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Trade finance support: clearing the path to trade
The UAE is a dynamic and expanding market for UK exporters: but all trade must be financed, and it is important to understand the options and risks. Where there are gaps in private sector provision of finance, UK Export Finance can be a valuable partner.
Over the past three decades the UAE has invested a great deal of money in airport and port facilities, free trade zones, urban planning and tourist infrastructure. As a result it has become not only a major market for UK goods and services but a place where many UK exporters set up their wider Middle East operations, making trade both with and through UAE an essential part of their broader international expansion.
While the UAE is rated as a low risk export market, normal trade finance support such as insurance against a buyer non-payment (for example due to insolvency), or facility for working capital, will often be needed. Where the private sector cannot provide all the support a firm would like, UK Export Finance (UKEF) – the UK’s award-winning export credit agency, and a government department – can prove a useful partner for both exporters and banks.
The importance of the UAE as an export market is underlined by the level of UKEF support for UK exporters there over the past five years at more than £2bn.
Help available from UKEF includes guarantees to banks to support bonds issued to exporters, letters of credit or export working capital facilities. The agency can also provide credit and bond insurance to protect an exporter against non-payment risk or a bond being unfairly called.
UK exporters to the UAE who have already benefited from our support include architects; a manufacturer of vibration sensors for nuclear power plants; and a horse feed specialist.
On the other side of the export equation, UKEF can support the UAE buyers of UK goods and services with loans or loan guarantees. For example the agency was able to provide and guarantee buyer credit finance for the Dubai World Trade Centre District development, enabling UK contractor Carillion to secure work on this substantial construction project.
At the time of writing, UKEF has issued an expression of interest for a further potential $2 billion loan to Dubai Aviation Engineering Projects to help finance work to expand the Al Maktoum International Airport. If it goes ahead, the loan will ensure the project makes strong use of goods and services from UK exporters.
A similar expression of interest worth $500 million has already been written for the Expo 2020 project, the world’s fair and another major international landmark event for the UAE. So for both projects it is now over to the buyers in UAE to work with UKEF and UK Trade & Industry and UK firms to assemble a group of exporters able to take on the work.
Whether or not these loans are taken up in full, they are indicative of both the scale of opportunity for UK exporters in the UAE and the willingness of UKEF to support trade with the nation.
In all, UKEF has supported a significant amount of UAE export business over the past five years, enabling a much larger volume of exports to take place than would otherwise have happened.
If you are planning your own next moves, here are some finance tips:
Trade Finance tips for exporters to UAE:
1: Stay covered
If you are selling on open account into UAE, you might consider taking out credit insurance. As UAE is a low risk market, commercial credit insurers do write plenty of cover, but where there are any gaps in the market UKEF is able to offer support with its Export Insurance Policy (EXIP). There is no maximum or minimum contract value for consideration, and the policy can cover up to 95% of contract value.
2: Seek advice on letters of credit
Letters of Credit (LCs) are a form of payment promise made by the buyer’s bank to the exporter, subject to certain conditions such as delivery on time and to the specified standards. The Middle East market is used to issuing and working with LCs, though exporters will need to consider carefully in each case whether it is worth requesting one, as there is a cost attached. UKEF can provide guarantees to support banks in the UK which confirm letters of credit for exporters – so do seek advice from your bank on all the options.
3: Talk to us
There are many opportunities in the UAE for UK exporters, such as the 2020 Expo. Related work will include development of the Expo site, adjacent to Al Maktoum airport; work on associated infrastructure such as roads and rail; and the construction of new hotels all over Dubai. To better understand the breadth of this and other UAE opportunities, UK exporters should contact UKTI, which has commercial offices in Dubai and extensive networks of business contacts. For trade finance issues, exporters can also contact UKEF directly through its network of 24 regional Export Finance Advisers.