Export Credit Agencies from Emerging Economies

November 4, 2008

By Bob Thomson

Text by Bob Thomson, additions by Regine Richter

The role of emerging countries’ ECAs is rapidly increasing: The U.S. Export-Import Bank for example reported to the US Congress in 2006 that, “by 2010, China’s Export-Import Bank and Sinosure (the state overseas investment insurance agency) will be lending and guaranteeing more than $70 billion annually for large scale investments in developing countries and economies in transition.” (“Blank Checks for Unsustainable Development”, Bruce Rich, Environmental Law Institute, 2007). It is therefore worthwhile to take a closer look on some of these ECAs.

Brazil

Brazil's export credit efforts are carried out by the Banco Nacional de Desenvolvimento Econômico e Social (National Bank of Economic and Social Development – BNDES) and by the Seguradora Brasileira de Crédito à Exportação (Brazilian Export Credit Insurer – SBCE). BNDES is a state entity, while SBCE is privately held, 75% by France's Coface, with some 25% government ownership.

BNDES is Brazil's national development bank, providing financing for projects within Brazil as well as playing a major role in the privatisation programs undertaken by the federal government.

The disbursements of the support lines to exportation of BNDES-ExIm reached US$ 6.4 billion in 2006, 9% higher than in 2005. BNDES provides longer term credits and guarantees, leaving short-term transaction to the private sector.

Oversight of BNDES is provided by the Ministry of Development, Industry and Foreign Trade.

BNDES is not a member of the Berne Union. On its website BNDES says: “BNDES considers it fundamentally important, in the execution of its credit policy, to take into account ethical and environmental principles. As such, BNDES is firmly committed to the principles of sustainable development.”

SBCE acts on behalf of the government for medium- and long-term operations (over 2 years), supporting IRB, Brazil's state-owned reinsurance institute, to analyse, structure, manage and monitor risks inherent to the Brazilian exports

SBCE has the following shareholders:

Banco do Brasil, 12.1%
BNDES, 12.1%
Bradesco Seguros,
Sul América Seguros,
Minas Brasil Seguros,
Unibanco Seguros and
Coface (Compagnie Française d'Assurance pour le Commerce Extérieur), 27.5%

SBCE is a member of the Berne Union and therefore subscribes to their Guiding Principles.

China

Of China's three policy oriented banks, China Export and Importbank is the lending ECA, Sinosure is the insurer/guarantor ECA, and the China Development Bank has become an export credit lender in addition to its more traditional international role in the foreign direct investment field. These banks operate largely according to macroeconomic policy and political directives from Beijing. As a result, they enjoy substantial financial and political support from the central government, usually in the form of capital injections from the People’s Bank of China.

The China Export and Import Bank (Chexim), like all the policy banks, report to the State Council. It also is under the partial direction of the Ministry of Commerce and the Ministries of Finance and Foreign Affairs. At the top of Chexim’s governance structure is its Board of Directors. Beneath the Board of the Directors is the Office of the Chairman and President, which is the executive body that carries out the resolutions of the Board of Directors.

The China Export-Import Bank is not a subscriber to the Berne Union.

Services provided:

Export seller’s credit, which is a loan at preferential rates for Chinese firms wanting to sell their goods abroad
Export buyer’s credit, which is a medium- or long-term loan to a foreign buyer who wants to purchase Chinese-made goods. Often large construction projects need to buy equipment, and Chexim financing makes buying Chinese equipment more attractive
Guarantees for either Chinese exporters, foreign importers, and/or their banks

Chexim differs from most export credit agencies, because it serves the country’s official conduit for governmental lending. In this capacity, Chexim also provides:

Low interest or concessional loans from Beijing to developing countries’ governments in order to enable them to buy Chinese goods and services for development projects
On-lending of foreign government loans, which means that Chexim channels loans from foreign governments to specific projects within China via government agencies, provincial governments, or NGOs. In 2005, these funds amounted to US$16.8 billion, almost half of all of Chexim's loans, and came mainly from Japan (82%) and Germany (11%).
(Source: Michelle Chan-Fishel)

Outstanding loans extended by China Eximbank to the African Continent 2006:

North Africa 30.8%
Eastern Africa 3.6%
Southern Africa 51.0%
Western Africa 11.7%
Central Africa 2.9%
(Source: p.39, 2006 Chexim Annual Report)

China Export and Import Bank issued “Guidelines for Environmental and Social Impact Assessments of the China Export and Import Bank’s (China EXIM Bank) Loan Projects” in August 2007. The guidelines require a social and environmental impact assessment for overseas projects, and require borrowers to follow laws and regulations of the host country. The guidelines were developed in accordance with the China's Environmental Impact Assessment (EIA) Law, Environmental Protection Law, and Environmental Management for Construction Project Ordinance, and "with reference to regulations and procedures for environmental and social assessments of other international financial organizations."

