CO. LLC.
OMAN PRINTERS & STATIONERS LTD. CO.



ECGA is here to help you minimize your risks. As you focus on exports, ECGA bears the following risks :-

BUYER’S RISK COVERED
Insolvency/bankruptcy
Failure to pay
Refusing delivery of goods

COUNTRY RISK COVERED
Foreign exchange transfer delay
Import bans or cancellation of import licence
Payment moratorium
War, civil disorder, natural disasters

Other benefits of services provided to credit insured exporters include domestic credit insurance, post shipment financing through bills discounting by commercial banks as well as issuance of guarantees to commercial banks for pre-shipment financing needs of the exporters.


ECGA Congratulated Companies for His Majesty Award for Best Five Factories and 5 others for Appreciation Certificates

The Export Credit Guarantee Agency SAOC congratulated the credit insured exporters (see congratulatory message and list of winners on Page 9) who won His Majesty's Cup for Best Five Factories for the year 2005 and five others awarded with Certificates of Appreciation. All the selected winners except Oman Refinery Company are policyholders of ECGA who have been utilizing the services of the Agency effectively over the years by actively pursuing export business while managing their export credit policies effectively. The Agency has been extending its export credit insurance protection and other services to the Omani exporters through the years which they have highly valued its benefits in terms of promoting and encouraging Omani non-oil exports to various countries abroad .

In this issue, important events In the News included the winners of His Majesty's Cup for Best Five Factories for which the Agency congratulated all of them. They are Reem Batteries & Power Appliances Co., Oman Cables Industry SAOG, Al Intaj Sulphochemical Industries Co. LLC, Mohsin Haider Darwish LLC. and Oman Refinery Co. LLC. as well as other exporters who have received Certificates of Appreciation for their achievements. It is also worth mentioning that four of the recipients of these awards as well as those who were honoured with Certificates of Appreciation are among highly active non-oil exporters availing the services of ECGA.

It is also worth mentioning that the overall level of Omani non-oil export to all countries abroad have grown up to RO.370.9 Million in first 8 months 2005 compared from RO.276.6 Million for corresponding period of 2004 representing a significant growth of 34.1%.

   
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