Export Finance Australia
Senator VAN: Minister, I asked this of the Minister for Foreign Affairs yesterday. Can you tell the committee, from a trade point of view, what are Australia's national interests?
Senator Farrell: It's a very broad question.
Senator VAN: It is.
Senator Farrell: I'm not sure how Foreign Minister Wong answered it. But our national interests are all of the things, in a trade space, that we would want to do to increase the prosperity of our people. To give you an example, as you might recall, when we came to government two years ago, we had $20 billion worth of impediments with China, our largest trading partner, and we've worked steadily to reduce that figure. I would say that is something in our national interest. We're trying to negotiate a free trade agreement, for instance, with the United Arab Emirates. If that's successful, then that means our trade gets into that country at a lower tariff. Again, that's in our national interest. I would think anything in trade that increases our prosperity is in our national interest.
Senator VAN: So, generally, exports would help our prosperity?
Senator Farrell: Yes. All the evidence is that if you work in an export-focused industry you're likely to be earning more money than if you work in a non-export-focused industry.
Senator VAN: That's a very good point, actually.
Senator Farrell: To give you an example, when we got barley back into China late last year, I was in Western Australia for the first shipment of barley back to China. The week before that, barley had been selling at $300 a tonne. For that 40,000 tonnes, it was worth $375 a tonne. It's all about—
Senator VAN: Demand and supply?
Senator Farrell: Demand and supply, but also getting extra value for Australian products if you're exporting them overseas.
Senator VAN: Thank you, Minister; a very good point. You'll think these are questions for tomorrow and the Department of Defence, but I'd like your read on them. The DSR and the NDS both talk about government taking a whole-of-government approach to defending Australia. Would you see that trade has a role in that?
Senator Farrell: To this extent: if I'm right about my earlier supposition that trade brings with it prosperity, I think that prosperity adds to the defence of the country. Secondly, what trade does is it entwines economies. The day after tomorrow, I'm going to Singapore to sign some agreements in the Indo-Pacific economic framework with 14 countries in our region. I think the more countries are entwined economically, the less likely it is that there will be disputation or fighting, and therefore the safer our region and the world should be.
Senator VAN: Would you agree with me that exports of defence products and capability are an important part of that, because it takes pressure off your budget when our sovereign industrial base can sell overseas, for the premium you talked about? Would you see that as an important part of trade?
Senator Farrell: Australia supports the exports of our wonderful defence products.
Senator VAN: Through EFA?
Senator Farrell: Well, EFA is one outlet for it, but of course we're about to build some submarines in South Australia.
Senator VAN: You're not exporting them.
Senator Farrell: We may not export the submarines themselves, because we'll be needing them for our own defence purposes, but I think some of the technologies that will emerge from the construction of those submarines will be things that we can sell to the world. I'd certainly be encouraging companies, if they have—as I think they will—world-beating technologies, to explore the possibility of exporting them.
Senator VAN: Mr Hopkins, reflecting on what the minister has had to say, as the CEO of EFA, what's your view of national interest?
Mr Hopkins : National interest is very dynamic. For an agency like us that isn't a policy agency, really, that's a matter for government to determine. The government has asked us to focus particularly on the defence export sector, and it has given us a facility to help do that on the national interest account. We also have a number of other levers that we control to help support the defence sector. We have our own commercial account, so we conduct financing on a commercial basis, and, as the minister rightly pointed out, we think AUKUS is going to provide a lot of opportunity for Australian business.
Part of those opportunities is that once those smaller businesses move into the global supply chains of the larger primes, they will need finance to do that. That in itself will create a lot of opportunities for them. We're already talking to some of the major banks about their strong relationships with the defence primes and how we might help support some of the smaller businesses to access some of that work that's going to happen down the track.
From an international perspective, we're working very closely, as well, with our sister agencies in the UK and the US on opportunities to co-finance transactions together and to see whether we can cooperate on support for some of their businesses setting up shop here in Australia, which, again, eventually may export. We see it as a fairly dynamic offering, not just on the national interest account but also crowding in others, using our commercial account and stretching out into opportunities to work alongside partners in the private sector.
