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African Trade Insurance (ATI) was set up in 2001 to provide a broad range of innovative and competitively priced insurance products and services customised to support African-related investments and trade transactions. It has been successful in attracting support since then but still battles the negative risk perception hanging around the continent. GTR talks to ATI‘s CEO, Peter Jones.

 

GTR: What is your title and role at ATI and where were you before

PJ: I am the chief executive officer. Before this I worked with the Multilateral Investment Guarantee Agency (Miga) in Washington DC as head of reinsurance and insurance operations support. Before joining Miga in 1999, I was the vice-president of the transportation and equity groups at Export Development Canada (EDC); head of aerospace and structured finance for the Canadian Imperial Bank of Canada (CIBC), based in London; and the chief executive of ANZ Finance Plc.

 

GTR: Who are your shareholders and how is ATI reinsured

PJ: ATI’s membership is open to all African states and currently comprises nine African countries, namely Burundi, DR Congo, Kenya, Madagascar, Malawi, Rwanda, Tanzania, Uganda and Zambia. Djibouti and Eritrea have signed the ATI treaty pending ratification.

Liberia and Sudan have been accepted into ATI membership pending signature and ratification of the ATI treaty.

Furthermore, membership is open to corporate and regional body members, including Comesa, Atradius Credit Insurance Group, PTA Bank and PTA Reinsurance.

Members contribute equity capital to ATI. Following the recent legal and capital restructuring, membership is also open to non-African states, regional economic organisations, international development financial institutions, export credit agencies and private corporations.

ATI reinsures political risk with both the private and public market insurers such as Ace Global Markets, AIG, Catlin, Miga, Opic, Sovereign Risk, XL London Markets and Zurich Emerging Markets. Short-term whole turnover credit insurance policies are reinsured with Atradius Re.

 

GTR: What does ATI offer in the way of cover and who are your customers

PJ: Our customers vary from commercial banks, project financiers, investors and exporters, and suppliers both in the region and internationally who are interested in supporting a trade or investment transaction in any one of our member states in the various sectors such as agribusiness, telecommunications, manufacturing, commodities, power, transportation, mining and real estate.

ATI’s policies of insurance cover a selection, or all, of any of the following political and commercial risks: currency inconvertibility and non-transfer; confiscation, expropriation, nationalisation and deprivation; war and civil disturbance; embargo; transit risk; confiscation; breach of concession rights; forced divesture; forced abandonment; insolvency/bankruptcy; and non-payment by private and parastatal, sub-sovereign and sovereign obligors.

 

GTR: What is ATI‘s relationship with other insurers, both private insurers and state-backed ECAs

PJ: ATI has partnered with global private and public investment and credit risk insurers such as Ace Global Markets, AIG, Atradius Credit Risk Insurance, Catlin/Wellington, Miga, ONDD, Opic, Sovereign Risk, XL London Markets and Zurich Emerging Markets.

The most recent developments include the signing of two memoranda of understanding with Sinosure of China and the Islamic Corporation for the Insurance of Investment and Export Credit, a member of the Islamic Development Bank Group.

The strength of these relationships is reflected in the fact that ATI has facilitated trade and investment transaction in excess of US$221mn using approximately US$30mn of its own resources.

The support of these partners have enabled and do enable ATI to offer broader and more comprehensive support for trade and investment on behalf of its African member states than would otherwise be possible.

 

GTR: What about relations with the African Development Bank (AfDB) and African Export-Import Bank (Afreximbank)

PJ: ATI is in discussion with the AfDB for them to provide funding for the equity capital contributions by new African member states in ATI. We are also discussing ways in which we can co-operate with Afreximbank to provide a complete risk management solution to African exporters.

 

GTR: What countries in Africa are off-cover for ATI and why

PJ: None. However, ATI can only support transactions that have one end anchored in an African member state.  That is, imports into or exports out of any African member state from or to anywhere in the world or FDI into African member states from investors in any other country.

