REbuild Ukraine – Warsaw diary. Day t-2.

First from our group to arrive to Warsaw for the big event was Thomas Lang, head of the Rebuilding Ukraine Association (the 501c3 non-profit spearheading the REUNITE education initiative to help train Ukrainian construction industry professionals and seeking to sign a multiparty memorandum at the event) He is also working to assist a Ukrainian project sponsor on developing a construction block production facility in Ukraine.

The incomparable Thomas Lang

After Thomas, our own Edward Vays made his way to Warsaw. Edward is the Principal Owner and Developer of a unique Berehove Springs Thermal Rehabilitation Project. Due to its unique location and access to healing mineral water, which comes from1.3 km deep well drilled by Edward’s company, the Berehove Springs project aims to become the leading PTSD veteran and family rehabilitation center in Ukraine. Soon after his arrival, Edward found himself engaged into intense discussions with the Rebuilding Ukraine Agency’s Board Member Aleksandr Stefansky, who arrived in the afternoon loaded with a 70lb bag of Agency’s presentation materials.

Aleksandr Stefansky, Rebuilding Ukraine Agency Board Member
and Construction Committee Co-Head

Edward Vays, Principal Owner, Berehove Springs Thermal Rehabilitation Center and Wellness Community project

Others, including yours truly, continued to arrive and their stories and the story of the Rebuild Ukraine event will unfold over the next few days. Symbolically, Warsaw met the visitors with grey and dingy weather, which reflected the somber mood over the current situation in Ukraine. Yet, after walking around in the Old Town, one could see splashes of color and lights, which to me symbolized the hope and the bright future events like Rebuild Ukraine will bring after the war to this long-suffering country.

On a housekeeping note. All my photographs from the Rebuild Ukraine event will be put into a separate album, the link to which will be available in the last post covering this trip.

Regards from Warsaw, A. Gordin

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REbuild Ukraine – Warsaw Diary. DAY t-3

It is Sunday February 12th. I awoke to the news of more russian missiles falling on Kharkiv and on other Ukrainian cities, more news on the devastating earthquake in Turkey, US shooting down a third! flying object in a week, as the country prepares for today’s Superbowl. Yet amidst the ongoing wars, diplomatic conflicts and natural disasters, an important event will be taking place this coming week in Warsaw, Poland. It will be focused on the bright future of beautiful, resilient, war-torn Ukraine. Over the next week, I will attempt to document this event from the insider’s perspective. I will try to post daily, but given the schedule ahead, it may not be feasible. So please bear with me over the few days and I hope you find these diaries interesting and helpful.

As I write this, thousands of men and women from over twenty countries have begun to make their way to Warsaw for the Rebuild Ukraine Forum and Conference. This event is laser-focused solely on construction segments and will cover significant topics such as demining and handling of unexploded ordnance during the rebuilding, infrastructure restoration, construction material recycling, increasing Ukraine’s capacity to produce and supply vital construction materials such as insulation, plate glass, precast concrete, as well as developing real-estate projects, which will address Ukraine’s new realities such as shifting demographics and the need to restore and rehabilitate post-war the physical and mental health of the nation. The event will also be focused on how to finance, insure and develop projects, which will help Ukraine rebuild.

Unlike other political, macroeconomic, and academic events dedicated to the subject of the Rebuilding Ukraine, the Warsaw conference and exhibit is driven by the private business – the infantry of the recovery process. This is very important, as these folks vote with their own dollar, euro zloty or hryvna and are the first to go in and engage. What is even more important, is the fact that this event will facilitate a direct dialogue between the Ukrainian Government, multiple Ukrainian regions and municipalities and is expected to act as a starting point for several viable investment, construction and recovery projects.

After four months of preparation for the event, our own Rebuilding Ukraine Agency will be well-represented. Our delegation of 25 men and women will consist of the several Agency’s Board Members, the Agency’s CEO, Vice President and representatives of several Agency-member companies who will be showcasing their projects and capabilities. Although our Rebuilding Ukraine Agency is US-based and will be unofficially representing the United States at the event (other countries are having government-sponsored pavilions), the Agency is international in nature, and our Warsaw delegation will have members from six countries at the exhibit pavilion. Even though the event has not yet started, our Group’s meeting calendars are already well-booked, with meetings starting two days before the actual February 15th and 16th conference dates. Our Agency has been one of the co-organizers of the Rebirth of Nation panel and I will be speaking there on the financing and insurance opportunities available to foreign and local investors. Our Agency team is putting final touches on a Master Class for Ukrainian municipalities on how to develop and package projects for investment and financing by the international community.

