African Trade Insurance Agency

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NOT AN OFFICIAL UNCTAD RECORD
African Trade Insurance Agency Lubricating the
extractive industries with political risk
coverage Marrakech, Morocco April 2004 Bernard
de Haldevang Chief Executive AFRICAS
MULTILATERAL IMPORT AND EXPORT CREDIT AGENCY
ATI-ACA
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How do we define a political risk?
ATI-ACA
Political risks affect
4A4
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Political Risks defined in terms of Trade
Investment Risks
CF(CR)
PR(PD)
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The African continents challenge
ATI-ACA

• Annually reducing aid flows
• Unsustainably high transaction costs
• Too many uncoordinated regional economic
  integration organisations and initiatives
• gt40 of 54 countries involved in conflicts or
  wars in the last dozen years
• Africas total external debt gt 350 of exports
• Market gap in risk mitigating tools
• Risk issue of perception v reality?
• FDI at 0.7 of global, annual
• World trade share 2.25, 10-year ann. average
• Pop gt750 mill of which gt50 in agriculture -gt70
  in 1980
• 33 of males gt15years and 50 of all females
  illiterate
• returns of up to 30 v 15 USA and 10 EU

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A view of the inter-relationship between
political, contract frustration, credit, and
political violence risks
CREDIT RISK
POLITICAL RISK
CONTRACT FRUSTRATION

• LEVEL OF RISK
• INSOLVENCY
• (PERFORMANCE PAYMENT) CONTRACTUAL
• (POLITICAL) CONTRACTUAL
• INVESTMENTS
• STOCKS / MOBILE ASSETS
• WORKS

PROTRACTED DEFAULT
LEASED ASSET NON-REPOSSESSION
WAR PFM TERMINATION
INSOLVENCY
IMPORT/ EXPORT EMBARGO
PRE-EXPORT FINANCE
CEN EQUITY / PROJECT B.O.O.T/B.O.T
CHAPTER II SCHEME OF ARRANGEMENTS
BUYER CANCELLATION / TERMINATION / REPUDIATION
PAYMENT DELIVERY
CENTRAL GOVT ACTION
CATASTROPHE
ATTRITIONAL
? ? ? ? ? ? ?
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A new type of multilateral
ATI-ACA

• What does ATI provide?
• Leverage with African governments,
  intergovernmental institutions, development
  agencies multilaterals
• Proven ability to connect Africa to financial
  markets in developed nations
• Accountability of member governments PLUS 100
  cash-collateralised security
• New public-private risk sharing concept
• Enhanced loss mitigation and recourse through
  sovereign treaties with the World Bank
• Capacity building for African institutions

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Membership
ATI-ACA

• Member countries
• Burundi, Djibouti, Eritrea, Kenya, Madagascar,
  Malawi, Rwanda, Uganda, Tanzania and Zambia. (
  ATI Treaty to be ratified)
• But open to all AU member states corporates
• Interest from D.R. Congo, Ethiopia, Ghana,
  Libya, Mozambique, Nigeria, Senegal, Sudan,
• Corporate members
• COMESA, PTA Bank, ZEP-RE, Atradius group. In
  discussions with others.

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Objectives
ATI-ACA

• Charter Facilitate private sector-led trade
  flows, investment and productive activities
  through the provision of insurance, coinsurance
  and reinsurance, financial instruments and
  related services.
• That means
• A term appointment
• Mobilisation of public and private sector
  financial institutions through cooperation, not
  competition an inclusive approach from day one
• Promotion of Intra - African trade investment
• How
• Using combination of
• private sector experience capital and
• public sector clout and connections

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Burundi Djibouti t.b.ratified. Eritrea
t.b.r. Kenya Madagascar t.b.r. Malawi Rwanda Tanza
nia Uganda Zambia
Leveraging
ATI
ATI-ACA
Initial Deposit (US105mill)
Government
Trust Account
IDA
Project Agreement
Participation Agreement
Security Trust agreement
ATI
Insurance Facility Agreements
ATIs capital IDA Funding Members
Contributions Retained Premium and Interest
Insurance partners
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Security of ATI policies
ATI-ACA

