NAIROBI, 11 January, 2012 – The world is entering a new era of development in which emerging economies are looking to each other for expertise. Sharing knowledge with countries that have similar challenges, the logic goes, should yield more efficient, sustainable solutions that are better suited to the conditions in developing countries.
A recent project in Rwanda designed to increase electricity in rural areas demonstrates this trend. On this project valued at $68.6 million, a Tunisian power company mandated to promote that country’s knowledge and know-how in building energy infrastructure led the construction of a network that will see 50,000 new rural customers connected to the national electricity grid.
“In our portfolio, we have seen a shift in terms of who is financing as well as who is winning contracts for important projects in some African countries. In the past companies winning the bids or financing projects would most often come from Europe or North America. That is changing”, notes Benjamin Mugisha, ATI’s Underwriter responsible for completing the energy sector transaction in Rwanda.
South-South knowledge and resource transfers are becoming more common place in Africa. Perhaps one of the most telling signs of the shifting landscape is in the sphere of official development assistance, where the strongest emerging economies are moving from net aid recipients to aid donors. A recent study by ODI indicates that between $9.5 and $12 billion, close to 10% of total aid is now spent in “South-South” aid.
For example, Brazil gives $1 billion in aid every year, more than Finland, Ireland or Portugal In the case of South Africa, which was accepted into membership by the exclusive BRIC club in 2011, they are launching their own development aid agency in 2012 – the South African Development Partnership Agency (SADPA). The Agency will replace the African Renaissance Fund, a vehicle used by donors to channel aid to the region.
The African Trade Insurance Agency (ATI), itself an example of Africa’s growing capacity, facilitated projects in Rwanda in 2011 valued at close to $130 million in the energy, services and transport sectors. ATI provides insurance that covers the commercial and non-commercial risks of lenders, suppliers and other business interests in Africa – a function that was provided by international insurers a decade ago. Now that ATI has built up experience and credibility in assessing African business risks, global insurers have started to rely on its on-the-ground knowledge to determine their own risk appetite for projects on the continent.
Kenya and Malawi are two countries with projects insured by ATI that have a noteworthy South-South knowledge transfer component. In Kenya, for instance, a local trading company won a $500,000 contract to supply treated wooden poles for a rural electricity transmission project in Uganda. While in Malawi, a South African property developer is lending their expertise to a local investor in the construction of a commercial complex for a contract valued at close to $4 million. In both instances, ATI insured the suppliers against non-payment risks.
Africa now appears to be reaping the benefits of an internal capacity building agenda that has been ongoing for several decades. To support the continuation of this trend, countries may need to promote on a wider scale insurance that will allow their companies and resources to transfer safely and profitably into new emerging markets.