So today, t-3 days until the official events kickoff, is the travel day for most of us. Overnight flights on LOT and Delta from the US, car and train rides from Ukraine, Italy, Germany and Croatia. Presentations and marketing materials are being delivered from Kyiv, where they were printed, despite drone attacks and power outages. As the self-appointed photographer for the Agency i will be chronicling the conference and activities taking place at our Agency’s pavilion. My luggage contains over 25 pounds of photographic equipment, including multiple lenses. Given the gravity of the events taking place in Ukraine, as this conference will be taking place, I am thinking of shooting the entire reportage in black and white. Have not yet made up my mind on this though.

Special thanks to everyone who has been involved in the preparation for this significant event. Our wonderful video and presentation designers, along with our terrific CEO and VP, members who supported the exposition, exhibit organizers and Board members who volunteered their time to make sure that the Agency is well-prepared not only for this event, but to help Ukraine, as it gets ready to REbuild itself after this devastating war. Stay tuned for additional coverage of the Warsaw conference in the upcoming issues.

By. Alexander Gordin, Chairman of the Board, Rebuilding Ukraine Agency

Making borscht, as the war rages on

No, unfortunately this story is not about cooking a delicious and hearty Ukrainian borscht, one could enjoy in the middle of a cold winter.

This story is about making a different kind of borscht, the one which will help Ukraine rebuild itself after the war. It is a story of how a small, international, highly-experienced, non-government Agency is developing a mosaic of state-of-the-art investment projects in Ukraine. Projects, which will help the country become a blossoming European democracy. And each of these projects is like its own borscht being skillfully and lovingly prepared in the middle of an ongoing war by a dedicated group of professional chefs (read project development professionals).

Making a proper Ukrainian borscht is simple, but certainly not easy. The process takes skill, love and most importantly proper ingredients. The cooking process cannot begin until all the ingredients are obtained, examined and prepared. Same with complex international projects. All project ingredients must come together before the financing and implementation (aka cooking) processes begin.

The Rebuilding Ukraine Agency has been on the cutting edge of project development in Ukraine since its founding in March of 2022. As a rapid deployment member-owned organization, the Agency has dedicated itself to the development of projects and services, which are critical to Ukraine’s survival and reconstruction. Some of the key sectors, where the Agency’s members have been making an impact are infrastructure construction (including demining and unexploded ordnance utilization), construction materials, energy, and rehab wellness. Thus, skilled project sponsors, professional service providers, investors, financiers, attorneys, insurance providers are fundamental basic ingredients for the proverbial project borscht. The Agency has built out an amazing team consisting of large international construction, engineering, energy, architecture firms, as well as small, specialized companies and professionals in every area expertise needed for successful project development and implementation. Key ingredients sourced. Check.

Next set of ingredients needed are the local partners. These include federal, state and local governments, local banks and private businesses. Their roles range from developing conducive investment support legislation, providing needed infrastructure and local expertise, supplying equity co-financing and bankable balance sheets, providing market access and personnel. These ingredients are very hard to come by, especially during the war and thus not all projects the Agency is working on have them. Partial check.

Along the way, the project chefs must battle corrupt rodents, ingredient spoilage, malaise and incompetence. All ingredients must conform to certain international compliance standards and be transparent. Thus a whole Grey2White® compliance and due diligence program has been developed to make sure the ingredients going into the projects are perfect and the cooking process is properly managed. The program is headed by a former US Federal Prosecutor and SEC Branch Chief. Check

Once all project ingredients are assembled, the cooking process begins. Depending on the project, the process varies. However the common elements are development of legal contracts, development of feasibility studies, market studies, preparation of applications for financing, due diligence, lender consents, infrastructure services, equipment procurement, construction, environmental compliance etc. etc. The cooking process can take months and sometimes years. Thus, although the Agency chefs do not know when the war will end, and have to manage each project in a way which would keep the wartime risks to the minimum, they fully understand that in order for Ukraine to fully benefit from their project borscht cooking process, the final product must be ready in time for when the reconstruction and rebirthing efforts will begin. That is the ultimate combination of art and skills, which only can come from decades of experience of working in Ukraine and in multiple post-conflict markets, as well as from love, commitment and dedication to Ukrainian prosperity and independence. Some projects the agency has been working on have begun the cooking process and some are still waiting for the missing ingredients. Partial check.

