Developing Rising Inequality in Asia and Country...

Australian Aid Conference, Canberra

13 February 2015

Prabodh Saxena

Contemporary Modalities

1. Soft side of Bilateral assistance –

The Lines of Credit (LOCs)

2. A Backgrounder

3. Changing Profile

4. Africa All Over

5. Where, how and what we lack

(only at institutional /policy level)

6. Conclusion


13 February 2015

The Backgrounder

G to G LOCs (1966-2003)

83 Lines of USD 498.56 million (31 L0Cs in dollars) and Rs.

5,862.1 million (52 LOCs in Indian Rupees) to 23 countries.

Budget Speech of 2003-2004

• International Development Initiative (IDI). Rechristened as

Indian Development and Economic Assistance Scheme

(IDEAS) in July, 2005

• LOCs now through Exim Bank in USD

• GOI obligations – Interest Equalization Support (IES) ,

Counter Guarantee by GOI and Sovereign Guarantee by

Borrowing Government.


13 February 2015

Why IDEAS

boost to India’s export, especially of industrial goods

open new markets for Indian companies

establish India’s reputation as an exporter of high quality goods

and services

secure India’s political influence and to gain goodwill

Of late, India’s requirements of natural resources, food and

energy security, etc.

Difference of opinion between MEA and MOF – LOC a

financial product or a diplomatic tool


13 February 2015

The Guidelines Administered under Guidelines issued by DEA in 2004, Revised

Guidelines in 2010. Separate Operational Guidelines and Bidding

and Procurement Procedure.

Heavily Indebted Poor Countries (HIPC), Low Income

Countries(LIC)/Least Developed Countries (LDC) and Middle Income

Countries (MIC).

• In accordance with World Bank Classification of Economies (July,

2009).

• LDC Countries as per UN Office of the High Representative For the

Least Developed Countries, Landlocked Developing Countries and

Small Island Developing States. (UN-OHRLLS).

Project selection priorities -economic and infrastructural projects, for

specific sectors to create bridgeheads for bilateral trade, export of

goods and services required in the markets of the borrowing country,

in which India does not have a presence and for setting up adequate

network of servicing facilities by exporters. Australian Aid Conference, Canberra

13 February 2015

Terms and Conditions of LOCs


13 February 2015

HIPC LIC/ LDC MIC

Rate of Interest (%) 1.75 2.00 LIBOR + 0.5

Maturity (yrs.) 20 10 8

Moratorium (yrs.) 5 3 2

Grant Element (%) 56.4 37.3 34.4

To Exim Bank

•Commitment fee 0.50 % per annum on undisbursed amount for

all countries, and

• One time Management Fee of 0.50 % for Non HIPC countries

to Exim Bank

The Tied Part

Goods and services for minimum 75% value of the contracts

must be sourced from India.

Suitable relaxation not exceeding 10% may be considered on

a case to case basis for exceptional reasons, especially in civil

construction projects.


13 February 2015

Operating the LOC

Borrowing country has total independence to identify and

choose the project. as per its local laws and procurement

policies provided that such selection is fair and transparent and

is not in contravention of the Guidelines.

Implementation with Exim Bank - through the stages of setting

up of LOC, loan documentation, contract approval,

disbursements, project monitoring and project completion and

to ensure that the disbursements are according to the

parameters defined in the project report.


13 February 2015

LOCs at a Glance (31th March,2014)

*Figures in parenthesis are for 31st Dec,2014


13 February 2015

NO. OF LOC COUNTRIES

COVERED

LOC AMOUNT

in USD billion

CONTRACTS

APPROVED in

USD billion

AMOUNT

DISBURSED

in USD billion

Signed 176(188) 62 10.29(11.7) 6.2(6.65) 4.8(5.28)

Pipeline 19(25)

4 (2)

(additional)

10 (17)

(existing)

0.8(1.5)

Total 195(213) 66(64) 11(13.23)

LOCs – The Bird’s Eye View


13 February 2015

The Expanding Profile Over the last couple of years, LOC Portfolio has grown

exponentially in all directions

• in term of sheer amount,

• as a percentage of the entire bilateral assistance basket

• share in the Balance Sheet of Exim Bank.

