| Erik Roos, Policy Analyst

What You Need to Know About the Ex-Im Bank

When Congress returns from their August recess, they will have two weeks to decide the fate of the Export-Import Bank. The bank’s authorization expires on October 1, and without action from Congress before then, it will shut down, putting American exporters at a competitive disadvantage.

What is the Ex-Im Bank?

The Export-Import (Ex-Im) Bank is a Congressionally-chartered federal agency that provides trade financing to facilitate the purchase of American-made good by foreign customers. In 2013, the bank financed $37.4 billion worth of exported goods and supported over 200,000 jobs.

The Bank was created in 1945 and operates under a renewable charter. Congress last reauthorized its charter in 2012 for two years, and the Bank’s authority will expire on September 30 if lawmakers do not act.

How does the Ex-Im Bank help American businesses?

About 80 to 90 percent of goods traded between countries rely on financing, from both government and the private sector. The bank provides backing in cases where an important opportunity exists for American businesses but private investors will not enter the market without a guarantee. Often, the Ex-Im Bank will use private sector partners to provide financing, with the bank providing guarantees. About 98 percent of the Ex-Im Bank’s transactions in 2013 involved commercial banks.

Loan Guarantees: Loan guarantees are one way the Ex-Im Bank helps exporters. If a foreign buyer cannot obtain a loan from a commercial bank, the Ex-Im Bank may  guarantee the repayment of that loan.

Working Capital Guarantees: Many small businesses use the bank for working capital guarantees. A small business with export potential may require a short-term working capital loan from a bank, which the Ex-Im Bank guarantees to reduce the risk.

How much does the Ex-Im Bank cost taxpayers?

Nothing. In fact, the Ex-Im Bank generated profits of $2 billion over the past four years, which it sent to the general fund.

The Ex-Im Bank is designed to be self-sufficient by charging fees to cover the risk of default and its operating costs. The bank is required to aggressively manage its risk and keep default rates under 2 percent. Currently, the default rate for Ex-Im Bank transactions is about 0.2 percent. For comparison, the default rate for corporate bonds in 2013 was about 1 percent. If the rate of default rises, the Bank has built up nearly $4 billion in reserves as insurance. 

Do other countries provide similar financing to exporters?

 Over 60 countries have export-credit agencies (ECAs), similar to the Ex-Im Bank, to promote exports of nationally-made goods. One study from the National Association of Manufacturers and the Economist Intelligence Unit shows that compared to other countries, the support provided by the Ex-Im Bank is relatively small. The U.S. ranks sixth, behind China, Japan, Canada, South Korea, and Germany, in the total support provided by ECAs. 

What kind of companies does the Ex-Im Bank support?

The Ex-Im Bank provided support to 3,400 businesses last year. About 90 percent of those were small businesses, which accounted for 80 percent of the banks transactions. However, small businesses have smaller and shorter-term capital needs, so just less than 20 percent of the bank’s financing directly went to small businesses.

Many large companies that use the Ex-Im Bank rely on small businesses in their supply chains, so the Bank’s support benefits many more small companies indirectly. The Ex-Im supports a variety of industries, but about half of the financing authority is directed to aircraft exports.

 

 

| By Erik Roos, Policy Analyst

What does the Ex-Im Bank have to do with Africa? Everything.

This week’s U.S. Africa Leader’s Summit highlighted the importance of increasing the presence of U.S. businesses abroad and the need to reauthorize the Export-Import Bank this fall.

One of the challenges U.S. businesses face in Africa is obtaining financing partners—commercial banks may be unwilling to take on that level of risk. The Ex-Im Bank provides insurance and loan guarantees, which reduce the risk for commercial banks and allow these transactions to take place.

Here’s why that’s important:

By 2050, Africa will supply 1 out of 4 of the world’s workers. This will make it a large market for U.S. goods, presenting a huge opportunity for U.S. businesses that make investments now. Even today, seven of the top 10 fastest growing economies are in Africa.

The U.S. exported over $50 billion in goods and services to Africa in 2013, supporting approximately 250,000 jobs. However, Africa-bound exports only represent about 1 percent of total U.S. exports, despite rapid growth in recent years.

Only about 5 percent of the Ex-Im Bank’s support goes to Sub-Saharan countries, as there are limited opportunities for businesses to export to the region. However, the bank plays a greater role in supporting the businesses that are able to export to Africa than in any other region. Nowhere else does the bank support a greater share of U.S. exports than in Africa.