On February 15th and 16th at the Rebuild Ukraine event in Warsaw, select Agency members ECC Corporation, MI Gruppa, Depsol Technologies, Berehove Rehabilitation and Wellness, along with the BAV Corp, Broad Street Capital Group, CC-Solutions, Global Insurance Services, Prostir, Rebuilding Ukraine Association (501c3 non-profit) will present their project development skills, project ingredients and those projects, which are in the cooking stage. Several memorandums and project mandates are expected to be signed and announced at the event. The Agency’s management and Directors are expected to speak at the forum’s events and will describe in detail the Agency’s capabilities and project development process, along with the necessary ingredients needed for successful completion.

Although I sometimes wish that my posts would be more focused on lighter subjects such as photography, food and travel, I know deep in my heart that the successful development and implementation of properly prepared and “cooked” international projects would be the best borscht Ukrainian people can enjoy, as the country rebuilds itself after this horrible war ends.

Rebuilding Ukraine Agency is 120 today

120 days that is. And yet, with the horrific war raging in Ukraine for the past five months, these 120 days seem like eternity. The Agency’s journey, thus far, has been an exhausting marathon filled with ups, downs and periods of frustration. Although, all our activities pale in comparison with the heroic efforts of the Ukrainian armed forces, civil defense and tireless volunteers, who provided incalculable help in delivering humanitarian aid and clean up of destroyed cities, we know that our work is important and is vital to the development of Ukraine’s economic future.

Just 90 days after its formation, the Agency announced its first economic development project – creation of a $25mil. production and distribution facility in the center of Ukraine to produce badly needed construction insulation materials. The project’s principal is a US-based company. Think about the courage required to make such an investment decision into a country embroiled in the brutal war. The agency’s role has been to assist with the project’s development on the ground and to arrange financing and insurance coverage for the facility. Not an easy task, but one for which the Agency has been specifically developed. We are a private, member-owned and rapid reaction organization with significant multi-disciplinary capabilities.

The investors into the insulation project are by no means a unique case. Other Agency members are hard at work developing projects ranging from pre-cast concrete, plate glass and ceramic block production facilities, medical rehabilitation centers, gas and agricultural infrastructure for transportation and storage, and expansion of healthcare facilities for cancer and neo-natal patients.

I am often being asked if the the Agency’s representatives will be attending various rebuilding Ukraine related forums, which have been springing up across several countries. My answer thus far has always been “NO”. While some of these forums are important and highlight policy discussions, international cooperation programs and legal scholars’ theories on subjects of whether it will be possible to use frozen Russian assets towards the cost of reparations, the Agency is laser-focused on its core mission of developing and fulfilling specific projects in key areas of Ukraine’s economy.

In the the movie “Schindler’s List”, the main hero was not able to save all the Jews from the horrors of holocaust, but he was able to make a huge difference by saving over a thousand souls, who in turn gave birth to a new generation. Thus far, the Agency’s approach has been similar. We monitor the policies and trends for rebuilding set by the Ukrainian government, follow various aid announcements etc. and keep our members informed on the developments. Yet, we are primarily concentrating on developing and executing as many specific impactful projects as possible, all while realizing that the Agency will not be able to solve all the problems caused by the war, but every project we successfully realize will make a difference.

I would like to congratulate all the Agency’s Members, Officers and Directors with this small, but important milestone in the life of the Rebuilding Ukraine Agency and I want to thank all the folks in Ukraine, US, Canada, UK and EU countries, who have supported our organization and have helped it move forward. Ukraine will overcome and we will be there to help it rebuild!

