african trade insurance agency

Africa’s Export Credit Agencywww.Africa-ECA.com

Workshop onTrade Finance in Africa

ATI & Export and DomesticTrade Credit Insurance

Nairobi15th March 2006

Roland C. J. PladetChief Underwriting Officer


Objectives of Presentation

1. Introduction to the Agency

2. ATI’s Current and Future Ownershipand Security Arrangements

3. ATI’s newly Expanded Product Offering

4. Trade Credit Insurance

5. ATI’s Issues & Challenges, Underwriting Process and Contacts


Introductionto the Agency

Objective 1


What is ATI?

•A Multilateral Political Risk and Credit 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 Private Insurance Companies

•Partners with Atradius and other ExportCredit Agencies


ATI MandateATI Mandate

“Facilitate private sectorprivate sector--ledled trade flows, investment and ‘productive activities’ through the provision ofinsurance, coinsurance & insurance, coinsurance & reinsurance, financial instrumentsreinsurance, financial instrumentsand related services.”


African Member Countries• Burundi • Democratic Republic of Congo• Kenya• Madagascar• Malawi• Rwanda • Tanzania• Uganda • Zambia

*Djibouti and Eritrea are signatories (pending ratification)** Liberia’s membership application has been accepted by ATI’s General Assembly (pending signing and ratification)

ATI is open to all African Union Member States

Corporate & Regional Body MembersAtradius, COMESA, PTA-Bank and

ZEP RE (PTA Re - Insurance)

ATI Membership (As of March 2006)


Focus on new African Member Countries

Eastern and Southern Africa:Angola, Ethiopia & Mozambique (…and Sudan…)

Western Africa:Ghana, Guinea (Conakry), Mali, Nigeria & Senegal

Indian Ocean:Comoros, Mauritius and Seychelles

Focus on new Corporate & Regional Body Members

• ECOWAS, SADC, AfDB,…• Local, regional and international public and private donors, investors and financial institutions

ATI: New Membership Recruitment


ATI: What is its rationale?ATI: What is its rationale?

• The relatively small volumes of trade and investmentvolumes of trade and investmentin relation to many ATI member states do not merit do not merit (as yet)(as yet) the establishment of national ECAs

• ATI is a multilateral solutionmultilateral solution that provides significant significant advantages to its Member States:

1. Cost-effective use of underwritingunderwriting capital2. Reduced overover--headhead costs3. Regional integration through international through international

cooperationcooperation and risk sharing4. Enhanced possibilities for risk diversification by risk diversification by

creating a regional risk portfoliocreating a regional risk portfolio (reducing the impact of an individual country’s volatilities and sector dependencies)

5. Enhanced possibilities for effective risk mitigationeffective risk mitigationthrough international peer pressure

6. Encouraging private sector insurers to assume risk in Africa


What are ATIWhat are ATI’’s other benefits?s other benefits?

• ATI’s multilateral structure demonstrates GovernmentsGovernments’’commitmentcommitment to (intra-) regional trade trade and investmentand investment across many ATI member states

• ATI helps reducing the ‘costs of doing costs of doing businessbusiness’’ in Africa

• ATI functions as a catalysta catalyst by helping lower thresholds for other OECD and for other OECD and nonnon--OECD investors, traders, financiers OECD investors, traders, financiers and public & private insurance and public & private insurance companies companies to enter African markets


ATI: Organization ChartATI: Organization Chart

Member StateMember StateMember StateNon-State Member

Board of Directors

General Assembly

CEO

GC ACC.CUOCIRM PROC.

Secretary

Non-State Member


ATI’s Current andFuture Ownershipand SecurityArrangements

Objective 2


ATI: Legal StructureATI: Legal Structure

WB/IDA

DevelopmentCredit Agreements

ParticipationAgreements

ATI

LondonBanks

Security TrustAccount Agreement

Non-StateMembers

LeadInsurers

Letters ofAcceptance

ProjectAgreement

Member States

ATI Treaty

InsuranceFacility

Agreement


ATI’s Deterrence Effect

• The underlying countries’ obligation to make ATI whole for any losses they cause together with ATI’s multilateral status and the strong support from IDA/WB and COMESA create a very powerful deterrence effect…

• The African member risk countries having put their own money towards the backing of ATI’s underwriting capital enhances ATI’s abilities to avoid/minimize losses…


ATI: Achievements To Date

•Facilitated US$ 130.9 m of trade and investments in four ATI member countries (ATI resources used: US$ 23.6 m)•20 executed and bound policies and/or policy renewals (about 10 pipeline deals are currently under consideration)• ATI generated net income of US$ 409 k in 2005

However, results to date are not yet fully satisfactory and joined efforts by all of ATI’s stakeholders to enable ATI to grow its book of business and develop itself into a fully-fledged African ECA!

