CNBC: US Energy Success Hinges On Ex-Im Bank Reauthorization03/11/15
By: Spencer Abraham
Even with the recent drop in oil prices, the need for energy resources and infrastructure will continue—especially in emerging market countries. But the ability of U.S. companies to compete in these markets will be diminished if Congress fails to reauthorize a critical financing tool: the Export-Import Bank.
In rapidly developing economies—like those in Latin America and Sub-Saharan Africa—the need for energy resources and infrastructure is overwhelming. In Africa alone, it is estimated that $300 billion worth of energy infrastructure will be required to meet the continent's power needs in the coming decades. Today, energy companies from Europe, China and the United States are competing to meet the strong demand.
These emerging market customers do not have the same access to capital markets as customers in developed economies, and so they rely on official export credit assistance to fill the gap. The emerging market customers of energy companies in France, Russia, China and elsewhere all have access to their country's export credit agencies. If the U.S. fails to keep the Ex-Im Bank operating, then U.S. companies will be at a competitive disadvantage, and business will be lost to foreign competitors.
Most recent USAID estimates project that there are still almost 6 billion people in the world lacking access to basic electricity. But in spite of this need, capital markets in developing economies are too often unable to facilitate the financing for foreign buyers of certain sales of major U.S. equipment or infrastructure projects.
Especially when it comes to large-scale power projects, or longer-term loans, the Ex-Im Bank is able to fill a void and provide foreign customers with competitive financing terms to turn the bids of U.S. companies into sales. And these aren't just one-off sales. Once an energy project is built, it provides parts and service business to firms for decades to come.
The private sector is not in a position to fill the financing gap for power projects in places like Africa. This is despite the fact that large-scale energy projects in these countries default at exceedingly low rates—lower even than in some developed markets. And because these projects are large and complicated, the customers and host governments prefer the standards, patience and expertise of official export agencies.
With the Export-Import Bank bridging the gap for foreign consumers to purchase U.S. energy resources, American suppliers are able to compete and win large, capital intensive contracts abroad. In the sub-Saharan Africa region, the Ex-Im Bank authorized more than $2.1 billion for U.S. exports during the 2014 fiscal year. In the past five years, the Ex-Im Bank has authorized more than $5 billion for U.S. exports to sub-Saharan Africa.
Congress' ambivalence towards the bank, however, is threatening to thwart this growth.
Developing economies around the world—hungry for energy infrastructure and resource—are not going to wait for U.S. policymakers to sort out their differences. In the absence of financing through the U.S. Export-Import Bank, they will simply turn to foreign competitors like Russia and China to fill the need. Emerging economies have huge energy demands. The question is, will Congress let American firms and workers meet that demand.
Spencer Abraham is a former Republican United States Senator from Michigan. He was as the 10th United States Secretary of Energy, serving under President George W. Bush.