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With the disruption of the global value chains stemming from COVID-19 and the war in Ukraine, Central and Eastern European (CEE) trades are finding themselves in a new business reality. While trade with East Asia is a well-established import region, new primary export destinations are emerging for exporters in Central and Eastern Europe.

With the Russian full-scale invasion of Ukraine, the main export markets outside the EU for the CEE companies, Russia, Ukraine and Belarus, were closed or significantly constrained. 

The events, which disrupted supply chains and in many places, redefined the existing trade relations, may paradoxically be conducive to Polish companies in winning export contracts in Africa. Fractured supply chains can open avenues to previously inaccessible markets, even if there are no historic ties between the countries. 

Bank Gospodarstwa Krajowego (BGK) is the only 100% state-owned bank in Poland, and is the fourth largest development bank in the EU. Due to BGK’s legal status, the Bank’s rating stays in line with the rating of the State Treasury (as of now “A-“ in foreign currency and “A” in domestic currency).

One of BGK’s main tasks is to organise and execute a variety of development programs established by the Polish Government, including the Governmental Program Financial Support for Exporters. Together, with Korporacja Ubezpieczeń Kredytów Eksportowych (KUKE) the Polish Export Credit Agency, we offer a variety of products for support of Polish exporters.

New opportunities in Africa   

To capitalise on the opportunity presented by the new landscape, it is vital to undertake thorough preparation, particularly considering that CEE companies lack substantial experience in engaging directly with African countries. Up until now, our business dealings have predominantly relied on intermediaries.

Some African countries have strong, historic ties with Western European countries. For CEE exporters, it may be difficult to enter such a market and compete with companies that have been present over a significant period of time. 

There is a potential solution for CEE exporters. Sub-Saharan Africa may be attractive, although much more geographically distant, as the diversity of countries can make it easier to find a niche for these companies.

CEE products have gained widespread recognition on a global scale, primarily due to their adherence to EU standards. Since 1989, manufacturers from the region have been competing with established Western European producers like Germans and French.

Conversely, Polish exporters offer economically competitive products thanks to Poland’s national currency, which allows for reduced production costs compared to competitors in the Eurozone. However, due to the transition to a market economy occurring relatively recently, starting in 1989, the Polish brand may not enjoy the same level of recognition in geographically distant markets.

Challenges facing expansion with African market 

In the given markets, the CEE exporters encounter numerous obstacles. Polish companies still lack experience in cooperation with African countries, for a number of reasons, including cultural and language barriers.

Added to this is the low recognition of CEE countries in Africa. Bringing the CEE countries closer to local contractors as European nations that produce high-quality goods at competitive prices is likely one of the crucial tasks for institutions and entrepreneurs. 

This process is hindered by the lack of familiarity of the local customs and markets. Additional risks such as non-payment, and political and economic volatility pose additional problems for contractors. One potential solution is expanding access to trade finance solutions like Letters of Credit, however, these are also obstructed due to local banking costs, or currency restrictions.

To support local businesses in foreign expansion, financial institutions are aiding with export finance solutions.

What are potential solutions to these problems?

BGK offers a solution to many of the existing problems via the purchase of receivables. This is a type of refinancing by BGK of a trade credit granted to a foreign buyer by a Polish exporter.  BGK pays the Polish exporter the funds for the exported goods and/or services, while the repayment of subsequent tranches is made by the foreign importer directly to the Polish bank. 

The importer gains easy access to attractive financing in the form of a long-term trade commitment, which is a simpler and more advantageous solution compared to a loan from a local bank.

This enables the African importers to improve their financial liquidity and improve access to goods and services from the Polish market, which is competitive regarding both price and quality.

BGK does not require a guarantee from a local bank, establishing direct collateral on foreign assets and receiving support from the Polish ECA, KUKE. At the same time, BGK has the capacity to conduct negotiations and conduct transaction procedures based on documents. 

Another measure to facilitate Polish exports to emerging markets involves the provision of buyer’s credit, particularly in sovereign structures. Under this scheme, the borrowing entity is the government of the target country.

Polish companies are actively pursuing infrastructure, medical, and IT/ICT contracts, which are typically commissioned directly by the Ministries or government agencies of those specific countries.

These challenges will not be solved immediately, as discussions with African countries are multifaceted. Ultimately, the goal is for Polish exporters and African companies to expand, regardless of location or industry.