 

GTR: What’s the organisation’s stance on Zimbabwe

PJ: Zimbabwe is very interested in becoming a member of ATI. During February this year, ATI’s management met with ministers, various senior government officials and the private sector in Harare to discuss the benefits of Zimbabwe joining ATI.

 

GTR: Has ATI ever had to pay out on claims

PJ: ATI has not experienced any claims payment activity, but is processing potential claims under its credit risk insurance business against foreign buyers of exporters insured by ATI.

 

GTR: What activity really stands out for you in recent months for ATI

PJ: What stands out is the variety of the transactions that we have been able to support. For example, transactions in Burundi have been dominated by lenders supporting foreign direct investment in the telecommunications and bottling industries.

Other transactions that stand out include real estate projects in the Democratic Republic of Congo, commodity financing in Tanzania and Kenya for a European bank and a South African bank respectively and, finally, the significant demand for whole turnover credit insurance in Kenya and Tanzania.  There has been tremendous growth in terms of awareness of ATI’s role and its products.

 

GTR: Anything interesting in the pipeline for the organisation

PJ: ATI has an underwriting capacity of US$134mn. The agency is in the final stages of restructuring its capital base and converting the underwriting capital to common pooled equity capital. This change has further demonstrated the substantial commitment of African states to ensuring the success of ATI and to the development of international and regional trade and integration.

The recapitalisation of ATI will take place in three phases and it is expected that the first phase will be completed within the second quarter of 2007.

Initially, ATI will have around US$86mn of paid-in equity capital, with the remaining US$48mn being in the form of contingent committed capital.  These capital resources will be further enhanced as new members join and contribute capital.

 

GTR: What targets has ATI set itself for coming years

PJ: ATI is an pan-African entity and we are seeking to expand our membership to include countries such as Angola, Comoros, Egypt, Ethiopia, Ghana, Guinea (Conakry), Mali, Mauritius, Mozambique, Nigeria, Senegal, Seychelles, Sierra Leone and Zimbabwe, in partnership with regional economic communities such as Comesa, Ecowas and SADC.

 

GTR: What does Africa need from the international financial community to ensure its development

PJ: Continued support through the provision of funding support for new African states to join ATI, the provision of reinsurance and coinsurance to ATI in support of its underwriting activities, and to help investors and lenders understand that there is an effective risk mitigation solution for doing business in and with Africa, and that it is ATI.

 

GTR: What barriers remain to Africa‘s development

PJ: The perception that political risk is higher than the reality on the ground.  This perception has caused great hindrance to the development of Africa, with the returns on investment in Africa being two or three times higher than in the other developing countries.

The private sector and trade are the engines of development and growth and hence the creation of ATI as a facilitator of “private sector trade and investment flows ? . Through the provision of insurance, co-insurance and reinsurance, financial instruments and related products”.

ATI’s role is to turn ‘risk into opportunity’s through the mitigation of both political and commercial risks, thus ensuring that the African private sector has access to a wide range of suitable financing products, thereby increasing the financial resources available for trade and investment, and reducing the cost of doing business in Africa.

 

GTR: Isn’t the negative risk perception of Africa fair in part

PJ: Naturally, as all in parts of the world, some countries are more risky than others, but the perception of risk is Africa is unfairly compared to some of the highest risk countries in the world, such as Iraq.

There is little differentiation by foreign investors and lenders between the real risks of doing business in one country as against another. African countries, with a few exceptions, are unfairly considered to represent a homogeneous block of risk.  This was recognised by our African members as being a significant barrier to developing trade and investment, which is why they created ATI and have shown total commitment to the successful implementation of its mandate.

ATI has a better understanding/knowledge of the specific risks and we are able to differentiate between those risks and monitor change in the actual risks. It is worth noting that our international treaty, together with the shareholding of member states, provides a significant level of deterrence to adverse behaviour, thus ensuring that investments can be made safely with the certain knowledge that they will operate as originally planned.