Export Credit Capacity Building and Export Industry Promotion for the Dominican Republic The Export-Import Bank of Korea - Knowledge Sharing Program
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Knowledge Sharing Program
Export Credit Capacity Building and Export
Industry Promotion for the Dominican Republic
February 2012
The Export-Import Bank of Korea
1
CONTENTS
Chapter 1. Introduction ......................................................................................... 3
1.1. Project Background ......................................................................................................... 3
1.2. Project Objective .............................................................................................................. 3
1.3. Project Overview ............................................................................................................. 3
1.4. Project Summary.............................................................................................................. 4
Chapter 2. Results of Project Execution ................................................................... 6
2.1. Export Credit Capacity Building .................................................................................... 6
2.2. Export Industry Promotion........................................................................................... 12
2.3. Annual Assesment Meeting.......................................................................................... 16
Chapter 3. Current Situation of Export Credit and Export Industry of the DR............17
3.1. Export Credit Capacity Building .................................................................................. 17
3.2. Export Industry Promotion........................................................................................... 21
Chapter 4. Conclusion ..........................................................................................23
2
Chapter 1. Introduction
1. Project Background
KSP for the Dominican Republic began in June 2006, on the occasion of the state visit of
President Fernandez of the Dominican Republic to the Republic of Korea. During his visit,
President Fernandez requested that the Korean government share Korea's development
experience with the Dominican Republic. The Korean Ministry of Strategy and Finance
(MOSF) selected the Dominican Republic as the first beneficiary country for the
Knowledge Sharing Program (KSP) in Latin America.
For KSP I (year 2008), a comprehensive policy advisory service was carried out for the
export development policy of the Dominican Republic. For KSP II (2009), policy advisory
services concentrated on the construction of structural infrastructure in order to improve
SOC for export promotion and modernization of the power system, among others. For
KSP III (2010), efforts were concentrated on the export financing sector in order to
support the establishment of an Export Credit Agency (ECA) in the Dominican Republic.
The Dominican government is currently in the process of enacting a special law for the
establishment of the Dominican Export-Import Bank (DEXIM).
In order to determine the agendas for KSP IV (2011) for the Dominican Republic, the
government of the Dominican Republic was surveyed. It was found that the DR
government desired to build the capacities and competitiveness of employees for export
credit tasks and to learn of Korea's experience and know-how in export industry
promotion. As such, KSP IV was aimed at "Export Credit Capacity Building and Export
Industry Promotion for the Dominican Republic."
2. Project Objective
KSP IV focused on two objectives: (a) provision of assistance for the establishment of
DEXIM through capacity building and competitiveness enhancement of working-level
officials involved in the mission, and (b) support capacity-building efforts of Dominican
policymakers and entrepreneurs to facilitate identification and promotion of new export
industries that would replace the DR's current textile-oriented export industry. The
ultimate goal of KSP IV was to support export promotion and development for sustained
economic development in the DR.
3. Project Overview
□ Project Subject: Export Credit Capacity Building and Export Industry Promotion for the
Dominican Republic
3□ Project Type: Capacity Building
□ Project Period: 2011. 6. 1 - 2012. 2. 29 (9 Months)
4. Project Summary
A. Project Details
The KSP IV project consisted of two parts: export credit capacity building and sharing
Korea's experience in export industry promotion. The first part was continued from KSP
III which supported the establishment of an ECA in the DR. The Export-Import Bank of
Korea (KEXIM), the executing agency of KSP for the DR, recommended that DEXIM must
secure competitiveness of its operations in order to promote export credit. In line with
this recommendation, KEXIM conducted a training workshop in Korea for working-level
officials and a collective training workshop in the DR to enhance competitiveness of
DEXIM employees. In addition, a training workshop for high-level representatives in
private, academic, and public sectors of the DR was carried out to share Korea's
experience in export industry promotion and development.
KSP IV encompassed four main events: two training courses in Korea (one for
working-level officials and another for high ranking officials), a local training workshop,
and an annual assessment meeting. After successfully holding workshops for working-
level officials and high ranking officials regarding capacity building, the local training
workshop on the topic of export finance of KEXIM was held in early December 2011. The
annual assessment meeting was held on the final day of the local training workshop to
comprehensively review and discuss the progress and details of KSP IV as well as the
direction of future KSP projects.
The contents of the main events are listed below in the following table. The contents
were agreed upon with the DR before implementation.
Export Credit Capacity Building and Export Industry Promotion for
Subject
the Dominican Republic
Event Main Contents Dates
- Seminars on KEXIM financial services, funding
Working-Level
activities, credit rating, risk management system, trade
Training
finance, SME support program, etc. 8.22-9.8
Workshop and
- On The Job Training (OJT) in relevant departments of
OJT Program
KEXIM
4- Seminars on Korea's experience in export industry
High Ranking promotion and development and site visits
Training ◦ 5 Topics covered: export industry clusters, 3D 10.11-19
Workshop animation and digital contents, entrepreneurship and
innovation, contact centers, renewable energy, etc.
