(Financial Express, Delhi, 22 October 2024) Apart from higher costs and other difficulties, the disruption caused by the two war zones in the world has added to the liquidity woes of India’s exporters as they deal with longer payment schedules and the impact of the situation on export credit which is falling consistently since 2022. At the end of March 2022 quarter the outstanding export credit was at Rs 2.27 lakh crore and by the end of March this year it was down to Rs 2.17 lakh crore. While exports grew 15% between 2021-22 and 2023-24, export credit has fallen by 5%. On top of falling credit, the Red Sea disruptions have added to the liquidity pressures on exporters as payments are taking more time. All this has increased the time period of payment from less than 90 days to 120-150 days. Exporters now require more credit for a longer period and costs for them have increased. Despite the Export Credit Guarantee Corporation (ECGC) increasing the coverage of default in payment against exports to 90%, many of the banks have not reduced the collateral requirements which is also reducing the credit off-take by the sector.
Newsletter
UK approves use of export finance to source critical minerals
(Innovation News, London, 31 October 2024) UK Export Finance (UKEF), the government’s export credit agency, will offer financial support for overseas projects to source critical minerals. Securing contracts that increase the UK’s ability to source critical minerals will help the UK build economic resilience and lower the risk of supply-chain disruption in major industries like automotive, defence, and aerospace. Critical minerals are raw materials like lithium, graphite, and cobalt, which are essential to the UK’s largest export sectors. They are used in emerging and sustainable technologies like electric vehicles, solar panels and wind turbines.
Hyundai gets $1.35B in export financing for Georgia EV facility
(Korea Joongang Daily, Seoul, 16 October 2024) The Korea Trade Insurance Corporation granted $1.35 billion in export financing to Hyundai Motor’s $5.5 billion EV manufacturing facility in Georgia, which began partial operation in early October. The financing was decided to help Hyundai “strengthen its global competitiveness by offering financial support to its EV manufacturing facility in North America, one of the biggest auto markets in the world,” the state-run export credit agency said Wednesday. The factory in Bryan County, Georgia, is the automaker’s first EV-dedicated manufacturing plant in the United States. It recently started partial production, around six months ahead of schedule, in order to rapidly qualify for the U.S. government tax credits of up to $7,500 for EVs assembled in North America.
Uganda finally signs deal to start building 1,700km railway, dumping China
(Global Construction Review, London, 15 October 2024) After 9 years of striving, the government of Uganda yesterday signed a contract with Turkish contractor Yapı Merkezi to build the first section of the country’s standard gauge railway. The €2.7bn deal was formalised in the capital Kampala by Bageya Waiswa, the permanent secretary for public works, and Erdem Arıoğlu, the vice chair of Yapı Merkezi. Waiswa said Uganda would use its own funds and loans from the UK’s Standard Chartered bank, backed by export credit guarantees, to finance the project. The deal follows a number of false starts. As far back as 2015, Uganda entered into an agreement with China Harbour, a subsidiary of China Communications, to implement the project, on the condition that Chinese capital would be made available to pay for the work. The reluctance of China’s Export–Import Bank to finance the scheme led Uganda last year to abandon the contract, clearing the way for the Turkish deal.
US Defense Dept Strategic Capital “arsenal”
(Lexology, London, 30 October 2024) The US Defence Department’s Office of Strategic Capital (OFC) is one of the newest entrants in the US Federal arsenal of finance tools for growth companies, providing loans between $10M and $150M to develop critical technologies vital to national security, with an initial program of up to $984M. Another US federal loan program is the Dept. of Energy’s Loan Program Office (LPO) which has a “budget” of up to $300 billion to finance domestic renewable energy companies and projects. Together with USEXIM’s “Make More in America Program” (MMIA), created to spur U.S. manufacturing and create more resilient supply chains, these three often overlooked federal finance mechanisms take on the credit risk which traditional banks and non-bank lenders (e.g. private equity) cannot [or will not] take on and which impose terms that crush return on investment. [Rare earths developer Australian Strategic Materials (ASM) has indicated that Australian firms can potentially access US Department of Defence funding under the newly set up Office of Strategic Capital.]
