ATI thrives on Africa’s unstable but lucrative soil

African Trade Insurance Agency, a trade and political risk insurer with operations in 16 African countries is banking on regional integration to push its covers.

The products are becoming popular among foreign investors who are positioning themselves to take advantage of the growing business opportunities in the continent.

The global economic crisis has also pushed African states into focusing on regional trade to boost their earnings and this has exposed them to the need for political and trade credit risk insurance.

ATI’s intention to set up operations in Ghana, Benin, Gabon, Cote d’Ivoire and Cameroon is expected to open up the West African market by providing a trade linkage with the rest of Africa.

ATI’s business pipeline has been growing fast with inquiries from prospective firms already hitting a high of $1.6 billion in the first quarter of 2010.

The fluid state of most of African countries means the political risk exposure is high hence the need to seek insurance protection.

The emergence of some African economies from civil strife also presents new business opportunities but due to the associated risks, companies are cautious on how to tackle such markets.

With the recent inauguration of the East African Common market protocol, ATI expect demand for these insurance services to increase as more businesses venture into new markets.

The investments covered cut across various sectors such as agribusiness, energy, housing and manufacturing.

Business Daily sought ATI’s new chief executive George Otieno’s views on how his firm plans to tackle these issues.

The uptake for political cover has increased since you launched the products. What is driving the trend?

The increased uptake is due to the growing interest in the region by foreign investors.

However, due to their limited knowledge of these economies they prefer to cover their investments from possible political unrest and cases of default, insolvency or non-payment for goods and services delivered.

The political cover is proving popular due to the high risk perception that Africa attracts. With a number of countries still to democratize the potential for flare-ups is still high.

What is driving the uptake of the trade credit cover?

The lack of a reliable transactional history for African firms has affected the ability of these businesses to easily transact with their counterparts in the developed world.

Given this situation, most of the businesses in the west are looking to protect themselves against potential losses due to insolvency or non-payment of goods.

ATI operations across Africa provide a platform for businesses to enter into new markets and grow their operations without the fear of losing investment or not getting paid for goods and services delivered as these risks are fully covered

ATI is rolling out cover for the small and medium sized enterprises (SMEs). How will this product work?

The SME sector is increasingly becoming the driving force for many economies in Sub-Saharan Africa. Despite their growing role in economic development, they continue to face a number of challenges such as easy access to financial services and protection from potential loss of investment.

Financial institutions such as commercial banks and insurance companies still view SMEs as risky investments hence they do not offer appropriate services and when they do the charges are too high.

ATI is looking at easing access to financial services for SMEs by partnering with these institutions to offer the same services. ATI will work with commercial banks by creating a guarantee scheme which will cover part of the risk hence allowing SMEs to access affordable credit services.

The SME risk cover will also insure credit facilities hence lowering the risk exposure for commercial banks, allowing them to offer more credit facilities.

How has the post-election violence contributed to the need for political risk cover?

For many investors Kenya has all along been perceived as a safe haven for investments. With relative peace since independence few expected the country to flare-up to the level it did after the elections of 2007.

Investors now consider all potential eventualities and they prefer to be covered.

With Kenya being the main entry point for many capital goods destined for Eastern Africa and the Great Lake Region, investors are taking the cover to lower any potential loss of goods.

A number of African countries are expected to be holding election this year. Do you expect an increase in the political risk cover uptake?

The outbreak of violence in many Africa countries after elections has raised the perception of the region as a risky investment destination hence investors are opting to cover their exposure.

Recent elections in Africa which have been disputed only contribute to this perception of a high risk region.

The post election violence in Kenya has become the referral point for many investors venturing into the region and thus, preferring to take the cover.

What level of business are we talking about for ATI?

With a number of Africa countries expected to hold generation election this year, the political risk insurance uptake has shot-up.

For instance in the first quarter of this year ATI has underwritten political insurance risk cover worth an estimated $71 million compared to $66 million in a similar period in 2009.

However, businesses have also devised ways of coping with the periodic election cycles by raising their covers when elections are due.

African countries have settled for regional integration allowing them to increase continental trade. Are they taking the trade credit cover?

The increased focus on regional trade is a good development for businesses in the region as the previous markets in the EU and US shrink due to the global economic crisis.

Businesses which are going for regional expansion to grow their market share are seeking to protect their operations from the potential risk of default.

For ATI this has led to increased underwriting of credit risk cover.

For instance in the first quarter of this year, ATI has underwritten 27 policies compared to 58 policies which were generated in the whole of 2009. In 2008, ATI underwrote 26 policies.

Similarly, ATI has managed to provide the trade credit cover to investments and trade worth approximately $2 billion across Africa.

In Kenya ATI has supported over $212 million worth of exports, positioning Kenya businesses as major players in the region.

A number of African countries have nationalised their resources. Are investors concerned about potential losses of investment and does ATI cover such eventuality?

Whereas there is a lot of improvement on governance across Africa as countries adopts more democratic and open systems, there is widespread fear of nationalization especially of critical resources such as oil, minerals and metal resources that are being discovered.

This has heightened fears among investors of potential losses to assets already in place or investments to be carried out.

ATI political cover provides for recovery of any investments lost on political grounds such as expropriation and confiscation.

However, many African countries are adopting a partnership approach with investors bringing in their skills, finances and marketing resources.

This partnership is expected to lower the risk level hence encourage further investments.