- Seminars on KEXIM's SME support program, credit
Local Training rating, risk management system, trade finance, etc.
12.5-7
Workshop - Consulting on BNVF financial services, credit rating,
and risk management system
Annual
- Assessment of KSP IV details, results, and future KSP
Assessment 12.7
project directions
Meeting
B. Research Team Organization
The research team for KSP IV was comprised of the following researchers. In addition
to these researchers, export credit specialists from KEXIM and experts from related
institutions participated.
Name Position Background and Area of Expertise
- Hanyang University, Bachelor of Business
Korea Eximbank
Administration
Country Research & Risk
Han-ku LEE - Country Research & Risk Evaluation Office,
Evaluation Office
Director General
Head Director
- Daegu Branch, Director General
- Hankuk University of Foreign Studies,
Korea Eximbank
Ph.D, International Area Studies
Country Research & Risk
Young-Seok - Country Research & Risk Evaluation Office,
Evaluation Office
KIM Director of Latin America Team
Latin America Team
- Dispatch Officer to Inter-American
Director
Development Bank (IDB)
Korea Eximbank - Yonsei University, Bachelor of Economics
Country Research & Risk - Country Research & Risk Evaluation Office,
Kisu LEE
Evaluation Office Senior Research Officer
Senior Research Officer - EDCF, Loan Officer
5Chapter 2. Results of Project Execution
The KSP IV project consisted of three parts: two training courses for export credit capacity
building, a workshop for export industry promotion, and an annual assessment meeting.
The first part was a continuation of KSP III, support for the establishment of an ECA in
the DR. On the final report for KSP III, KEXIM commented that it would be essential to
enhance not only the competitiveness of the institution but also the competitiveness of its
staff in order enhance the competitiveness of DEXIM export credits. As mentioned in the
final report of KSP III, the key to successful provision of export credit services and
effective performance of tasks is competitive personnel able to perform assigned duties
within DEXIM. For this goal, KEXIM specialists shared KEXIM's expertise in export
credit services during the training courses in Korea and in the DR with DEXIM working-
level staff, and made every effort to build up their capacities.
In addition, since the Dominican government is eager to seek ways to encourage export
growth and export industry promotion by identifying key export industries and promote
creation of clusters in relevant sectors, ‘export industry promotion for the DR’ was
determined as another pillar of the KSP IV. In line with this objective, high ranking
officials of the DR were invited to participate in a workshop and site visits, also held in
Korea, to share Korea's best practices in export industries promotion.
For KSP IV, an annual assessment meeting was also held in order to disseminate the
results and progress of KSP IV and the direction of future KSP projects.
1. Export Credit Capacity Building
A. Training Course for Working-Level Officials (OJT)
From August 22nd to September 8th, 2011 (3 weeks) the training course for four
working-level Dominican officials--one of the CEI-RD and three of the BNVF--took place
at KEXIM.
The objectives of this training course were to describe the export credit support system
tailored to the Dominican economic situation. The presentations were mainly on Korea's
Export Credit Support System, Export Credit Support System for SMEs, and Risk
Management System. The following is a list of officials invited to the training course.
- Mr. Roberto Sandoval, BNVF Technical Support Official
- Mr. Erick Ortiz, BNVF Representative for Risk Management
- Ms. Jenny Alvarez Padrón, BNVF Representative for Credit Ratings
- Mr. Ramses Seliman: CEI-RD Representative for KSP and Export Credit
6Date Description Note
8/22
- Arrival
(MON)
8/23 - Visit with Vice President of KEXIM
(TUE) - Seminar 1: KEXIM & its Financial Services
8/24 - Seminar 2: KEXIM's SME Support Program
(WED) - OJT: SME Finance Department
8/25 - Seminar 3: KEXIM's Credit Rating
(THU) - OJT: Credit Rating Office
- Experiencing Korean Culture
8/26 (FRI)
· DMZ Tour
-28 (SUN)
· Seoul City Tour
8/29 - Seminar 4: KEXIM's Risk Management
(MON) - OJT: Risk Management Department
8/30 - Seminar 5: KEXIM's Overseas Funding Activities
(TUE) - OJT: International Finance Department
8/31 - Seminar 6: KEXIM's Structured Trade Finance
(WED) - OJT: Structured Trade Finance Department
9/1 - Seminar 7: KEXIM's Plant Finance
(THU) - OJT: Plant Finance Department
- Field Trip
9/2 (FRI) · COEX
-4 (SUN) - Experiencing Korean Tradition and Culture
◦ Namdaemun/"Jump" Performance
9/5 - Seminar 8: KEXIM's Interbank Export Finance
(MON) - OJT: Interbank Export Finance Department
9/6 - Seminar 9: EDCF
(TUE) - OJT: EDCF Latin America&Africa Department
9/7 - Wrap-up Session
(WED) - Closing Ceremony
9/8
- Departure
(THU)
7During the training program, participants took part in seminars on general export
credit services of KEXIM in the morning sessions, and performed related tasks within the
departments of KEXIM in the afternoon sessions.