Moreover, ATI still benefits from a very strong and enthusiastic support from both its members and the World Bank…


ATI: where do we go next?ATI: where do we go next?

Moving towards a true and flexible capital base ……..……


Future: Capitalizing ATI by Future: Capitalizing ATI by transforming current credit structuretransforming current credit structure

• IDA credits will be used by Member Member StatesStates to capitalize ATI

• Capitalization will allow more flexible, more flexible, effective and efficient effective and efficient useuse of ATI resources

ATI Capital to support its

entire business

ATI


ATI: From cash collateral toa normal capital structure

• Once fully capitalized, ATI will continue holding 100% of its capital in the major money centers in Europe, the USA and UK

• The African member risk countries’equity interest in ATI’s future capital will be significant and will further strengthen ATI’s ability to deter…


Why does ATI need to become as strong as any other OECD-ECA…?

Who will win the Mandate?

OECD-ECA(S&P AAA) ATI

International TradeFinance Bank

OECD-CountryExporter / Contractor

ATI-Member CountryExporter / Contractor

Investment Project / BuyerInternational Competitive Bidding

?


Why does ATI need to become as strong as any other OECD-ECA…?

Even for Projects in the African Region…

OECD-ECA(S&P AAA) ATI

International TradeFinance Bank

OECD-CountryExporter / Contractor

ATI-Member CountryExporter / Contractor

Investment Project / BuyerInternational Competitive Bidding


ATI’s Product Offering, Eligibility Criteria and Most Common Terms as an Alternative Solution to Africa’s Corporate Trade Financing Needs….

Objective 3


Understanding Cross Border Trade

Importers, Exporters and their Financiersall face the following typical challenges:

• Buyer & Seller are often unknown to each other

• Different language, customs, laws & regulations

• Financing and other transaction costs

• Non-delivery / non-acceptance of goods

• Buyer wants deferred payment (needs time to generate on-selling revenues first…)

• Seller wants early payment (if not in advance…)

• Transfer/payment in foreign currency

• Tariff barriers

• Economic and political uncertainty in Seller’s and/or Buyer’s countries


• Comprehensive Non-payment Cover(parastatal obligors)

• Trade Political Risk Insurance (Lender’s Form) • Foreign Direct Investment Insurance (Equity)• Confiscation Expropriation Nationalization &

Deprivation Cover• Currency Inconvertibility & Non-Transfer Cover

• War & Civil Disturbance Cover• Terrorism Cover

(on a stand-alone basis / in cooperation with Lloyds’)Export Credit Insurance

(in cooperation with Atradius)• Mobile Assets Insurance

• Unfair Calling of Bonds Insurance

ATI: Product Offering To Date


• All of the above plus …….

• Comprehensive Non-payment Coverfor single (structured) credits to:

1. Private Obligors; and2. Sovereign Obligors

• Inter & Intra-Regional and Domestic Whole Turnover Credit Insurance with typical payment terms of up to 12 months

• In process of developing underwriting guidelines and policy wording, but will already accept new applications now…..

ATI: Expanded Product Offering


• Defined political events and host government actions orinactions that are outsidethe control of the parties toa commercial transaction…

• Does not include force majeureevents, events in the control of any party to the commercial transaction, or lawful actions of the host government…

Political Risk Insurance


•New (cross-border) transactions (including expansions or privatizations of existing projects)

•Productive Activity (investment in/import of machinery for a cosmetics manufacturing plant

and/or the export of cosmetics: YES- import of cosmetics: NO)

•Excluded sectors/goods (follow more or less World Bank Guidelines...)

•Private, Public or Sovereign Obligors

•Trade: Buyer or Seller in ATI-Member Country

•Investment: Project in ATI-Member ountry

•Environmental Clearance

ATI-ACAATI Eligibility Criteria


•Tenors up to 8 years

•No Minimum Transaction Amount

•Indemnity:

- Up to 100% (Political Risks)- Up to 85% (Commercial Risks)

•Competitive Risk-based Pricing

ATI-ACAATI Most Common Terms


Export and Domestic Trade Credit Insurance

Objective 5


Trade Credit Insurance

”Covers an exporter and/or a domestic supplier against non-payment by his foreign and/or domestic buyers (as a result of insolvency and protracted default)”


Companies that would benefit

• Traders with limited fixed assets• Companies that require a more

efficient debtor portfolio management

• Companies with trade in cyclical markets

• Experiencing rapid growth• Intention to offer longer payment

terms to their customers


Typical Features

• Multi–buyer/multi-country basis

• Whole turnover basis (no anti-selection…)

• 1-3 year agreement (renewable)

• Short term credits up to 120-180 days

• Cover percentages vary between 50% and 85%

• Premium depends on theannual turnover declared


Pre-financing of the Production forDomestic Sales and/or Exports …..

