Workshop on Trade Finance in Africa

Transcription

1 Workshop on Trade Finance in Africa ATI & Export and Domestic Trade Credit Insurance Nairobi 15 th March 2006 Roland C. J. Pladet Chief Underwriting Officer

2 Objectives of Presentation 1. Introduction to the Agency 2. ATI s Current and Future Ownership and Security Arrangements 3. ATI s newly Expanded Product Offering 4. Trade Credit Insurance 5. ATI s Issues & Challenges, Underwriting Process and Contacts

3 Objective 1 Introduction to the Agency

4 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 Export Credit Agencies

5 ATI Mandate Facilitate private sector-led trade flows, investment and productive activities through the provision of insurance, coinsurance & reinsurance, financial instruments and related services.

6 ATI Membership (As of March 2006) 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 Members Atradius, COMESA, PTA-Bank and ZEP RE (PTA Re - Insurance)

7 ATI: New Membership Recruitment 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

8 ATI: What is its rationale? The relatively small volumes of trade and investment in relation to many ATI member states do not merit (as yet) the establishment of national ECAs ATI is a multilateral solution that provides significant advantages to its Member States: 1. Cost-effective use of underwriting capital 2. Reduced over-head costs 3. Regional integration through international cooperation and risk sharing 4. Enhanced possibilities for risk diversification by creating a regional risk portfolio (reducing the impact of an individual country s volatilities and sector dependencies) 5. Enhanced possibilities for effective risk mitigation through international peer pressure 6. Encouraging private sector insurers to assume risk in Africa

9 What are ATI s s other benefits? ATI s multilateral structure demonstrates Governments commitment to (intra-) regional trade and investment across many ATI member states ATI helps reducing the costs of doing business in Africa ATI functions as a catalyst by helping lower thresholds for other OECD and non-oecd investors, traders, financiers and public & private insurance companies to enter African markets

10 ATI: Organization Chart Member State Member State Member State Non-State Member Non-State Member General Assembly Board of Directors Secretary CEO GC CIRM CUO ACC. PROC.

11 Objective 2 ATI s Current and Future Ownership and Security Arrangements

12 ATI: Legal Structure WB/IDA Letters of Acceptance Non-State Members Development Credit Agreements Member States Project Agreement ATI Participation Agreements Insurance Facility Agreement Lead Insurers Security Trust Account Agreement ATI Treaty London Banks

13 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

14 ATI: Achievements To Date Facilitated US$ 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

15 ATI: where do we go next? Moving towards a true and flexible capital base..

16 Future: Capitalizing ATI by transforming current credit structure IDA credits will be used by Member States to capitalize ATI Capitalization will allow more flexible, effective and efficient use use of ATI resources ATI Capital to support its entire business ATI

17 ATI: From cash collateral to a normal capital structure Africa s Export Credit Agency 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

18 Why does ATI need to become as strong as any other OECD-ECA? Africa s Export Credit Agency OECD-ECA (S&P AAA) Who will win the Mandate? ATI International Trade Finance Bank OECD-Country Exporter / Contractor? ATI-Member Country Exporter / Contractor Investment Project / Buyer International Competitive Bidding

19 Why does ATI need to become as strong as any other OECD-ECA? Africa s Export Credit Agency Even for Projects in the African Region OECD-ECA (S&P AAA) ATI International Trade Finance Bank OECD-Country Exporter / Contractor ATI-Member Country Exporter / Contractor Investment Project / Buyer International Competitive Bidding

20 Objective 3 ATI s Product Offering, Eligibility Criteria and Most Common Terms as an Alternative Solution to Africa s Corporate Trade Financing Needs.

21 Understanding Cross Border Trade Importers, Exporters and their Financiers all 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 onselling 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

22 ATI: Product Offering To Date 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

23 All of the above plus. Comprehensive Non-payment Cover for single (structured) credits to: 1. Private Obligors; and 2. Sovereign Obligors ATI: Expanded Product Offering 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..

24 Political Risk Insurance Defined political events and host government actions or inactions that are outside the control of the parties to a commercial transaction Does not include force majeure events, events in the control of any party to the commercial transaction, or lawful actions of the host government

25 ATI-ACA ATI Eligibility Criteria 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 Africa s Export Credit Agency

26 ATI-ACA ATI Most Common Terms Tenors up to 8 years No Minimum Transaction Amount Indemnity: - Up to 100% (Political Risks) - Up to 85% (Commercial Risks) Competitive Risk-based Pricing

27 Objective 5 Export and Domestic Trade Credit Insurance

28 Trade Credit Insurance Covers an exporter and/or a domestic supplier against nonpayment by his foreign and/or domestic buyers (as a result of insolvency and protracted default)

29 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

30 Typical Features Multi buyer/multi-country basis Whole turnover basis (no antiselection ) 1-3 year agreement (renewable) Short term credits up to days Cover percentages vary between 50% and 85% Premium depends on the annual turnover declared

31 Pre-financing of the Production for Domestic Sales and/or Exports.. B A N K Assignment Securities (land/property) ATI CRI Policy $ MANUFACTURER /EXPORTER COUNTRY A P P P BUYER I COUNTRY A BUYER II COUNTRY A BUYER III COUNTRY A P $ P $ P P BUYER I COUNTRY C BUYER II COUNTRY C BUYER I COUNTRY B BUYER II COUNTRY B

32 Converting a single client credit risk into a diversified global portfolio risk... Africa s Export Credit Agency B A N K Assignment ATI CRI Policy BUYER I COUNTRY A BUYER II COUNTRY A Securities (land/property) MANUFACTURER /EXPORTER COUNTRY A BUYER III COUNTRY A BUYER I COUNTRY C BUYER II COUNTRY C BUYER I COUNTRY B BUYER II COUNTRY B

33 Benefits to Exporters / Manufactuers Africa s Export Credit Agency (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)

34 Benefits to trade financing banks Africa s Export Credit Agency 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 )

35 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

36 ATI cooperates with Atradius 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. Market Shares 2002 Facts and Figures 2002 Other 14% Atradius Market share % 25% Ranking world-wide... No. 2 EULER- HERMES 37% CYC 7% Coface 17% Number of insured... 30,000 Total exposure bn.

37 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)

38 Objective 5 ATI s Issues & Challenges, Underwriting Process and Contacts

39 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.)

40 ATI Underwriting Process Submit new transaction enquiries in any form ( , 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

41 THANK YOU!... ANY QUESTIONS?

42 Through the ATI s website via Underwriting@Africa-ECA.com or Peter.Jones@Africa-ECA.com Roland.Pladet@Africa-ECA.com Caroli.Omondi@Africa-ECA.com Cyprien.Sakubu@Africa-ECA.com By telephone +254 (0) (0) ATI Contacts