Broad Street Capital Group to Advise on $75 million financing for the Tier III Data Center Project

(London, UK – June 24, 2016) On this historic day of the “Brexit” referendum, Broad  Street Capital Group announced that it has been appointed as the exclusive financial adviser for for financing of a state-of-the-art data center in the Baltic States.  The proposed $100 million project, called AmberCore DC, will launch in 2017 and will be financed through a combination of owner and investor equity, coupled with senior debt to be provided by the UK Export Finance (UKEF). Lithuania_Page_1

CBRE of London and PACT Consulting Inc., based in Bethesda, Md., have been selected as the data center’s marketing consultants and will be responsible for introducing anchor clients to the project.

“We are delighted to serve as the financiers for this  project,” stated Alexander M. Gordin, Managing Director of Broad Street Capital Group. “With the worldwide explosion of cloud computing services, significant demand exists for quality data hosting facilities in emerging markets. Not only does the proposed project enjoy a strategic location and terrific connectivity, but it is also being developed by an experienced, highly reputable teleport operator and satellite services provider with a diverse international clientele. Despite strong geopolitical winds, which have slowed the project down over the last 24 months, the owners persevered and have remained completely committed to the project. “, said Gordin

“We aim to attract large European  and US-based corporate customers from the IT, oil & gas and financial sectors. who are interested in a professional Tier III certified data center facility strategically located in close proximity to some of the fasted growing emerging markets,” said Vitaliy Malashevskiy, Director of Ambercore DC and a co-owner of Satgate UAB, the project’s sponsor.

The AmberCore DC project will be the second high-tech facility in the Baltic States for the SatGate Group. It will be scalable up to 30MW of power and 5,000 racks, due to the modular design approach, which will utilize the latest cooling technologies to maximize the efficiency and minimize power consumption.

“This project will showcase the latest technological advances, and will open up a superb opportunity for UK and U.S. cooperation with the Baltic region countries,” Gordin added.

About Ambercore DC – a project company formed to develop a TIER III data center strategically located in the Baltics. To date, the project’s sponsors have invested over $6 million in property acquisition, design, engineering, development, certification and marketing of the project. The design has been certified TIER III by the Uptime institute. It is the only facility in Europe with proprietary access to an adjacent uplink/downlink teleport facility, which has been developed and is being operated by its parent company – Satgate UAB

Fi3E BadgeAbout Satgate UAB  – SatGate UAB is a leading satellite services provider, based in Lithuania. Operating a unique satellite teleport facility located near of Vilnius, SatGate provides a full range of satellite communication services in Europe, the Middle East and Central Asia to ISPs, telecoms, the oil and gas industry, and other corporate and private customers. SatGate integrates and manages turn-key communication solutions of any complexity. For more information, please visit http://www.satgate.net

WP_20130620_022About Broad Street Capital Group-Based in the World Trade Center’s Freedom Tower in New York City’s financial district, Broad Street Capital Group is an international private merchant bank, which since 1988 has served several foreign governments, multiple state-owned companies, as well as SMEs in emerging markets. The Firm focuses on arranging project financing in the $50-500 million range, providing political risk mitigation, export management services and cross-border market development advisory. Although the Firm has clients ranging from Bangladesh to Oklahoma, its primarily geographic focus is on the countries of Eastern and Central Europe and Central Asia.

The  firm works closely with all trade and development agencies of the U.S. Government and Export Credit Agencies of several European and North American countries.  Since its inception, Broad Street Capital Group has been involved in multiple high-profile cross-border transactions in IT/telecom, aerospace, healthcare,  energy generation, food security, nuclear safety, hospitality and franchising sectors. The firm’s current advisory portfolio exceeds $675 million.  For more information, please visit www.broadstreetcap.com, or contact Rustem Tursynov at info@broadstreetcap.com

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Broad Street Capital Group’s new assignments in Ukraine total over $300 million

Ukraine - Proprietary Fi180 Country Profile - page 1 of 4(June 15th, 2016, London, UK)  Broad Street Capital Group announced today that it will act as the Financial Developer and Exclusive Financial Adviser on two complex, high-profile financing assignments in Ukraine. The underlying projects for these assignments deal with Ukraine’s energy security, food security and infrastructure development.

In the first assignment, Broad Street Capital Group , will serve as the Project’s Financial  Developer, and will be part of a mandated financing consortium, which will consist of a major banking institution, a Development Agency of the US Government, a US lending trust and an internationally renowned law firm.  The financing consortium will evaluate and structure a cutting-edge $250 million capital markets transaction to finance US supply and construction contract to build a national energy safety facility to be located in the Kyiv region of Ukraine.