Investing in Ukraine’s energy-efficient construction

(June 24, 2022, Washington, DC, Kyiv).  The Rebuilding Ukraine Agency, with support of the National Investment Council of Ukraine, the Confederation of Builders of Ukraine and the U.S.-Ukraine Business Council, proudly announces that the Agency has been engaged to spearhead construction development, arrangement of financing and political risk insurance for a state-of-the-art building insulation manufacturing and distribution facility, to be inaugurated in Ukraine in the next several months. 

The proposed $25 million facility is being developed by the Depsol Technologies Group of companies– an experienced, US-based supplier of chemical raw materials to the construction industry in Ukraine and the Baltic countries. The planned facility will be located in the Central Economic District of Ukraine in close proximity to the markets most affected by the wartime destruction. The new plant will produce highly energy efficient and fire-resistant polyurethane insulation material ranging from flexible insulation to rigid structural panels, which will be used for construction and insulation of residential, commercial and industrial buildings. 

Given the substantial destruction of Ukraine’s existing insulation capacity and anticipated needs during the upcoming rebuilding phase, the planned initial production and distribution capacity of the Depsol facility will be 3 million sq.m. of insulation per year. The Depsol facility will have its own solar energy generation plant and will be built to the most rigorous international energy efficiency standards. Over 500 jobs will be created during construction and operation of the plant and of the adjoining distribution center.

The financing for the project is expected to be a combination of equity and European-export-credit-agency-(ECA)-backed loans. Political risk insurance is expected from the US-based government agencies.

About:

Depsol Technologies LLC. is a chemical company focused on distribution of construction insulation materials and production inputs, as well as plastics in and oil and gas chemicals in Ukraine and the Baltic countries.

Depsol’s senior management team has more than 20 years of experience in distribution and trading of plastics and industrial chemicals throughout FSU countries. Prior to establishing Depsol Technologies, Drs. Alfred and Irene Roth founded Dipol Chemical, a major distributor for Dow, Nova, DuPont, Solvay, Clariant in the region, which in 2008 has been successfully sold to the worldwide chemical distributor Brenntag.

Rebuilding Ukraine Agency (www.rebuildingUA.com) – Rebuilding Ukraine Inc. is the US-based member-owned international rapid deployment agency, that was founded in March 2022 with the sole purpose of helping Ukraine rebuild after the Russian war.

The agency represents the US, UK, EU, Canadian and Ukrainian professionals, financing institutions and manufacturers under a unified umbrella, in order to deliver maximum impact for the rebuilding effort of Ukraine. The agency’s team of professionals has decades of experience working in Ukraine and an impressive list of successfully completed projects in Ukraine and around the world.

National Investment Council – Office of the National Investment Council is an advisory body to the President of Ukraine.  It addresses Ukraine’s needs in support for the design and implementation of policy reforms and institutional capacity building, as well as investments. The National Investment Council of Ukraine was established by the Decree of the President of Ukraine N365/2016 and comprises the highest-ranking state officials. Chairman of the National Investment Council is President of Ukraine Volodymyr Zelenskyy, Secretary of the National Investment Council is Halyna Yanchenko

Members of the National Investment Council are leading international companies that have already invested in Ukraine or are planning to invest, as well as international financial organizations.

Confederation of Builders of Ukraine – formed 11 years ago, the Confederation of Builders of Ukraine is the largest specialized association, which unites more than 700 participants in the country’s markets for real estate, construction and construction material supply.

US Ukraine Business Council (USUBC) – The U.S.-Ukraine Business Council was established in October 1995 to advance U.S. companies’ trade and investment interests in Ukraine’s significant emerging market, advocate for measures to improve conditions for bilateral trade and investment, and generally promote strong, friendly bilateral ties. 

For more information contact Tamara Zykova at management@rebuildingUA.com

ExportBOOST Helps US Companies Double Their Exports

By: Alexander Gordin

International trade is thought to have its routes in 19th century BC with Assyrian merchants. Over centuries the business of exports changed dramatically with evolution in transport modes, advent of Incoterms, standardized shipping containers and computerized customs clearance.

