Trade Credit & Political Risk Insurance: Critical Tools to Boost Investments in Africa s Agriculture Sector

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1 Trade Credit & Political Risk Insurance: Critical Tools to Boost Investments in Africa s Agriculture Sector 5 November, 2009: Dar, Tanzania Albert Rweyemamu African Trade Insurance Agency (ATI)

2 Outline of Presentation Objectives i. Rationale for ATI in Africa ii. iii. ATI Products: CRI & PRI Possible solutions to Agribusiness

3 ATI: Created to support Africa s trade & investments ATI is a multilateral credit and investment insurer that fills a key market gap with the following benefits: Economies of scale Regional integration and risk sharing Enhanced risk diversification from a regional risk portfolio Encouraging public and private sector insurers to assume risk in Africa Reduces the cost of doing business to Increase FDI flows

4 Current Economic Crisis Banks low appetite for risk Demand credit enhancement Exporters/suppliers forced to provide financing want CRI Hard times to Exporters Experiencing non-payment Forced to sell on credit to stay in business

5 What is Trade Credit Insurance?

6 Credit Risk Insurance Definition Credit Insurance covers SUPPLIERS against the risks of non-payment of their account receivables with local and foreign customers (BUYERS).

7 Credit Risk Insurance Products Non-payment due to insolvency or protracted default Short-term Whole Turnover Medium-long term Single Obligor Export credit can include Political Risks

8 A Credit Risk Insurancebacked Deal Buyer contract Seller Underwriting for CRI Financing Bank Policy Endorsement

9 Benefits of CRI for the Agriculture Sector Bank Cover your lending risk Credit information provided on buyers Govt/grower CRI Policy used in place of collateral to secure bank loan Can leverage policy to purchase grain

10 CRI: Case Study 1 A Zambian exporter of vegetables & roses A major farm near Lusaka added roses to its export products The farm required Export Credit Risk Insurance to protect itself against nonpayment by its buyers in the Netherlands, New Zealand, South Africa and the UK ATI provided the farm with a Whole Turnover Credit Risk Insurance policy

11 Case study 2 A grain purchasing facility A regional bank wants to set up a grain purchasing facility for a government agency Under the facility, the Agency will buy grain from farmers The facility will be insured for over $40M ATI will provide Comprehensive Cover for the facility

12 What is Political Risk Insurance? Insurance that protects your business interests against: Politically-motivated violence, war and insurrection Transfer Restrictions/inconvertibility Expropriation Non honouring of contractual obligations by govt/state corporations Reduces the cost of doing business to attract investments

13 Why ATI? Why Now?

14 ATI is Financially Sound 1. over $90 Million paid up capital 2 zero debt on its books FY-07 FY-08 Q3FY-09 US$/M US$/M US$/M Gross Exposure Net Exposure

15 ATI-ACA ATI is Trusted A Credit Rating Standard and Poor s assigned A Stable Rating to ATI in April 2008, renewed in Counterparty Credit Rating capacity to meet its financial obligations 2. Insurer Financial Strength rating ability to pay under its insurance policies and contracts 3. More business opportunities from Banks, Insurance Broker and International Investors Results: more trade and investment flows for African member states ATI is the 2 nd highest rated institution in Africa

16 Membership Growth Member countries Burundi Djibouti* D.R. Congo Eritrea* Ghana* Kenya Liberia* Madagascar Malawi Rwanda Sudan* Uganda Tanzania Zambia Corporate members Africa Re Atradius COMESA PTA Bank SACE ZEP-RE Interest from Angola, Egypt, Ethiopia, Mali, Mozambique, Nigeria, Senegal, Seychelles, Zimbabwe & Mauritius Open to all AU member states, non-african states, private corporations and other regional and international institutions

17 ATI s Main Terms Maximum tenor 10 years No minimum transaction size - Indemnity: - Up to 100% (Political Risks) - Up to 90% (Commercial Risks) Price to risk-no subsidy

18 Application Process Investor/ Supplier/ Lender Enquiry Application form Environmental screening/categorization Early Go/No Go decision Project Underwriting Underwriting Committee Approval Investor/Supplier/ Lender and ATI Sign Insurance policy

19 ATI Contacts Tel +254 (0)

20 Questions?

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