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The "Industrietag Russland" informational event on September 17 will bring representatives from politics, business and research from Germany and Russia to Dresden

16 Sep 2008 , Hamburg : Hans Janus is in charge of the federal export credit guarantees that the German government uses to promote German companies' export business.

Allianz.com News: Dr. Janus, what is Euler Hermes' interest in Russia?
Hans Janus: Russia is an interesting and fast-growing market for Germany – three percent of Germany's total exports of 969 billion euros last year went to Russia. Automotive products, machinery and systems, and power generation are the key industries in German exports, and thus for several years, Russia has been one of the most important markets for the German government's export credit guarantees. This year alone, more than 1.5 billion euros in exports to Russia have already been secured.

German export credit guarantees, also known as Hermes Cover, provide comprehensive protection for German exporters and lending institutions against loan losses caused by political or economic factors. It's a task that can often be taken on only by government export credit insurers, because private export credit insurance has hitherto offered products only in certain sectors of this business. The federal government has engaged Euler Hermes to manage the export credit guarantees.

The special risk situation in Russia shows a substantial need for government export credit guarantees. But the Russian market for private export credit insurance is also developing very dynamically. That's why Euler Hermes also operates as a private credit insurer there.

Euler Hermes has worked with ROSNO in Russia, since 2004. The cooperative relationship expanded in the middle of this year with the founding of Euler Hermes Credit Management OOO. It offers private credit insurance protection for both Russian companies and companies that export to Russia.

What economic developments in Russia over the past five to ten years do you think were especially interesting, and what future developments do you expect?
Janus: The 1998 banking crisis was the most serious event of the past ten years. After that, the economy recovered amazingly fast. The Soviet Union's very high preexisting debt was paid off in full. The boom in prices for commodities – especially petroleum and natural gas – is bringing Russia substantial budget surpluses, and has made it one of the world's largest economies. Russian business is still growing dynamically, and the worldwide financial crisis has not had much of an impact. But fighting the rapid rise of inflation is a high-priority task, and a difficult one. Many Russian companies, especially in the banking sector, have performed very well – so well that today they already play an important role as investors in western countries.

The country most significantly has a need to catch up, as well as potential for development, in its infrastructure. Here immense amounts of money will be needed to support the country's further economic growth. Something similar applies for investment goods and for a strategic diversification to reduce the country's very strong dependency on the energy sector.

Are Russian standards for reporting and corporate creditworthiness adequate? Where is there a need to catch up in comparison with such places as Western Europe or the USA?
Janus: Most transactions are already safeguarded on a corporate risk basis – i.e., solely on the basis of the creditworthiness of the Russian company. But we're aware that international reporting standards have not become established everywhere. Yet to check the financial situation, audited annual financial statements of that quality are a necessity. Another 40 percent of transactions are covered by bank guarantees, because the debtor's creditworthiness is not enough by itself. The upshot is that in most cases, export transactions are well secured. For short-term security, very often office information about the main items on the balance sheet and income statement is enough for a credit check.

What particular risks are people confronting there at the moment?
Janus: The biggest risk to a smooth business transaction is the rather "soft" factors, such as threats to ownership rights or the country's imperfect legal system. It's not just the current developments in the Caucasus that show how important political risk – and hedging that risk – still remains. In any case, investor confidence has suffered appreciably, as the price slump on the Moscow Stock Exchange and the outflow of capital show.

What solutions does Euler Hermes offer in this regard?
Janus: Hermes Cover protects against both political and economic risks – so it provides comprehensive protection against payment defaults, particularly in difficult, high-risk markets. Hermes Cover for the Russian market is available in short-term forms, as well as in medium-term and long-term options. Special forms, such as fabrication risk coverage or guarantee bonds for the advance financing of major orders, show what a broad range of possibilities exists. The German government's investment guarantees can also be used to provide protection against political risks for equity interests held by German companies in Russian companies – for example, the risk of nationalization.

Alongside that, Euler Hermes' products as a private insurer are also available: you may be aware of the "Carnet", which covers the export of goods like professional equipment, samples of merchandise, or merchandise for trade shows, that will not be exported permanently from the EU. Euler Hermes also offers coverage for exports to Russia. The risk of payment defaults for companies headquartered in Russia can be handled by ROSNO, in close cooperation with Euler Hermes.

What can credit insurance contribute toward further economic development?
Janus: Hedging export transactions often opens up other, more attractive financing opportunities for Russian clients' planned capital expenditures. A Hermes Cover can also make for longer repayment terms than with pure market financing. Russia needs immense amounts of money to modernize its outdated infrastructure. These long-term projects in particular are simply not practical for private credit insurers. Here a complementary pairing of private and government credit insurance is conceivable, so as to support economic development in Russia and other transitioning and emerging countries.

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