Yet for all the progress and record $2.3 trillion amount, exports in the US still remain a complex and not terribly efficient process. Multiple players involved in exports are still largely silo(ed). Even at large companies export related functions like international sales, legal, shipping, banking, financing and insurance often have difficulty communicating with one another. Concepts such as international payment protection mechanisms, US content policy, or US flag shipping requirements are often misunderstood. Generally business approach to managing export transactions is reactive, rather than proactive. Situation is even more difficult in small and mid-size businesses where resources are significantly more scant. A relatively small percentage of businesses export. Of those that do, a large portion exports to only one country. Expanded exports of goods and services represent amazing possibilities not only to help companies grow their profits and shareholder returns, but also to benefit our nation’s economy by creating new jobs and generating additional tax revenues. President Obama’s National Export Initiative has served as a catalyst to spur job growth and along with general economic recovery led to a resurgence of manufacturing activity. More needs to be done, and companies should focus on exports as a fundamental part of their business activities, rather than an afterthought.

The entire export ecosystem is ripe for disruption and entry into the technological age. I can envision a day in the very near future when shipping containers of foodstuffs, plane loads of licensed computer equipment, dozens of Ro Ro tractors, or construction cranes will be as simple as buying individual items on eBay or Amazon. Of course handling export transactions is infinitely more complex and requires signed multilingual contracts, letters of credit, export credit and freight insurance, licensing, quality inspections and complex shipping arrangements. Thus the disruption process that is being put in place needs to account for the nuanced complexity that characterizes exports. Step one of the transformation is already on the way.

ExportBoost™ – a  curated service guaranteed to help small and mid-size companies to at least double their present exports in 18 months – was recently unveiled

by the Broad Street Capital Group (“BSCG”) . Specifically developed for US manufacturers and distributors with revenues of between $5 and $750 million and for providers of professional services , ExportBoost™ uses proprietary export building met

hodology and tools such as: Fi3E™ Export Indices, XPORTINSURE™, FinanceABLE™ and EZShip™ to greatly simplify export operations and mitigate international business risks.

ExportBoost™ was designed to help small and medium companies who are either experienced exporters, or just looking to start their international expansion to significantly grow their exports. ExportBoost™ service has two tiers – one where the exporter is guided by the Broad Street Capital’s professionals and implements the program internally and the second where Broad Street Capital Group implements ExportBoost™ on its client’s behalf. In either case, the clients will be offered a unique guarantee, should they follow the program and their exports do not at least double in 18 months, Broad Street Capital Group will refund all the fees paid by the clients for the ExportBoost™ service.

ExportBoost™ is part of the product portfolio being developed by the Broad Street Capital Group, and its partners. to greatly streamline and finance international trading operations. The project code named “Barbell” is scheduled to be unveiled at the Broad Street’s annual conference later this year.

Dollar’s Rise Threatens Manufacturing Recovery

Greenback surges to 14-year high in wake of Trump win and Fed move, making U.S. goods more expensive abroad

 By ANDREW TANGEL and JOSH ZUMBRUN WSJ.com

An employee works on the interior of a Boeing Dreamliner 787 in North Charleston, S.C. Boeing last week cited ‘fewer sales opportunities and tough competition’ when it laid out plans for further layoffs. PHOTO: BLOOMBERG NEWS

The U.S. currency, which has strongly appreciated over the past two years, surged to a 14-year high in the wake of Donald Trump’s election and the Federal Reserve’s decision to raise interest rates, adding a wrinkle to the president-elect’s pledge to boost factory employment.

Certainly, a strengthening dollar is a sign of rising optimism for the U.S. economy as the stock market also soars to new highs. Prospects of higher inflation and rising interest rates encourage investment in U.S. assets, reflecting growing hopes for better returns.

A strengthening dollar increases the currency’s purchasing power: If imports are cheaper, U.S. consumers would have more money to spend. That in turn could boost retail sales, a key driver of economic growth, and engender more confidence in the U.S. overall.

However, while good for U.S. consumers and companies that purchase components abroad, the dollar’s rise promises to hit U.S. manufacturers reliant on sales in overseas markets.

Many have started to dial back revenue forecasts and look for ways to cut costs. 3M Co. and United Technologies Corp. have signaled a strong dollar could make it harder to boost sales in 2017.

‘Manufacturing here in the U.S. has become a lot more challenging than we’d anticipated.’

—Neal Keating, Kaman’s chief executive

Kaman Corp., a Bloomfield, Conn.-based maker of airplane parts, has seen its European rivals’ prices drop as the euro declined against the dollar. To compete, Kaman has invested in facilities in Germany, and acquired a company with operations in the Czech Republic.

