The US' Export and Import Bank (Ex-Im Bank) has introduced new tougher conditions on Zimbabwe's private sector - including insistence on irrevocable letters of credit (L/Cs) in certain transactions - in order to stave off possible loan defaults.

Although Zimbabwe has become a bad credit risk, the bank says it will stay open for export credit business for US enterprises doing business with Zimbabwe, provided that firms in the troubled southern African meet very strict conditions and only to borrowers with access to international funds.

Limited cover

For shorter-term financings, the bank has this to say: "Coverage may be available for a transaction that is supported by an irrevocable L/C issued by a bank and/or due from a buyer located in a country where Ex-Im Bank is open without restrictions for short-term transactions."

Longer-term financings may also be available. "Ex-Im Bank will consider structured financing arrangements such as the bank's project finance programme and other financing arrangements that offer a reasonable assurance of repayment, including reliable access to adequate foreign currency," the bank said.

The US' export credit agency (ECA) also says that credit facilities to Zimbabwean companies may be available if a reputable foreign financial institution agrees to act as guarantor.

Out of bounds

Zimbabwe and neighbouring Zambia are the only countries where Ex-Im Bank will not support deals with the government or parastatals. They are completely out of bounds.

Public and private Zimbabwean businesses find it very difficult to obtain ECA-backed facilities because of the country's near universal high-risk country rating, a result of Zimbabwe's severe political and economic instability.

Ex-Im Bank's decision to stay open for Zimbabwean business contrasts with recent actions taken by Belgian ECA, Office National du Ducroire (OND). Last month it issued a default notice against Zimbabwe to international financial institutions and credit agencies after the Harare government failed to pay more than US$376 million owed to OND.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.