“POLITICAL RISKS

from

AN AUSTRIAN MARKET PERSPECTIVE”

Christian Gessl

Regional Director Central and Eastern Europe

Austrian Federal Economic Chamber

at

Lloyds’s class of Business Event : Political Risks

Vienna, 18.04.2013

2

Overview

AUSSENWIRTSCHAFT AUSTRIA (Advantage Austria)

Austria‘s Economy

Austria and Central & Eastern Europe

Austria: Import - Export

Austria: Foreign Direct Investment

OeKB – Österreichische Kontrollbank

OeEB – Österreichische Entwicklungsbank

AUSSENWIRTSCHAFT AUSTRIA

The Austrian Agency for Internationalization

ADVANTAGE AUSTRIA

In Austria

• AUSSENWIRTSCHAFT Head Office in AFEC

• Cooperation with 9 Foreign Trade Departments of

regional economic chambers

Abroad

• 117 Representation offices worldwide

3

www.advantageaustria.org Austria’s Internet Platform — Overview

• 197 country sites

• 28 languages (special focus on East European languages)

• 10 Content Partners

• Market place with profiles of 18,000 Austrian businesses

• Business opportunities with more detailed company information

• Listings of all events abroad with details of participating

companies

• Overview of 30 industry sectors

5

Information on Foreign Markets

6

Put the world markets into your pocket!

Download the new ExportService-App of

Advantage AUSTRIA

Source: ABA

Heart of Europe &

Gateway to the East

• Area: 4.3 mln. km2

• Population: 500 million

• Members: 27 (28)

• Languages: 23 (24)

Austria at a glance

• 83,871 km²

• About 8.3 mio. inhabitants

• Geographical heart of the

European continent

• 8 neighbouring countries (6 EU

members, 1 EEA, 1 EFTA)

• Gateway between Central and

Eastern Europe (CEE) and

Western Europe

• 9 provinces

9

Austrias wealth

and it‘s Foreign Trade & Investment

0

5

10

15

20

25

30

35

40

45

1950 1970 1990 2000 2011

% o

f G

DP

Austria is one of the world‘s richest countries

Export tradionally grows much faster than the GDP

Grafik: Exportquote in % des BIP; Datenquelle: Stat. Zentralamt

10

How was/is this possible?

..creative companies, competitive education and training systems, Opening of the East, EU membership, good economic and fiscal policy, competitive salaries…

+ export support (AusfFG, AFFG by BMF and OeKB-Gruppe), AFEC/Advantage Austria:

Advantages for Austrian companies through

• perfect institutional Design of OeKB-group and

• Fast and coordinated actions by politics, AFEC, banks and OEKB-group

Austria and the EU

• Member since 1.1.1995 (referendum

on 12 June 1994 with 66.64% votes in favour of EU

accession)

• Austria benefited from EU membership

• additional annual economic growth of 0.5 % of GDP

• FDI has increased threefold

• Exports have more than doubled

• Some 130,000 additional jobs have been created

• Introduction of the Euro

• Rise of exports due to 2004/2007-EU enlargement

Austrian Federal Economic Chamber

(WKÖ)

346,000 active members

Austrian Chamber of Agriculture

(LKÖ)

190,000 members*

Austrian Federal Chamber of Labor

(BAK)

2,700,000 members

Austrian Trade Union Federation

(ÖGB)

1,400,000 members

Employers Employees

The Austrian Social Partnership Member-based organizations

* Number of agricultural enterprises according to

the study “Agrarstrukturerhebung 2003”

• 440.000 businesses (2013, 99.6 % Small Medium

Enterprises – SMEs) – and growing

• approx. 3,4 mio. employees

• small and medium size

• many ‘Leading Competence Units (clusters)

• Social Partnership

Austrian Business Sector – Very Briefly

GDP-Growth 2010-2013

GDP per capita 2012 – Austria TOP 3 in Europe

Origin of GDP 2011 by sectors

Employer Enterprises 2011 by section

Employees by section

Industrial production – Top-5-branches

• high per-capita income requires high value added

• small domestic market requires an customer oriented approach

(international)

• changing drivers of growth (source of economic impuls)

• presence in growth markets

• from technology absorbing/diffusing/ follower to source of

technology (driver)

Strategic Conditions for Austrian

Business

Tourism

• Vital part of Austria‘s economy

(historic function after WW II)