• More than 99% of Exim Bank LOC portfolio


13 February 2015

The Loan Portfolio Growth Over Years


13 February 2015

-

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

4,500.00

57.94 339.83

576.23

1,033.92 1,311.70

1,714.94

2,293.23

2,940.95

3,747.93

4,428.76

LOC Portfolio as Percentage of Exim Bank Loan

Portfolio


13 February 2015

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

14% 15%

22% 25% 24%

28%

31%

39%

Power, 23%

Railways, 20%

Roads &

Transport, 5%

Rural

Electrification, 3% Sugar Plant, 9%

Technology and

Communication,

2%

Other

Infrastructure, 2%

Agriculture, 4%

Cement Plant, 1%

Construction, 4%

Engineering, 8%

Irrigation, 6%

Others, 9%

Petroleum

Products, 4%

Sector-Wise Distribution of LOCs as of 31 March 2014


13 February 2015

Percentage of LOCs to different categories

(numbers and amount)

64.2

17.05

14.77

3.98

52.99

11.47

17.42 18.12

0

10

20

30

40

50

60

70

HIPC LIC&LDC MIC N.C

Number

Amount


13 February 2015

0.00

200.00

400.00

600.00

800.00

1000.00

1200.00

1400.00

Sri Lanka Ethiopia Bangladesh Sudan Mozambique

Myanmar EcowasBank

Nepal D.R. Congo Tanzania

Approvals by GOIAmount (USD Million)

1216.16 1004.54 800.00 739.20 639.44 601.39 500.00 350.00 268.50 254.69

OutstandingAmount (USD Million)

721.59 504.85 128.70 541.40 159.30 194.87 198.24 51.87 160.29 76.23

Top 10 Recipient of LOCs as of 31 March 2014


13 February 2015

Africa Portfolio

Last 6 years, Africa has collected 74.38% of total LOCs

cornering 60.67% of the credit amount.

2011 Addis Ababa announcement- 70.5% of 8500 USD million

(6000 USD million).

In the FY 2012-13, almost the entire allocation went to Africa.


13 February 2015

Region No. of LOCs Credit Amount

(USD Million)

Africa 127 6,270

Asia 33 3,663

Latin America and the Caribbean 14 170

Commonwealth of Independent

States 1 56

Oceania 1 50

TOTAL 176 10,209

Region-Wise Breakup of LOCs-Number and Value


13 February 2015

Africa, 61%

Asia, 47%

Oceania, 0% LAC, 2%

CIS, 1%

Allocation of LOC Value Across Regions


13 February 2015

North, 12%

East, 42%

South, 5%

West, 30%

Central, 7%

LOCs Distribution within the Continent


13 February 2015

Financial

Year

LOCs Signed

Total Africa Percentage Total Africa Percentage

No. No. USD Mn USD Mn

2008-09 23 14 60.87% 760.53 466.23 61.30%

2009-10 20 16 80.00% 638.31 450.15 70.52%

2010-11 21 15 71.43% 2,152.23 788.69 36.65%

2011-12 17 13 76.47% 1,478.98 786.61 53.19%

2012-13 16 14 87.50% 833.59 809.59 97.12%

2013-14 24 18 75.00% 1,771.75 1,330.85 75.11%

Total : 121 90 74.38% 7,635.39 4,632.12 60.67%

Share of Africa in Total LOCs


13 February 2015

Total LOCs since 2008-09: Share of Africa

(in USD million)

760.53 638.31

2,152.23

1,478.98

833.59

1771.75

466.23 450.15

788.69 786.61 809.59

1330.85

0

500

1000

1500

2000

2500

FY 2008-09 FY 2009-10 FY 2010-11 FY 2011-12 FY 2012-13 FY 2013-14

Total

Africa


13 February 2015

Total LOCs since 2008-09: Share of Africa in numbers

23

20 21

17 16

24

14

16 15

13

14

18

0

5

10

15

20

25

30

FY 2008-09 FY 2009-10 FY 2010-11 FY 2011-12 FY 2012-13 FY 2013-14

Total

Africa


13 February 2015

Why are LOCs Constrained?

