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Otieno: Nigeria Will Benefit Significantly from African Trade Insurance Agency
The Chief Executive Office of African Trade Insurance Agency, Mr. George Otieno, in this interview, spoke to journalists on the implication of Nigeria’s signing to join Africa’s only multilateral credit and investment insurer, saying it will assist in providing insurance cover for infrastructure and debt refinancing support. Goddy Egene presents the excerpts:
Tell us about African Trade Insurance Agency (ATI), and why has it taken several years for Nigeria to join the agency?
ATI was founded in 2001 by African countries with headquarters in Nairobi, Kenya, to cover trade and investment risks of companies doing business in Africa, providing broad range of investment risk solutions and in particular mitigating against the risks of sovereign and corporate non-payment and contractual breach. It currently has 14 member countries including some of Africa’s strongest economic performers such as Côte d’Ivoire, Ethiopia, Kenya and Rwanda, and nine institutional members including the African Development Bank (AfDB). The agency continues its push to increase West African membership with Nigeria signing to join and Ghana expected to finalise its membership in early 2019. As at 2017, ATI has supported African countries and across sectors with $35 billion in trade and investments in agribusiness, energy, exports, housing, infrastructure manufacturing, mining and telecommunications. We are creating awareness for the Nigerian market with financial assistance from the World Bank.
Another major reason also for setting the agency up was because Africa was seen as a destination where investments are shy because of perceived political risk and trade and investment not keeping pace because of its slow growth. For Nigeria, it indeed took a long time signing up due to the draw backs in parliamentary ratification and the challenges of convincing the government to join. However, thanks to Nigeria’s Commissioner of Insurance, Mr. Mohammed Kari, for helping to fast track Nigeria’s signing to become a member with the commitment of $50 million. We are now at the final stage of signing the treaty as Nigeria has already budgeted its own contributing fund with AfDB, supporting with that part contribution under its window coming with $20 million as plans are afoot to pay $50 million as their contribution which will be 20 percent of their share capital at the moment. This contribution will make Nigeria the highest contributor to the ATI fund. The process of becoming a member involves certain fundamentals which a country must first of all go through and satisfy. It is not because they did not want to join.
From the start we made a presentation of business case to the government showing both the public and private sectors what they can benefit from ATI. We started this discussion as far back as when Olusegun Aganga, was the Minister of Finance. He was quite supportive because he knew the product that we were providing because as you are aware Nigeria is member to other affiliate body that we do we provide products for which are in fact World Bank subsidiaries. But of course with the change of government and most times the challenge that we have which is not just for Nigeria alone but for other countries as well is that when the deal is almost complete the Minister or some of the government officials are changed and consequently, we have to start all over again forcing us to go to the drawing board.
For instance, the case of Ghana: They were to be given a World Bank loan of $20 million around 2008/2009, the process to finalise did not happen on time because of the three months’ notice that the bank gave and that funding was quite unique compared to the AfDB, because the bank requires that the treaty has to be rectified and signed before three months and if you don’t, you are given another three months and this time if you are not able to do it, the loan is cancelled. Here, again that loan was cancelled because of political expediencies as elections were going to hold in December of that year and with the change of government there were court cases which dragged on for a long time. After six months the $20 million loan facility was cancelled. However, it is gladdening to note that the new government in Ghana has started discussion with us and we have made considerable progress with a convincing proof in their budget speech that made ATI to include them as one of the instruments that they would like to have to be able to stabilise the economy and attract some other funding from the international financing institutions that will give them good concessionary loans.
What are ATI’s plans for other African countries?
Our ambition is to cover the whole of the continent. We have been able to support trade and investment from inception to the tune of $45 billion of investment across the continent. In 2018 we have done $5 billion of investments in member countries. Our capital base is $250 million and with Nigeria’s entrance, we will hit $300 million. ATI has been insuring and providing guarantees for various sectors of the African economy, for instance in aviation, we have supported Ethiopian airlines with two of the aircraft and also supported the banks credit advancements to countries. We do not, however, compete with banks and insurance companies; we provide additional capacities to them. In Nigeria we have already done some deals though not big ones, through undertaking corporate risk for Dangote Group and NNPC and in some banks where we have done some currency swaps.
What is the relationship between ATI and AfDB and other international agencies?
ATI does a lot of work with these bodies, we just recently supported a $500 million project insurance cover for one East African countries, at this instance we come in to cover some risk. We have cover for the Trade Bank of East Africa, which is one of the biggest risks that we cover in our books. There are also risks in petroleum imports which is up to about $800 million. But of course we do also have re-insurance in the market because it is difficult to just take a risk of $800 million based on our capital as most of those international reinsurance players will ensure that they feel comfortable to work with us because of our knowledge of the African business. It will be difficult for lenders to just lender funds to African countries because of the increasing perception of political risk and here ATI crowds in with some reinsurance companies like in the case of the $800 million cover a deal in Zambia. All this happened because ATI was there to provide reinsurers risk. For instance, we have covered risk for Dangote Group and NNPC.
In these private operation most times, ATI will be approached by domestic banks, international banks or private equity fund wanting to do business in Nigeria with corporate or government sector. Sometimes these entities will approach ATI on their investment motives and will seek guarantee in the event that something happens whether in insolvency or bankruptcy and so ATI will step meaning essentially that ATI will pay claims in the event that these companies are not able to pay its debts to its financiers or suppliers ATI steps in and that provides that protection. Regarding NNPC, they could put out tenders and suppliers are invited to provide refined products which are imported into the country.