• Share of tourism-induced gross value added 10% of GDP

• One of the world‘s favourite tourist destinations (almost

20 million guests / year) – among top 10 worldwide

• 2012: 125 mio. overnight stays

• N°1 worldwide of visitors per capita

Overnight stays 2000-2011

Public deficit 2012,

% of GDP

Public debt

2012

Structure of public expenditure 2011

Unemployment

rates 2012 (% of labour force)

Austria: East-West Business Interface

EU foothold for CEE companies

CEE headquarters for Western companies

• Exploit the advantages at the interface

• No longer a one-way street: Eastern European

firms are looking for an EU base

• Bottom-line business location advantages

• www.headquarters-austria.at

Austrian Business in CEEC

• historic advantage 1989 (open boarders), 1995 (AT > EU), 2004

(EU-accession of neighbours) – sustained above average

growth

• fast outgoing/active direct investment

• > 1.000 companies with CEEC headquarters in AT

• > At central position in certain sectors (logistics, banking,

energy, retail, automotive supply)

300 international companies …

… including 28 Fortune 500 firms

– make Austria the pre-eminent CEE headquarters

• Proximity to the target market

• Infrastructure

• Productivity and motivation

• Stability

• Tax advantages

• Quality of life

Number of exporters

32

12500

15000

18000 19000

22500

26000

29000 30000

34000

38000

40000

42000

44000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Trade balance / Exports

• Traditional deficit of trade balance (goods), deficit of direct investment balance

• BUT CHANGE: 2002 and 2007 – surplus of trade balance (goods)

• 6 out of 10 Euro are earned outside the borders of Austria

• Export is the “growth-engine” of Austria’s economy

• 8% of Austrian companies (about 30 000) are exporting

• 2006: 57.5 bn. Euro FDI outgoing – 53.3 bn. Euro FDI incoming

• 2009 exports with value of 94,2 bn. Euro, imports 97,8 bn. Euro

Importance of Austrian exports

EUR 123.4 bn export of goods 2012

EUR 131.9 bn import of goods 2012

44,000 exporters: 10% of all Austrian companies

56.2% export quota / GNP: 6 in every 10 EUR

USD 21.994 export per capita: world’s 7th largest exporter

Sources: 1) Statistics Austria, 2) AWO, 3) UNO, 4) WTO

34

machinery 26,1%

motor vehicles 8,3%

medical andpharmaceutic products5,9%iron & steel 5,7%

made of metal 5,2%

other products 4,8%

Top-Export products 2012

2/3 of total exports

Source: Statistic Austria

35

Austria‘s exports of goods 2011 (by world regions, %-share)

Austria‘s imports of goods 2011 (by world regions, %-share)

Austrian Exports to Eastern Europe 2012 (2012 = preliminary data)

118.003

141.036

178.239

640.971

1.951.457

2.298.557

2.652.280

3.444.460

3.692.926

4.456.190

Estonia

Latvia

Lithuania

Bulgaria

Romania

Slovenia

Slovakia

Poland

Hungary

Czech Rep.

in t

housa

nds

of

EU

R

Source: Statistics Austria

38

Austrian Exports to Western Europe 2012 (2012 = preliminary data)

184.308

284.207

310.976

394.978

487.541

685.231

1.296.785

1.703.287

1.862.147

1.876.825

3.387.058

5.630.643

8.444.863

37.838.586

Luxembourg

Ireland

Portugal

Greece

Finland

Denmark

Sweden

Belgium

Spain

Netherlands

United Kingdom

France

Italy

Germany

in t

housa

nds

of

EU

R

Source: Statistics Austria

39

25.161.470

25.896.723

37.693.428

83.881.188

85.625.071

89.811.943

114.541.787

192.909.883

220.310.795

548.434.139

Ethiopia

Angola

Mali

Tunisia

Libya

Morocco

Nigeria

Egypt

Algeria

South Africa

EU

R

Austrian Exports to Africa 2012 (prel. data)

„Source: Statistics Austria“

„Source: Statistics Austria“

52.465.550

100.522.558

128.924.424

142.727.456

152.809.166

194.176.266

512.542.178

871.086.893

1.061.387.880

6.937.115.649

Uruguay

Peru

Colombia

Venezuela

Chile

Argentina

Mexico

Canada

Brasilia

USA

EU

R

Austrian Exports to America 2012 (prel. data)

„Source: Statistics Austria“

298.431.632

368.821.733

408.720.483

578.315.453

579.905.662

595.837.561

626.115.980

945.986.899

1.313.378.096

3.031.812.972

Taiwan

Singapur

Malaysia

Saudi Arabia

U.A. Emirates

Hongkong

India

Korea,Rep.