In the second assignment, Broad Street Capital Group will serve as the exclusive Financial Adviser, whose role will be to secure up to $75 million in long-term debt financing, provided by a development agency of the US Government.  The funding will be part of the financing required to develop and construct a major grain terminal in the Odessa region of Ukraine.

“We are delighted to serve as financiers for these two cutting-edge projects” stated Alexander M. Gordin, managing director of Broad Street Capital Group. “Our assignments should serve as catalysts and spark broad-based financing of worthy infrastructure projects. The financing climate in Ukraine has been extremely challenging over the last few years, but despite continued difficulties, the prognosis is quite optimistic. We look forward to being part of Ukrainian financial renaissance, as that country rebuilds itself and finds a way to regain its economic footing.”

 

About Broad Street Capital GroupWP_20130620_022

Based in the World Trade Center’s Freedom Tower in New York City’s financial district, Broad Street Capital Group is an international private merchant bank, which since 1988 has served several foreign governments, multiple state-owned companies, as well as SMEs in emerging markets. The Firm focuses on arranging project financing in the $50-500 million range, providing political risk mitigation, export management services and cross-border market development advisory. Although the Firm has clients ranging from Bangladesh to Oklahoma, its primarily geographic focus is on the countries of Eastern and Central Europe and Central Asia.

The  firm works closely with all trade and development agencies of the U.S. Government and Export Credit Agencies of several European and North American countries.  Since its inception, Broad Street Capital Group has been involved in several high-profile cross-border transactions in IT/telecom, aerospace, healthcare,  energy generation, food security, nuclear safety, hospitality and franchising sectors. The firm’s current advisory portfolio exceeds $675 million.  For more information, please visit www.broadstreetcap.com, or contact Rustem Tursynov at info@broadstreetcap.comBroadStreetCapitalGroupServices_Page_1

Grey2White Initiative

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Hypothesis:

Given Ukraine’s current economic and geopolitical situation, one of the most beneficial  steps the US government, business and NGO community can take, is to encourage significant external and internal direct investment into the country’s economy.

Although the US Government has had some success in attracting and supporting American direct investment into Ukraine, those investment amounts are far from sufficient. US investors new to the Ukrainian market are wary of the country’s reputation for corruption, difficulty in doing business, threats from Russia and lack of financing options.

A second and much more viable economic development option, would be to support and enable direct investment by the successful Ukrainian business people who have amassed sufficient capital and are much more comfortable and adept in investing in their home market.

One problem with pursuing that option are high Western standards, which often preclude US government development agencies and public US investors from working with this potential class of investors.  This is due to the fact that for the last twenty-five years, practically all business people in Ukraine had to operate under a certain set of conditions widely considered “grey” and in many cases “black” in the West.

Some of these “grey” conditions are lack of financial transparency, inadequate corporate governance, use of yellow press, use of cash, as well as offshore accounts to conduct operations, bribery and use of adverse political influence.

In their attempts to succeed, some folks in Ukraine went beyond previously acceptable business norms and crossed the proverbial line even further by engaging in criminal “black” behavior – graft, extortion, corruption, tender rigging and illicit drug trade.

To date, these grey conditions have presented significant challenges for the IFIs, development agencies and regulated financial US investors. Yet, it is vital to recognize the necessity to find an acceptable solution that allows Ukraine’s economy to reap significant benefits from the anticipated increase in direct investment and low-cost, long-term financing.

It is also very important to understand that the proposed Grey2White (G2W) initiative aims to broaden and scale up very important development and capacity building work already undertaken over the last quarter century by IFIs, such as IFC and EBRD, USAID; development agencies such as OPIC and USTDA and financial investment communities. Those initial efforts, although quite effective, focused on a relatively small sample of Ukrainian companies and were undertaken during a different stage of the country’s development.

Initiative

The G2W initiative will only work with those companies and individuals, who will be able to create meaningful economic impact in Ukraine, after undergoing the conversion process.  G2W will not in any way target those convicted of the “black” behavior, as their reputation gap is un-bridgeable within the scope of the project.

Thus the question becomes, is it possible for US stakeholders to create an environment and a broad platform from which so-called “grey” Ukrainian businessmen seeking to utilize US financing, equipment, services and franchises, as part of their major investment programs, become “bankable” under Western standards? If the answer is “Yes.”This type of conversion will provide hundreds of millions, if not billions of dollars in direct economic benefit and enhanced geopolitical security to Ukraine and the US.

If the answer is “No,” these businessmen will either be forced to forgo the planned capital investments, or seek alliances with other grey, or black global actors in countries like Russia, China, Brazil, Iran, etc.

