Start Small, Get Your Act Right

28-Jun-2013

How important is Africa in the Exim Bank’s global portfolio?



Africa is very important for us for a variety of reasons. There has been a conscious attempt both at the government level and the Exim bank level to diversify the Indian export basket in order to facilitate growth.



Indian exports have been growing (but) the share of the developed markets, i.e. Europe and the US, in our total exports used to be 65 to 70 per cent till the 90s; now it is below 40 per cent. The bulk of additional exports has gone to emerging markets — Asia, Africa and South America.



Africa is very important because we still have a very low share here [and] there is an enormous potential for increasing our exports. Of the [Exim Bank’s] overseas assets I would say 20 to 25 per cent would be Africa oriented. We do trade financing, country financing, we also help companies set up projects or buy into companies overseas.



The biggest focus here is country financing because the main player in most of the countries is the state and the infrastructure story is the most important story that is happening in Africa — not only hard infrastructure but also the soft infrastructure. Our lines of credit have gone for irrigation projects, water supply projects for setting up seed farms, for improving hospitals; it has gone in various directions.



India has just offered a $300 million line of credit to part finance a railway project connecting landlocked Ethiopia to the Red Sea port at Djibouti. What is the significance of this deal?



It is in some respects a landmark project, it is an inter-country project — linking up a landlocked country to a port and will also elevate Djibouti to a transit country with all the benefits of a transit country — it will also improve the ease of communicating between the two. One of the greatest problems Ethiopia faces is the logistical inconvenience of doing business here. This will be one of the things to alleviate this.



We have more than a billion dollars of exposure in Ethiopia in the form of projects itself; almost as large as Bangladesh or Sri Lanka, so Ethiopia is given the same prominence as SAARC countries. The biggest project we have financed is sugar.



The sugar story so far has not come into play, because the plants are just getting commissioned, but it will transform the sugar industry in this country. Almost a million tonnes of sugar will get produced here — demand here is not much, so that much sugar will get exported [and] will have a major impact on Ethiopia's export earnings.



Apart from that we have a number of private sector projects here that we have financed — a steel plant, a textile plant, a blanket farm, there is Sharpoorji Pallonji in the agriculture sector.



There is considerable interest in India and China’s differing approaches to investing in Africa. Is the Indian Exim bank considering commodity-secured loans like those offered by China?



The difference is related to the structure of the two economies. The Chinese economy, to a very large extent even now, is a public sector controlled economy.



India after 1991 has become a private sector story.



China Exim acts at the behest of the public sector, often at the explicit guarantee of the public sector. Because you can take a scale commitment on the public sector of a different order; the number of companies in India of a similar size would be few, on those few companies we are able to take scale commitments.



But none of the Indian companies have that ability to sell one thing for another. If you want a mine in exchange for supplying trucks, then what do you do with the mine?



Each story in India is a separate corporate story: why would, say, the Railways build a railway line so that ONGC gets an Oil contract, unless the government comes in? The government will come in if there are large public sector concerns going out — So far, not so many Indian public sector concerns have gone out.



After 2007-08 they [China] faced a slowing world situation and capacity expansion investments had taken place, so they have substantial excess capacities. They have to deploy those capacities and they do marginal costing so it makes sense for them to get orders for, say, road construction or bridge construction — so much steel, cement, for which capacity has been created can be sold and in exchange you get the basic — and because they are all government companies, the element of control and the element of singular thought processes is far more in China than in India.



Indian companies have acquired large tracts of agricultural land in Africa. Has the Exim Bank actively promoted such investment?



We are going about it very cautiously because lending to agriculture is different from industrial lending. Our experience of commercial banks in Indian agriculture will not apply because the scale of agriculture that will take place here is much larger than India.



We have to keep in mind that Africa undoubtedly has the agriculture potential in terms of the climactic and land indicators. But agriculture isn’t a major activity here — even though human activity has been here much longer than in Asia. There would be a reason for that and there would be some unknown trip wires that prevent agriculture.



We want the companies that are borrowing from us to be absolutely sure they are doing the right things, as and when they start doing it we support them. We are telling everyone that you start small, you get your act right, once your act is right you go ahead.



We are doing a lot of things in indirect agriculture. We have financed irrigation and landscaping of huge tracts of land on behalf of governments, but each of those projects has also been limited in terms of reach and scale because the infrastructure to handle agriculture needs to be well in position and you can’t do it in a country where logistics is still a challenge. [Also] we don’t have enough companies in India with pre-existing credit histories of such large agriculture operations.



All banking is lending against cash flows. Cash flows can only be there if the past track record is there to justify that cash flow. Value of land is based on the use value, if there is no use value, there is no value.

Source:-www.thehindubusinessline.com