Japan

China

EU

R

Austrian Exports to Asia 2012 (prel. data)

Austria‘s Import Origins

goods

source: Statistics Austria

Austrian imports in %

Austrian FDI in Eastern Europe

Investor

Ranking

Total Inward

Investment

(in EUR billion)

Austrian Share

%

Latest

available

data

Slovenia 1 10.8 47.9 2011

Croatia 1 26.2 28.9 2011

Bosnia-Herzegovina 1 4.9 19.7 2011

Serbia 1 12.8 18.5 2011

Romania 2 52.6 17.8 2011

Slovak Republic 2 37.6 16.0 2011

Bulgaria 2 36.2 15.4 2011

Czech Republic 3 96.2 12.9 2011

Hungary 3 67.9 12.8 2011

Albania 4 2.6 13.7 2011

Macedonia 4 3.4 11.1 2011

Montenegro 5 4.1 8.7 2011

Ukraine 5 33.7 6.1 2011

Poland 9 150.4 3.7 2011 Source: OeNB

Foreign Direct Investment 2011 20.1

06

7.2

03

5.8

38

21.9

05

106.8

70

113.3

07

132.3

70

154.0

17

4.6

82

6.6

97

3.2

20

10.1

63

106.4

39

119.8

36

118.5

71

114.9

93

FDI-Flows2008

FDI-Flows2009

FDI-Flows2010

FDI-Flows2011

FDI-Stock2008

FDI-Stock2009

FDI-Stock2010

FDI-Stock2011

Valu

e in M

illion E

UR

Austrian DI FDI in Austria

Source: OeNB

45

46

The OeKB Group

• OeKB AG mainly „Federal Government Business“

• OeKB Versicherung AG mainly export credit insurance – Non -OECD

• PRISMA Kreditversicherungs-AG mainly export credit insurance - OECD

• „Österreichischer Exportfonds“ GmbH mainly working capital credits for SME‘s

• Oesterreichische Entwicklungsbank AG finances sustainable projects in Developing Countries

47

Instruments

• export credits and FDI

• insurance for credits and credit lines

• for short, medium and long term contracts

• production time and credit period

• for manufacturing and services (except nuclear and military sectors)

• commercial credits and soft loans

• for project financing

• for Bonds and others

48

Legal framework

• International: WTO, OECD, EU,

Berne Union

• Export credit act(AusfFG): 50 billion Euro

• Export financing act (AFFG):

45 Mrd. Euro

• Export support regulations

• General terms and conditions

49

Insurance

: : : :

Exporter/ Bank A

Exporter/ Bank B

: :

Project

1

Project

2

Project

3

AusfFG

50

The way / Scheme of (Export) Guarantee

• Exporter / Bank / Investor applies (easy forms - auch as download on webpage)

• OeKB checks economic and political risks

• Board in the Ministry of Finance evaluates the proposal of OeKB promise for guarantee or guarantee

• OeKB follows project development

• Project runs smoothly Guarantee ends

• In case of problems eventualy total loss, new credit

51

Risikoanalisis: OeKB checks...

• Destination Country

• Buyer, collaterals, project

• payment conditions

• Austrian content

• Exporting companies

• Environmental impact

• if applicable „aid quality assessment“

52

Insurable Risiks

• War, civil war, revolution or expropriation

• Cancellation or default of payment by a state, a central bank or an institution working on behalf of a government

• Lack of foreign currency, delayed transfer of foreign currency

• Cancellation or default of payment by private companies

• Insolvency (unability to pay)

• legal cost

53

Country credit rating according to OECD

by December 2012

Country Category

Risk

1 2 3 4 5 6 7 0

Australia

Japan

Korea Rep.

Poland

Slowenia

Cayman Islands

Hongkong

Taiwan

Chile

China

Qatar

Kuwait

Malaysia

Saudi Arab.

Algeria

Brazil

India

Indonesia

Lituania

Marocco

Mexico

Russia

Tunesia

Uruguay

UAE

Egypt

Dom. Rep.