It is the fundamental belief by the creators of the proposed initiative that given a concerted effort by the US and Ukrainian stakeholders to develop and implement realistic procedures to increase corporate transparency, introduce financial standards, address any existing reputation issues head-on and provide reputable outside management and board oversight, it is possible within short to medium time-frames to bring these so called “grey” businessmen and their respective projects up to elevated western standards, mitigate investment and reputation risks and affect substantial economic growth in Ukraine.

Thus we hereby propose the following:

Select three-four financially viable projects sponsored  the “grey” Ukrainian actors and use them as a pilot to develop, refine and implement an effective conversion strategy to bring that project up to acceptable Western standards.

From the government side, we propose to involve the US Commercial Service, USTR, US Embassy, Ukrainian Embassy, Cabinet of Ministers of UA, members of the US Congress focused on UA issues, OPIC, regional Governors and local administrations in Ukraine, IFC, USTDA and the US EXIM Bank (when that Agency resumes its activities in Ukraine).

Among the NGO stakeholders we would like to see US-Ukraine Business Council (USBC), AMCHAM, Transparency International, Freedom House, Atlantic Council and US Ukraine Foundation. Additionally, reputable international law firms, audit firms, press, appropriate private individuals, corporate off-takers, financial market regulators, as well as relevant providers of US goods and services should be involved.

The framework of the proposed initiative shall be as follows:

  • Initial Sponsor/Project assessment and preliminary due diligence
  • Project selection and stakeholder awareness and involvement
  • Project G2W Team building (attys., directors, advisers, auditors, suppliers, investors etc.)
  • Full due diligence and implementation plan for the Western financial, FCPA and governance standards
  • Investor cultivation and underwriting of the financing package
  • Project development and implementation
  • Monitoring and compliance

To kick off the proposed initiative, we propose an intensive education and awareness-building campaign designed to simultaneously involve all the stakeholders.

After the initial buy-in into the initiative is secured, work will begin on developing the pilot projects.

During the pilot project phase, the G2W pilot project team will be seeking to achieve specific and tangible goals:

  • Fully assess the existing reputation risks, possible political influence issues, suitability for OPIC/IFC financing and Political Risk Insurance for the US project participants
  • Prepare a legal due diligence report by a world-class law firm
  • Recruit highly reputable and competent outside board members to the Project’s Board
  • Design a comprehensive PR/IR strategy to inform stakeholders of the project and its ongoing developments
  • Design and implement transparent financial audit, reporting and management accountability standards
  • Develop ways to tangibly measure economic effect of the pilot project
  • Continue to promote the initiative and seek to move it from the pilot project phase to full-blown implementation.

(to be continued)

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Should Corruption in Ukraine be Legalized?

Corruption

Should corruption in Ukraine be legalized? As I ask this question, I can almost see many people who follow Ukrainian politics raise their eyebrows. I can also see many, especially members of the outspoken Ukrainian Diaspora, beginning to seethe. Yet, after two and a half decades of watching Ukraine fight, and mostly lose, battles against epidemic corruption, and realistically not seeing no other credible options to turn the tide, I turn to the only principal, which works well when trying to combat a very strong and seemingly unbeatable opponent. It is a millennium-old Judo principle, which states “use your opponent’s strength to your advantage”, or as I like to say, “when pushed, instead of pushing back, pull.”  In this case, corruption is the proverbial opponent we are looking to defeat.

Government corruption in Ukraine is deep, well entrenched and akin to a massive granite mountain. Not to be too simplistic, but it can generally be divided into two basic categories. The first is corruption perpetrated by the influence of the powerful interests who direct budget flows, or rig supply and privatization tenders. The second type is corruption perpetrated by the underpaid bureaucrats (ministry clerks, prosecutors, and customs and tax agents). They extort money from businesspeople and from the public by either helping them expedite, or by running interference, as these folks try to navigate through the arcane systems of byzantine rules and regulations, which permeate Ukrainian life.

Although corruption in Ukraine has always been an issue, recently, certain young reform factions, with support from Western (primarily US) donors, have attempted to combat government corruption head on. Attempts to install Western and progressive Ukrainian Ministers to head the corrupt Ministries have failed. Not a single one of those ministers remains in power after one year.  Unfortunately, but predictably, they were all consumed and spat out by the system they tried to reform. These people were set up to fail, as it is impossible for a handful of even the brightest people to defeat a monolith without having a strong backing of the population, support of organized political parties, sufficient finances and true support from the country’s business and political elites. As the saying goes, “we can only help those who want to help themselves.” It seems Ukrainian bureaucracy is not yet ready to help itself. The general population is also not at the level where it keeps up constant pressure for change. The people of Ukraine have bravely risen up during Maidan revolutions, but the after effects of their protests did not produce desired meaningful changes (e.g. post Orange Revolution government rift, Yanukovich presidency).

