The Impact Of Export Credit Agencies On The Tanzanian Lending Market

What are Export Credit Agencies (ECA)

ECAs are agencies initially designed to promote the industry of the home country and assist domestic companies in exporting their products to foreign markets. Over time, ECAs have expanded the financial services they provide to corporations and bankers to include state-backed direct loans, insurance or guarantee of payments. As a result, they have become viable alternatives to equity financing as well as major players in project financing particularly in emerging markets that are considered commercially or politically too risky. ECA financing is currently worth an estimated 400 billion USD around the world.

Previously, The Consensus of 1976 - an agreement entered into by some OECD countries -loosely governed the ECA industry. The Arrangement on Guidelines for Officially Supported Export Credit of 1978 (The Arrangement) built on the initial agreement and harmonized ECA engagement in goods and services across all sectors with the exception of agriculture goods and military equipment. It outlined rules related to repayment term, frequency of payments and nature of repayment. Most countries with ECAs are party to The Arrangement.

ECAs have various advantages including provision of longer-term loans and competitive interest rates compared to those available in the debt market. ECAs, unlike commercial banks, primarily aim to recover their operating and financial costs rather than seeking a market return on their services. The participation of an ECA in a deal whether in the form of a guarantee or direct loan also has a signaling effect on other lenders, thereby lowering risk perception and improving the bankability of a project. With the increasing number of ECAs entering the market, competition is likely to lead to even better conditions for borrowers.

Examples of ECA's operating in the Tanzanian market include the following:

Export Development Canada (EDC) Export-Import Bank of China (CEXIM) China Export & Credit Insurance Corporation (SINOSURE) Export-Import Bank of the US (Ex-Im Bank) Japan Bank for International Cooperation (JBIC), Nippon Export and Investment Insurance (NEXI) Australia's Export Finance and Insurance Corporation (EFIC) South Africa's Export Credit Insurance Corporation (ECIC) US' Overseas Private Investment Corporation (OPIC) Other types of organizations providing similar financial services to corporations include Multilateral Development Banks, Multilateral Financial Institutions and...