The US Senate Banking Committee recently signed off on the Biden administration’s executive order 14017, which, among other things, proposed to give the US Export-Import Bank (EXIM) a mandate to provide financial support for domestic projects as well as international ones.
President Joe Biden signed the order in February 2021 as part of the Make More in America initiative, which aims to solve the US’s gaps in supply chains and manufacturing capacity.
“These structural weaknesses in both domestic and international supply chains threaten the US’s economic and national security,” EXIM said in a statement on its website.
“Solving these challenges, fostering economic resilience and revitalising the US’s manufacturing and export capacity requires the country to use all the tools in our toolkit – including the Export-Import Bank.”
Infrastructure and manufacturing focus in the US
EXIM is a federal infrastructure bank devoted to building infrastructure and leading-edge manufacturing facilities outside the US’s borders. It has been around since 1934 and has played a key role in reshaping the global economy.
Giving a domestic mandate to EXIM focuses specifically on providing financial support to the establishment or expansion of domestic manufacturing facilities and infrastructure projects that would facilitate US exports.
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By GlobalDataEXIM is now able to issue loans, loan guarantees and insurance to projects to build manufacturing plants and infrastructure in the US. To be eligible for these financial tools, applicants will have to fulfil the export nexus requirement – the percentage of production or shipments tied to exports.
For small businesses operating in transformational and climate-related export areas, the export nexus has to be 15%. For projects in other sectors, it would have to be 25%.
The amount of EXIM financing made available for individual projects will be scaled based on the number of US jobs supported, both during construction and over the life of EXIM’s financing.
Each job-year – one job over five years is five job-years – allows for up to $189,242 in financing.
An FDI opportunity
Michael Likosky is a partner at Results, a consultancy that works to connect the US Government with infrastructure business. The company was a driver in creating the mandate of these US government infrastructure financing institutions to operate domestically, and it has been assisting clients.
“We managed to make this happen without needing a new piece of legislation,” says Likosky. “I believe it is a great achievement and a great opportunity for investors, domestic and foreign, who are keen on US infrastructure and manufacturing projects.” He adds that EXIM’s mandate to invest domestically will facilitate foreign capital into the country’s sectors.
James O’Brien, a partner at law firm Baker McKenzie, agrees. “This initiative should appeal to non-US investors as they are already familiar with EXIM, which they are likely to have used in other countries,” he says. “The financing coming from EXIM would give those investors some comfort as they recognise it as a strong and reliable institution.”
Public-private partnership consultant David Baxter also hails the initiative as a good one. “I think it is a good idea,” he says. “There is political sensitivity to perceptions that US financial resources are being ‘given away’ to other countries to the detriment of US businesses. Mobilising these resources for domestic infrastructure projects will placate opponents and also provide an essential long-term financial alternative that addresses the domestic funding gap.”