“Manufacturing here in the U.S. has become a lot more challenging than we’d anticipated,” said Neal Keating, Kaman’s chief executive.

Some dealers of Harley-Davidson Inc. motorcycles and Caterpillar Inc.’s bulldozers and excavators are bracing for the companies’ Japanese rivals to capitalize on the yen’s weakness against the dollar to undercut them on price. Caterpillar has said the yen’s weakness makes competition harder. Harley declined to comment.

In interviews, several business leaders said Mr. Trump’s pledges to promote business would more than counter the sting of a stronger dollar, especially if there are lower taxes and lighter regulatory burdens. They are hopeful Mr. Trump’s plan to overhaul infrastructure will spark economic growth, and that higher domestic sales could make up for any decline in exports.

“There’s bigger fish to fry,” said Mike Haberman, president of Ohio-based construction-equipment maker Gradall Industries Inc., which exports about 20% of its products. “I’m not panicked about the dollar.”

Jerry Johnson, president of the farm, ranch and agriculture division of Blount International Inc., a Portland, Ore., maker of outdoor products, said the strong dollar may be offset by declining import prices. About 50% of the components used in Blount’s products—they include mowers, log splitters and rotary cutters—come from overseas, Mr. Johnson said.

The dollar has been relatively weak against most of the world’s major currencies over the past decade. This helped U.S. exports rebound swiftly following the financial crisis.

By the end of 2010, exports reached record levels and continued to grow, hitting $598 billion per quarter in 2014. Employment in manufacturing began to recover, and optimism grew the U.S. could be entering a manufacturing renaissance.

The dollar has since risen sharply against currencies such as the yen and the euro. Meanwhile, the British pound dropped in the wake of the country’s June vote to leave the European Union. Earlier this month, the U.S. Federal Reserve raised rates, and hinted at more tightening next year.

The WSJ Dollar Index, which measures the U.S. currency against 16 others, hit a 14-year-high last week.

Bond yields have been rising amid expectations of more growth and inflation during Mr. Trump’s administration. The dollar rally could undermine his agenda by making exports more expensive and imports cheaper.

Collateral Damage

 

Trump transition team officials didn’t respond to a request for comment.

For some companies, a stronger dollar will likely limit interest in expanding domestic manufacturing.

China’s yuan has fallen to its lowest level against the dollar in eight years, a move that could entice manufacturers to keep factories there rather than following in the steps of those that have brought some operations back to the U.S.

Mexico’s peso is down 13% against the dollar since the election, making it more tempting to move U.S. factories south of the border, despite Mr. Trump’s vows to punish firms that shift jobs abroad.

Emerson Electric Co. last week said the stronger currency worsened the extent of its orders’ decline from September through November by 2 percentage points. Overall, they fell by 7%.

Boeing Co., the nation’s largest exporter, last week cited “fewer sales opportunities and tough competition” when it laid out plans for further layoffs at its commercial-airplane unit next year after cutting staff by 8% in 2016.

Boeing didn’t mention currency fluctuations. The strengthening dollar has helped rival Airbus Group SE, which for years wrestled with an appreciating euro. Boeing declined to comment. An Airbus spokesman said the tailwind the company gets from the dollar is muted because 40% of its plane parts are purchased from the U.S.

Many manufacturers have begun to reduce their workforces; employment in manufacturing fell by 51,000 from January 2015 through November 2016, according to Labor Department data.

Ben Herzon, senior economist at Macroeconomic Advisers, an independent economic forecasting firm, conducted a simulation for The Wall Street Journal to illustrate how a further 10% increase in the strength of the dollar would ripple through the U.S. economy.

Over the next three years, companies would gradually adjust, by among other things boosting capacity at foreign plants while reducing at home, changing their supply chain or increasing the use of automation.

If the dollar doesn’t strengthen further, inflation-adjusted gross domestic product would cumulatively rise by 6.3% over the next three years. If it strengthens by a further 10%, that growth would be 1.8 percentage points lower, or 4.5%, according to Macroeconomic Advisers’ simulation.

