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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
Africa’s Export Credit Agencywww.Africa-ECA.com
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
Africa’s Export Credit Agencywww.Africa-ECA.com
Introductionto the Agency
Objective 1
Africa’s Export Credit Agencywww.Africa-ECA.com
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
Africa’s Export Credit Agencywww.Africa-ECA.com
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.”
Africa’s Export Credit Agencywww.Africa-ECA.com
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)
Africa’s Export Credit Agencywww.Africa-ECA.com
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
Africa’s Export Credit Agencywww.Africa-ECA.com
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
Africa’s Export Credit Agencywww.Africa-ECA.com
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
Africa’s Export Credit Agencywww.Africa-ECA.com
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
Africa’s Export Credit Agencywww.Africa-ECA.com
ATI’s Current andFuture Ownershipand SecurityArrangements
Objective 2
Africa’s Export Credit Agencywww.Africa-ECA.com
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
Africa’s Export Credit Agencywww.Africa-ECA.com
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…
Africa’s Export Credit Agencywww.Africa-ECA.com
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…
Africa’s Export Credit Agencywww.Africa-ECA.com
ATI: where do we go next?ATI: where do we go next?
Moving towards a true and flexible capital base ……..……
Africa’s Export Credit Agencywww.Africa-ECA.com
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
Africa’s Export Credit Agencywww.Africa-ECA.com
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…
Africa’s Export Credit Agencywww.Africa-ECA.com
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
?
Africa’s Export Credit Agencywww.Africa-ECA.com
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
Africa’s Export Credit Agencywww.Africa-ECA.com
ATI’s Product Offering, Eligibility Criteria and Most Common Terms as an Alternative Solution to Africa’s Corporate Trade Financing Needs….
Objective 3
Africa’s Export Credit Agencywww.Africa-ECA.com
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
Africa’s Export Credit Agencywww.Africa-ECA.com
• 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
Africa’s Export Credit Agencywww.Africa-ECA.com
• 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
Africa’s Export Credit Agencywww.Africa-ECA.com
• 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
Africa’s Export Credit Agencywww.Africa-ECA.com
•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
Africa’s Export Credit Agencywww.Africa-ECA.com
•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
Africa’s Export Credit Agencywww.Africa-ECA.com
Export and Domestic Trade Credit Insurance
Objective 5
Africa’s Export Credit Agencywww.Africa-ECA.com
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)”
Africa’s Export Credit Agencywww.Africa-ECA.com
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
Africa’s Export Credit Agencywww.Africa-ECA.com
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
Africa’s Export Credit Agencywww.Africa-ECA.com
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)
€£$€ €
Africa’s Export Credit Agencywww.Africa-ECA.com
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
€ €
Africa’s Export Credit Agencywww.Africa-ECA.com
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)
Africa’s Export Credit Agencywww.Africa-ECA.com
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…)
Africa’s Export Credit Agencywww.Africa-ECA.com
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
Africa’s Export Credit Agencywww.Africa-ECA.com
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%
Africa’s Export Credit Agencywww.Africa-ECA.com
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)
Africa’s Export Credit Agencywww.Africa-ECA.com
ATI’s Issues & Challenges, Underwriting Process and Contacts
Objective 5
Africa’s Export Credit Agencywww.Africa-ECA.com
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….)
Africa’s Export Credit Agencywww.Africa-ECA.com
• 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
Africa’s Export Credit Agencywww.Africa-ECA.com
THANK YOU!...
ANY QUESTIONS?
Africa’s Export Credit Agencywww.Africa-ECA.com
Through the ATI’s websitewww.Africa-ECA.com
[email protected]@Africa-ECA.com
By telephone +254 (0)20 271 9727+254 (0)20 272 6999
ATI Contacts