BANK

MANUFACTURER /EXPORTERCOUNTRY A

BUYER I COUNTRY C

BUYER IICOUNTRY C

BUYER ICOUNTRY B

BUYER IICOUNTRY B

BUYER I COUNTRY A

BUYER IICOUNTRY A

ATI

BUYER IIICOUNTRY A

$ £

€

€

€

P P$

P

P

P

P £P

CRIPolicy

Ass

ignm

ent

Securities(land/property)

€£$€ €


Securities(land/property)

…Converting a single client credit riskinto a diversified global portfolio risk...

BANK

MANUFACTURER /EXPORTERCOUNTRY A

BUYER I COUNTRY C

BUYER IICOUNTRY C

BUYER ICOUNTRY B

BUYER IICOUNTRY B

BUYER I COUNTRY A

BUYER IICOUNTRY A

ATI

BUYER IIICOUNTRY A

CRIPolicy

Ass

ignm

ent

€ €


Benefits to Exporters / Manufactuers

• (Additional/replacement) security for increased access to bank financing (against more favorable

terms…)• Credit control / debt collection tool

• Initial pre-check on buyers/ credit limits• Continuous monitoring on buyers

• Enables organic growth: entering new and growing existing (distant and nearby) markets

• Protects own balance sheet, continuity and employees against buyer default

• Increases exporter’s / manufacturer’s level playing field:

– Open account trading (reducing seller’s own and buyer’s costs of doing business)

– Offers buyers more favorable trading terms– Pre-shipment cover (optional)


Benefits to trade financing banks

• Enables trade financing banks to grow their business/ loan portfolio

• Better alignment of borrowing client’s credit risk with client’s real

core business risk• Potential for increase in the number

of borrowing clients due to:– less need for traditional securities (land and

property which limit borrowing capacity)– lower interest rates charged (diversified portfolio

of local and foreign buyers )

• Client’s borrowing capacity will grow organically in conjunction with the client’s growth of exports / local

sales (improved level playing field…)


Premium• Premium rates vary from 0.25% of

the declared annual turnover depending on: – Product – Number of buyers (at least 4-5

buyers would be a requirement)– Destination countries of exports– Credit terms– Quality and track record of

buyers to be covered


ATI cooperates with Atradius

Market share...................... 25 %

Ranking world-wide.............. No. 2

Number of insured............. 30,000

Total exposure.................. € 350 bn.

Market Shares 2002 Facts and Figures 2002

Atradius is an integrated credit insurer with a global network (its HQs are in The Netherlands), offering comprehensive solutions in risk transfer, financing and related credit management services.

Atradius is an integrated credit insurer with a global network (its HQs are in The Netherlands), offering comprehensive solutions in risk transfer, financing and related credit management services.

Atradius

25%

Coface17%

CYC7%

EULER-HERMES

37%

Other14%


Next Steps• Complete Application Form (identify broker ….)

• Credit Limits will be issued on each acceptable Buyer

• Non-binding Indication with the Terms and Conditions

• Once the (quarterly) Premium based on the estimated WTO is paid the Policy will be issued

• Annually in arrears the settlement of Premium will take place on the basis the actually declared WTO

• Depending on the premium/loss performance, the Policy will renewed against similar or more/less favorable conditions (incl. premium adjustments)


ATI’s Issues & Challenges, Underwriting Process and Contacts

Objective 5


ATI Issues & Challenges

Main difficulties in developing Trade Credit Insurance in Africa:

• Market’s Lack of Knowledge about Credit Insurance …

• Sector & Buyer Concentration …• Lack of Consistent and Reliable Financial

Information to assess the Risk: Development of Database is needed (5 Credit Bureaus in Kenya with one that has operations in 10 African countries…)

• Exchange of Data with Banks …• Legal Enforceability of Creditor Rights (ATI is

in the process of obtaining legal opinions for Kenya, Uganda, Tanzania and others….)


• Submit new transaction enquiries in any form (e-mail, phone, meeting, etc.)

• If requested, a non-binding indication (NBI) is issued

• Complete Application Form (identify broker) accompanied by Project Information

• Complete Environmental Information Note• Following acceptance of the transaction by

ATI, a Conditional Insurance Offer Letter (CIOL) with Policy Terms and Conditions is issued

• Following acceptance of CIOL by client, the policy will become effective once all conditions (incl. payment of premium) are met

ATI Underwriting Process


THANK YOU!...

ANY QUESTIONS?


Through the ATI’s websitewww.Africa-ECA.com

via [email protected]

[email protected]

[email protected]@Africa-ECA.com

[email protected]

By telephone +254 (0)20 271 9727+254 (0)20 272 6999

ATI Contacts

mailto:[email protected]





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