The idealistic thinking and mentality of some Western ministers who thought they could and singlehandedly tried to alleviate corruption and change the Ukrainian bureaucracy, is nothing but naive. I was privileged to know some of these intrepid warriors and their advisory teams. They certainly possessed the skills and the desire to change the system. Yet, they were very ill-equipped and did not have a realistic grasp on how badly the corruption cancer metastasized.  In some cases, the reformers’ desires to radically break the system led to opposite effects. I have seen Ministers require tenders, where none were needed (or legally required) just to display a corruption fighting banner. The irony of the whole thing was that Ukrainians have learned to rig and beat many “fair and open” tenders, so these Ministers’ misconstrued demands were a double whammy.  I have also seen a large state company paralyzed with fear of action on a terrific project, because the management was afraid that a minister would interpret a legal sole-source procurement, as corrupt.

These ministers, advisors, governors, investigative journalists and many other extremely well-meaning and reform minded folks also have failed, or modestly succeeded in their attempts to introduce e-government procurement, create a new police force, reform Prosecutor’s General office and the GPU and reform the Customs Service. It certainly was not for lack of trying, patriotism, or incorruptibility. All this got me thinking as to:

  • why there is such rampant corruption in Ukraine?
  • whether efforts to eradicate it are doomed?
  • if there is a better way to solve the problem?

 To answer the first question, we need to look at couple of factors, which amplify graft in Ukraine. Although corruption exists pretty much everywhere in the world, in Ukraine, a confluence of factors makes it particularly pervasive and damaging to the economy. A very low pay scale for public servants, very large gap between the salaries of civil servants and budget funds, which are expended in public procurement, external financings, aid and donor contributions. Thus people of means, seeking to corrupt the system, get greater leverage in influencing low-paid bureaucrats. These bureaucrats (especially the ones steeped by the Soviet system of graft) operate with impunity because the enforcement branches are corrupt and so on. The whole system is infested and needs complete structural overhaul.

Is Ukraine doomed? That depends on whether radical attempts of wishful thinking, unsustainable reforms, populist solutions and political farce continue. As people who have been on crash diets, tried to kick a habit cold turkey, or tried to undertake a massive change mostly with lip service PR, but without real resources and commitment know, these solutions almost never work.cropped-ukrainefi180profile_page_1.jpg

So what needs to be done? The biggest asset, which Ukraine has today, are its people born in the 80’s, or after the fall of the Soviet Union. These folks grew up in a freedom-loving Ukraine and connected to the rest of the world. They are mostly free of the Soviet corruption malaise (although strong evidence exists that current Ukrainian corruption has permeated Ukraine’s higher education system in the last twenty years and many students are very comfortable with bribing teachers for good grades). Yet, despite these obstacles, and with the understanding that human nature will never change and some corruption will always be there, we can reasonably expect corruption in Ukraine to subside with every subsequent generation.

Meanwhile, in the medium term, it is reasonable to start chipping away at the corruption from many sides. Gradually introduce reforms, decrease rules and regulations, reform the tax code and completely overhaul Ukraine’s prosecutorial branch GPU, substantially increase public service salaries, and introduce international audits of select tenders. Eliminate tariffs and, most importantly, continue to raise the stakes for the powerful business and political elites by expanding their access to western markets and financial systems, thus raising the stakes for them in terms of reputational and real risks in case they are implicated in corruption.

In the short-term, it is worth looking at the lobbying and advisory/support institutions of the US as an example. Their structure should provide a very clear framework as to how our country has legalized activities normally considered corrupt. Setting up regulated lobbying firms, expediting firms, and shifting mindsets of the bureaucrats on being able to make money at such lobbying firms after leaving the public service, are just some of the tools, which may be employed to legalize corruption. This is the carrot. 

The stick should be greatly increased punishment for those who break the rules, with prosecution being handled by outside independent arbitrators, the accused having the burden of proof and expense of their own legal defense in an international neutral venue. 

Many countries and states have legalized vice and illegal activities in order manage them. Holland and Australia legalized prostitution, the state of Colorado marijuana, Nevada gambling. All such efforts have been largely successful, generated billions in taxes and dealt with massive public problems according the judo principle mentioned above.

So if the future powers to be in Ukraine and in the West start looking at the eradication of the corruption problem through a 30-50 year prism and start managing the transition gradually while legalizing some of the corruption, Ukraine stands a chance to finally realize its true potential.

