African cash crisis hits Indian exporters.

NEW DELHI: The fall in global commodity prices, especially oil, has hit India's exports to Africa as a currency crisis has shut out some of the market for products such as automobiles and auto components. It has also put exporters in a tight spot with some of them complaining of delayed payments.

The uncertainty has prompted the government to begin discussions on an alternate payment mechanism to ensure that the dues of Indian exporters are protected. The ministry of external affairs is discussing the possibility of opening an escrow account with countries such as Nigeria, where the exporters will have the first charge on oil dues that are paid to the African country, sources told TOI.

"These are preliminary discussions and we may rope in Exim Bank and African Development Bank if the Nigerian government agrees," said a source. The mechanism may be similar to the window like the rupee-rouble account of the 1980s or the recent mechanism with Iran, where payments were hit by sanctions imposed by the US.

The global slump in commodity prices, such as oil and metals, has hit mineral-dependent economies across the globe, while importing countries such as India have benefited. Low prices have meant lower dollar inflows and put pressure on the balance of payments position of these countries. Nigeria, Africa's largest economy, is on the brink of a recession - oil production has dropped to the lowest in three decades, budget deficit has widened to a record and the economy contracted for the first time since 2004 in the first quarter. Foreign currency reserves have dropped to $26 billion, the lowest in more than a decade.

Exporters are also complaining of problems in other countries such as Angola, Ethiopia and Ghana, said Ajay Sahai, director general of exporters lobby group FIEO.

The payment problems, which has resulted in some trade getting routed via Dubai, has also pushed up default risk premium and the government is trying put in place a lower premium regime for SMEs exporting to Africa.

"The dollar crisis is a serious cause for concern, and there have been no exports to countries such as Angola, Egypt and Ethiopia for the past one year. Other affected countries are Algeria, Nigeria and South Africa," said Sugato Sen, deputy DG of Society of Indian Automobile Manufacturers (Siam). Africa accounts for around a third of India's vehicle exports, which includes two-wheelers, three-wheelers, cars, utility vehicles and trucks and buses.

Exports of vehicles to Africa were estimated at around $3 billion last year.

The auto industry body has proposed a mechanism similar to the one that MEA is discussing. "We believe that China has entered into renminbi swap agreements with more than 34 countries and is working towards inclusion of its currency as a convertible foreign exchange. There will be serious threat to Indian exports due to this," Sen said.

The government's initial plan is, however, focused on Nigeria, which is a major source of oil import for India and seen as an alternative to crude from West Asia. The crisis comes at a time when India is trying to deepen its ties with Africa to reduce the influence of China, which has had a first-mover advantage. "It is easier to work out a deal with Nigeria given the large trade deficit. Once we finalize a plan we can work out an arrangement with Ecowas," an official said. Ecowas, or the Economic Community Of West African States, is a grouping of 15 countries including Nigeria and Ghana.

Source : timesofindia.indiatimes.com