Ecowas, the West African regional group, plans to set up an investment guarantee agency in partnership with, and modelled on, the African Trade Insurance Agency (ATI). The ATI, in turn, is interested in joining forces with the new body to create a “unique agency for the continent”.

The agency will have an authorised capital of US$1bn to help mitigate political risks associated with investments in West Africa and to encourage investment into “large and complex high-impact sectors” as stated in a release from the group.

Specifically it will provide political risk insurance, export trade guarantee services, and re-insurance to local insurers in a bid to facilitate access to finance, reduce risk premiums, stimulate exports and increase trade within the region. The initiative is part of an Ecowas drive to make West Africa a more attractive investment destination.

The feasibility study for the agency began back in 2012 and Ecowas member state ministers agreed in December last year to go ahead with plans of setting it up and partnering with ATI: the initial idea was to set up the agency from scratch.

As a next step, an implementation committee will be put in placeto look at how best to partner with ATI. The committee will comprise of representatives from Nigeria, Côte d’Ivoire, the Ecowas Commission, the Ecowas Bank for Investment and Development, the West Africa Insurance Companies Association (WAICA) and the ATI.

As yet ATI’s function in the development of the agency is unclear.

“While we’re still not 100% certain of the role the ATI will play in this initiative, it is clear that we will be at the table when this important initiative is developed,” ATI chief underwriting officer Jef Vincent tells GTR.

From the ATI’s perspective, Vincent says, the “logical solution” would be for Ecowas members to join ATI so that they can begin to take cover immediately on their projects.

“This would avoid duplication of efforts and, in the long run, this might be a more practical solution given that it will likely take a number of years before a fully-functioning agency is up and running in the region,” says Vincent.

This approach would also ensure that the new agency automatically achieves a credit rating that makes its cover more “bankable”.

Vincent lists other advantages to this tactic as: better allocation of capital; better spread of the risk; the possibility of increasing the specialisation; avoidance of competition between comparable institutions; and economies of scale resulting in a better cost ratio.

“One factor that we look forward to discussing in the upcoming meetings is the number of unique features and needs of the Ecowas region, which would benefit from a decentralised model with a strong local presence in Ecowas countries. From our experience, this would be an important condition to make the initiative successful,” he adds.