Changing profile of LOCs- emphasis on capacity creation and knowledge

Successful south-south cooperation tool, served Indian interest well

By and large Effective and Successful-Plentiful Success Stories

Structural/ Policy Issues

Implementation Blues( Pre selection to post evaluation)

Guidelines- revision called for


13 February 2015

The Lingering Debate

Irresistible comparison with Chinese Lines and clamor for

relaxations threatening predictability and uniformity – USP of

Indian Projects

Lack of a Professional Agency – India Development

Cooperation Agency (2007), Indian Agency for Partnership in

Development ( 2011)-DPA- January 1, 2012

Honeymoon period coming to an end


13 February 2015

Financial Year Principal in USD

million

Interest in USD

million

Total in USD

million

2008-09 0.65 2.85 3.5

2009-10 9.54 4.5 14.04

2010-11 80.02 17.69 97.71

2011-12 119.52 37.77 157.29

2012-13 161.97 39.99 201.96

2013-14 30.78 3.72 34.50

The Mounting Overdues


13 February 2015

The Implementation Blues

Much Reputed Companies not very enthused

Lacking professionalism

Standing Committee of 2011

Calling for more professionalism from pre-approval to post

evaluation


13 February 2015

The ill Prepared Projects

Lack of project development capabities -Cement Plant at CAR

Low quality report based on minimal data and investigations

designed to support the desired outcome or outdated report is

rehashed.

Much time is wasted in reconciling the ground reality with the

DPR and for revalidating approvals.

Lack of Integrity

1. Solution- funding DPRs as part of LOC cost or grant

• Exim Bank initiative

• Tool to facilitate, not obstruct


13 February 2015

Selection Diligence

2. Selection

Country system for procurement- Touch with Caution

Credible DPR should be a non-negotiable must

PG/ withholding of 5% of Invoice/ Retention money

Less liberal Advance payments


13 February 2015

Improvement needed

3. Reducing the Time lag and preventing information

pilferage

4. PMC before the bidding starts

5. TA – Transferring AAA and venturing into legal, policy,

management, governance and regulatory space


13 February 2015

6. Monitoring

In Host Country

In India

Inter- Ministerial Visits -Tanzania, Mozambique , Sudan,

CAR,DRC and Gabon

Negotiations/Consultations


13 February 2015

Ensuring Sustainability

7. Post Evaluation- All major projects

8. Sustainability is a issue

clamor for soft projects ( 6 LOCs of 106 million)

LOC Agreement now have details of sustainability and

operational viability of the project during their life cycle

Transfer Organizational capacity

Adequate budgetary support

Fully Funded High Visibility Projects

9. TAs to harness AAA advantage


13 February 2015

Supply LOCs

Easiest but are they so?

Supply of Buses to DRC and CAR

Cement Plant at DRC

Tractors in Tanzania

Traders are doing maximum harm, manufactures only

Only complete package with forward and backward linkages

should be encouraged


13 February 2015

Percentage of LOCs to different categories

(numbers and amount)

64.2

17.05

14.77

3.98

52.99

11.47

17.42 18.12

0

10

20

30

40

50

60

70

HIPC LIC&LDC MIC N.C

Number

Amount


13 February 2015

Guiding the Guidelines

1. HIPC paying more, Graduation unfair

2. Weak country procurement systems must be intrusively

monitored, threshold recommended

3. Defining Indian content and relaxing the threshold

4. Grant element to be calculated in accordance with prevailing

interest rates -need for immediate revision as it is hurting

badly the poor clients

5. Statutory oversight by Indian Embassies

6. Mandatory vetting of DPRs


13 February 2015

Stock Taking

India soon to be net exporter of development assistance

LOCs have given the contextual background to build relationships with key resource rich countries

Hard to discern the directly attributable influence of the LOCs on building / deepening partnerships, it has definitely generated vibrancy and ‘feel good factor’

Indian LOCs are demand driven, enable inclusive growth, employment generation and creation of new markets for goods and services.

Provider of high technology goods and knowledge


13 February 2015

The Corporate Side

LOCs have provided Indian companies access to new countries and markets

India has come to be recognized as a producer of high technology goods

Unlike China, private sector has benefitted more.

Indian companies have demonstrated a plethora of project execution capabilities in a variety of sectors across the globe without undertaking the country risk attached to such countries.

The ultimate success, on the commercial side, is obviously the incremental business secured on commercial terms by Indian companies after initial market entry through LOCs. Hopefully it will be researched sooner than later.


13 February 2015

Suggesting the Course

Needed: Professional, transparent and appropriate

platform ranging from pre-approval to post-evaluation.

Real success of the Scheme will be the graduation when

we remove the tied component of the aid.


13 February 2015

A product which emerges from the

teeth of fierce competition will

certainly be the most effective and

visible envoy of the country

Thanks


13 February 2015

Developing Rising Inequality in Asia and Country...

Documents

Transcript of Developing Rising Inequality in Asia and Country...