Back to All News

Speech: Export Finance and Insurance Corporation Amendment (Direct Lending and Other Measures) Bill 2014

Senator RHIANNON (New South Wales) (09:43): The first part of the Export Finance and Insurance Corporation Amendment (Direct Lending and Other Measures) Bill 2014 does extend the mandate of Efic's activities from supporting the export of capital goods, to all goods. So we are really going from a situation where so many of Efic's loans went for large mining projects and the infrastructure that supported them, and other related projects, to really being about services, consumer goods and many aspects of what are called SMEs, small and medium sized enterprises.

Although it is the large infrastructure projects that the Greens and many in the aid sector have been concerned about, the extension of Efic's activities in the way set out in the bill should not go ahead without seeing the necessary reforms with regard to human rights and environmental protection being placed in low-income countries, because one of the enormous concerns with how Efic has operated is that it has provided money to projects where those companies are not able to get finance in the normal way, through the normal financial channels, and then many of those projects have been so damaging. That is often associated with mining projects, and there is the expectation that, when we are talking about small and medium sized enterprises, that will not be the case. But at this point, when we are seeing such fundamental change being proposed in Efic, this is the time to bring forward those needed changes that have been set out by many organisations, such as the Jubilee organisation and AID/WATCH. The Productivity Commission's report on Efic itself has identified many areas that need improvements.

The second part of the bill makes Efic subject to competitive neutrality arrangements that attempt to rein in any concessions the organisation has as a result of being a government agency. My colleague Senator Peter Whish-Wilson, who I have been working with on this issue, will outline some of the issues that are relevant there.

As I said, this debate needs to consider the issue of how companies that access Efic's loans then operate in low-income countries, because we have seen in many cases considerable damage resulting to people in those countries, particularly people who are living in poverty, who are already experiencing hardship, because of the way those projects roll out. The other aspect that we need to be conscious of when we are having this debate about the role of Efic, which provides credit to exporters, is that that can actually distort the economy of low-income countries and add to the debt burden that they are already experiencing. That in turn puts them under so much hardship and often results in the International Monetary Fund or the World Bank—or the Asian Development Bank, in the case of the Asia-Pacific region—coming in and imposing structural adjustment programs on these countries. Those in turn put the financial burden on low-income people and often on the public sector, which can result in many jobs being removed from the public sector, taxes being increased and wages being reduced. So we need to look at the kick-on effect of how these projects operate.

I mentioned earlier that the Productivity Commission undertook an inquiry and reported on Efic. It was disappointing that Efic really did not, I think, adequately respond to many of those useful recommendations. The Productivity Commission noted in its 2012 report on Efic that this market failure is much smaller for small and medium enterprises than for larger companies. The Productivity Commission actually said that it 'found no convincing evidence to indicate' that there are failures in financial markets 'that impede access to debt or equity finance for large firms'. So again it is not as clear cut in terms of the advantages that the government is setting out here.

Efic, as we know, do give considerable amounts of assistance to large companies. What you would assume, if you looked at their annual reports and read the Hansard from last week's estimates when Efic gave evidence, is that there already has been an enormous change to giving greater support to SMEs. But this is where it is quite deceptive, in that the increase in support is not as large as it is made out to be, because, when you look at the figures, they are talking about the volume of the number of projects, not the actual capital that is put in. That is adding to the concern of many people who have tracked the damaging track record of Efic over the years—that what they are in fact doing is using SMEs as a smokescreen, by saying: 'Well, we've cleaned up our act. We're concentrating on small businesses. We're helping them penetrate the markets in low-income countries in particular. And we're addressing that all-important issue of the national interest that this government promotes so strongly.'

However, when you look at the volume of money, it does not look like that much has changed, and that is where this needs to be tracked very closely. In its most recent annual report, Efic, as I said, was quick to tout that SMEs accounted for around 90 per cent of all facilities by the number of transactions for the 2013-14 financial year. However, 80 per cent of the value of those transactions goes to the large companies. That was the point that I was making. It is not the good-news story that Efic is trying to sell here.

In fact, over half of the amount awarded in the 2013-14 financial year went to just one company: mining and metals giant Nyrstar. According to reports in some of the media, this deal was linked to a state government project to upgrade the Nyrstar lead smelter at Port Pirie in South Australia. Because Efic can now put money into projects in Australia, they awarded just over $290 million to a project run by a Zurich-based multinational listed on the Brussels stock exchange that in the last financial year had over €2.8 billion in revenue.

As long as Efic continues to direct funds to large companies it is not meeting the requirements that I think people expect it to meet. It is not helping the small and medium enterprises that so many people here say is so important. Again, we need to add to that that it needs to be done in a way that ensures the environment in these countries is not damaged, that human rights are not abused and that people are not forcibly evicted when these projects take place. Those are all things that are linked with so many of the Efic projects to date and just because they are small projects does not mean there will not be abuses occurring.