NGOs urge banks & China to refuse support for Ugandan oil projects
(Mongabay, Menlo Park, 17 October 2024) A group of 28 NGOs have written to 34 banks, insurance companies and the Chinese government, urging them to deny financing and other support for oil and gas projects in Uganda. The letters, written by U.S.-based Climate Rights International (CRI) and 27 Africa-based NGOs, follow a report detailing numerous human rights violations and environmental harms at the Kingfisher oil project sites in Uganda. Similarly, Uganda’s Tilenga oil fields also face scrutiny over their ecological and social harms, including impacts on wildlife and displacement of local communities. Both Kingfisher and Tilenga are co-owned by French oil and gas giant TotalEnergies, the Chinese National Offshore Oil Company Uganda Ltd. (CNOOC), and the Uganda National Oil Company (UNOC). Both projects are also part of the East African Crude Oil Pipeline initiative (EACOP), where TotalEnergies is a major partner. The initiave aims to transport oil and gas from Uganda to Tanzania for export.
US accelerates play for Africa’s minerals
(Africa Report, Paris, 1 October 2024) A new financing network and closer cooperation with Angola, Zambia and Tanzania all aim to challenge China’s grip on the continent’s resources. The United States and its allies consolidated their cooperation along a range of fronts during the UN General Assembly in the pitched battle for access to Africa’s critical minerals. [The Critical Minerals Africa (CMA) Summit – Africa’s leading investment platform for the critical minerals sector – will return for its second edition on November 6 – 7 in Cape Town. CMA 2024 brings together African and global policymakers, project leaders and key stakeholders along the critical minerals value chain to unlock and promote investment opportunities across Africa’s mining space.]
What did Cuba do with the €1.2 billion offered by Russia to build thermoelectric plants?
(Ciber Cuba, Miami, 18 October 2024) According to the agreement approved in 2015 by both governments, the resources would be invested in the construction of four generation units of 200 MW for two thermal power plants. In 2022, the regime quietly admitted that it had not met the conditions to access the loan. In September 2022, the Deputy Minister of Energy and Mines stated that Cuba had not been able to access the Russian credit of 1.2 billion euros for thermoelectric plants as it had not managed to secure the 10% upfront payment (120 million) needed to access this credit. [The US embargo affecting Cuban dollar earning exports undoubtedly had a major influence on this.]
European ECAs reach out to Indian companies, banks
(Economic Times, Delhi, 24 October 2024) The Export Credit Agencies (ECA) of Germany (Euler Hermes), Austria (OeKB) and Switzerland (Swiss Export Risk Insurance SERV), together with the Swiss Business Hub India and Switzerland Global Enterprise, on Thursday reached out to Indian companies, banks and government institutions for opportunities for investment and cooperation.
UK Steps Up Export Deals to French-Speaking Africa as has China
(BNN Bloomberg, Toronto, 7 September 2024) The UK has stepped up business in French-speaking West and Central Africa as it seeks new frontiers for its exports. UKEF was backing transactions in francophone Africa worth a cumulative £1 billion ($1.3 billion) at the end of the 2023-4 financial year, up from just £3 million in 2017-8. These countries now represents about 13% of UKEF’s portfolio on the continent. Meanwhile, China’s export credit agency Sinosure is increasingly dominant. China’s Sinosure has backed projects to support the country’s Belt and Road Initiative, a global development push that brought more than $120 billion of Chinese construction contracts and investments to Africa in its first 10 years, according to a study by the Green Finance and Development Center at Shanghai-based Fudan University. China is not bound by the same rules as the UK and France, which are members of the OECD. The OECD has in the past few years made it easier for ECAs to cover costs in the recipient’s country. Both UKEF and Bpifrance Assurance Export require at least 20% of a transaction’s value to come from businesses in their country.