Specific case examples were presented in most of the seminars to effectively transfer
expertise and knowledge to DEXIM staff. All those who attended participated actively
and dynamically in the seminars and Q&A sessions. Questions were raised which
required a high level of expert working knowledge. The participants discussed in-depth
about KEXIM's best practices in export credit services and how these practices could be
adapted and applied to the DR.
Participants were highly interested in KEXIM's SME support program. For this reason,
a seminar on the Hidden Champion Program was included in the following workshop
for high ranking officials of the DR.
- According to Dr. Hermann Simon, a leading German economist, "Contrary to the
common belief that a country's exports are dependent on a few large companies, it is the
many SMEs with high export capacity which lead national export growth." He
accredited Germany's remarkable economic success to thousands of SMEs he called
"Hidden Champions."
※ Dr. Hermann Simon defines Hidden Champions as companies that are not well
known to the public but which rank 1-3 in terms of market share and have sales of under
US$4 billion.
- KEXIM applied Dr. Simon's concept to Korea and decided to nurture SMEs in Korea
and called them "Korean Hidden Champions." First, KEXIM set goals for Korea's SMEs
and defined a Korean Hidden Champion as a mid-sized global company with annual
exports of more than US$100 million and sustainable dominance in its respective sector.
- As the state-run bank, KEXIM then launched an SME support program titled “The
Korean Hidden Champion Program” through which SMEs were provided with policy
assistance to facilitate their development towards becoming a leading global export
company.
- From 2010-2016, 500 SMEs with great potential for growth will be selected and
nurtured to become Korean Hidden Champions as part of the program. In order to
assist selected candidate companies secure global competitiveness, they will be
provided with financial and non-financial support throughout the stages of business
activities including product development, production, and overseas sales.
- According to an analysis by the global management consulting firm of A.T. Kearny, the
Korean Hidden Champion Program could lead to US$38 billion in exports, 270,000 new
jobs, and US$20 billion in additional GDP growth over the next decade.
8Although participants found KEXIM's plant finance and other advanced financial
services to be the most interesting themes, taking into account the current situation of the
DR, DEXIM's functions are more focused on SMEs as SMEs comprise the majority of
export enterprises in the DR. At the moment, companies with more than 300 employees
are classified as large enterprises in the DR. Moreover, the DEXIM will not issue foreign
currency bonds. For these reasons, it is necessary to adjust the KEXIM’s export credit
model to the Dominican economic situation. A review of opinions of the Dominican
participants during the courses indicated that DEXIM will be devoted almost entirely to
SMEs.
In addition, since two of the participants were in charge of risk management and credit
rating at BNVF, those themes were of great interest. Risk management and credit rating
tasks are essential among ECA services. Especially since the 2003 banking crisis risk
management for the domestic banks has been increasingly important in the DR, they
were highly interested in the KEXIM’s risk management system. As such, seminars and
consulting on related tasks were conducted in the local training workshop.
On the last day of training, participants provided a presentation on BNVF's conversion
process into the DEXIM. According to the presentation, consultations and agreements with
the related institutions such as Congress, Ministry of Economy, Planning, and
Development, Ministry of Finance, Central Bank, etc. have taken longer than expected.
Consequently, DEXIM establishment has also been delayed. On the bright side, BNVF has
already initiated internal preparations for conversion into DEXIM, by selling its housing
loans and allocating resulting fund for export credit. DEXIM’s operations will be mainly
targeted to agriculture and other industries that the DR has competitiveness. Although its
name has not been changed into DEXIM, actually the BNVF is already functioning as an
export credit agency.
B. Local Training Workshop
The Local Training Workshop has taken place in Santo Domingo, from December 5th
to 7th, 2011. This workshop was held for DEXIM working-level officials in the
Conference Room of BNVF's head office. KEXIM experts in export credits comprised the
teaching team and the target group of the workshop was composed of 20 working-level
officials of the CEI-RD, BNVF, and related institutions. The main topics included Korea's
economic development experience and the establishment of KEXIM, SME support
programs, risk management, credit ratings, and structured trade finance. Below is a list of
lecturers, a brief description of those who attended, and the schedule of the local training
workshop.
