In the past two years, the Japan Bank for International Co-operation (JBIC) has become the principal Japanese institution for official financing overseas. The fruit of the 1999 merger between Export-Import Bank of Japan (Jexim) and the Overseas Economic Co-operation Fund (OECF), the bank is wholly owned by the government. It has a staff of 888 based in the Tokyo headquarters and 27 representative offices spanning the globe from Bogota to Beijing. JBIC's total capital at 31 March this year stood at Y 6,986 billion; outstanding loans at the end of 2000 were Y 21,213 billion, equal to nearly 90 per cent of the World Bank's outstanding loans at the end of last year.
Reflecting its origins, JBIC supports foreign economic policy objectives in two key areas. Under the umbrella of international financial operations (IFOs), the bank is responsible for promoting Japanese exports and imports, supporting Japanese firms' overseas activities and seeking to enhance stability in the international financial markets.
IFOs are financially independent of, and accounted separately from, the bank's other role - that of an official development assistance (ODA) agency. JBIC provides long-term concessionary loans under its overseas economic co-operation operations (OECOs). These are extended to developing countries to help to stabilise their economies and enable them to build up vital economic and social infrastructure. OECOs account for about one-third of Japanese ODA.
IFOs constitute the bulk of JBIC's commitments and involve a variety of financing instruments including export, import and overseas investment loans. The loans, intended to bolster Japanese companies' international activities, and enhance their competitiveness, are not only available to local firms and banks, but also to foreign institutions to support their use of Japanese goods and services.
With Japanese interest rates at their lowest level for decades, JBIC has its work cut out persuading local private banks to finance projects overseas. Their participation is vital because, under the bank's founding charter, JBIC is prohibited from competing with private sector financial institutions and can only supplement and encourage their financing activities.
'Many banks over-extended themselves in the local real estate market in the early 1990s and are still having to cope with large bad loan provisions,' says Hitoshi Kurihara, JBIC's chief representative for energy resources. 'Combined with the present economic climate, it means they are extremely cautious about lending to projects in developing countries, even though JBIC takes on 60 per cent of the loan.'
As the financial giant of the region, Japan's main international concern is the economic health of its Asian neighbours - the natural market for Japanese exports. The currency crisis that gripped Asia in 1997 struck fear into the Japanese financial community. JBIC's predecessor, Jexim, was quick to rise to the challenge, providing large-scale untied loans to the local economies in an effort to promote financial stability and improve the general environment for Japanese trade and activities. Heavy OECO disbursements were also extended to the affected countries. However, the Asian economies' rapid recovery reduced the need for financial provision and emergency assistance: in 2000, JBIC was able to cut loan commitments to the region to Y 828 billion - 47 per cent of total commitments for the year - from Y 1,437 billion in 1999.
Beyond its immediate neighbours, JBIC is paying increasingly close attention to the Middle East and North Africa. 'With population growth averaging 3 per cent a year, it is a region we can't afford to ignore,' says Kurihara. 'The market for Japanese exports is expanding and there are also several major industrial projects offering great opportunities for Japanese services.'
The cut-throat competition, and emphasis on long-established relationships, has made it difficult for Japanese companies to get a foot in the door, but their persistence is bearing fruit, and the contracts are mounting up in Algeria, Qatar, Abu Dhabi and Iran in particular.
One of JBIC's responsibilities is to secure access to energy resources for import-reliant Japan. The Middle East, with its growing liquefied natural gas (LNG) infrastructure, is a particularly attractive market. 'JBIC is heavily involved in more than 95 per cent of all LNG projects where the product can be exported to Japan,' says Kurihara. In the past, this mainly took the form of untied loans, but loans extended to Japanese importers, or foreign exporters' loans are increasingly common.
In 2001, JBIC was one of the first international organisations to lend to Algeria's state-owned energy company, Sonatrach, without a sovereign guarantee. The bank extended two buyer's credits totalling Y 52 billion to finance contract work won by Japan contractors JGC Corporation and Itochu Corporation in the development of Algeria's oil and gas industry. These follow export loans over the previous two years totalling more than Y 17,400 billion. In the mid-1990s, Jexim was a generous contributor to the landmark LNG project in Qatar and Y 177 billion remains outstanding on JBIC's books.
JBIC is also taking Jexim's lead in targeting the region's petrochemical producers. The $750 million Jexim loan to Saudi Arabia's Eastern Petrochemical Company in January 1999 was followed last year by bank-to-bank credit facilities to Iran totalling Y 28 billion. The loans were made to finance Japanese companies' construction of two petrochemical plants. They constituted the first direct export credit to Iran in 25 years, and are expected to mark the beginning of closer trade relations between the two countries. Japan's Marubeni Corporation has already won the contract to supply line equipment for the modernisation of Iran's southern rail route, for which JBIC signed a Y 513 million export credit in March 2001.
While the loan to Iran was extended under JBIC's IFO portfolio, many of the infrastructure projects the bank finances, particularly in North Africa, fall under the auspices of OECO disbursements. In Morocco, for example, JBIC concluded a Y 5 billion ODA loan agreement in 2000 to assist the Meknes-Fes track-doubling project. More recently, the bank has signed a Y 13 billion ODA loan for a road construction project in the north.
OECOs also aim to improve the recipient country's general economic health. In 1999, JBIC provided Y 7 billion in ODA loans to Jordan for a project aimed at improving tourism infrastructure, thereby increasing the country's capacity to acquire foreign capital. In Iran, JBIC is helping to boost installed capacity and stablise supply of electricity by assisting in the financing of the second phase of the Masjid-e Soleiman hydroelectric power project.
'The OECOs are a very important means of supporting the social and economic infrastructure of developing countries,' says Kurihara. 'And in the long term this will improve the opportunities for Japanese involvement in the region.'
In the wake of the Asian economic crisis, Japanese companies are well aware of the need to diversify their activities geographically. The opportunities offered in the expanding Middle East and North Africa markets present considerable potential for Japanese firms. 'At the moment, Japanese companies are mainly engaged in the region's energy sector,' says Kurihara. 'JBIC would like to support a range of activities and as our involvement deepens we are confident that new projects will develop.'
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