 

 

 

 

 

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STEMpi

The main premise underlying the Modeling for Success℠ program is to prepare young people to succeed in life and to enable them to create tangible value in the 21st century business and technology environment.STEMpiModelingforsuccess

Using innovative, mentor-guided bootstrap-based “finance, build and market” approach developed around sophisticated, technologically enhanced “old school” ship, plane and train modeling, as well around “new school” drone and micro-satellite assembly, teach, empower and equip the students with a multidisciplinary toolbox of relevant STEM, business, legal and communications skills, strengthened personal qualities and broad networking contacts.

STEMpi™ is an educational, vocational and networking franchise centered around unique student personal and professional training and development, which is centered around STEM (science technology engineering, math), business, media and communications programs.

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Seasons Greetings and Best Wishes in the New Year!

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Why Weak Currencies Have a Smaller Effect on Exports

Because manufacturers increasingly use components from abroad to make things, exports now incorporate a lot more imports

Workers at a Robert Bosch GmbH plant in Blaichach, Germany, use touchscreen panels on the automobile gasoline direct injector valve assembly line. Germany is an export powerhouse.
Workers at a Robert Bosch GmbH plant in Blaichach, Germany, use touchscreen panels on the automobile gasoline direct injector valve assembly line. Germany is an export powerhouse. PHOTO: KRISZTIAN BOCSI/BLOOMBERG NEWS

As various central banks loosened monetary policy this year, some economists predicted another cycle of beggar-thy-neighbor currency wars, in which countries race each other to become the cheapest exporter.

But it hasn’t panned out that way, and now a growing body of evidence suggests why: A shift in trade dynamics is blunting the impact of a weak local currency.

This could be all the more relevant now, when the monetary policies of the world’s most powerful central banks—the Federal Reserve and the European Central Bank—are heading in very divergent directions, possibly taking the value of their currencies along with them.

When a country loosens its monetary policy, interest rates fall and investors tend to pull their money out in search of higher yields elsewhere, pushing down the currency’s value.

That is still happening. But the dynamic isn’t affecting trade flows as much as expected. What has changed is where businesses source the things they need to make the products they export. Manufacturers once found most components needed to make their goods at home. Now they increasingly look abroad for such inputs. As a result, exports now incorporate a lot more imports.

It is still the case that when a currency such as the euro weakens, it reduces the price of goods sold by German manufacturers in the U.S. But it also increases the price of the things that German manufacturers import to make those exported goods.

Containers at the Port Newark Container Terminal in Newark, N.J.
Containers at the Port Newark Container Terminal in Newark, N.J. PHOTO: JULIO CORTEZ/ASSOCIATED PRESS

Measuring the impact of global supply chains on trade flows is the task of a project undertaken by the Organization for Economic Cooperation and Development and the World Trade Organization.

Using detailed figures from economies around the world, economists at the two bodies have measured how much foreign content there is in each nation’s exports, confirming a significant increase since the mid-1990s. The foreign content of Switzerland’s exports, for instance, increased to 21.7% in 2011 from 17.5% in 1995, while the imported content of South Korea’s exports almost doubled, to 41.6% in 2011 from 22.3% in 1995.

Economists at the International Monetary Fund and the World Bank have used those measures to assess whether currency movements have the same impact they once did on exports and imports. They found that the effect has in fact reduced over time, by as much as 30% in some countries.

Policy makers are beginning to take note. “As countries become more vertically integrated via global value chains, exchange-rate variations will have a diminishing impact on the terms of trade,” said Benoît Coeuré, a member of the European Central Bank’s executive board and one of its thought leaders, speaking in California last month. He concluded the process will reduce the role of currency moves as “shock absorbers” that direct global demand toward weaker economies from stronger ones.

Japan offers the clearest indication that big currency depreciations don’t deliver the export boost they once did. In early 2013, the Bank of Japan launched a massive stimulus program that increased the supply of yen and led to the currency’s sharp depreciation against the dollar and the euro.

That strategy was a key element of Japan’s package of measures designed to lift the economy out of a long period of stagnant growth. But what followed was something of an anticlimax. The yen’s weakening had little impact on Japanese exports, and failed to restart economic growth. Puzzled policy makers pointed to the weak state of demand in the global economy, but even if that were the case, Japanese exporters should have gained market share.

A similar pattern has emerged in the wake of the ECB’s January decision to launch its own program of quantitative easing. Like the yen, the euro weakened, continuing a decline against the dollar that started in early 2014 and now amounts to roughly 20%.