- Sungsoo Jung, Deputy Director (Seminar on KEXIM's SME Support Programs &
Korean Hidden Champion Program)
- Jaehoon Oh, Senior Research Officer (Seminar on KEXIM's Risk Management
Program)
9- Jin ha Lee, Senior Research Officer (Seminar on KEXIM's Credit Rating Program)
- Jinoh Suk, Senior Research Officer (Seminar on KEXIM's Structured Trade Finance)
- WahnKil CHUNG, Professor (Seminar on Korea's Economic Development and the
Establishment of KEXIM)
- BNVF executives and staff members who will be in charge of export credit operations
once BNVF is converted into DEXIM
- Executives and staff members of CEI-RD
- Executives and staff members of the Central Bank
- Academics from the DR
Date Description Location
Opening Ceremony
Conference
Seminar 1: Korea's Economic Development and the Room at BNVF
Establishment of KEXIM
Welcoming Lunch (Hosted by BNVF)
12/5
(MON) Seminar 2-1: SME Support Programs of KEXIM Conference
Room at BNVF
Seminar 2-2: Korean Hidden Champion Program
XXV Annual Dinner of the Dominican Association of
Hilton Hotel
Exporters (ADOEXPO)
Seminar 3: Risk Management of KEXIM Conference
Room at BNVF
Seminar 4: Credit Rating of KEXIM
Lunch
12/6 Seminar 5: Structured Trade Finance of KEXIM Department of
(TUE) Risk
Management at
Consulting: Risk Management of BNVF
BNVF
Ministry of
Visit to Ministry of Finance
Finance
Visit to Ministry of Economy, Planning, and
MEPyD
Development
Conference
Wrap-up Meeting with CEI-RD
12/7 Room at CEI-RD
(WED) Lunch (Hosted by the Korean Embassy in the DR)
Farewell Dinner
10In his opening remarks at the Opening Ceremony of the local training workshop,
President Federico Antun of BNVF expressed his pleasure to be holding the meaningful
workshop of the fourth KSP in BNVF. President Antun also expressed his hopes that the
event would serve as a valuable opportunity for BNVF to gain in-depth knowledge about
export credits from KEXIM so that DEXIM can strengthen its competitiveness.
Professor WahnKil Chung also delivered a speech and stated that the Korean
delegation was deeply impressed by the rapid sustainable economic development
achieved by the DR, a strategic partner country in the Caribbean. He also expressed his
hopes that the KSP projects serve to effectively share Korea's knowledge and experience
accumulated over the last 50 years with the DR. Along with his assurance that KEXIM is
making every effort to support the establishment of DEXIM, he expressed his great
anticipation for prompt reforms of relevant laws and establishment of DEXIM.
The local training workshop was attended by BNVF staff members, personnel of CEI-
RD and the Central Bank involved in DEXIM establishment, and academics of the DR.
The contents of lectures were fundamentally similar as those of the training course held
in Korea, and some courses were also included since the participants to the training
workshop held in August requested as their priorities. Considering that the Dominican
Republic is in the initial phases of export-import bank establishment, a lecture was
included in the local training workshop on the history of KEXIM, the circumstances and
challenges surrounding KEXIM establishment, and the progress KEXIM has achieved
since its establishment. As in the training course in Korea, active participation by
attendees resulted in dynamic discussions and Q&A sessions to make the local training
workshop a success.
In addition, KEXIM's delegation was given the opportunity to learn about BNVF's
current credit rating and risk management programs as well as to provide consulting for
the programs.
112. Export Industry Promotion
A. Training Workshop for High-Ranking Officials
From October 11-19, 2011 (8 nights and 9 days) the training workshop for 13 high-level
Dominican officials was held in Korea. Of the participants, six members represented
public entities, including the Executive Director of CEI-RD and the Vice Minister of
Finance, and seven members represented the private sector, including the Executive
Director of ADOEXPO and CEOs of exporting companies. This workshop was an
important opportunity for the Dominican participants to learn of industries with
significant growth potential such as call centers, 3D animation & digital contents, and
renewable energy. The workshop was also an opportunity for attendees to participate in
seminars about Korea's experience in promotion of those industries and to visit relevant
institutions. The following is a list of officials invited to the training workshop and the
schedule.
12- Hon. Eddy M. Martínez Manzueta, Secretary of State/Executive Director CEI-RD
- Hon. Julio Anibal Fernandez, Vice Minister of Finance
- Hon. Carlos Manuel Alvarez, Honorary Consul of South Korea in the DR
- Mr. Jorge Dargam, Minister Counselor of Foreign Affairs (MIREX)
- Ms. Kary Van Der Horst, Executive Director of the Dominican Exporters Association
(ADOEXPO)
- Mr. José Hernández, President Trace Solar, S.R.L.