The English translation of the guidelines is provided by International Rivers and is not an official translation.

While having the guidelines is a good start, there is still a need for pressure to adhere to them, as an example from Gabon shows: There, a Chinese-Gabonese joint venture wants to explore the Belinga iron ore deposits. There are environmental concerns about a proposed port that will need to be built due to the project and the site of a hydroelectric dam that will power the project. A waterfall earmarked for the dam is located in the Ivindo National Park, where building the dam might result in a declassification of the area as National Park, spurring further development in the area. Wild chimpanzees and gorillas inhabiting the Belinga area are another reason for environmental concerns. The Chinese companies of the joint venture got financing by the Chinese Exim Bank. Although the guidelines require that projects of this type have environmental impact assessments conducted, this haven’t happened for the Belinga project.

The case is explained in the chapter “Chinese investors and the environment – a South African perspective” in the publication “New Financiers and the Environment” of International Rivers.

Sinosure is a policy bank, overseen by the Ministry of Finance, and also has relationships with the Ministries of Commerce and Foreign Affairs. Its mission is to support and promote Chinese exports and foreign investment through export credit insurance for other banks for loans that they make to buyers and sellers of Chinese products.
Sinosure is a member of the Berne Union and therefore subscribes to their Guiding Principles.

Sinosure offers a range of export credit insurance products, including:

Short-term export credit insurance, which lasts less than one year, and guarantees that Chinese exporters will get paid if their overseas buyers default.
Medium- and long-term credit insurance, which lasts more than one year, and encourages Chinese firms to bid for large construction projects where equipment and machinery is needed.
Investment insurance, which is offered to Chinese companies (as well as their shareholders and banks) that want to operate overseas, but are worried about certain political risks, such as the threat of war.
Guarantees, which are offered to the banks of Chinese exporters that want to participate in overseas projects.
SinoRating, research and analysis to help Chinese companies understand the risks associated with operating in various countries, or with certain potential business partners.

Most of Sinosure’s short-term trade financing goes to exports and imports to/from developing countries. However, when it comes to medium- and long-term financing, a majority (56%) of its medium- and long-term insurance goes to the countries of Iran, Sudan, the Philippines and Pakistan.

According to Sinsoure’s 2004 annual report, its financial products went to support overseas trade and investment in:

Asia 39%
North America 29%
Europe 23%
Latin America 4%
Oceania 3%
Africa 3%
(Source: Michelle Chan-Fishel)

Sinosure’s transactions include:

Cooperation agreements with PetroChina, Sinopec, CNOOC,
Sinochem, Zhenhua Oil and Citic Group to provide “all sided risk guarantees” for overseas projects (185)
Insuring a buyer credit ($15.6 million) and a commercial credit ($2.5 million) for BNP Paribas Bank’s loan of $18.1 million to the Vietnam Construction Export and Import Corporation (Vinaconex), which is building the Cua Dat Hydroelectric Plant in Vietnam ($100 million)
Calcined soda plant in Uzbekistan (186)
Blanket export insurance for Sinochem Corporation
Cuban Government agreement on debt re-organization
Blanket policy agreement on short-term export credit insurance with the China Machinery Equipment Import and Export Corporation
China Chemical Industry Engineering Company and the China Chengda Engineering Company to build a power plant in Indonesia
Yunnan Machinery Equipment Import and Export Company, Yunnan Machinery Import and Export Company, and the China Complete Plant Equipment Yunnan Branch
China Aerospace Technology Import and Export Corporation Beijing Branch for exporting cargo ships to Iran.
China Dongfang Electric Corporation and Sichuan Provincial Machinery and Equipment Import and Export Co. Ltd.
Hebei Provincial Textile Import and Export Group Company;
Chongqing Foreign Construction Corporation to build P-H highway development project in Uganda (financed by the World Bank)
Government of Myanmar on debt restructuring
Various operating and financing agreements with Nigerian oil developers, including: Amni Petroleum, Emerald Energy Resources Limited and BlueWater Oil and Gas Investment Company (187)
(Source: Sinosures website and economic publications put together in “Time to go Green: Environmental Responsibility in the Chinese Banking Sector” (pdf), by Michelle Chan-Fishel, Report by Friends of the Earth United States and Banktrack, p.81)

Further information on Chinese ECAs and the environment:

International Rivers website:

Friends of the Earth United States website:

Global Finance

India

There are two Indian ECAs, the Export Import Bank of India and the Export Credit Guarantee Corporation of India (ECGC), covering credit and risk guarantees respectively.

