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Exim Bank’s LOCs: Life Lines for Indo-African Ties

With the countries in the African region constituting important trade partners in India’s global trade configuration, as also holding the potential to further enhance economic relations, Export-Import Bank of India (Exim Bank of India) has put in place a comprehensive range of financing, advisory and support service to catalyse two-way flow of trade, investment and technology between India and the African region. Towards this end, an important element of the Bank’s endeavours is the Lines of Credit (LOCs), which have been extended to a number of countries, institutions and agencies in Africa.

Exim Bank of India’s LOC programme affords a risk-free, non-recourse export financing option to the Indian exporting community, especially the small and medium enterprises sector, which helps them penetrate new markets and enhance their export volumes in the existing markets overseas. The LOC programme has gained considerable recognition abroad, as it enables the LOC recipient countries to import developmental and infrastructural projects, equipment, goods and services from India, on convenient medium to long term credit terms. The LOC programme has also enabled India demonstrate project execution capabilities in the emerging markets. Exim Bank extends LOCs, on its own, as well as, at the behest of the Government of India.

Enhancing Indo-African Trade Relations

The commitment towards enhancing India’s trade with the African region can be assessed from the fact that more than 50 LOCs are currently in operation, amounting to over US$ 1.7 billion, covering more than 40 countries in the African region. LOC’s to Africa constitute 62% of total LOCs extended by Exim Bank of India worldwide. Africa thus enjoys a lion’s share of Exim Bank’s LOC’s which are spread over all parts of Africa as depicted in the pie chart below. These LOCs are also extended to various regional financial institutions in Africa, including PTA Bank (Eastern and Southern African Trade and Development Bank), Banque Ouest Africaine De Developpement (West African Development Bank), East African Development Bank, ECOWAS Bank for Investment and Development (EBID).

These LOCs supplement the “Focus Africa” programme of the Indian Government and facilitate import of project-related equipment and services from India on deferred credit terms. At the same time, many of these LOCs are earmarked for infrastructure and developmental projects. For instance:

• Angola – Railway Rehabilitation Project and acquisition of Tractors from India;
• Burkina Faso – Agricultural projects including acquisition of tractors, harvesters, agricultural processing equipment;
• Chad – Setting up of cotton yarn plant, Steel billet plant and rolling mill, plant for assembly of agricultural equipment;
• Cote d’Ivoire – Project for renewal of urban transport system in Abidjan and for agricultural projects;
• Congo DR – setting up a cement factory, acquisition of buses, rehabilitation of Manganese mine and acquisition of equipment;
• Djibouti – Cement plant
• Ethiopia – Energy transmission and distribution project; Development of sugar industry;
• Gambia – Setting up of Tractor assembly plant;
• Ghana – Rural electrification, agriculture, communication and transportation projects;
• Lesotho – Export of tractors, pump sets, consultancy services and irrigation equipment;
• Mali – Rural electrification and setting up of agro machinery and tractor assembly plant; Electricity transmission and distribution project from Cote d’Ivoire to Mali;
• Mauritius – Construction of Baie du Tombeau Sewerage Project;
• Mozambique – Gaza Electrification Project;
• Niger – Acquisition of transport equipments, motor pumps and flourmills;
• Senegal – Development of rural SMEs and purchase of agricultural machinery and equipment from India, Irrigation project and Acquisition of railway coaches and locomotives from India;
• Sudan – Transmission and Sub-Station Project, and Project for setting up Power Plan;
• Gabon- Construction of Housing Project;

Impact of Exim Bank of India’s LOCs

The LOC’s while catalyzing further exports from India have created considerable goodwill and long term economic friendship between India and the developing countries of Africa. LOCs have also helped overseas governments/financial institutions in implementing their developmental projects in key sectors of the economy such as agriculture, industry infrastructure, energy, telecom and transportation, using Indian technology and equipment. LOCs have enabled Indian exporters to penetrate new markets and enhance their export volumes as they are insulated from credit risk.

LOC mechanism is thus an effective instrument for promoting bilateral trade and investment between India and developing countries. Greater economic cooperation between India and the African region has been facilitated by LOC’s extended by Exim Bank, especially those with Government of India support, which carry low interest rates and long repayment period.