In early 2015, the launch of QE was expected to boost eurozone growth by aiding exports. But once again, the impact of a weakened currency has been modest. Indeed, in the three months to September, eurozone growth was held back by a more rapid growth of imports over exports, while industrial output flatlined.

Experts believe it takes about 12 to 18 months for foreign-exchange moves to have their full impact on trade flows, so the effect would have been felt by now in both the eurozone and Japan. The euro started weakening against the dollar in early 2014, while Japan is about three years into its currency depreciation.

Those disappointments don’t mean currency movements caused by the great divergence between the Fed and the ECB won’t have any impact. That is a key concern for U.S. businesses in the wake of the Fed’s decision this month to raise interest rates for the first time in almost a decade—just weeks after the ECB moved its policy in the opposite direction. Many economists still expect the U.S. to suffer some slowdown in exports, while the eurozone enjoys some pickup. Already in the first 10 months of 2015, the U.S. trade deficit widened by 5.3% from a year earlier, reflecting a decline in exports.

And as the economists from the IMF and World bank have noted, the degree to which a currency movement boosts or reduces exports depends on how large their foreign content is. For the economy as a whole, the foreign share of U.S. exports is at the lower end of the global range, at around 15%, compared with more than 25% in Germany.

“It’s more complicated as a story for the U.S. because of the low foreign content,” saidSebastian Miroudot, a trade economist at the OECD.

Write to Paul Hannon at paul.hannon@wsj.com

Shutdown of U.S. Ex-Im Bank Puts Companies in a Financing Bind

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Ethiopian Airlines had to scramble at the last minute this summer when it needed to pay for a plane it ordered from Boeing Co. MMBAMM years ago.

The East African carrier got the aircraft last month but, instead of owning it, the airline is leasing the plane from a bank, said Chief Executive Tewolde Gebremariam. It couldn’t secure a loan for the purchase because it lacked a financing guarantee from the U.S. Export-Import Bank.Amid a clash over spending priorities, congressional Republicans effectively shut down the U.S. Ex-Im Bank by failing to reauthorize the agency at the end of June. That means the bank can’t make new loans or provide loan guarantees to foreign companies so they can buy American products and services. And American companies can’t renew their export-credit insurance policies.

The shutdown was a blow to many companies in the U.S. and abroad that are fighting for revenue in a sluggish global economy. Many foreign companies like Ethiopian Airlines are looking to do business with trusted American suppliers, while U.S. companies are searching abroad for new customers.

A strong dollar and weaker growth hamper those efforts. U.S. exports of goods and services were down 3.5% from a year earlier in the first seven months of 2015. Exports fell 3.2% in August, according to the Commerce Department.Declining exports, combined with a lack of U.S. Ex-Im Bank funding, is “a double-whammy,” said David Ickert, finance chief of Air Tractor Inc., which makes small aircraft for the agriculture industry. Softer prices for crops such as soybeans have growers in places like Brazil and Argentina ordering less equipment, he said.Air Tractor, based in Olney, Texas, typically uses export-credit insurance from the U.S. Ex-Im Bank. Foreign customers typically account for over half of the company’s sales, but Mr. Ickert expects that figure to drop to 30% this year. “There are definitely some multiple headwinds we’re facing right now,” he said.

Many foreign companies say they can’t secure financing from commercial banks without some kind of government-backed financing or guarantee, which most developed countries offer through their own Ex-Im banks.Ethiopian Airlines’s Mr. Gebremariam said he hopes to buy more than two dozen planes from Boeing in coming years, but will consider going to European rival Airbus Group SE if the U.S. Ex-Im Bank stays out of business.“There’s definitely an impact on our expansion and growth,” he said. “Some economies in Africa are considered high risk, so banks wouldn’t be able to finance us directly without Ex-Im backing.”

In a letter sent to Boeing officials last week, Comair Ltd., an aviation company based in South Africa, said a continued lack of U.S. Ex-Im Bank support would force the airline to borrow in foreign currency. But doing so, given the volatility of its local currency, the rand, would “expose Comair to too great an exchange-rate risk on its balance sheet,” said CEO Erik Venter.Boeing said such sentiments reflect private conversations it has been having with customers for months. “They want to keep buying American, but the uncertainty over the future of the Export-Import Bank is forcing them to consider other options,” said a company spokesman. Boeing, a strong proponent and major beneficiary of the bank, expects it to reopen. But an extended shutdown would prompt Boeing to consider moving work offshore to compete for contracts that require Ex-Im backing, Chairman Jim McNerney said last month.General Electric Co. MMGEMM is already doing so, to make it easier for its customers to use Ex-Im funding from other countries, such as Canada, France and Hungary. In Hungary, where GE has manufacturing facilities, the export-import bank is providing a loan to Bresson AS Nigeria Ltd., a power-generation company, to buy GE turbines for new plants in Nigeria, said Barakat Balmelli, a financial adviser to Bresson on the deal.

