The African Exim Bank (AFREXIMBANK) celebrated its 20th year anniversary this week. Shareholders of the bank, including other Exim banks, attended the Annual General Meeting.
T.C. A Ranganathan, Chairman and Managing Director of the Export-Import (Exim) Bank of India, was also here for the annual general meeting. He talked to Capital’s Aderajew Asfaw about his bank’s relationship with AFREXIMBANK, Ethiopia as well as India, and the liberalization of the banking sector.
Capital: What is the main reason for your visit to Addis Ababa and what will be your contribution to the event?
T.C.A Ranganathan: I’m here to attend the Africa Exim Bank’s Annual General Meeting and am speaking on some of the sessions there. We have been involved with AFREXIMBANK starting almost 20 years back – ever since its establishment. In fact, even before that, the Indian Exim Bank has given advisory support on what the framework of an Exim bank must be and the type of activities AFREXIMBANK should focus on. We also have a small share in Afriexim. We have partnerships with various banks, but we are also in collaboration with Exim banks to promote relationships between various development banks across the world and have partnered in setting up an institution called Global Network of Exim Banks and Development Finance Institutions (G-NEXID). This institution is a global network of Exim banks and development institutions under the auspices of the United Nations Conference on Trade and Development (UNCTAD).
Indian Exim was the first chair of this network. We had the chairmanship for three years and then passed it on to Afriexim. Africa Exim shall head it for another three years and they will be handing it over to the Exim Development Bank of Panama, South America. Our relationships are multifaceted and we collaborate on a number of things. It is always a good occasion to come to the annual general meetings so we can meet a lot of important people from the ministries in Africa who attend Africa Exim Bank meetings. So it is with that sense we are coming here.
Capital: What is your take on Afriexim’s performance since its establishment?
Ranganathan: I believe it has been doing very well and people have been appreciating it. As I mentioned, we collaborate on a number of points, both on mutual assistance/collaboration amongst banks, then on banking partnerships. So it is a multiple form of partnership and not a single partnership.
Capital: Starting from a couple of decades ago, Africa is really making fascinating progress. In fact, the commentaries on Africa are changing for the better. What do you think is the bank’s contribution to the African economy in the last 20 years?
Ranganathan: one of the things which AFREXIMBANK does is financing trade. When you talk about trade, as India Exim, I can tell you that trade is a vital economic activity both within a country and between countries. Trade finance is the first victim of any disruption of normal life. So, for example, what happened in the USA in 2007 or 2008 was a crisis spawned by the way US financial institutions were conducting business. But it affected trade between countries in Africa; it affected trade between countries in Asia; and it also affected the trade between Africa and Asia, even though we had nothing to do with what was happening there. Trade finance is the first casualty of a financial problem which occurs anywhere in the world. It is also the most difficult thing to promote, but trade is also the best mover of economic activities across countries and within countries.
So I think the bank is playing an important role and it is the same role we are playing in India and other Exim Banks are playing in other parts of the world.
Capital: How do you look at the Indo-Africa relationships?
Ranganathan: I think India and Africa have had a strong relationship for several generations. Historical relations go back almost 600 or 700 years, and in fact just this year when we had a meeting called India Africa Meet hosted by the Exim bank of India, we also distributed a photographic booklet documenting the lives of Africans who settled in India 500 years ago. And they, incidentally, came from Ethiopia. Because in 1500 A.D and 1600 A.D a lot of African traders and military men were employed by the sultanates and kingdoms in India and they stayed on. That is was documented. So the relationship between the two started long ago.
Then we have a shared economic history. We both were colonies and had similar problems in regards to obtaining our independence. And we have again been through similar post-independence problems on how to manage growth, improve livelihood and improve opportunities together. Because of that, the nature of collaboration of the two is multifaceted. It extends to capacity building under various schemes supported by the government of India. Both teachers and students of Africa are trained in Indian universities through scholarships. In infrastructure building, one basic infrastructure that India aids Africa is in setting up a satellite system, which enables educational institutions, hospitals and other technical bodies to connect with Indian institutions for an exchange of ideas or to exchange information or receive assistance. For example, in hospital management a lot of African hospitals have ties with Indian hospitals for case-by case diagnostic assistance. For example, in Ethiopia the Black Lion Hospital is tapped into such a system, which is another form of assistance.
