Author : Oommen C. Kurian

Expert Speak India with Africa
Published on Oct 05, 2020
India’s Lines of Credit to Africa in Health: Opportunity to Build a Key Pillar to the Economy Across the African continent, there have been several economic success stories built over the last few decades, and accelerated poverty reduction and human development have been considerable as well. While the direct impact of COVID19 – the “health crisis”- has been lower than feared in Africa, the economic crisis triggered by the lockdowns across the continent has slowed down the journey towards the Sustainable Development Goals (SDGs). It is widely acknowledged that a weak health system has enormous economic costs. However, in the specific context of COVID19, a strong and responsive health system has a key role, not just in the sense of the long-term quality of human capital, but also as a key guarantor of a resilient economy.

Lines of Credit as a Key Instrument of India’s Diplomacy

It is in this context that India’s health sector partnerships with Africa need to be seen, which have the potential to build and strengthen a key pillar of the African economic success story and to gain from it. Over the years, Lines of credit (LoCs) have emerged as a key instrument of India’s economic diplomacy, along with Grant assistance, Small Development Projects (SDP), Technical Consultancy, Disaster Relief, and Humanitarian aid, as well as capacity-building programmes for civilian and military training under Indian Technical and Economic Cooperation Programme (ITEC). Initially, an inability to find efficient private sector vendors proved to cause delays in several projects. This led to India revamping its LoC structures into a demand-driven one, supported by industrial groups on a platform called Conclave of India Africa Project Partnership in 2005.  In addition to political goodwill, in terms of votes in the UN, opening markets for Indian companies in Africa was also an objective. However, instances of corruption in the initial phase brought disrepute to Indian strategic objectives, leading to the formation of the Development Partnership Administration division within MEA in 2012, transforming the tendering process. To fill a capacity gap in identifying a need, conceiving a project, and preparing a proper proposal, a Project Preparation Facility (PPF) was set up by India to assist its development partner countries towards the preparation of viable projects that can be considered for concessional financing under Lines of Credit. In the next five years, India-Africa trade is reportedly expected to touch $ 150 billion. Earlier research by ORF showed that India’s recent development cooperation strategy through its Indian Development and Economic Assistance Scheme (IDEAS) stressed on the principle of “development partnership” for “mutual benefit” with specific aims of promoting India’s exports, opening new markets for Indian companies, and securing natural resources, food, and energy. The Exim Bank has been offering commercial LoCs from the eighties. In parallel, the government of India has independently been offering LoCs too. According to a study, till 2003, India extended 83 government-to-government LoCs to 23 countries, totalling US$498.56 million (PPP $1,466.64 million / INR 33,069.48 million). From 2004 onwards, the government partnered with the Exim Bank to gain from its expertise and experience. Unlike the ODA schemes of other prominent countries, all the money involved in India’s LoCs does not come from government sources. The core funds are from the Exim Bank, raised from international markets, offered at concessional rates to the partner countries below the costs of funds. The Exim Bank receives interest equalization support directly from the government of India to offset losses and offers LoCs to Heavily Indebted Poor Countries (HIPC) with very low credit rating, with a payment guarantee from the government of India. The Exim Bank also operates the Concessional Financing Scheme, very similar to the LOC but on behalf of the Ministry of Finance, GOI, towards supporting strategically important projects secured by Indian companies abroad.