Hungarian officials are looking to increase their level of new export-import-related lending to €1 billion, or about $1.1 billion, by the end of the year. Last month the government expanded agreements between its Ex-Im Bank and local Hungarian commercial banks.

Ms. Balmelli said Bresson chose to work with Hungary’s Ex-Im Bank partly because of the U.S. shutdown. “You have other countries changing their policies to accommodate these new business opportunities while the U.S. is just fiddling about,” she said.61ae8-exim-bank1

Last week, the U.S. Ex-Im Bank’s Republican supporters moved to bring the bill reauthorizing the bank to a vote. The procedure would force a vote on the bill, which is backed by nearly all Democrats and many Republicans, later this month.

Meanwhile, small U.S. companies, which can’t relocate or move jobs overseas, are feeling the brunt of the bank’s closure. W.S. Darley & Co., a maker of firetrucks and related gear, said the shutdown already has cost it a contract worth about $7 million.

The customer’s loan didn’t get final Ex-Im Bank approval, and since W.S. Darley’s contract was contingent on that financing, “that sale could just be gone,” said Chief Operating Officer Peter Darley.

With projects falling out of the pipeline, employees at the Itasca, Ill., company are worried about their jobs, he said. “It hurts us. We had a lot of good momentum,” he said, referring to building firetrucks for foreign cities and towns.

Featured Image -- 2741“We might be losing projects we’re not aware of,” he said. “If a buyer knows that Americans don’t have an open Ex-Im, they might not even knock on the door, or invite us to the bid table.”

Write to Kimberly S. Johnson at Kimberly.Johnson@wsj.com

http://www.wsj.com/articles/shutdown-of-u-s-ex-im-bank-puts-companies-in-a-financing-bind-1444093160

U.S. Export Weakness Hampers Growth

Strong dollar and global economic strains undermine foreign trade in goods and services

Hopes for an American export boom are wilting under the weight of a strong dollar and global economic strains.

U.S. exports are on track to decline this year for the first time since the financial crisis, undermining a national push to boost shipments abroad. Through July, exports of goods and services were down 3.5% compared with the same period last year. New data released Tuesday by the Commerce Department showed that exports of U.S. goods sank a seasonally adjusted 3.2% in August to their lowest level in years.
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The weak trade performance is restraining overall economic growth, a sign of how troubles in China and other major economies are dinging the U.S. economy.

“Foreign demand remains the weakest part of the economy,” said Jim O’Sullivan, chief U.S. economist at consulting firm High Frequency Economics.
It didn’t seem that way in 2010, when President Barack Obama set a goal of doubling exports over five years. Some big cities took up the challenge, including Portland, Ore.

Facing a battered economy at home, Vanessa Keitges, president of Portland-based Columbia Green Technologies, lined up sales in Belgium and New Zealand. In Canada, she chased public-building projects and Wal-Marts. Within three years, one-quarter of the green-roofing company’s sales were outside the U.S.

But that proved to be a high-water mark for the company’s foreign ambitions. Ms. Keitges is now focusing on the strengthening domestic market for the company’s rooftop planters as weak growth abroad tempers demand and a strong dollar creates pricing problems.

Exports seemed a golden opportunity as Portland and the rest of the nation emerged from the 2007-09 recession. Foreign sales were a major contributor to U.S. economic growth in 2010 and 2011, outstripping past recoveries. Political leaders hoped selling goods and services abroad would offer a sustained boost to the job market at home.

But the dream of an export boom has faded.

As unemployment has declined, American consumers have reasserted their dominant role in driving economic growth. And a strong dollar and weakness overseas have helped turn international trade into a drain on overall economic growth in four of the past six quarters.

The Federal Reserve worries exports will be a persistent drag on the broader economy going forward. Fed Vice Chairman Stanley Fischer in August said it was “plausible to think that the rise in the dollar over the past year would restrain growth…through 2016 and perhaps into 2017.” If the Fed begins to raise short-term interest rates later this year, that could provide new fuel to push the dollar’s value even higher.

Exports of goods and services grew 80% from 2003 to 2008, but then expanded only 48% from 2009 to 2014, according to Census Bureau data.

A Commerce Department official described President Obama’s export-growth initiative as “catalytic and a success,” driving exports “despite strong global economic headwinds and macroeconomic factors outside our control.”

