article by Ivan Kaye 22 May 2010
The Federal Budget is reducing the allocation of support for SME Exporters through the EMDG Scheme from $200m - $150m…. if anything, support for this vital part of the economy should be increased!
The Federal Government’s decision to reduce the funding of the Export Market Development Grants Scheme will only serve to undermine the effectiveness. motivation and desire of Australian exporters, especially smaller exporters to pursue overseas markets.
Its interesting that at the beginning of the decade, the government made a commitment to ‘doubling the number of exporters by 2006’.
This kpi was achieved, yet the pool of funding to support these exporters have significantly been reduced.
Surely achievement of kpi’s should be rewarded, and if the federal government is sincere about its commitment, they should make sizable increases in funding towards this programme!
What the EMDG Scheme Means for the SME Exporter
The Export Market Development Grants Scheme (EMDG) is an integral part of the export promotion strategy of many Australian exporters, especially smaller to medium sized exporters.
For many exporters, the Scheme plays a significant role in the decision of whether or not to export, which markets to tackle, their export orientation (what proportion of production to export) and how much they are prepared to invest in marketing.
These businesses are cash flow poor, and determine the amount of marketing spend, factoring in potential rebates from the EMDG. Reducing their potential entitlement places a huge strain on their resources, and will limit their marketing activity in the following year, hence starting the cycle of reduced export activities in following years.
The EMDG Program – A Successful Programme
The EMDG Scheme is regarded as one of the most successful programmes delivered by government, which is regulated in a professional and transparent way.
The objective of the EMDG is to bring benefits to Australia by encouraging the creation, development and expansion of foreign markets for Australian goods, services, intellectual property and know-how.
This objective is is intended to:
assist with the development of an export culture;
create new exporters;
assist with the diversification of exporters into new markets;
assist with the generation of additional exports and jobs within Australia;
create greater innovation with Australian Business;
The EMDG achieves this by encouraging small and medium Australian businesses to develop overseas markets through the 50% reimbursement of expenditure incurred on export promotional activities.
The Scheme is open to Australian companies which meet an overseas promotional expenditure threshold of $A10,000 over a 2 year period, have a turnover of less than $A50 Million and/or less than $A30 Million in export earnings.
The businesses that received grants during this same period generated in excess of $A4 Billion in exports. A multiple of government support!!
Politics and The Shortfall
Claimants in the 2007/08 financial year, received $A180 Million in grants to 3,500 exporters in the 2009 financial year. The Government had originally allocated $150m to the programme, that would have resulted in Exporters not receiving their full entitlements. After much lobbying, Simon Crean announced that funding would be increased to ensure that claimants would receive their full entitlements.
Claimants in the 2008/2009 financial year, due to be paid out in 2010 is expected to only receive 60% of their full entitlements. This is as a result of increased numbers of exports.
Due to a reduction of support for claimants in the 2009/2010 financial year from $200m to $150m, this shortfall is expected to increase significantly!
This shortfall is of great concern to ordinary businesses that look to the Scheme to contribute to their export performance.
While recognising the need for fiscal discipline within public financial management, One needs to take into account the substantial economic multipliers and benefits arising from expanded export outcomes resulting from support from the EMDG Scheme.
Given the claimed "12 times" return of the EMDG program such cost-cutting is not only contrary to the objective of the Programme but ultimately comes at a net cost to the Australian exporting community and indeed economy at large.
Reduced funding to this programme is clearly ‘false economy’, where the broader economic returns from increased exports far outweigh public financial ‘savings’ from pairing back the scheme.
Call to Action
Do whatever you can to convince government to continue to support this worthwhile support for the SME Exporter