The pain of a further 10% dollar rise would be especially concentrated in U.S. factories. Manufacturing production would be 3.6 percentage points lower under a strong dollar, inflation-adjusted imports would be 3.6 percentage points higher, and real exports from the U.S. to the rest of the world would be 6.2 percentage points lower.

Initially, U.S. consumers would stand to benefit by paying lower prices for imported goods.

“It’s good for consumers, as long as they’re still working,” said Mr. Herzon. As time goes on, this benefit will also be offset by the job loss in the manufacturing sector, he said.

—Bob Tita
contributed to this article.

Write to Andrew Tangel at Andrew.Tangel@wsj.com and Josh Zumbrun at Josh.Zumbrun@wsj.com

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

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.

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.

“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

(Tea Party) Republican Job Killers and the Export-Import Bank

You know things are bad, when I have to cite a left leaning newspaper such as the NY Times, as an information source bashing Republican Party.  Yet, the author of the OP-ED below, does make some valid points.  Rather than go into additional explanations on this issue, I simply would like to pose a few questions to let the readers think and decide for themselves. These questions will address both pros and cons of the issue. Answers will be published in the next post.

• There are overwhelming votes in both the House and the Senate to pass the Ex-Im reauthorization, yet a hand-full of congressmen from the Tea Party is blocking the reauthorization bill in the committee. What does this say about our Democratic process?
• Whose interests are these Tea partiers serving?
• Why can’t large companies such as Boeing and GE finance exports themselves rather than lose orders?
• What would be an estimated annual impact of the Ex-Im shutdown?
• Since US Ex-Im financing represents less than two percent of annual US exports, why do we care if the Bank goes away?

Republican Job Killers and the Export-Import Bank

Joe Nocera, NY Times OP-ED COLUMNIST

“At a time when we want to compete around the world, it is hard to believe what is happening in the U.S. Congress,” said Jeff Immelt, the chief executive of General Electric.

“The ultimate irony is that we are on the verge of an American manufacturing renaissance,” bemoaned Jim McNerney, the chairman of Boeing. “Yet this action is causing companies to start looking outside the U.S. instead.”

“People complain that the bank only helps big companies,” said Doug Oberhelman, the chairman and C.E.O. of Caterpillar. “A lot of our suppliers are small. They don’t export, but we do. And if we aren’t exporting, they aren’t selling to us.” He added, “I find it staggering that we would put highly paid export-oriented jobs at risk.”

What Oberhelman finds “staggering,” Immelt finds “hard to believe” and McNerney finds ironic is the refusal of Republican extremists — led by the House Financial Services Committee’s chairman, Jeb Hensarling — to allow a vote on the reauthorization of the Export-Import Bank of the United States, a vote that would pass in a landslide. The Ex-Im Bank, which insures and sometimes finances export sales, had to stop making deals at the end of June, when its reauthorization deadline came and went.

Although the Ex-Im Bank still exists, it has been reduced these days to managing its portfolio, rather than underwriting or insuring new deals. According to Boeing, its foreign rival Airbus, which can tap not one but three export credit agencies, is spreading the word to potential aircraft customers that Boeing can no longer compete when bids require sovereign insurance. That is hardly the only such example.

The damage this is doing to our economy is starting to become clear. In recent weeks, Boeing, America’s largest exporter in dollar volume, made two sobering announcements: first, that Asia Broadcast Satellite canceled an $85 million satellite contract expressly because there was no Ex-Im support. (Boeing is hoping to renegotiate.) More recently, Kacific, a Singapore-based satellite company, told Boeing not to bother bidding on a satellite contract, again because of a lack of Ex-Im financing.

As a result, McNerney told me, “layoffs in the hundreds” have taken place in Boeing’s satellite division.

This week, it was G.E.’s turn to make Ex-Im-related news. First, it said it would move 400 jobs to France to manufacture — and export — gas turbines, and 100 final assembly jobs to Hungary and China. Then it said it would create a new turboprop center in Europe that would employ up to 1,000 people. In both cases, G.E. said the moves would allow the company to take advantage of European export credit agencies.

When I spoke to Immelt, McNerney and Oberhelman, whose company also uses the agency, they all sounded astonished that this important tool, which they need to compete with companies abroad, was being taken away for purely ideological reasons.