The administration is looking to spur trade growth through agreements such as the Trans-Pacific Partnership. Senior officials from around the world are meeting in Atlanta, trying to complete the expansive trade deal after talks stalled earlier this year.

It isn’t just the U.S. where exports have been a disappointment in recent years. Globally, growth in trade volume is set to trail the pace of economic growth for the third year in a row, and trade growth has been averaging just half its pre-financial crisis pace. In the immediate aftermath of the recession, confronted by weakness in the domestic economy, U.S. policy makers saw opportunity in global markets.

Following Mr. Obama’s lead, the Portland metro region in 2012 set its own goal to double its exports in five years. “This is how we fight for jobs in the next economy,” then-Portland Mayor Sam Adams declared. In the past year, Portland has quietly shelved that aim. The value of Portland-area exports actually declined slightly between 2012 and 2014, according to tallies from the Commerce Department and the Brookings Institution, a Washington think tank.

After Portland set its goal, economic conditions started to shift. The value of major currencies declined relative to the dollar, making American-made goods more expensive for foreign customers. Growth slowed in key markets such as China and Canada. At home, the U.S. economy regained its footing.

Over the past year, Portland first was caught up in a labor dispute that caused gridlock at ports along the West Coast, then it lost regular ocean-bound container service. Local officials also came to realize export growth depended overwhelmingly on chip maker Intel Corp., MMINTCMM which has extensive facilities in the Portland suburbs.

Exports of computer and electronic products helped drive a more than doubling of the metro area’s exports between 2003 and 2008, according to Brookings. But Intel has suffered from a slowdown in demand for personal computers.Measurable gains from smaller companies are likely to take years to materialize. Federal estimates show only about 5% of U.S. firms export, with nearly two-thirds of the annual value concentrated among 500 companies.

Hand-tool maker Astro Tool Corp. in the Portland suburb of Beaverton has seen many of the challenges up close. Over the past year, general manager Mike Barnes dedicated half his time to chasing foreign customers, while still overseeing day-to-day operations of the 30-employee company. He faced a steep learning curve. “We, A, didn’t know how to do it, and B, we didn’t have the money to do it,” he said. “You can’t just go to the Internet and say, ‘Where do we find foreign opportunities?’ ”

He eventually landed a small grant to hire a consultant and tapped connections for advice. The share of Astro’s business coming from overseas climbed over the past year to 25% from 15%. But he also watched at a trade show as a foreign competitor sold a cheap, knockoff version of a product similar to his.

The Portland region is trying to court foreign companies that already incorporate exports into their business model. But those companies aren’t immune to global pressures.

Two years ago, exports were nearing 70% of the sales of Shimadzu USA Manufacturing Inc., a subsidiary of the Japanese maker of instruments to test everything from wine fermentation to the urine of Olympic athletes. Now the plant in an industrial park at the far southern edge of metro Portland is getting closer to 50-50 as domestic growth outpaces sales gains abroad.

Foreign customers “can get it cheaper from Japan now than they can from the United States. We’re not as competitive as we were,” said Joe Shaddix, vice president of operations and manager of the factory, referencing the strong dollar.

At the same time, domestic demand for test instruments is developing among marijuana growers as states move to legalize the drug. The factory has expanded what it can make, becoming U.S. Food and Drug Administration registered.

Mr. Adams, the former mayor, remains a strong advocate for the goal of doubling exports—if not by 2017, then eventually. He worries the Portland economy isn’t keeping up with the quality of life that draws twenty- and thirty-somethings at an enviable rate.

“Obviously the timeline will move, but keeping that goal front and center is key,” he said.
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Write to Mark Peters at mark.peters@wsj.com and Ben Leubsdorf at ben.leubsdorf@wsj.com

http://www.wsj.com/articles/u-s-export-weakness-hampers-growth-1443576283

Post-Boehner, risk of December government shutdown and Export-Import Bank closure is high

Fluent In Foreign Business

On Friday, House Speaker John Boehner announced he will resign at the end of October.


Photo: Associated Press The Export-Import Bank building in Washington D.C.

With John Boehner stepping away from the negotiating table, the chances increase for a December government shutdown and a permanent shuttering of the Export-Import Bank.

Other question marks: Will Congress and the White House be able to agree on new federal borrowing authority and revise the way the U.S. pays for the upkeep of roads and bridges.

The immediate shutdown threat may have passed, since Mr. Boehner, a core group of House Republicans, House Democrats and a Senate majority appear to be in agreement on a stopgap bill to carry the government from Oct. 1 through Dec. 11.

Mr. Boehner told reporters he plans to get as much done as he can before he leaves. President Barack Obama said he…

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