- Ms. Sheilly Núñez, Cluster Manager - Beauty Products AIRD
- Mr. Javier Matías, Cluster Manager - Pharmaceutical Products Medigrand, S.R.L.
- Ms. Sofia Ortiz, Export Promotion Manager CEI-RD
- Ms. Vienchy Tirado, Technical Cooperation Deputy Manager CEI-RD/KDI Project
Coordinator
- Ms. Altagracia Volquez, Specialist CEI-RD
- Ms. Gisselle Fiallo de Dargam
Date Description Note
10/11
- Arrival
(TUE)
- Seminar: KEXIM's Hidden Champions
10/12
- Visit to a Hidden Champion company
(WED)
(Pharmaceutical Industry)
□ Export industrial cluster promotion KSP Theme 1
· Visit to the Korea Industrial Complex Corporation
10/13 (KICOX)
(THU) - Banquet lunch for VIP hosted by MOSF
□ 3D animation and digital contents KSP Theme 2
· Visit to Korea Creative Content Agency (KOCCA)
□ Entrepreneurship and innovation of Korea KSP Theme 3
10/14 - Visit to Samsung Electronics (Suwon)
(FRI) · Presentation about Samsung Electronic’s innovations
- Seminar: Promotion of Entrepreneurship of Korea
- Experiencing Korean Tradition and Culture
· National Museum of Korea/War Memorial of Korea
10/15(SAT) -
· COEX
16(SUN)
· Changdeok Palace
· "Jump" Performance
13□ Contact Centers & BPO Clusters
KSP Theme 4
- Seminar: Korean Contact Centers & BPO Clusters
Presentation: History, Success Factors, and
10/17
Challenges
(MON)
- Visit to the National Health Insurance Corporation
(NHIC) & Dasan 120 Seoul Call Center
- Award ceremony at KDI
□ Renewable Energies KSP Theme 5
10/18 - Seminar: Policy Support for Korean Renewable
(TUE) Energies
- Visit to LG Electronics
10/19
- Departure
(WED)
This training workshop aimed to share Korea's experience in export industry
promotion with the DR. In this context, the course consisted of seminars and visits to
relevant sites. Based on the results of a demand survey of KSP IV, ① entrepreneurship
and innovation of Korea ② export industrial cluster ③ contact centers and the BPO
industry were initially selected as the original themes of the workshop. However, after
consultation with Dominican counterparts, the topics of 3D animation and digital
contents and Korea's renewable energy industry were added to the workshop program.
One of the intentions of the training workshop was to draw a consensus on the
necessity of DEXIM establishment and the anticipated results through the introduction of
Korea's Export Credit Support System and its outcomes and the sharing of Korea's
experience with Dominican government officials involved in the decision-making process
for DEXIM establishment. This objective was reached mainly due to the active
participation at the workshop of the Vice Minister of Finance, an official with great
influence on the conversion of BNVF into DEXIM. The Vice Minister was deeply
impressed with the rapid development of Korea and realized first-hand that KEXIM
played a critical role through export credit services to strengthen the nation's export
industry, promote exports, and ultimately secure export-driven development. Therefore,
he fully supported DEXIM establishment and agreed DEXIM was absolutely essential for
export promotion in the DR.
Secretary Eddy Martinez had great interest in the Korean Hidden Champion Program
and expressed the possibility of benchmarking it for the DR. In addition, Secretary
Martinez was highly interested in Korea's entrepreneurship, i.e. the case of Samsung and
the digital contents industry, and noted that there was great potential for bilateral
cooperation in regards to 3D animation and digital contents industries as the DR has
prioritized promotion of the country's film industry after a law to promote film industry
of the DR were approved last year.
14The workshop proved to be a success with active and dynamic participation from the
attendees during the seminars and Q&A sessions. In addition, the workshop served to
highlight Korea's export credit system and Korea's experience in export industry
promotion so that the DR may benchmark them and develop a similar system tailored to
the needs of the DR.
153. Annual Assessment Meeting
The annual assessment meeting of KSP IV was held in the conference room of CEI-RD
on December 7th, the last day of the local training workshop. The following is a list of
participants to the meeting.
- Mr. Eddy Martinez, Secretary of State/Executive Director CEI-RD
- Ms. Acelis Angeles, Deputy Director of CEI-RD
- Ms. Vienchy Tirado, Technical Cooperation Deputy Manager CEI-RD
- Ms. Sofia Ortiz, Export Promotion Manager CEI-RD
- Kisu Lee, Senior Research Officer; Sungsoo Jung, Deputy Director; Jaehoon Oh, Senior
Research Officer; Jin ha Lee, Senior Research Officer; Jinoh Suk, Senior Research
Officer; WahnKil CHUNG, Professor, Jeongseon Lee, Research Officer; Ja-Kyung
Hong, Research Specialist
In the annual meeting, the CEI-RD expressed hopes that DEXIM establishment would
be a tangible result of the KSP for the DR as the KSP had steadily been carried out from
2008 to 2011 specifically for export promotion. In addition, Secretary Eddy Martinez met
with the Minister of Economy, Planning and Development after the meeting with the
Korean delegation a day before the annual session. During this meeting, the Minister
stated that he would do his best to support the establishment of DEXIM and the Cibao
Trade Center as top two priority projects. The Minister informed the Secretary that the
project should be pushed ahead immediately before the presidential elections in the DR
and the launch of the new government.