General Electric CEO Jeff Immelt was vocal about the role the Ex-Im Bank plays in Africa:

“We don’t want to get in the middle of Washington’s political wars, but how important do you think it is for the future prospects of getting more financing in Africa for American businesses to renew the Export-Import Bank?”

Posted In: Economic Trends
| Erik Roos, Policy Analyst

Congress Adverts Highway Shutdown, Long-Term Plan Still Needed

Last week, Congress agreed to temporarily fund highway and transit projects through May 2015. The Highway Trust Fund was projected to reach insolvency. Without action, a lapse in highway funding would have occurred, putting many transportation projects on standby, increasing congestion, disrupting supply chains, and threatening the jobs of up to 700,000 workers.

Preventing a Highway Crisis

The highway bill passed the Senate with bipartisan support, in an 81 to 13 vote. The bill passed the House two weeks ago by a 367 to 55 margin, and President Obama has indicated he will sign it.

Senator Angus King (I-ME) called the legislation a mix of good news and bad news. “The good news is, we did something. The bad news is, it was the 11th punt in the last six years and showed an inability to face a real problem and deal with it.”

The Need for a Long-Term Solution

Averting a near-time crisis was the greatest priority. But the temporary bill creates uncertainty about what Congress will do next May, right at the beginning of construction season. The Highway Trust Fund was created to provide an independent revenue source for highway funding, which in turn, can help facilitate long-term planning.  As a result, Congress has traditionally passed highway spending bills that authorize projects for four to six years. The longer -timeline allows planners to make strategic decisions about resources and undertake larger infrastructure projects.

But without a lasting solution for financing the Highway Trust Fund, lawmakers are likely to continue passing short-term highway bills that limit decision-making. Since 2009, Congress has approved  10 short-term authorizations. On such a short timeline, officials will face difficulty planning and financing  the dynamic infrastructure investments that foster economic development.

Now is the Right Time to Reinvest in Roads

In the meantime, highways have become increasingly congested, which businesses often experience through supply chains operations. An estimated 65 percent of our nation’s roads are rated in poor condition. Highway bottlenecks cause more than 243 million hours of delays for the trucking industry every year, costing $7.8 billion and raising delivery prices. 

At the same time, improving the country’s infrastructure has never been cheaper. Highway construction costs have declined by 20 percent since the recession. Interest rates are at historic lows. But as the economy recovers, prices will rise.

| Erik Roos, Policy Analyst

Economy Gains 200,000 Jobs for the Sixth Consecutive Month

The Bureau of Labor Statistics announced Friday that the economy added 209,000 jobs in July. The unemployment rate was 6.2 percent, around where it has been for the past three months.

Business Forward hosted a webinar on Monday with Dr. Jennifer Hunt, the Deputy Assistant Secretary for Microeconomic Analysis at the U.S. Department of the Treasury, on the implications of the July report.

Among the highlights:

  • July was the sixth straight month of jobs gains above 200,000 which has not happened since 1997. The report also was the 53rd straight month of private-sector job growth.
  • May and June employment gains were revised by a combined 15,000.
  • Manufacturing added 28,000 jobs, well above the average gain of 12,000 jobs over the past year.

In addition to this month’s job numbers, Dr. Hunt also explained the findings of a new Council of Economic Advisors study on labor force participation. The labor force participation rate, the percentage of people ages 15 and over that are working or are seeking a job, had risen from 1960 through 2000, largely due to women entering the labor force. But it has sharply declined since 2008. The report shows a combination of an aging population and effects of the Great Recession caused a majority of the decline in the labor force participation rate.  

One listener asked how the labor force participation rate of Americans compared with other countries. Dr. Hunt explained that developed nations have different retirement policies that can influence that statistic. Considering only those in the working ages (15 to 65), the U.S. ranked second in labor force participation after Sweden, as recently as 2000. But since then, several countries have overtaken the U.S. Dr. Hunt noted that immigrants tend to be younger and have higher participation rates, so immigration reform could increase the LFPR. Likewise, implementing workplace policies that made it easier for women to work could also boost the LFPR.

Dr. Hunt's slides are available below:



July Jobs Report with Department of the Treasury and Business Forward from businessforward
| Elizabeth Kerr, Director of Communications

President Signs Executive Order to Cut Red Tape, Help Contractors that Obey the Law

Today, President Obama issued an executive order that will give businesses that play by the rules and maintain safe work environments a leg up on their competition. The order also creates a one-stop website to make it easier for businesses to meet their reporting requirements. It will protect workers and save taxpayer money.