Gabun

Ghana

Jordania

Kasachstan

Droatia

Macedonia

Mongolia

Nigeria

Paraguay

Vietnam

Argentina

Belarus

Bosnia-Herzegowina

Irak

Iran

Kosovo

Cuba

Libya

Pakistan

Ukraine

Venezuela

(Korea DPR)

(Sudan)

(Syria)

Albania

Armenia

Bangladesch

Bhutan

Georgia

Kenia

Montenegro

Serbia

Usbekistan

Bulgaria

El Salvador

Columbia

Latvia

Philippines

Rumänia

Turkey

(actual ratings on ttp://www.oekb.at)

54

Example 1

Brasil:

• Buyer orders machinery for 2 mio. EUR and asks for a 4

year credit

• 15 % Down Payment, 85 % credit in 8 installments

• Guarantee „G1“ in favor of the exporter

• sale of claim to a bank

• Guarantee „G 9“ in favor of the bank

55

Example 2

Bosnia-Herzegovina:

• communal water treatment for 3 Mio. EUR

• poor households, no industry

• Austrian Exporter

• soft loan with 15 years credit period, the first 5,5 years

grace period

• Interest : 0 % p.a.

• State guarantee

56

Example 3

Serbia:

• Establishing a 100 % - subsidiary company

• Investment volume 5 Mio EUR:

• Cash 0,5 Mio EUR +

• second hand equipment for 1 Mio EUR +

• credit (similar to equity) for 3,5 Mio EUR

• Guarantee G 4 for 6 years, progressiv pay back,

Quota 95 %

57

Oesterreichische Entwicklungsbank - OeEB

• operative since 2008

• not only for Austrian investors and exporters

• Project need to have a development goal

• Goal: more sustainable jobs in local privat sector in

developing countries

• Funds: equity, Mezzanincapital, credits, grants

58

Project financed by OeEB and KfW (Germany)

Consultancy for the Bank of Georgia (BoG) on the development of share

hydro power plans in Georgia

Component 1: Consulting on small hydro power plants (technical)

Support for developers, owners and Managers of small hydro power

plants including feasibility studies, credit applications and the support

for the implementation

Componente 2: Bank of Georgia Consulting (financial)

Capacity building in BoG to check applications for credit, monitoring,

risk managment for small hydro power plant projects

Cooperations & Consortia

59

AusfFG – Usage (in billion EUR)

0

10

20

30

40

50

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Bills of Exchange Investmentguarantees G4 Exportguarantees (no G4) Restructuring OeEB

60

Financing exports

Bank A

: : : :

Bank B

: :

Project 1

Project 2

Project 3

Capital Market

AFFG

61

Export Financing

• Refinancing commercial banks

• at market conditions and „soft loans“

• insured business as a basis for financing

• mainly AFG-Guarantees and exchange guarantees,

• but also Austria Wirtschaftsservice GmbH (AWS),

international Organisations gemäß AFFG 81, private

insurers

62

Example 5

• Producer of optical equipment

• Turnover: 4 mio. EUR, including 3 Mio. EUR export

• Sales in Germany, Japan, Slovenia

• Financing need: 1,3 mio. EUR

• Exportfondscredit via Bank over 900.000 EUR

• Guaranteed through export sales

• Bank guarantee over 180.000 EUR

• Guarantee by two company owners

63

Exportfonds credit

• „core funding“ for exporting SMEs

• Financing for Export

• credit line for 30 % of export turnover

• through commercial bank

• minimum risk of commercal bank 20 %

• revolving, 18-month bill of exchange

• Austrian content, minimum 25 %

• interest rate: 1,50 % per year

64

Market Environment

• Competition also in the sector of the so called „non-

marketable risks“

• private Credit Insurers ...

• Local Banks (example: confirmation of letter of credit) ...

• local financial markets, international financial markets ...

• IFIs (like EBRD, IFC, MIGA) ...

• Self Insurance, Captives ...

• EULER-HERMES, COFACE, EXIMBANK ...

65

Contacts to OeKB-Group and to AFEC

Oesterreichische Kontrollbank AG

• Ferdinand Schipfer / Exportgarantien – Projektgeschäft

• + 43 (1) 531 27 – 2610 ferdinand.schipfer@oekb.at

OeKB Versicherung AG +43 (1) 531 27 – 2664

PRISMA Versicherungs-AG +43 (0)5 01 02 – 2222

Entwicklungsbank AG +43 (1) 533 12 00

Exportfonds +43 (1) 712 61 51

AFEC / Carl de Colle +43 05 90 900 - 4186 • aussenwirtschaft.exportfinanzierung@wko.at

Thank you for your attention!

Any questions?

Christian Gessl

Regional Management CEE & Baltics

christian.gessl@wko.at

T: +43 590900 4325

F: +43 590900 118139

Wirtschaftskammer Österreich

Wiedner Hauptstrasse 63a

1045 Wien