India’s LoCs to Africa

Currently, around 300 LoCs are operational across 64 countries. Offers of $ 30.62 billion are made to various governments of which contracts are approved of about one-third. The ability of the Exim Bank to fulfil these offers is somewhat constrained by the borrowing limit, which is capped at 10 times the Bank’s net owned funds, making capital infusion from the government critical. Also, IMF conditionalities affect a partner country’s ability to accept the line of credit.  LoC is a demand-driven process with two conditions: the company executing the project should be an Indian one, and at least 75% of goods and services should be exported from India. Through buyer as well as seller credit, LoCs offer easy, risk-free market access to Indian companies. Research shows that the African continent over the years has remained a primary destination for the government’s LoCs and a sharp increase in LoCs committed to African countries is seen. Earlier research from ORF shows that in 2004, LoCs to Africa were valued at $304 million while in 2011, LoCs to Africa were valued at $4.3 billion. Of the 17 LoCs were made operational in 2012, 12 were directed to African countries. In October 2015, as part of the India Africa Forum Summit (IAFS) III,  India pledged a $600 million grant assistance including an India-Africa Development Fund ( $100 million) and an India-Africa Health Fund( $10 million). Additionally, India committed to grant $10 billion LoCs on concessional terms over the next five years. The latest available data indicate that more than $ 6.3 billion under the Indian LoCs have been committed /ongoing out of the overall commitment of $ 10 billion. In terms of India’s development cooperation, over two-thirds of India’s LOCs in the past decade have been offered to African countries. The latest Annual Report of the Ministry of External Affairs shows that a total of 204 LoCs amounting to $ 12.50 billion has been extended to African countries in varied sectors such as power plants, hydroelectricity, power transmission & distribution networks, dams, roads, railways, ports, agriculture & irrigation, industrial units, skills development, civil construction, etc, along with new sectors such as Telecommunications.

Indian LoCs to Africa in the Health Sector

Africa has the largest number of  Indian LoCs but in terms of value, the largest proportion was offered to countries in India’s neighbourhood. The sectoral composition of India’s LoCs are dominated by projects range from drinking water schemes to irrigation, solar electrification, power plants, transmission lines, cement plants, technology parks, and railway infrastructure. While India is a major player in the African pharmaceutical scene, the quantum of LOCs directly linked to the health system have been relatively low. The CII-EXIM Bank India-Africa Conclaves on Project Partnership are held from 2005 to discuss Africa specific partnerships to enhance economic engagement feature projects, a subset of which get funded through the LoC route. The overall distribution of the projects there is indicative of India’s LoC distribution as well. As Table 1 demonstrates, health-related projects constitute one of the lowest proportions among the 13 sectors covered. Table 1: Current Projects Being Discussed at the India Africa Conclave across Sectors Source: Data compiled by the author from , updated as on August 14, 2020. When we look at historical data of LoCs to Africa from 2002-03 onwards, it presents an even more skewed picture. Of a total of 282 LoCs spread across a large number of projects, only 0.5% of the total money went to Africa for health related projects ( Table 2) according to available official information. In other words, of a total of $12000 million that went to Africa, only 1.2% were for health-related projects. Two factors need emphasis here:  firstly, India doesn't have many health-related LoCs to any region, and secondly, a huge proportion of India's health-specific LoCs is to a single country: Bangladesh. Of the overall $2185 million India committed to other countries through the LoC route, $2000 million was committed to Bangladesh in 2016 as part of a social and infrastructure development project. Table 2: Health-Related Projects Among India's Overall LoCs from 2002-03 Source: Compiled from data accessed at on 23rd January 2020. As of date, only six LoCs were offered to African countries over the last two decades in health-related sectors. Besides, only three health-related LoCs were offered to other regions outside Africa,  showing the overall number to be just nine out of a total of 288. Earlier research has shown that Indian LoCs are the main instrument through which Indian companies participate in the implementation of development cooperation. However, available data indicate that it is not the case in the health sector in Africa. It needs to be added that given the large footprint Indian companies have in the African pharmaceutical sector, it is likely that many broad LoC funded projects – particularly in manufacturing - may have a pharmaceutical component, although available data doesn’t allow disaggregated analysis beyond the broad title of the project. Table 3: Lines of Credit to Africa on Health-Related Projects Source: Compiled from data accessed at on 23rd January 2020. While Indian Technical and Economic Cooperation (ITEC) which is based on technical cooperation and capacity building has a key health component, the LoC arm does not see a considerable proportion of health projects. When Africa is a major source of “medical tourists” for Indian healthcare facilities, there is a major market opportunity for Indian companies to expand their presence in Africa, and LoC can play a key role.  Systematic impact assessments of LoC projects in Africa – not necessarily only in the health sector- are needed to understand what works and what doesn’t, so that the upcoming projects have a better chance of success.
Debarati Mukherjee helped with the compilation of LoC data. 
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Oommen C. Kurian

Oommen C. Kurian

Oommen C. Kurian is Senior Fellow and Head of Health Initiative at ORF. He studies Indias health sector reforms within the broad context of the ...

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