This type of corporate welfare can be a disaster. In the 2013-14 financial year 19 per cent of Efic's exposures through its commercial account were in mining LNG and a further six per cent was in other mining commodities. I have to emphasise that we should all have deep concerns about the environmental and social risks that these projects provide in low-income countries. At the end of the day, Efic's main aspect of its work has been helping large companies penetrate low-income countries. Why is that? Because nobody else will give them the finance to do it. Efic takes a risk and that is how these companies get going.

Today, more than 60 per cent of the world's poorest people live in countries rich in natural resources, but they rarely share in the wealth. We do need to come back to this point when we are considering this mode of operating. Secrecy and corruption often mean that the income from oil, mining, gas and logging activities never reaches ordinary people. Meanwhile, they are the ones who carry the burden, as their livelihood is ripped apart and as the environment is destroyed. They are often moved to other areas. They get very few jobs out of so many of these projects. We do need to bring the human element into this debate.

To take Africa as an example, $148 billion of Africa's income is lost every year due to corruption in a continent where 2.5 billion people do not have access to a proper toilet and where nearly one billion lack access to clean water. That amount of $148 billion is equivalent to one-quarter of Africa's income being lost. That is one-quarter of the whole continent's income lost—not lost altogether but lost by the African people to some of the world's richest companies. We need to bring this debate back to people's lives.

African exports of minerals, oil and gas in 2010 were worth roughly seven times the value of international aid to that continent: US$333 billion versus US$47 billion in aid. There is clearly a problem here. If those resources were harnessed effectively in the fight to end extreme poverty, resource-rich countries could exit from their dependency on international aid, a sustainable solution that surely we all want to see happen. Again, this is very relevant to the debate on Efic. You cannot see Efic divorced from the hardship that is occurring in so many countries and the way Efic operates is furthering that divide between rich and poor.

Efic has its own history funding projects that prioritise mining multinationals over the needs of local people. It is not good enough to say that it has all moved on and that we are now looking at SMEs in a more thorough way. Those are very telling figures. You need to look at the volume of projects and realise that they are talking about volume of projects, not the quantity of money.

I do congratulate Jubilee Australia for doing extensive work on how Efic operates overseas, exposing many of the abuses. Jubilee Australia's 2012 report on the PNG LNG project revealed contract favouritism to ExxonMobil and local corruption has meant few, if any, benefits have flowed to ordinary people. I continue to have concerns that corporate welfare doled out by Efic will damage the livelihoods and human rights of local people in Papua New Guinea and other low-income countries. These large projects remain a problematic part of how Efic operates. Nothing in this bill says that the SMEs are going to be favoured over the big projects. That has still not been clarified.

Considering the negative impact that mining has had on many communities in low-income countries, it is imperative that Efic ensures that human rights are protected and that local people gain considerable benefit before money is poured into such projects. We need to get those standards right before the money is put in and the projects race ahead. Otherwise, the infrastructure is put in place, the indigenous people and other local people are moved out and their livelihood that is so often drawn from the environment in which they live is destroyed. Projects that are pitched as bringing great wealth to a certain country can often result in extreme hardship for most people.

My hope is that this bill can address some of these issues. By opening up Efic's eligible export transactions to include all goods, it is expected that more funds will flow to SMEs. This means less corporate welfare for mining giants operating in the world's poorest communities. We are not saying that this bill is totally wrong, but it has certainly missed out on an opportunity of bringing in some of the recommendations from the Productivity Commission. It does need to be tightened up in terms of where the bulk of the assistance goes. There is no guarantee that things are going to change in any substantial way. We will need to monitor it closely. I note that Labor and the coalition are supporting this bill, so we understand that it will go through. For all of the comments made by the Labor spokesperson on this legislation, they have been right there in supporting Efic in the way that it has operated. They have not responded to the considerable criticisms and the widespread documentation of the abuses and crimes that many of these companies which have received Efic funding have gone on to commit.

The bill includes no obligation on Efic to lend to SMEs, nor does it impose any restrictions on how much it lends to larger companies or to mining operations within Australia. That is one of the major flaws in this bill. Respect and protection for human rights of local people and for their local environments must be a priority consideration for Efic when deciding how to spend its funds. The issue of how Efic needs to be brought into line because of so much damage resulting from projects that it was funding has been raised year after year with successive governments. Those requests have been ignored for so long. It is disappointing that we are, again, seeing that same trend occur with this bill.

At the moment we do not feel confident about how the government is managing Efic. The change, we acknowledge, has the potential to shift how the funding arrangements of Efic occur. But this bill certainly should be tightened up in some very considerable ways, particularly regarding the standards under which companies that receive Efic assistance operate in low-income countries, ensuring that the SMEs do come under Efic in a more considered way and that it is not left in its current vague form.

Back to All News