In a globalised world, many companies explore new markets, also in developing and emerging countries, because they offer interesting and profitable prospects. In doing so, they also come into contact with diverse risks. This is precisely where federal guarantees come into play, an instrument of foreign trade promotion that can benefit not only enterprises but also developing and emerging countries. Federal investment guarantees enable enterprises to invest safely in developing and emerging countries. Federal export credit guarantees play a central role in risk management and the financing of foreign transactions. But what exactly are the so-called Hermes Cover and investment guarantees? And for whom are they eligible? This article explains the basics.
What are investment guarantees?
Investment guarantees are a form of foreign trade promotion. The federal government provides guarantees for investments by German companies abroad to protect against political risks.
These include expropriation, war, revolution, conversion and transfer risks as well as insolvency of the host country. The federal government initially operates an effective crisis management system to prevent imminent losses and steps in if the investing company does suffer a loss. The deductible in the event of damage is 5%. Investment guarantees thus represent an important safeguard for the increasingly important direct investments of German companies in developing and newly industrialising countries and effectively help them to open up markets even in uncertain times.
Why are there export credit guarantees?
Export credit guarantees are another pillar of foreign trade promotion. They support German exporters in selling their products and services abroad. This is because export credit guarantees protect export transactions against political and economic risks.
This reduces the risk of non-payment for exporting companies. Such cover is particularly important for exports to developing and emerging countries. Export credit guarantees enable German companies to take up exports to these countries that would be too risky without state cover.
Federal guarantees: Who does the state help with them?
Federal guarantees primarily protect German companies when investing and exporting abroad. Small and medium-sized enterprises in particular benefit from this. This allows German exporters and investors to enter into foreign transactions that would be too risky without protection from the federal government's guarantees.
But the German economy in general also benefits. This is because the federal guarantees promote foreign investments and exports. This strengthens international economic relations and Germany as a business location. The investment and export credit guarantees are therefore an important component of state economic promotion.
Who can apply for export credit and investment guarantees?
In principle, all German companies can apply for export credit and investment guarantees. The export credit guarantee (so-called Hermes Cover) serves primarily to support small and medium-sized enterprises. The export credit guarantees are processed by Euler Hermes Aktiengesellschaft on behalf and for the account of the Federal Government. Interested parties can contact the company advisers of Euler Hermes Aktiengesellschaft directly.
Credit institutions and leasing companies can also apply for export credit guarantees when granting an export credit or concluding a leasing transaction. Euler Hermes Aktiengesellschaft examines the default risk of the export transaction. If the transaction is fundamentally eligible and justifiable in terms of risk, an export credit guarantee can be granted. This means that, among other things, new sales markets can be opened up and no possible damage is foreseeable.
The investment guarantees are handled by PricewaterhouseCoopers GmbH WPG. Interested parties can contact PwC directly.
What are direct investments?
Direct investments are long-term investments in foreign companies. They include, for example, shareholdings in project companies abroad or long-term, quasi-equity loans to finance the local costs of a foreign project. Direct investments serve to gain a foothold abroad and build up business there.
The number of German direct investments has risen sharply in recent years. It reached a new record of almost 52 billion euros in 2021. The federal guarantees support this trend by securing such investments.
What are the advantages of direct investments abroad?
Direct investments enable companies to tap into new sales markets and favourable location conditions abroad. In addition, local production can increase competitiveness. However, direct investments are also associated with higher risks. This is where the investment guarantees of the German Government come into play.
With their help, the advantages of internationalisation can be used while the risks are covered. This makes it easier for German enterprises to enter the market in developing and emerging countries.
Investment guarantees for small and medium-sized enterprises
Small and medium-sized companies have also been increasingly utilising the federal government's investment guarantees in recent years. Investments of any size are eligible for cover. In 2022, for example, the federal government provided guarantees ranging from around 200,000 euros to 652 million euros.
This means that smaller companies can also make secure investments abroad. The federal guarantees thus support the internationalisation of German SMEs.
Cover for Ukraine in 2023
With regard to applications for export credit guarantees, the German government is continuously monitoring the current dynamic situation in Ukraine. With the aim of providing Ukraine with the best possible economic support, the German government decided at the end of May to largely open up and normalise the cover options for export transactions under the export credit guarantees: Guarantees already issued for Ukraine remain largely unchanged. For collective cover (revolving transactions and blanket guarantees), transactions without bank collateral can now also be covered again. A large number of transactions relate to the agricultural sector, such as deliveries of seeds, fertilisers or harvesting machinery.
Individual cover with the private sector is also possible again without bank collateral. This applies to both existing and new customers in accordance with the creditworthiness check. Cover for transactions with the public sector can be provided with a guarantee from the Ukrainian Ministry of Finance or the Ukrainian Central Bank following a case-by-case assessment.
This should enable German companies to remain active during the war in Ukraine and promote economic cooperation even in difficult times.
Dörte Meyn, Head of Department Whole Turnover Cover at Euler Hermes AG: "Germany's cover options are among the most far-reaching in an international comparison. We have observed a significant increase in applications, especially since the adjustment in June." Euler Hermes is responsible for the implementation of the Federal Export Credit Guarantee Scheme.
Current information and contacts: Country information Ukraine (exportkreditgarantien.de)
Russia and Belarus business excluded from federal guarantees
On the other hand, no new federal guarantees will be approved for Russia and Belarus. Existing guarantees will continue to run for the time being. Overall, however, business with Russia and Belarus is excluded from federal guarantees until further notice. This is the Federal Government's reaction to the Russian war of aggression. New investments by German companies in Russia will no longer be supported. The suspension of investment and export credit guarantees is part of the economic sanctions against Russia.
Conclusion: Federal guarantees support internationalisation
The guarantee instruments of foreign trade promotion enable German enterprises to invest and export more securely in developing and emerging countries. The investment and export credit guarantees focus on securing foreign business transactions, especially for small and medium-sized enterprises. They are thus an important instrument of foreign trade promotion. The federal guarantees support the internationalisation efforts of the German economy and thus strengthen Germany as a business location.
Federal guarantees and leverist.de
On leverist.de you will find various offers for cooperation with Ukrainian companies that are eligible for cover under the export credit guarantees. This enables German companies to do business with Ukrainian SMEs successfully and without worries. In addition to establishing sustainable business relations, such cooperations contribute to the rapid reconstruction of Ukraine.
Of course, other business opportunities in the context of development cooperation on leverist.de can also be insured. Click here for the business opportunities.
Further information on this topic can be found here:
Solutions for SMEs
Information for foreign importers
Cover stop for Russia and Belarus
Investment guarantees: half-year report 2023
