Commissioner for Insurance, Fola Daniel
By Nnamdi Duru with Agency Report
Foreign and local investors who are usually worried about the future of their investments in Africa due to political and social instability in the continent now can now heave a sigh of relief.
This is because, the insurance market has launched a new political risks insurance to cover private equity fund investments in Africa and other emerging markets against political risk.
The product was developed by Overseas Private Investment Company (OPIC), the US government’s development finance institution.
The East African reported that the cover aims at shielding investors from the political uncertainty that characterises doing business in the emerging markets and damages arising from violence related to political activity.
Foreign investors have often cited political risk as a drawback to the continent’s attempts to attract private equity investment, in spite of it being considered a high potential destination.
East Africa has, in recent years, witnessed several incidents of politically instigated chaos leading to destruction of property.
Besides providing protection against such eventuality, the new product also seeks to provide cover for other unforeseen circumstances that may affect investment flows across the region.
OPIC’s President, Ms. Elizabeth Littlefield said: “For example, OPIC is developing insurance products for the renewable resources sector, specifically to protect investors against a government’s change in the feed-in tariff that the investor has relied upon to structure its project; and to cover investment in forestry projects, including Reducing Emissions from Deforestation and Forest Degradation (REDD) projects.”
The insurance product is an attempt to boost investment by reducing risk. With the risks toned down, OPIC argues, fund managers who take up the insurance could accelerate their capital-raising cycles for investment funds.
This is by providing fund managers and their limited partners with long-term cover for risk of loss to their investments as a result of expropriation, currency inconvertibility, and political violence.
It added that by mitigating risks, this product would also boost investor appetite in pursuing opportunities in the emerging markets.
“Having pioneered the development of both political risk insurance and debt facilities for private equity investment, OPIC is in a unique position to launch new, flexible and cost-effective facilities that we expect will facilitate new investment in emerging markets,” she added.
According to her, the policy would be provided depending on the fund’s needs, and can be arranged for either all individual investments for all of a fund’s investors, or the specific investment amounts of a select group of investors.
It would also be available through either its direct insurance or through an OPIC-sponsored private insurer reinsured by OPIC and backed by the US government.
Littlefield also state that given the volume, diversity, and spread of risk that exists in fund programmes, such facilities would be provided at more affordable rates by OPIC together with private market insurers than comparable stand-alone insurance products that are currently available.