Senator VAN: Looking at your annual reports, in the year 2019-20, on the national interest account you did 18 transactions worth $675 million, supporting $700 million in overseas contracts, not a bad year. In 2020-21 you did $166 million in transactions, supporting $147 million in overseas contracts—not so good. You had a really good year in 2021-22, with $4.5 billion supporting $8.7 billion in overseas contracts. In 2022-23, there were only three transactions worth $333 million, supporting nearly $119 million in overseas contracts—probably not your best year. Is that multiplier taken into account when you're assessing an application for a national interest loan?
Mr Hopkins : When we're assessing our success, it really comes down to not just the finance that we provide but, as you say, the amount of export dollars that we're actually supporting. Often, you can be providing $10 million in bonding support for what could be a $100 million contract. So, yes, we do assess that sort of multiplier effect. Looking at some of those yearly figures, we've had some of our best and most successful years over the past couple of years on our commercial account. We had our best commercial account year in a very long time last year, and in our project and structured finance business we're already up to $1 billion worth of transactions this year. It's going to be, thankfully, another very good year. Again, a good year for us means supporting more Australian business and more Australian exporters. We are very focused on achieving success on the national interest account but also providing real commercial opportunities, where we can not only help support a business but also ensure that government gets a return on the money that it invests in those businesses to grow the agency and to grow the support that we can provide.
Senator VAN: Taking your word on that, would a loan application for, let's say, AU$50 million that was secured against overseas contracts worth US$1.2 billion come off the commercial account or the national interest account?
Mr Hopkins : It really depends. We look at transactions on a case-by-case basis. We have to assess different risks. It would depend on which sector it was in—
Senator VAN: Defence.
Mr Hopkins : on which country it was in, on the nature of the company itself—their management team, their capabilities—and on whether or not there were any other issues or other departments we needed to consult, in terms of approvals we might need to obtain. Unfortunately, every transaction that we end up doing tends to be very bespoke because we are a market gap financier. Effectively, we step in when commercial finance can't be provided. There is a lot of complexity to the transactions that we do, so I can't really answer that question without knowing the specific details of a transaction.
Senator VAN: I assume you have been briefed on it. What's the typical timeframe for assessing an application?
Mr Hopkins : We can do transactions fairly quickly, but we've had transactions in our pipeline for many, many years, particularly the larger transactions. We identify them early. We work through some of the early-stage financing requirements that they're going to need and some of the feasibility studies that need to be obtained. We can have transactions tracking on our system for a long time before we actually come in and provide the end product, which is the finance.
Senator VAN: Would you consider a $50 million loan small, medium or large?
Mr Hopkins : That would be a medium sized loan for us. It comes with considerable risk. We've got a relatively skinny balance sheet. If I were to lose $50 million, that would be a reasonable amount of money, given that we make $17 million or $18 million a year in profit. So it's medium to large.
Senator VAN: And someone in here would probably ask you questions on that. On those figures that I read out to you before, you said they're supporting $X million in overseas contracts. Do you take overseas contracts with national governments or other worthies? Do you use that as a criterion for assessing the viability of a loan on either account, commercial or national interest?
Mr Hopkins : It's one of the many benchmarks that we use, but it's not exclusively the single benchmark. There are a range of issues that we look at.
Senator VAN: There is a particular loan that is outstanding and has been on your books for at least nine months now. It is to support manufacturing of ammunitions. It's acquiring IP from an overseas company, and it will facilitate building Australia's guided weapons and explosive ordnance capabilities, accelerating that far faster than GWEO ever will. I struggle to see how EFA is supporting the national interest on that whole-of-government approach when your team seem to be dragging their heels, kicking and screaming, on this one particular loan.
Mr Hopkins : I'm familiar with the transaction you're referring to. We wouldn't normally talk about a company's name in a forum like estimates—
Senator VAN: I haven't raised it.
Mr Hopkins : but I can assure you that we are continuing to engage with that company actively. There was engagement on Thursday, and there's been further engagement today. It certainly is not a transaction that is lagging on our books. It's very much front of mind, and we are continuing to focus on assessing whether or not we are able to assist the company in question.
Senator VAN: I'll leave it there, but I hope you are able to hurry that one along. There's a lot of good around the world waiting for it.
