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Mobilizing Aid for Trade: A Global Review

This event in Geneva discusses the creation of sustainable trade infrastructure and improving access to finance in Africa through a public-private partnership approach.

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Mobilizing Aid for Trade: A Global Review

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  1. Mobilizing Aid for Trade: A Global Review 19th – 21st November 2007 Geneva Peter Jones Chief Executive Officer African Trade Insurance Agency

  2. 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

  3. 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)

  4. 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 Lloyd’s of London and other major public and private investment insurers • Partners with private and public credit risk insurers such as Atradius

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

  6. Objectives • 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… : • Mobilizing support from private sector financial institutions • Promotion of Intra - African trade & investment • How: • Using a combination of: • private sector experience & risk capacity • public sector funding, clout and connections

  7. 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: • Cost-effective use of pooled underwriting capital • Reduced over-head costs • Regional integration through international cooperation and risk sharing • Enhanced possibilities for risk diversification by creating a regional risk portfolio (reducing the impact of an individual country’s volatilities and sector dependencies) • Encouraging private sector insurers to assume risk in Africa

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

  9. Product Offering • 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

  10. Eligibility Criteria 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

  11. 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

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

  13. ATI Facilitated Transactions

  14. Thank You www.Africa-eca.com Peter.Jones@Africa-eca.com Telephone +254 (0)20 271 9793 or +254 (0)724 256695

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