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African credit agency pushing for political risk cover

Saturday October 22 2016
Naivasha violence

The fluid state of most of African countries means the political risk exposure is high hence the need to seek insurance protection. PHOTO | FILE

The African Trade Insurance (ATI) agency is engaging African governments to provide political risk cover to attract private investments on the continent.

Many foreign investors are sceptical about putting their money into the continent due to political upheavals and extremist activities.

“Investors see governments as high risk and demand insurance if they have to deal with them,” said ATI chief executive, George Otieno.

Last week, the multilateral insurer signed agreements with Ethiopia and Zimbabwe to start operations in those countries. A deal with Cote d’Ivoire is expected to be concluded next month. This will bring ATI’s membership to 13.

Other members are Kenya, Uganda, Tanzania, Rwanda, Burundi, Zambia, Madagascar, Democratic Republic of Congo, Malawi and Benin. The insurer is also in talks with Nigeria and Ghana.

According to Mr Otieno, Ethiopia and Zimbabwe’s association with ATI will attract prospective investors with additional guarantees to participate in the priority areas of power and lighting as well as industrialisation.

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In both countries, ATI has a project pipeline estimated at over $1 billion, which is expected to double in the short-term, based on existing demand for its products.

Prospective projects include a 400MW solar energy plant in Ethiopia while in Zimbabwe, ATI is considering a line of credit targeting commercial banks that will allow them to increase their lending volumes.

ATI was established in 2001 by African governments and other shareholders to ease the concerns of investors by providing a range of investment and political risk insurance products. These include covers against unfair action or inaction by a government that would negatively affect business or investments, and non-payment or delayed payment to a supplier of goods or services by a public or private buyer or bank borrower.

According to the McKinsey Global Institute’s report dated September 2016, foreign direct investment and other capital flows into Africa have levelled off, signalling an abrupt end to the boom years of 2005 to 2010 when such inflows tripled.

The continent’s overall investment level has remained at around 22 per cent of GDP since 2010, but savings have fallen sharply as a share of GDP from a peak of 27 per cent in 2005 to 16 per cent in 2015.

It has become increasingly difficult for African countries to compensate for stagnant foreign investment and falling savings by tapping into global debt markets.

The report notes that Africa’s real GDP grew at an average of 3.3 per cent annually between 2010 and 2015, which is considerably slower than the 5.4 per cent from 2000 to 2010.

The economies of Egypt, Libya, and Tunisia were badly affected by the political turmoil of the Arab Spring, and oil-exporting countries were left vulnerable to the decline in oil prices.

The rest of Africa posted accelerating growth at an average annual rate of 4.4 per cent in 2010 to 2015, compared with 4.1 per cent in 2000 to 2010.

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