The Korean delegation expressed hopes for a successful conclusion of KSP IV so that
KSP V would follow, particularly as KSP projects for the Dominican Republic are
significant for the Korean government, and hopes that successful DEXIM establishment
would facilitate export promotion in the DR. The next KSP is anticipated to provide
continued support for export credit capacity building and training courses as well as a
policy study for selected issues. The capacity building program will be undertaken by
KEXIM. KDI will hire an institution or 3-4 individual consultants to conduct the study.
The Korean delegation and the Dominican government reached a consensus in regards to
the continuation of export credit capacity building project. In addition, the Dominican
government requested the inclusion of one of their top priority sectors, i.e. agriculture, IT,
and 3D animation, in the study.
16Chapter 3. Current Situation of Export Credit and Export Industry of the DR
1. Export Credit Capacity Building
A. Current State of BNVF Export Credit Services
Established in 1962, BNVF is a mid-sized national development bank with US$130
million in capital and US$250 million in assets, and operates both indirect (banco de
segundo piso) and direct financing to borrowers. BNVF provides export credit in the
form of pre-shipment and post-shipment financing on a per contract basis. Such activities
currently account for a small portion of the Bank’s total commitment. However,
commitment volumes and the number of export credit transactions have steadily
increased after 2008, recording 693 million pesos for 81 transactions in 2011. BNVF is
expanding its post-shipment financing to farm facilities such as greenhouses, installed to
cultivate agricultural products (banana, mango, etc) for export.
Export Credit Commitment
Unit: Million pesos
2006 2007 2008 2009 2010 2011
No. of
128 7 31 29 62 81
Commitments
Commitment
213 13 69.2 131.3 516.3 693.1
Volumes
Source: BNVF
There are two main types of financing available for exporters, pre-shipment financing
and post-shipment financing. Pre-shipment financing is provided to cover production
costs of export goods, and is available up to 80% of the export contract amount. The
credit limit is set at a minimum of 500,000 pesos and a maximum of 6 million pesos
(US$150,000 equivalent). With approval from the BNVF Board of Directors however, the
maximum credit limit could be increased up to 20 million pesos. The repayment term can
range from 2~12 years, and the interest rate is around 17%. In the case of post-shipment
financing, the maximum credit amount is 100,000 pesos and is available up to 90% of the
export contract amount. The export financing products of BNVF are fairly systematic as
financing is based on export contracts. However, per transaction credit limits are low and
margins must be added on interest rates because export financing is provided through
commercial banks under on-lending arrangements.
Moreover, BNVF assessments of export contracts and the credit statuses of exporters
were not considered in the determination of financing terms and conditions because
collateral were provided by exporters. KSP I (2008) identified that the lack of a suitable
credit rating and risk management system in the DR was an issue that needed to be
17resolved in order to effectively promote exports. A credit rating and risk management
system was established through consulting services conducted by the IDB in 2009, and at
present, the BNVF utilizes the system to calculate lines of credit and assess credit ratings.
As a result of the consulting by the IDB, dispersed departments were reorganized and
sub-departments of risk assessment and administration were formed under the risk
management department. Departments were then divided into different teams according
to industries such as agriculture, manufacturing, and industry. BNVF established a
qualitative evaluation model including elements for quantitative assessment. Currently,
BNVF evaluates credit ratings of companies using this model; however, BNVF is unable
to efficiently utilize evaluation results because the credit rating system is fairly new.
As BNVF provides pre-shipment financing for agricultural products such as bananas,
mangos, etc. in the form of project financing, project risk is more important than
exporter’s risk for risk management.
B. Recommendations
Considering that most BNVF loans are secured with collateral, it is recommended that
BNVF should gradually increase loans on credit. BNVF should also adopt a more
advanced risk management system of credit ratings for determination of interest rates
and lines of credit amounts as well as to accumulate reserves. Because most BNVF
customers are SMEs and BNVF's credit rating system relies heavily on qualitative
evaluations, it would be advisable for BNVF to benchmark KEXIM's Special Credit Loans
for SMEs. As it has only been two years since the risk management system was improved
and the credit rating program introduced, there is much potential for improvement. To
this end, KEXIM will dispatch staff to BNVF to conduct consulting services with regard
to systematic improvements for implementation of a risk management program.
