Africas Investment and Credit Insurer Mobilizing Aid for Trade: A Global Review 19 th – 21 st November 2007 Geneva Peter Jones Chief Executive Officer African Trade Insurance Agency

Africas Investment and Credit Insurer Public Private Partnership What does it mean for Africa: Creation of a sustainable trade infrastructure Improve access to finance and reduce the cost of doing business Private market approach with the support of donors, IFI lending and direct risk sharing by private corporations

Africas Investment and Credit Insurer The African challenge Perception of risk in Africa results in: Fewer trade transactions Unsustainably high transaction costs Market gap in risk mitigating tools Perception v Reality? FDI at 0.7% of global, annual … yet return of up to 30% against up to 15% (US), and up to 10% (EU)

Africas Investment and Credit Insurer ATI, a real example A Multilateral Political Risk and Credit Risk Insurer Established at the initiative of COMESA and owned by African Member States Supported by the World Bank Partners with Lloyds of London and other major public and private investment insurers Partners with private and public credit risk insurers such as Atradius

Africas Investment and Credit Insurer Member countries: Burundi, Djibouti*, D.R. Congo, Eritrea*, Kenya, Madagascar, Malawi, Rwanda, Sudan*,Uganda, Tanzania, Zambia. But But …open to all AU member states, non-AU States, IFIs, Private Corporations. Corporate members Atradius, COMESA, PTA Bank, ZEP-RE. * To be ratified ATIs Membership (As of September 2007)

Africas Investment and Credit Insurer Objectives Mandate:Mandate: Facilitate private sector led trade flows, investments and productive activities through the provision of insurance coinsurance and reinsurance, financial instruments and related services. That means… :That means… : Mobilizing support from private sector financial institutions Promotion of Intra - African trade & investment How:How: Using a combination of: private sector experience & risk capacity public sector funding, clout and connections

Africas Investment and Credit Insurer What is the rationale? The relatively small volumes of trade and investment in many ATI Member States do not merit the establishment of national ECAs. ATI helps reduce the costs of doing business in Africa by: 1.Cost-effective use of pooled underwriting capital 2.Reduced over-head costs 3.Regional integration through international cooperation and risk sharing 4.Enhanced possibilities for risk diversification by creating a regional risk portfolio (reducing the impact of an individual countrys volatilities and sector dependencies) 5.Encouraging private sector insurers to assume risk in Africa

Africas Investment and Credit Insurer ATIs Deterrence Effect The underlying countries obligation to make ATI whole for any political risk losses they cause, together with ATIs multilateral status and the strong support from IDA/World Bank create a very powerful deterrence effect to wrong-doing; and ATIs African Member States having invested directly in ATIs capital enhances ATIs ability to resolve disputes without loss.

Africas Investment and Credit Insurer Political Risk Insurance for trade & investment Inter & Intra-regional and Domestic Whole Turnover Credit Insurance with typical payment terms of up to 12 months Comprehensive Nonpayment Cover for single (structured) credits to: -Private obligors; -Parastatal obligors; and -Sovereign obligors Product Offering

Africas Investment and Credit Insurer Investment and trade transactions (including expansions or privatizations of existing projects) Credit Insurance: Buyer or Seller in ATI-Member Country Investment Insurance: Project or Investor in ATI-Member Country Eligibility Criteria

Africas Investment and Credit Insurer Most Common Terms Tenors up to 10 years No Minimum Transaction Amount Indemnity: - Up to 100% (Political Risks) - Up to 85% (Commercial Risks) Competitive risk-based pricing

Africas Investment and Credit Insurer A Risk Management Tool Investors gain confidence Project risk/ return profile improves for all investors Greater interest from debt and equity investors More trade and investment Confidence Credit Enhancement Deterrence to adverse Government actions Prospect of compensation Reduction of both capital costs and financing cost

Africas Investment and Credit Insurer ATI Facilitated Transactions Risk Country Value USD 000s Risk TypePolicy Limit USD 000s Burundi21,600 PRI 17,100 DRC7,400 PRI 4,500 Kenya182,247 PRI/WTO/T&S 35,800 Tanzania47,600 PRI /WTO 47,600 Uganda75,000 PRI 25,000 Zambia15,000 PRI 15,000 Total348,847145,000

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