• Syndication of 100 cash-collateralised ATI line
  plus the security of agreed insurance partners
  for their facultative coinsuring share
• Atradius balance sheet behind ATI credit
  insurance paper (until end 2004) ATI own
  capacity being developed
• ATI claims payments not subject to any regulatory
  or government interference
• Established under international treaty
• Registered under Article 102 of the UN Charter
• Supported by the World Bank and the EU

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Covered risks
ATI-ACA

• Non-payment for public buyers
• War, Civil Disturbance, Embargo
• Transfer Restrictions
• Currency Inconvertibility
• Expropriation, Seizure of Goods (CEND, FA
• FD)
• Contingent Political Force Majeure (3rd party)
• Prevention of export
• Cancellation of import/export licenses
• Imposition of non-constitutional import duties
• Retroactive, discriminatory tax changes
• Transit and diversion risks
• Multi-buyer insolvency
• Terrorism, War and Business Interruption

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The political risk facility
ATI-ACA

• Eligibility criteria
• New cross-border transaction
• Productive activity
• Private or public buyer (no sovereign risk)
• Buyer in participating country
• Environmental clearance
• Examples of transactions
• Confirmation of L/C
• Sale of goods on credit terms
• Financial/operating leases
• Trade project finance loans (inc pre-export)
• Contractual bonds
• Physical assets against war and terrorism
• Foreign Direct Investments
• Tangible assets against expropriation
• Contingent Political Force Majeure for Project
  Loans

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The political risk facility
ATI-ACA

• Terms
• Sight transactions up to 6 years cover
• No minimum transaction amount
• Minimum premium of 500 for non-African insureds
  250 for African insureds
• Up to 100 indemnity
• Competitive Pricing

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Political Risk Waiting Period Claims
Processing
ATI-ACA
Notice of potential loss
Up to 45 days
Assessment period
Claims filing period
Up to 45 days
Claim determination
Up to 15 days
Claim settlement
Arbitration
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Future Developments
ATI-ACA

• Develop credit information sources
• Act as recovery agents for past losses (insured
  or not)
• Establish credit database
• Assist in developing national insolvency
  legislation
• Develop insurance capacity in the domestic
  private market APRP the African Political Risk
  Pool
• Comesa Customs Carnet
• Partnership agreements with credit reference
  bureaux and agencies
• Asset receivables backed working capital export
  guarantee scheme

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Illustrative Case Study 1
ATI-ACA
TRANSACTION Buyer credit for import of plant
equipment for power project VALUE US 40mill
(3rd party loan 20m) RISK COUNTRIES Rwanda
Belgium, Germany TENOR 5 years 1 year pre
shipment INSURED Financial institution ADDITIONAL
SECURITY Ministry of Finance guarantee BUYER
Rwandan utility COVER Broad form Trade PRI for
25 mill INDEMNITY W.P. 100 105
days PREMIUM 2.0 pa pr on mthly exposed
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Illustrative Case Study 2
ATI-ACA
TRANSACTION Sales of food products RISK
COUNTRIES Europe East Africa TENOR one year
with automatic renewal INSURED East African
Company BUYERS Wholesalers COVER PRI and
CI INDEMNITYCI - 60 to 90 PRI - 100
days PREMIUM CI - 0.8 of turnover PRI
0.5 ADDITIONAL Loss payee arrangement with
financing bank
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Illustrative Case Study 3
ATI-ACA
TRANSACTION Sale of telecom equipment worth US
20 million RISK COUNTRY Tanzania TENOR 6
years INSURED European company REINSURED
European ECA BUYER Government telephone utility
COVER Comprehensive Trade PR Cover INDEMNITY100
PREMIUM 3.5 pa pro rata (works out at about
9 on contract value) ALSO Loss payee nominated
as financing bank
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Illustrative Case Study 4
ATI-ACA
TRANSACTION Mining contract 75 mill RISK
COUNTRY Zambia INTEREST Contractors plant
and equipment TENOR 4 years INSURED European
contractor EMPLOYER Mining company COVER
Expropriation, Deprivation, Abandonment, War
Terrorism INDEMNITY100 (above excess
point) PREMIUM 0.775 pa pro rata
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ATI-ACA
Thank you
How to contact ATI Insurance brokers www.ati-aca
.com underwriting_at_atiaca.com chiefexecoffice_at_ati
aca.com Tel [phone] and 272 6999
AFRICAS MULTILATERAL IMPORT AND EXPORT CREDIT
AGENCY