The Exim Bank of India has been actively engaged both on behalf of the government of India and on behalf of Indian companies with Africa and Ethiopia in particular. In Africa, we have been extending lines of credit for the last 10 to 15 years; in Ethiopia we have also been doing this for about 7 or 8 years, and as of now, more than USD one billion in credit has been provided to assist in the development of three sugar companies. Then we have power transmission; recently there was a decision by the governments of Ethiopia and Djibouti to build a trans-railway network which will benefit both nations and is the first form of intra regional connectivity. The Indian prime minister announced the government’s commitment and support for that project.
Just last week, we signed a line of credit of USD 300 million to facilitate the financing of that project. There are also a number of Indian companies who are investing in Ethiopia and other parts of Africa. In Ethiopia, Indian companies have invested in Agriculture, steel textiles and pharmaceuticals, among other things, and we are assisting them. And the extent of our assistance is also growing every year, because we see that companies are showing an interest in coming to Africa, and particularly Ethiopia because the quality of governance here is very high, the planning and the direction of movement is very advanced and the government is very clear on its priorities.
Capital: How would you put your bank’s performance in the last couple of years?
Ranganathan: The bank’s performance has been quite good. Because each bank’s performance is within the context of how the region is doing and how other banks in that region are doing. In relation to banks in India, we have been doing very well.
Capital: Do you think the accession of Ethiopia to WTO would negatively affect local private banks?
Ranganathan: The same question was raised in regards to India about 30 years ago and we had the same apprehensions about what the impact would be. And if you see the historical development of the Indian banking system, at the time of independence we had mainly a private-sector dominated banking system. But then the government felt that they were not contributing much to development activity. Therefore, they started nationalizing and incorporating them into the public sector. By the early 1980s, 90 percent of the banking sector belonged to the government. When the government started liberalizing the banking sector, there was a lot of apprehension, both in the government and other places that opening up would result in Indian banks losing their hold and foreign banks would come and dominate the sector. That was 25 years ago. But, after 25 years, the share of the public banking sector has remained more or less same. A lot of new Indian private banks have come up. The share of foreign banks is almost the same as it was 30 years ago. The experience of India shows that it has not had a negative impact on Indian banks. In fact, the competition became an incentive for every local bank to modernize. When I joined the banking industry in 1975, everything was done with paper and pencil in a leisurely fashion and transactions were slow. Foreign banks had computers at the time. Until 1995 we didn’t have computers in India. Today our systems are as good as, if not better, than theirs and the software that Indian banks are using are now in demand by some banks in Europe and the US.
So it is all a matter of how institutions respond to challenges. If you don’t have competition, then you often don’t do well.
Therefore, such sectors have to be opened up gradually and in sequence. If you open it up all of a sudden, you will then have the same thing as Russia had when things collapsed. If you do it in sequence, things will be okay.
Capital: When did you start your financial support to Ethiopian projects or investments?
Ranganathan: We have always been supporting activities in various parts of the world including Ethiopia. But the major thrust of this form of support started in 2005 or 2006 when the Indian financial position became slightly better. The government of India felt that we could start going abroad and help other countries also. Since then, we have been taking a bigger and bigger role. In the last five or six years, we have so far given more than a billion USD to Ethiopia alone. To Africa as a whole it will be in excess of seven or eight billion USD. When the Prime Minister of India came here in 2011 for the Indo-Africa Meet he announced that in the next three or four years five billion USD would be given to countries in Africa. So that partnership is growing and will keep growing.
Capital: How open are investments in India for Africans?
Ranganathan: Indian growth started in 1991/92. Up to 1992 it was a closed economy and everything was controlled. In 1992, the government of India decided not to interfere in business activities and they liberalized the economy so that investments would come to take place without the government’s interference. Even Foreign Direct Investment [FDI] in a large number of sectors was made completely open so that anyone who wanted to invest in some sectors could do so 100 percent; some sectors, depending on national sensitivities, were not open to foreign investment; some sectors were opened partially. As I mentioned, opening up need to be in phases. But if you open up sensibly or practically, then development starts.
Now the Indian government doesn’t question who wants to come to India and invest.
Capital: How is the South-South Partnership doing these days?
Ranganathan: It is growing. We are in various stages of development. We need to help each other in development and by giving both moral and practical supports as development is not an easy exercise. It takes a lot of time; a lot of issues and practical problems come up. So dealing with such challenges requires learning from each others’ experiences. And the only form of activity that I recommend is that we all join together and that is what Exim bank in particular is about.
Capital: Which places would you want to visit in Ethiopia, if you had the time?
Ranganathan: I want to visit two or three places. One is the Lalibela rock hewn churches. Then you have a very interesting place called the Rift Valley where geological remains and the fossil named Lucy was found, and the third one is the place where the Blue Nile originates here in Ethiopia.