BNVF, which will be converted into DEXIM, provides national exporters with operation
and pre-shipment financing. However, BNVF can further develop its own export credit
services and products. In this regard, BNVF should benchmark KEXIM’s export credit
model and adapt it to the Dominican economic situation.
Taking into account the size of the DR’s economy and its industrial structure, a
majority of BNVF customers are considered SMEs due to their annual revenues and
number of employees. As such, the vast majority of services provided by DEXIM would
be for SMEs.
At present, BNVF and large commercial banks in the DR undertake trade finance
support, such as export factoring and L/C opening, but because of high discount rates
and commissions, many SMEs are unable to benefit from these services. This situation
highlights the great need to establish DEXIM for assistance to SMEs. DEXIM would
benchmark KEXIM's SME support program to assist SMEs in the DR. The main products
of KEXIM’s SME support program are as follows:
18□ Benefits for SMEs
Description SMEs
- Comprehensive Export Loans for SMEs provided
on the basis of past export performance
Borrower - Special Credit Loans for SMEs provided to those
with technological superiority but low credit
ratings
Expansion of 30 days - 2 years
Negotiation
Eligibility (for Large Enterprises, over 90 days)
Import Credit
/Overseas Up to 90% (for Large Enterprises, up to 80%) of the
Investment contract amount
Expansion of Credit
Coverage - For export SMEs of next generation industries,
Comprehensive e.g., green industries, new growth industries, etc.,
Export Loans and best customers selected by KEXIM
- Up to 100% of their past export performance
- Provide forward exchange services, loans with
currency options (foreign currency↔won, foreign
currency↔other foreign currency) without charge
- Assessment of exchange rate risk management
Services Related to Management
(visit respective enterprise), training course for
of Exchange Rate Risks
working-level officials on exchange rate risk
management (monthly at KEXIM), presentation
on exchange rate risk management (in different
provinces)
19Comprehensive Export Loans for SMEs
Comprehensive Export Loans for SMEs are provided on the basis of past export
performance of SMEs including the subcontract with the primary exporters.
□ Terms & Conditions
- SMEs with prior export records
- Export records: record accumulated by directly exporting products
Borrower
or supplying commodities or raw materials necessary for the
primary exporter
- In KRW or a foreign currency
Currency - Currency swap and foreign exchange forward options are available
to protect SMEs from exchange rate risks
Coverage - Up to 90% of 6-month export record (100% for venture companies)
Repayment - Six months (can be extended on a 6-month basis contingent upon
Term continued export performance)
Interest Rate - Base rate + risk premium + margin
- Loan on credit possible to creditworthy borrowers
Security
- Bank guarantee, pledge, or mortgage on borrower’s local assets
Special Credit Loans for SMEs
Special Credit Loans for SMEs are provided to SMEs exporting goods under short-term
export contracts. This facility does not require additional collateral if SMEs lack securities
but are highly capable of carrying out export contracts.
□ Terms & Conditions
- SMEs with short-term export contracts
Borrower - SMEs with export records assessed to have adequate capacity to
execute export contracts
- In KRW or a foreign currency
Currency - Currency swap and foreign exchange forward options are available
to protect SMEs from exchange rate risks
- By company: total net worth or KRW 2 billion, whichever is less
Coverage - By transaction: up to 90% of contract value less any amounts
already received
Repayment - Up to 15 days after the last payment date of the export contract or
20Term up to 6 months
Interest Rate - Base rate + risk premium + margin
Security - Loan on credit
- Elements of evaluation to measure export transaction stability:
∙ Importer's credit rating
∙ Long- and short-term distribution agreement
∙ Eligible L/C and terms of payment
Assessment - Elements of evaluation to measure exporter's capacity of executing
Criteria export contracts:
∙ General aspects - export record, type of enterprise, etc.
∙ Manufacturing capacity - manufacture facilities, operation ratio,
etc.
∙ Financial stability - debt ratio, current ratio, etc.
2. Export Industry Promotion
A. Current Situation of Export Industry Promotion in the DR
In January 2008, the Dominican Republic Industrial Association (AIRD) initiated the
Industrial Innovation Program funded by the Multilateral Investment Fund (MIF) of
Inter-American Development Bank (IDB). Through this effort, the Dominican
government hopes to enhance the productivity and competitiveness of export industries
of the DR by creating industrial clusters in their competitive sectors and actively
supporting them through various measures such as tax benefits.
As part of the program, three industries were chosen as beneficiaries and were
designated as manufacturing clusters: cocoa, cosmetics, and plastics. Cocoa is one of the
key export products of the DR with increasing demand from North American and
European markets. Cosmetics is a cluster with significant strategic potential as an export
market under the DR-CAFTA. Plastics is a strategic cluster with potential to enhance
connectivity between domestic manufacturers and export processing zones.