“If no other country had export financing, that would be one thing,” said Immelt. “But that’s not where the world is. What you are really doing is helping Siemens and China Rail” — companies that rely heavily on their countries’ export financing.  Immelt told me that G.E. currently has $11 billion in potential deals that require export credit agency financing. That’s real money, even for General Electric.

McNerney pointed out that many big deals require export financing for the bid to even be considered. He also noted, ominously, that 10 to 15 percent of Boeing’s aircraft exports are dependent on Ex-Im support. Losing that business would be devastating for the company, and its employees.

When asked about the accusation from the right that the Ex-Im Bank is a classic case of government picking winners and losers, Oberhelman said that “if this doesn’t change, we’re all going to be losers.”

The anti-Ex-Im Bank faction is having a glorious time mocking the G.E. and Boeing announcements. A spokesman for Heritage Action for America, the conservative think tank leading the charge, described G.E.’s moves as “multinational crony capitalism.” Hensarling issued a statement claiming Boeing could finance the satellite deals itself to prevent layoffs; “it just chooses not to.”

And an unidentified financial services committee staffer told Politico that the loss of 500 G.E. jobs was a drop in the bucket for a company that employs 136,000 people in the U.S.

That heartless quote reminded me of an anecdote in “Confidence Men,” Ron Suskind’s book about the Obama administration’s financial team during the president’s first term. Some of Obama’s top advisers wanted to let Chrysler fail. But in a critical meeting, Ron Bloom, a former adviser to the United Steelworkers who was a member of Obama’s Auto Task Force, said, “Mr. President, these are the reasons we can’t kill this company. The damage to these communities and people will never be undone.”

Chrysler was ultimately saved because the president’s advisers suddenly understood that it was their role to save jobs, not to sacrifice them on the altar of economic purity. What will it take for the Republicans to come to the same realization.

GE to Move Turbine Jobs to Europe, China Due to EXIM Bank Closure

Reuters

 (Reuters)

General Electric Co (GE) said on Tuesday that it will move 500 U.S. power turbine manufacturing jobs to Europe and China because it can no longer access U.S. Export-Import Bank financing after Congress allowed the agency’s charter to lapse in June.

GE said that France’s COFACE export agency has agreed to support some of the industrial giant’s global power project bids with a new line of credit in exchange for moving production of 50-hertz heavy duty gas turbines to Belfort, France, along with 400 jobs. GE also said in a statement that 100 additional jobs will move from the United States to Hungary and China.

The company said it is now bidding on $11 billion worth of international power projects that require export credit agency financing, including some in Indonesia.

The U.S. jobs will be moved from facilities in South Carolina, New York, Texas and Maine, but no U.S. facility will close, a GE spokeswoman said.

GE Vice Chairman John Rice said the company would soon announce agreements with other foreign export credit agencies to finance GE products.

“If the EXIM bank were open, it would be business as usual,” GE Vice Chairman John Rice told Reuters in a telephone interview.

 Given the bitter fight in Congress over EXIM’s future, Rice said that GE cannot afford to wait and must make other long-term financing arrangements for large industrial projects.

“If EXIM isn’t going to happen, or it’s going to be a regular fight to be reauthorized, we’ve got to make other plans,” he said.

Conservative Republicans in Congress who say that EXIM represents “corporate welfare” and “crony capitalism” successfully blocked renewal of the 81-year-old export credit agency’s charter at the end of June.

EXIM supporters have thus far been unsuccessful in attaching renewal to other legislation, but new efforts are expected to be made this autumn as Congress considers government “must-pass” agency funding, a transportation bill and an increase in the federal debt limit.

GE last year vowed to add 1,000 jobs in France to gain the blessing of the French government for the U.S. conglomerate’s acquisition of the power business of France’s Alstom. GE won European regulatory approval for the deal last week, and expects it to close by the end of the year.

GE is also seeking to wring out $3 billion in cost savings as it combines with Alstom, including by reducing overlap and consolidating manufacturing operations.

In its statement, GE said the job move “reinforces the need for Congress to promptly reauthorize the U.S. Export-Import Bank.”

Aerospace giant Boeing Co (BA) has also said it was considering moving work overseas due to uncertainty over the future of the EXIM bank.

(Additional reporting by Lewis Krauskopf in New York; Editing by Eric Walsh)