The Export Credit Guarantee Corporation of India Limited (ECGC) was established in 1957 by the Government of India to strengthen the export promotion drive by covering the risk of exporting on credit.

Being essentially an export promotion organization, it functions under the administrative control of the Ministry of Commerce & Industry, Department of Commerce, Government of India. It is managed by a Board of Directors comprising representatives of the Government, Reserve Bank of India, banking, insurance and exporting community.

ECGC is the fifth largest credit insurer of the world in terms of coverage of national exports. It is a member of the Berne Union and subscribes to their Guiding Principles.

In financial year 2006 a total of 568 contracts were secured by 174 Indian exporters with the support of Exim Bank. These deals amount to US$3.29 billion covering 64 countries.

Exim Bank of India has in place 78 Lines of Credit, covering over 80 countries in Africa, Asia, Latin America, Europe and the CIS, with credit commitments amounting to US$ 2.3 bn, available for utilization for financing exports from India. Exim Bank's LOCs afford a risk-free, non-recourse export financing option to Indian exporters.

The Export-Import Bank of India was established “for providing financial assistance to exporters and importers, and for functioning as the principal institution for coordinating the working of institutions engaged in financing export and import of goods and services with a view to promoting the country's international trade ..." : The Export-Import Bank of India Act, 1981.

Exim Bank is managed by a Board of Directors, which has representatives from the Government, Reserve Bank of India, Export Credit Guarantee Corporation (ECGC) of India, a financial institution, public sector banks, and the business community.

Countries of operation

Project export contracts 2006 (Rs. 269.5 bn) Active LOCs (US$1739 mn)
West Asia                                      47%                    US$250 mn   14.4%
South Asia                                    15%                    US$218 mn   12.5%
North Africa                                 23%                    US$442 mn   25.4%
Sub-Saharan Africa                      6%                     US$552 mn   31.7%
SE Asia, Far East & Pacific            6%                     US$ 99 mn   5.7%
Europe & CIS                                2%                     US$ 85 mn   4.9%
Americas                                        1%                     US$ 93 mn    5.3%
(Source: 2006 ExIm India Annual Report)

Sectors supported

Contracts supported 2006
Construction                                 5%             9  Rs.           6.63 bn
Consultancy                                  2%           16  Rs.           2.45 bn
Turnkey                                       65%            52  Rs.         87.91 bn
Trade finance (supplies)           28%          491  Rs.        38.51 bn
(Sources: Export-Import Bank of India, Export-Import Bank of India - links)

South Africa

The Export Credit Insurance Corporation Ltd (ECIC) is an independent, limited liability company with the Government of South Africa, through the Department Trade and Industry (dti), as the sole shareholder.

The Export Credit Insurance Corporation (ECIC) is registered as an insurer underwriting bank loans, supplier credits and investment into South Africa. The ECIC was established on 2 July 2001 by the Export Credit and Foreign Investments Reinsurance Amendment Act (9 of 2001) with the brief to fill a gap in the market in the provision of medium and long-term export credit insurance and investment guarantees on behalf of government.

ECIC is a member of the Berne Union and therefore subscribes to their Guiding Principles.

Sectors supported
Focus on mining infrastructure sector per October 2006 PPT presentation to the Trade and Industry Portfolio Committee of the South African Parliament.

The ECIC’s portfolio exposure is spread over 21 countries, with the highest (47,4%) in Mozambique. Its biggest exposure is for the Mozal Aluminium smelter in Mozambique (35%), followed by Iran (29%), Mozambique excluding Mozal (12,3%), and Turkey (8,2%). However, the Mozambican exposure was reduced significantly during the year from 65,4% at its commencement.

In February 2008 ECIC guaranteed a loan to Paladin Energy. The loan consists of a US$ 167 million financing package from an international banking syndicate for the construction of the Kayelekera Project in Malawi, a uranium mine. The banking syndicate consisted of Société Générale (France), Nedbank (South Africa) and Standard Bank (South Africa). (Source: “Paladin Energy Announces Bank Approval for US$ 167 M Project Finance for Kayelekera Uranium Project, Malawi”). The transaction is mentioned as well in the report “Mined U” (pdf) by WISE)

(Source: Export Credit Insurance Corporation Ltd)

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