African Trade Insurance Agency
Opening Up Africa for Business
Imagine you are a small business entrepreneur in a rural town or urban centre somewhere in Africa. Imagine having a great idea but you lack the funds to start your business. You see a market for your product. You know it would benefit your community. But you don’t have the several thousands of dollars it would take to get your business off the ground. And without collateral of any kind or any credit to insure your business, the banks turn you away and you have no choice but to abandon your dream.
That is why the African Trade Insurance organisation is vital for the development and growth of businesses on the continent and for the progression of Intra-Africa trade.
“Africa still has a badge of being a dangerous place to do business and as more foreign investors look to work in Africa, they automatically come to us,” says Jef Vincent, Chief Underwriting Officer at ATI. “If you have an entity like ATI, that can…guarantee that if your client doesn’t pay, we will pay ‘x’ percent of the outstanding, then very often the supplier will be willing to give credit down.”
With a vision to transform Africa into a key trade and investment destination, the African Trade Insurance company was established in 2001 to help reduce the risks and costs of doing business on the continent. ATI is a multilateral financial institution that provides export credit, political risk insurance, credit insurance, bonds, bank guarantees and other financial products. The organisation has an investment grade rating of ‘A Stable’ from Standard & Poor’s and it’s supported over $10 billion worth of trade and investments across Africa. With the support of the World Bank and African Development Bank, ATI is currently able to conduct business in the 10 following countries; Benin, Burundi, Democratic Republic of Congo, Kenya, Madagascar, Malawi, Rwanda, Tanzania, Uganda, and Zambia.
Trading Across Borders
One of ATI’s objectives is to encourage Intra-Africa trade. In the past, most African countries were trading with international suppliers. They imported finished goods and exported raw materials. But that is changing.
“There are two things which are happening now,” Vincent explains. “First of all Africa is developing a middle class that has more purchasing power and can spend more money on things other than pure survival goods. There is a request for finished products and considering the cost of transport etc., it is interesting for them to buy regional goods. So there is more and more trade from one country to another.
“The second thing is that there is a big attempt, it’s not 100% successful, to remove the trade barriers between different countries, so that it’s easier, cheaper and faster to transfer goods from one country to another. And that has definitely helped to increase the trade between different countries.”
In order for domestic trade to develop, Vincent says that access to credit, especially for small businesses is essential.
“In my view what really makes trade and commerce work is credit,” he says. “Because if you are an SME or a large company, usually you would have to go to your bank to get a loan so you can pre-finance your acquisition. Right now in most African countries there is still a significant inflation, as an SME, the bank will not trust you, so they will charge you a fortune of interest rate for that…Even the bank when it usually gives a loan it will ask for local security and collateral. If we step in and can get a guarantee for the payment …we are willing to insure the bank against the risk of nonpayment, that bank is giving working capital.”
Lighting up the Continent
ATI supports the development goals of its member states whether it be building infrastructure in Burundi or generating electricity in Kenya. The company’s trade credit and political risk insurance products support various sectors across the continent. One of these key sectors is the energy sector which has shown growing investor confidence throughout Africa.
In most countries where ATI is operating, 80% or more of the population doesn’t have electricity.
There are towns which don’t have access to the grid and in those towns people with money depend on diesel generators for electricity. Even people who have generators are affected with blackouts or load sharing. The lack of an essential energy source directly affects local businesses and the ability to conduct trade.
“There’s a potential in most of our member states for a lot of industry that would have a huge potential provided that they had access to reasonably priced energy,” he adds.
“If you look at the south of Kenya, and the north of Kenya, you have millions of cattle that get sold but there’s no way to have a slaughterhouse on the stop because a slaughterhouse would then require refrigeration and for that you need connections to the grid. And it’s not there. So there’s a massive support from the World Bank, the African Development Bank and a massive number of initiatives from the governments themselves to increase exponentially the generation of power in the first place and then the transmission of power into the countries. So there, we are talking about extremely large deals.”
Risk is Our Business
ATI is in the business of insuring risk.
“Eighty per cent of our business right now is political risk,” says Vincent. “So if an international bank gives a loan to say the government of Kenya, we are able to insure the bank against the risk if the government of Kenya will not repay the loan.”
Vincent says that because of his organisation’s preferred credit status, if a situation arises where ATI has to pay a claim that’s due to an action or non-action by a government in its member state, it can claim the amount it has to pay out back from the government. The African Development Bank and the World Bank’s support of ATI gives investors added confidence and it also allows them to attract private reinsurers to further cover that risk if the amounts are too big for ATI to support on its own.Although ATI is currently conducting business in 10 countries, the company’s ambition is to cover the whole of Africa.
“We are discussing and negotiating with the support of the World Bank and the support of the African Development Bank…a large number of other governments to become members,” says Vincent. “And we have 10 countries which are in various stages of becoming a member. It’s not simple. It takes a long time because they have to agree on a number of conditions that we set to give us a preferred credit status, to allow us not to be controlled by the local regulators but by the World Bank.”
Becoming a member can also require the approval of that country’s Parliament and because member states are shareholders, the country would need to find the money to buy their shares into ATI.
Vincent concludes, “Our ambition is to eventually have more and more member states and so with the horizon of three years, I can ensure that we will be operating in more than 10 states.”