The President’s executive order requires companies with federal contracts of more than $500,000 to disclose any labor violations in the last three during the application process. The majority of businesses, which do not have a history of labor violations, will only have to check a box.

This order is part of a broader administration effort to improve the efficiency and accountability of government contracting. A recent analysis shows that companies with labor violations are also inefficient. This new reporting requirement take will help ensure that taxpayers are not paying for poor performance.

Earlier this month, the White House also reapproved the QuickPay program, cutting in half the time it takes to pay small business contractors. The program, which began in 2012 and requires the federal government to pay contractors within 15 days, has facilitated more than $220 billion in payments to contractors.

 

Read the full order >

Posted In: Jobs

The longer we wait to address climate change, the more it’s going to cost, says a new report from the President’s Council of Economic Advisors.  

According to Jason Furman and John Podesta:

"Our report finds that the costs of achieving a fixed climate change goal would be 40 percent larger if we waited a decade to take action. And those costs could grow exponentially with a longer wait. That's because, if we delay action in achieving a fixed set of climate goals, then we have to incur greater upfront costs to make up for the years in which additional carbon pollution was released into the atmosphere."

Similarly, if a delay leads to higher carbon dioxide levels, the effects of climate change may be even greater and more costly. If temperatures rise by an additional 1°F, economic losses could increase by 1 percent of GDP, every year—that’s equivalent to approximately $150 billion of economic output lost in the U.S., based on this year’s GDP.

Most concerning is the possibility of hitting a “climate tipping point.” Climate change could trigger large, irreversible changes that would have a devastating effect on businesses and households. Trigger events could include the destabilization of the West Antarctic ice sheet, disappearance of Artic sea ice, or a rapid increase of carbon stored in Northern permafrost.  While the chances of this happening are small, the consequences are so severe that it makes sense to take action as a form of insurance against these threats.

The report echoes what we’ve been hearing from many leaders in financing.

Earlier this summer, a report spearheaded by business leaders Michael Bloomberg, Hank Paulson and Tom Steyer quantified the economic impact of climate change. Without action, rising sea levels may flood coastal property, high temperatures may reduce worker productivity, and agricultural yields may decline. 

In addition, Business Forward looked at the costs of severe weather for the auto industry. The costs of the EPA’s new standards for power plants are relatively small (about $7 for a $30,000 car) when compared to the costs of a severe weather ($1,250,000 per hour of downtime). With continued climate change, severe weather may become more intense and occur more frequently.

The high cost of climate change means we need to start addressing these risks now.

“Capital markets participants traditionally have short term horizons. But environmental change is a long-term issue that they cannot ignore.,” wrote Standard & Poor’s president Neeraj Sahai in Fortune. “Over time, it will play an increasing role in determining both financial risk and return.”

Posted In: Climate Change

 

 

From 2011 to 2013 severe weather cost the U.S. economy more than $200 billion. With the frequency and intensity of severe weather increasing, so are production delays and disruptions. 

This week, the Environmental Protection Agency held hearings in four cities across the country to gather feedback on the recently proposed Clean Power Plan. Business Forward President Jim Doyle testified at hearings in two cities, Atlanta and Pittsburgh. 

He discussed the impact climate change has had on business leaders, manufacturers in particular. He cited recent Business Forward Foundation research, which found that the costs associated with the new regulations will be less than economic losses from weather-related disruptions.

In today’s global economy, supply chains are bigger, more specialized, more global, and incredibly fast. The very characteristics that make them more efficient make them more interdependent. Doyle explained that extreme weather events around the world have disastrous impacts on supply chains at home.

"Over the past four years, American factories have been disrupted by typhoons in Thailand, hurricanes in the Gulf of Mexico, droughts in Texas, tornadoes in Kentucky, falling water levels across the Great Lakes and flooding in the Northeast." - Associated Press

While critics have claimed that the EPA’s proposal will cost businesses more money to implement, the businesses’ savings overall will significantly outweigh the costs of supply-chain interruptions.

