UK Export Finance and Energy Infrastructure
This is part of a series on how the UK could use its foreign policy to promote British energy and infrastructure companies, develop strategic relationships and support sustainable economic development. See Part 1 on how the UK spends foreign aid on infrastructure here.
Foreign aid might not be the most obvious way to support British investments in energy infrastructure abroad, given the existence of UK Export Finance (UKEF). This government agency helps companies to export by taking on risks that the private sector may not finance. They particularly support manufacturers, the UK being the eighth largest manufacturing economy globally at £224 billion in value.
UKEF offers credit guarantees, so that exporters can access working capital loans from banks, or lends directly to companies. They also offer insurance products, for example if a customer is unable to pay for their contract. The UK government also supports foreign entities to buy British exports, again with credit guarantees or even direct lending support.
In all, the UK government has close to £50 billion of risk exposure to support exporters, £6.5 billion of which was issued in the last financial year, 2023. UKEF recognises the potential of supporting Britain’s success in the energy industry and has big headline numbers in its marketing to this effect. £3.5 billion of support was provided to “sustainable projects” in 2021 and £2 billion is earmarked for financing buyers of “clean growth” technologies like subsea cables for offshore wind developments.
Yet surprisingly little of UKEF’s exposure is in the energy sector, given Britain’s leadership in the energy industry. 16% of risk exposure is in energy and power, a figure that is consistent from 2021 to 2023. 30% of exposure is in aviation exports, for example Airbus planes and Rolls Royce engines. By my accounting from their annual filing, they committed just £100 million to renewable energy projects of the £6.5 billion in 2023, with a further £0.9 billion supporting Rolls Royce’s power and propulsion exports. As a comparison, the UK has spent an average of £200 million per year on the energy sector as part of Overseas Development Assistance from 2017 to 2022, of which ~95% was for renewable energy projects or electricity transmission and distribution.
The £3.5 billion figure for “sustainable projects” in 2021, on a webpage with a beautiful picture of a wind farm, is also difficult to tie to their accounts. While there was support for renewable projects, like £200 million for offshore wind in Taiwan, or £80 million for solar water pumps in Ghana, the “sustainable projects” total may also include £1 billion spent on Liquefied Natural Gas in Mozambique, or £0.9 billion for a rail project in Egypt.
These projects are no doubt a win for British exporters, and contribute to their customers’ economic development through infrastructure. But if these are being categorised as sustainable projects, it obfuscates exactly how much the British government is supporting renewable energy technology providers.
Given the geographic focus of UKEF, there also seems to be partnership potential with the Foreign Office’s diplomacy efforts and UK Aid. 22% of their foreign exposure is in Africa as of 2023, the second largest region after the Middle East, and on par with exposure to Europe. Of UKEF’s direct lending exposure, 99% is to the Middle East and Africa, with exporters receiving support for projects in Togo, Angola, Benin and Jordan in 2023. Meanwhile at the Foreign Office, in 2023, over 50% of the UK’s country-specific foreign aid was in Africa, and the combined Africa and Middle East aid represented 64% in 2022.
This is part of a series of posts on UK’s foreign policy with respect to the energy sector, and proposing a more integrated approach across aid, diplomacy and trade finance. In future posts I will discuss the UK’s energy expertise and export potential in more detail and the approach of the US and China in supporting energy and infrastructure exports.