The creation of industrial clusters in the DR was suggested as the best strategy for
export promotion. According to the ADOEXPO, exports from the free zone (export zone)
accounted for a majority (61.8%) of DR exports in 2011. The industrial cluster creation
project aimed to increase participation of the domestic manufacturing sector in the
country's export efforts and to alleviate one of the DR's main challenges: the steady
erosion of local suppliers in the export zone.
21B. Recommendations
According to Michael E. Porter, professor at Harvard Business School, a cluster is a
geographic concentration of inter-related businesses, suppliers, and associated
institutions in a particular field. The companies of a cluster are able to not only reduce the
cost of production but also benefit from the synergy created through collaborations,
information exchange, and cooperative competition.
Clusters played a critical role in Korea to spark growth as Korea also had a
concentration of key manufacturing industries such as automobiles, machineries, and
electronics. In the ‘60s, the Korean government established a systematic support program
encompassing the design and creation of clusters to maximize industrial integration.
A cluster consists not only of manufacturing enterprises but also numerous R&D
facilities such as universities, laboratories, and support institutions. Thus, manufacturers
are able to benefit from the synergy created through collaboration and sharing of
information and knowledge. For this reason, it is essential that the central government,
companies, universities, and local autonomous governments establish a cooperative
network and partnership.
At present, the Dominican government supports industrial clusters in order to promote
industrial development and exports. For the smooth and successful creation and
operation of clusters, it is advisable that the government takes a more active role in the
design and planning of cluster development strategy and provides support for the
establishment of legal and institutional frameworks. Early in the development process of
a cluster, the government should conduct an in-depth assessment to find an ideal location
for efficient logistics and easy market access.
In addition, the inclusion of relevant institutions in a cluster is essential if the DR is to
improve the performance of clusters. In a cluster, universities and institutions should
have a heavy role in the development of new technologies for commercialization by
companies.
To promote exports in the DR, it is also essential to identify which sectors are active in
the current export market and which have high potential for growth in the future. The
Dominican government should make efforts to identify existing opportunities and
encourage new industries. After 3D animation & digital contents, renewable energy,
contact centers & BPO industries were identified as new industries with high potential,
the DR initiated efforts to develop them more intensively.
22Chapter 4. Conclusion
The theme for KSP IV was “Export Credit Capacity Building and Export Industry
Promotion for the Dominican Republic.” Accordingly, training courses for working-level
officials on export credit were held in Korea and in the DR. In addition, high ranking
Dominican officials were invited to Korea to participate in a workshop on export
industry promotion. The KSP IV capacity building program was composed of two
training courses in Korea and a local training workshop. The KSP team concluded the
program successfully.
The Export Credit Capacity Building Project aimed to share KEXIM's expertise in
export credit services with DEXIM working-level staff. In contrast to the training
workshop held for KSP III, KEXIM conducted an OJT for working-level officials of the
BNVF and CEI-RD for KSP IV. The OJT training and local training workshop stressed
capacity building of future DEXIM employees and officials involved in DEXIM
establishment as well as knowledge sharing of export credit operations. Participants of
the OJT training also visited related departments of KEXIM and learned of on-going
projects. In addition, KEXIM’s delegation conducted consulting services to improve the
implementation of the management system of BNVF.
For efficient provision of export credit services and effective performance of tasks, it is
absolutely fundamental to build the capacity of personnel charged with export credit
duties. As two training workshops are not sufficient to fully transfer needed knowledge,
the KSP team considers it necessary to dispatch KEXIM experts to BNVF to provide
consulting services to officials of BNVF for three to six months through following KSP
projects. KEXIM’s experts will continue to collaborate with BNVF personnel in its
conversion process to DEXIM, e.g., consulting services will be provided to export
financing departments.
To accomplish the objective of the Export Industry Promotion project for the DR, the
KSP team prepared a workshop for high ranking officials to share the best practices of
Korea in export industry promotion and share knowledge for the identification of
potential industries for promotion in the DR. The high-level workshop focused on
sharing Korea’s experiences and knowledge on promotion of export industries selected
as priority sectors by the DR such as 3D animation & digital contents, renewable energy,
contact centers & BPO industries. In the annual assessment meeting, the KSP team
suggested policy research on one of those industries for the next KSP project.
It was agreed that KSP IV successfully completed the initial objectives. Several changes
had occurred during the project period but the project was completed on schedule as a
result of close cooperation with Dominican counterparts.
Concluding the KSP IV project, the KSP team truly hopes that the Knowledge Sharing
Program will act as a cornerstone for the promotion of export credit and the development
of export industries in the Dominican Republic.
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