These are products which are highly insured in the European markets, so the suppliers will go into the market to seek insurance in any event that NNPC delays or unable to pay for any reason and again here they will come to ATI and they will cover their interest. We also cover domestic and international banks risk and also a lot of international banks will provide lending to other banks or equity within or even in some instances general purpose loans to the governments all these ATI covers. When the banks approach us we will undertake their risk assessment on their ability to recover. As you are aware most big companies rely on banks for financing their projects and these are subjected to risk and for these monies they will need somebody to cover that default or payment risk.
What ATI’s capitalisation benchmark?
Our capital at the moment is $250 million while authorised capital is $1 billion which we hope to hit in the next couple of years because three years we were only about $150 million and with Nigeria joining we have moved up to about $350 million with Nigeria and Ghana joining and so we believe that we should be in the region of $500 million in the next few years. However, what is uppermost in insurance is not entirely the capital, though important but ability to bring reinsurance on the table like the risk of about $800 million which we cover which is far and above our capital.
Nigeria is coming with $50 million as their contribution but they have paid $20 million and in the next couples of months and years we believe they will be paying the balance of $30 million. We are making efforts to make them sign and just last week there was a meeting between AfDB and the Ministry of Finance represented by Dr. Aliyu Mohammed who attended. It was agreed that they will fast track the process though the worries are that the election pull a little drawback and so they were not too sure whether that could happen before the election.
ATI wants it to be finalised even before the election, if that is possible, so that they can benefit from the products and services that we offer, however discussion is still ongoing. We have very good relationship with AfDB, apart from the fact that they are our client, they are also shareholder as their capital is $15 million which was about 10 percent of our capital then and like as said they want to increase it to $25 million. The new countries now coming like Republic of Benin, Ethiopia, South Sudan and Zimbabwe came through AfDB and also with Nigeria coming in through AfDB and also with Ghana coming in their funds from AfDB. The bank is a very strong partner to ATI because of the same interest and that African countries have and common shareholders and destiny.
Can tell us about some of challenges being faced by ATI?
One of our biggest challenges is the lack of adequate understanding by governments in the continent to appreciate the benefits they can get from ATI. Some private sector concerns in Nigeria have been enjoying some of the benefits from ATI through their suppliers and banks because we don’t deal directly with these private companies because we deal with banks and financiers who give them money and suppliers who give them equipment to transact business. Though, these benefits may not necessary be revealed to these outfits that they have this insurance policy because of the confidentiality status of ATI which is our policy.
When banks sometimes get facilities from international organisations, ATI in most cases makes it happens and the biggest secret, however, is that this is never revealed, so a lot of people are not even aware of this, because in international transaction you cannot supply or trade to somebody on open account terms without a credible insurance. In Africa, we are still getting to grip with this. If as a country in Africa, you are not a member there is no way we can cover and that is why in the past Nigeria as a country has not benefitted Joining ATI is not just simply signing documents, it requires certain issues which has to do with parliamentary approval and recommendation, and these challenges run through a lot of African countries.
We also do have agreement with governments that any event that any deals fail ATI will pay and at the background we will have a discussion with the government on how we can resolve the problem as we have recourse to do as this is not a simple document because if the government must have recourse to us it means that it must have parliamentary approvals and this is where the challenges and so you have to go through applications and approval and once approval is given and then again you will seek the Ministry of Budget for signing and this process is then as its finality stage and these are complex requirements but unfortunately in Africa changes in government disrupts this.
What does Nigeria stand to gain from being a member?
The government of Nigeria and private sector investors will soon receive important support that will help boost key industries such as the banking sector as well as providing access to competitively priced credit and loan facilities for institutions in Nigeria. Relief is expected once Nigeria finalises its membership into ATI, which is nearing completion. ATI is Africa’s only multilateral credit and investment insurer, similar to the World Bank’s Multilateral Investment Guarantee Agency (MIGA) but with a focus purely on Africa. In order for a country to access ATI’s full slate of investment solutions, it must be a full member and shareholder. We are here to inform the private and public sectors about the benefits that await Nigerian companies, the government and its institutions once membership in ATI is finalised. Specifically, ATI will help improve Nigeria’s economic outlook in many ways.
For the overall economy, ATI’s presence will help to reassure investors, particularly in the current election cycle – an environment that often leads to investors delaying their planned projects in any African country undergoing elections. This risk may already be reflected in Nigeria’s foreign direct investment flows which totalled $1.2 billion in the first half of the year down from $1.7 billion a year earlier. ATI provides investors with political risk and investment insurance to protect their investments against any unilateral government-related action (including non-payment) that might negatively impact their investments or projects.
ATI will also help the government in its plans to diversify the economy through its support to banks and across a broad spectrum of economic sectors. ATI provides credit insurance solutions which can act as a form of collateral, therefore freeing up banks’ capital allowing them to lend at greater volumes. With local banks now focusing on decreasing their non-performing loan rates, some are hesitant to lend to the manufacturing and agricultural sectors, where development of both is a major government objective. From a bank’s perspective these are risky sectors with high credit risk. With ATI’s credit insurance solutions, this risk can be mitigated, thus opening up more loans to these priority sectors.
There are numerous benefits to Nigeria becoming a member of ATI. First, investors and international lenders will look favourably on this action and second the time couldn’t be better for our solutions. We can support the government to diversify the economy, boost banks liquidity, and even help the government to borrow internationally at more competitive rates. This year ATI’s products will stand behind around 5 percent of all new FDI into Africa so joining ATI literally boosts growth. Lastly, ATI is now paying dividends to shareholder making membership a near budget neutral decision for governments.