The African Trade Insurance Agency (ATI) held a high-level sensitization workshop for heads of the private sector and selected government officials on 13 February in Maputo to raise awareness and drum up support for the country’s bid to become the fourth Southern African country and first Portuguese speaking country to become an ATI member country. The workshop emphasized the impact that ATI has had in its existing member countries, which included helping them to attract over $13 billion worth of trade and investments in the past decade.
“ATI is unique. We are not a typical insurance company. We are a multilateral financial institution providing investment and trade risk solutions. Our products help to neutralise political and commercial risks to give comfort to investors while also helping local industry to become more competitive,” commented George Otieno, ATI’s Chief Executive Officer.
Based on ATI’s experience in its other member countries, the Pan African insurer proposes to help Mozambique’s economy by providing the following services:
1. ATI’s products used as an alternative to sovereign guarantees. Many member countries cannot issue sovereign guarantees because they increase the national debt. ATI’s products have been used by our member states as an alternative to sovereign guarantees, to enhance governments’ letters of comfort.
2. Insuring loans to state-owned enterprises. Investors typically view parastatals as a bad risk. As a solution to helping them attract needed investments, ATI is insuring banks and has helped find reinsurance capacity to free up loans to government agencies in existing member countries
3. Insuring independent power producers. Emerging countries often prefer to attract private investors finance and manage power generation. These arrangements can attract investors but financiers require strong guarantees that are normally provided by national export credit agencies, or from multilaterals such as ATI and the World Bank’s Multilateral Investment Guarantee Agency (MIGA).
4. Insuring exports. In most developed economies private credit insurers cover exporters against the risk of not being paid by their clients. This product doesn’t exist in most sub-Saharan African countries, where, in most cases, exporters are left in the position of requesting for payment conditions that affect their competitiveness. To remedy this, ATI has developed a product that insures exporters against the risk of non-payment, either for single transactions or on a portfolio basis.
5. Helping local companies and SMEs access finance. Small companies often find it difficult to access bank financing because they are seen as high risk. ATI has developed a number of products to make it easier for banks to finance these prospective clients.
6. Helping local banks compete with international banks. Banks in most developed countries that work internationally normally have access to specialized insurance from their national export credit agencies (ECAs). This type of insurance allows banks to offer great conditions to their clients including capital relief of up to 100% for transactions backed by national ECAs. Local banks in Sub-Saharan Africa don’t have access to these facilities placing them at an “unfair disadvantage” when dealing with large corporates. Subject to agreement of the local bank regulator, ATI can address this handicap
7. Increasing the capacity of local insurance companies. ATI does not compete with local insurers. Instead, ATI helps insurance companies better manage their business. In many of our member countries we have increased the insurance industry’s ability to adequately insure against political violence & terrorism and also for bond products
8. Covering political violence risks. Political violence cover is a “traditional” insurance product offered by general insurers, which presents a challenge. Most local insurers don’t have the needed capital to retain much of these risks and reinsurance capacity on the continent is limited. Following the post-election violence in Kenya in 2008, ATI helped local insurers access the international market while also directly reinsuring local companies. We continue to do this in our member countries and more recently we also covered and paid claim to investors in Kenya who suffered a loss after the Westgate Mall terrorist attack in September, 2013.
If the government sees the value in joining ATI, Mozambique could fast-track membership to start benefiting from ATI’s products ahead of its upcoming national elections. To pay the $25 million membership subscription fee in whole or in instalments, Mozambique can access concessional financing from the African Development Bank and The World Bank, who both sit on ATI’s board of directors and who provide technical and financial support. As a member, Mozambique would also have access to future dividends and, most importantly, this money could be leveraged to allow ATI to cover transactions in the country worth over US$1 billion.
“Elections are critical periods when most investors tend to keep an arms-length distance from African countries. Membership into ATI now would send a strong signal to the international investment community that Mozambique is able to cover their risks at all times. This could provide the stabilizing influence that helps the country maintain its development agenda during the tenuous election period,” noted Mr Otieno.