“Sixty percent of manufacturers' cost is supply chain. Less than one percent of its cost is electricity. Let’s worry about the supply chain. That’s the cost driver."  - WABE

Doyle explained that the study concluded that the EPA’s proposal is an important step in protecting the manufacturing industry from economic losses. Severe weather is far more expensive to America’s manufacturers than the costs of EPA standards intended to address it.

 

Posted In: Jobs
| Shumway Marshall, Digital Director

July Jobs Briefing with Treasury Department

The U.S. added 209,000 jobs in July, marking the first time since 1997 that the U.S. has seen six consecutive months of job gains of 200,000 or more. Unemployment ticked up slightly from 6.1 percent to 6.2 percent.

You're invited to an interactive webinar on Monday featuring Dr. Jennifer Hunt, the Deputy Assistant Secretary for Microeconomic Analysis at the U.S. Department of the Treasury. Dr. Hunt will give an in-depth look at July's jobs report. 

 Can You Make it to Monday's Webinar?

   

What: Monthly Jobs Report Briefing
When: Monday, August 4 @ 3 p.m. ET
Where: Your computer

Here's the link to register: https://attendee.gotowebinar.com/register/1790683688858543617

Posted In: Jobs
| Julie Faust, Digital Associate

Business Leaders Call for Climate Change Action

You might not realize how severe weather and climate change are impacting businesses, but business leaders are speaking out and making their stories heard. From tourism to farming, climate change is affecting companies from nearly every sector.

Here’s a round up of what some of them are saying:

Tourism

“Recent experience has me concerned that a fluctuating economy is not the only danger to my business. Climate change has brought
Chicago unpredictable and increasingly extreme weather.”  

--Holly Agra, President, Chicago’s First Lady Cruises,
Chicago Sun-Times 

Farming

“Why should you care? It’s pretty simple. If you drink milk or eat beef, you depend on alfalfa growers like me…We have been getting hit hard, and I think it is important for people in other parts of the country to understand how.”

-- Utah Farmer Jake Braken,
Provo Daily Herald 

Energy

“According to EPA, the public health and climate benefits associated with the Clean Power Plan are “worth an estimated $55 billion to $93 billion per year in 2030, far outweighing the costs of $7.3 billion to $8.8 billion.” The EPA’s proposal is an opportunity for leadership. Government officials, businesses, and stakeholders should embrace this proposal and work closely to get it done right for all of us to realize it’s far-reaching benefits."

--William Haas, Principal and founding member of Inova Energy Group, 
Environmental Leader.

Job Creation

In 2006, I started a solar energy company out of my garage that has grown into a multi-million dollar organization. I help my customers build cost-effective solar power systems that reliably generate electricity that’s cheaper than buying from the utility company. Moreover, solar power is a safe investment with returns that exceed the S&P 500. Solar creates American jobs that cannot be outsourced. Solar power makes so much financial sense that Wal-Mart has installed solar panels on over 100 of their stores in California."

--Deep Patel, Founder and CEO of GigaWatt, 
Ideas Laboratory

 

Technology

“Climate change is impacting business today. As a software technology company, I never imagined that we would be affected by the weather. Yet, with disruption after disruption, it is clear that climate change is something that no business can ignore. For my small firm alone, it has literally cost us tens of thousands of dollars in productivity. Our clients have experienced losses in the millions of dollars.”

-- Det Ansinn, Founder and President of BrickSimple, LLC,
Philadelphia Business Journal 

Finance 

“Companies need to do much more to explain to investors the climate-related risks they face and how they are managing them”

--Neeraj Sahai, President of Standard & Poor's,
Fortune

 


Posted In: Energy
| Garrett Lance, Policy Associate

Small Businesses Using Alternative Methods to Raise Capital

Most small business owners are financing their businesses without the help of loans, despite increased access to capital, according to a report by financial information firm Sageworks. 

Only 23 percent of current small business owners have ever applied for a small business loan, while nearly 77 percent have chosen other means of funding.

Instead, 59 percent of owners used personal savings to start their business and nearly 30 percent didn’t need any funding at all.  Increasingly, non-conventional sources of funding, like crowdfunding, are also removing barriers to capital.

Most business owners – 63 percent – chose not to apply for a loan because they didn’t want to take on debt. Another 24 percent found alternative funding because they didn’t think they would be approved for a loan.

Sageworks Chairman Brain Hamilton thinks this might be a good thing.

“That businesses have greater access to capital is good news,” he said. “But, it’s even better news that they’re being cautious about accepting that capital and debt.”

Posted In: Economic Trends