This article is written specifically for Israeli companies involved in high technologies such as agriculture, water, cyber technology or medical care who want to do business in Vietnam so they can penetrate the Southeast Asian market. I am going to explain a way for you to help your Vietnamese import partners take advantage of Vietnamese and Israeli government-backed loan guarantees so they can have easier access to credit. In clear words, the Israeli government, through the Israeli Economic and Trade Mission in Vietnam, is interested in developing Vietnamese SMEs, if they will do projects with Israeli companies, by giving them access to loans with preferential interest rates.
ASHRA and the Country Risk Assessment Scale
All of this is taken care of through an institution called The Israel Foreign Trade Risks Insurance Corporation Ltd., known as by the Hebrew acronym ASHRA. As described on a Bloomberg.com site ASHRA is “a government owned commercial and political insurance firm that ..offers insurance solutions for shipment and pre-shipment orders, buyers’ and inter-bank credit, leasing, forfeiting, and letters of credit. It also provides expropriation, nationalization, confiscation, and foreign exchange risk solutions. The firm caters to the infrastructure, medical equipment, communications, energy, military, and engineering industries.”
In essence, ASHRA provides Israeli firms with insurance to protect, and encourage them, to invest in foreign countries where there might be a high risk of default due to social or political upheavals. ASHRA is an Export Credit Agency that acts as an intermediary between national governments and exporters to issue export financing. In addition to being a member of the Berne Union of foreign trade risk insurance companies, ASHRA also has close working relations with international organizations worldwide.
ASHRA prices insurance by using a Country Risk Assessment that “includes price information, expressed in country risk categories which are arranged on a scale range of 0-7: the lower the figure, the better the country’s creditworthiness. The country policy also provides information about ASHRA’s ability to insure transactions.” ASHRA will provide your export company with insurance, with pricing based on this rating scale. As you can see from the image, below, a country like the United States has the lowest rating 0, while Vietnam has a rating of 5 (the same as countries like Zambia or Angola).
Israeli-Backed Credit for Vietnamese Companies
One of the things that is extremely interesting about the relationship between Israel and Vietnam is that, way back in August 2007 (the year Vietnam first joined the WTO), the two countries signed a Financial Protocol Agreement (FPA) that provided Vietnamese firms with special loans that would be backed by ASHRA, the Vietnamese Ministry of Finance and the Bank for Investment and Development of Vietnam. .
As reported at the time, the FPA enabled the Government of Israel to provide a maximum credit of $150 million in soft loans with maturity of 8-10 years for Vietnamese enterprises that used Israeli technologies. From the beginning, this initiative was meant to benefit Vietnamese small and medium enterprises by promoting projects using Israel technologies. In other words, if Vietnamese firms would do business with Israeli firms, they could get preferential loan treatment.
What is especially unique about this, is that Israel has an FPA that protects local firms with only one other country – China. If you go back to the Country’s Rating Table you’ll see China is a 2, while Vietnam (again) is a 5. In 2007, according to the Israeli Embassy, the financial protocol was designed to facilitate technology transfer and business cooperation between the two nations. Clearly, for a decade, the Israeli government has been seeing Vietnam as a strategic economic partner.
The FPA must have been successful, and had institutional champions, because the $150 million loan limit was raised to $250 million in November 2011. As described by the Israeli Embassy at the time the “protocol with Vietnam has been expanded in light of the steadily increasing demand in the Vietnamese market for Israeli products, especially in the fields of agriculture and hi-tech. Numerous Israeli exporters are attempting to penetrate the Vietnamese market, and the existence of a financial protocol with Vietnam, on top of diplomatic ties with that country, has allowed some exporters to close giant deals with the Vietnamese government.”
A Stable Financial Institutional Process
At a conference in Hanoi in September 2016, the Israeli preferential credit loans program was described as an efficient financial structure that broadened the financing possibilities for Israeli exporters to the country. Thus, over the course of the last nine years, the Israel-Vietnam Financial Protocol Agreement reached in 2007 has transformed into a stable institution that has created a well-structured and prepared process that is supported by multiple financing facilities. It has benefitted Israeli companies by enabling Israeli exporters to offer long-term credit with favourable terms to Vietnamese buyers, thus helping Vietnamese create the SMEs necessary to purchase the Israeli products.
As I mentioned above, if you are a high-technology Israeli company that is looking to create an enterprise-size project in Southeast Asia, you should look into Vietnam. Not only will ASHRA provide your export company with insurance to protect against international trade problems but your Vietnamese SME partners can also benefit from preferential loans. Over the course of a decade, the Israeli and Vietnamese governments have established a very clear and transparent process to help Israel export technology and Vietnamese SMEs gain access to financial credit.
Hoping to Increase Israel-VN Trade Relations
I write this blog because I am interested in increasing bilateral trade between Israel and Vietnam. The Vietnamese admire and respect the country of Israel and are particularly interested in acquiring more high-technology transfers so they can become a Southeast Asian Startup Nation. There is $250 million in preferential loans waiting for Vietnamese companies that want to do business with Israeli companies. Israeli companies can use Vietnam as a base for expanding throughout the ASEAN community. I hope Israeli high-technology companies in water, agriculture, medical, cyber security and smart infrastructure will try to take advantage of this by doing more to participate in reaching out the Israel Economic and Trade Mission in Vietnam to get more details on how to acquire Vietnamese partners capable of acquiring the loans.