Trade

International Trade

ECGC/ EXIM BANK

ECGC has been periodically reviewing all the African countries and has been upgrading those wherever the risk perception has improved. The continuous stepping up has in fact resulted in a reduction of almost 35% to 40% of applicable premiums. This move along with liberal underwriting policy viz. removal of most of the countries from "Restricted Cover" list have in fact even resulted in ECGC's exposure to Africa going up considerably.

In its 7-fold classification of the countries in the African region(excluding Western Sahara) ECGC has placed Botswana, Mauritius, Reunion Islands, South Africa and Tunisia in A2(2/7) category.

Egypt and Libya have been placed in B1 (3/7) category.

Algeria, Cote d" Ivoire, Ghana, Kenya, Lesotho, Morocco, Namibia, Swaziland and Zimbabwe have been placed in B2(4/7) category.

Benin, Burkina Faso, Cameroon, Chad, Djibouti, Gabon, Gambia, Mali, Nigeria, Senegal, Seychelles, Tanzania and Togo have been placed in C1(5/7) category.

Angola, Burundi, Cape Verde, Central African Republic, Comoros, Congo Republic, Equatorial Guinea, Ethiopia, Guinea, Guinea Bissau, Madagascar, Malawi, Mauritania, Niger, Rwanda, Sao tome and Principe, Uganda and Zambia have been placed in C2(6/7) category.

Amongst the 54 countries, upgradation of Botswana, Algeria, Libya, Mauritius, South Africa, Tanzania and Tunisia has been carried out by ECGC.

ECGC has liberalized its underwriting policy for the countries in the African region, Algeria, Burundi, Democratic Republic of Congo, Ethiopia, Libya, Malawi, Mauritania, Mozambique, Nigeria, Sudan, Uganda, Zambia and Zimbabwe have been shifted from Restricted Cover to open Cover category.

Angola, Cape Verde, Equatorial Guinea, Eritrea, Gambia Liberia, Rwanda, Seychelles and Sierra Leone have been placed in Restricted Cover with Revolving Limit facility.

Somalia has been placed in Restricted Cover, Case by Case basis.

The remaining countries Benin, Botswana. Burkina Faso, Cameroon, Central African Republic, Chad, Comoros, Congo Republic, Cote d' Ivoire, Djibouti, Egypt, Gabon, Ghana, Guinea, Guinea Bissau, Kenya, Lesotho, Madagascar, Mali, Mauritius, Morocco, Namibia, Niger, Reunion Islands, Sao Tome and Principe, Senegal, South Africa, Swaziland, Tanzania, Togo and Tunisia continue to be in Open Cover category.

The review of the countries is being periodically carried out and modifications are being introduced from time to time.The Latest grading by ECGC for countries of Africa is shown in the table below:

Lines of Credit enable Indian exporters, including Small and Medium Enterprises (SMEs), to export a variety of products (industrial manufactures, consumer durables and capital and engineering goods) to importers in these countries without repayment risk. While 15% to 20% of the contract value is paid as advance by the importers, the balance 80% to 85% of the contract value is disbursed by the EXIM Bank to the Indian exporters on shipment of goods. The recovery of credit extended to the overseas buyer is taken care of by the Exim Bank, without recourse to Indian exporter.

The Exim Bank shall explore the possibilities of further extending lines of credit to selected commercial banks in African countries.

The Exim Bank and the Sudanese Government have signed an agreement to extend a Line of Credit of US$ 50 million to Sudan to facilitate export of equipment, goods and services from India to that country in January 2003.

MEA decided to form a Task Force on New Partnership for Africa's Development (NEPAD) to implement the US$ 200 million of Line of Credit announced by the Prime Minister and also study other ways and means of assisting NEPAD. The Task Force will consist of Joint Secretary(DEA), Managing Director, EXIM Bank, Joint Secretary (Commerce), Joint Secretary (ITP), Joint Secretary (TC), Joint Secretary (Africa), MEA and CII.

As per the India Development Initiative the Ministry of Finance has laid down clear guidelines for extending Debt Relief and Lines of Credit to countries as per the following classification:

Classification of Countries

For the purpose of these guidelines, countries have been classified into the four broad categories indicated in the following Table:

* According to the World Bank Statistical Appendix 2003

Debt Relief
Debit relief in the form of waiver of principal or of interest or both shall be automatically provided to any country that is declared a HIPC under the Paris Club Initiative. In the case of LIHD countries, debt relief may be considered on a case basis but shall not be automatic. No debt relief shall be available for MIHD and MILD countries.

Credit Lines & Credit Terms
While credit lines may be granted to any country, depending on needs, the terms of credit shall be different for different countries. The terms of credit that may be offered to any country depend on its classification and shall be governed as per the following table:

The following is of importance while interpreting this table:

1. The Grant Element component is I- built into the terms of credit. It is defined as the difference between NPV of the loan repayments and the actual amount of loan. The Grant Element should not be offered separately.

2. For floating interest loans, the Grant Element component has been calculated using a value of 1.24% for LIBOR. The Grant element will increase as interest rates decrease and vice versa.

3. These are the best terms that can be offered to any country. In practice, loans should be negotiated at harder terms of credit wherever possible.

These loans are for importing goods & services and for project exports from India. As a rule less than 85% of the total credit should be used to import goods and services from India. Goods can be imported on 100% FOB basis.

These are Government-to-Government credits Lines of Credit routed through Exim Bank of India, State Bank of India, Bank of Baroda or Indian Overseas Bank. The modalities for disbursement may please be ascertained from the concerned Bank in each case. Unless specifically permitted, these Lines of Credit cannot be granted to non-government bodies.

The recipient Government will need to guarantee payment. Wherever possible alternate modes of payment such as barter trade or escrow accounts etc. should be explored in addition to the sovereign guarantees.