To drive investment growth, Nigeria needs to de-risk economy, ATI
The African Trade Insurance Agency (ATI) has urged Nigeria and other countries to focus on de-risking their economies to drive future investment growth during its participation in Afreximbank’s 2018 Annual Meetings and 25th anniversary celebrations.
ATI’s Chief Executive Officer George Otieno and Chief Underwriting Officer John Lentaigne filled a noticeable gap which emerged from discussions on Day One in which panellists speaking on financing and regulatory considerations around AfCFTA such as Ade Ayeyemi, Ecobank’s Group CEO, who warned that investors would run away from Africa unless adequate risk measures were put in place to address actual and perceived risks.
ATI identified investment insurance as a critical missing piece that will enable Africa to reach its full growth potential. Such insurance is the hidden but necessary component underpinning most transactions.
This is especially true in Africa where country and sub-investment grade credit risks are often the largest hurdles preventing deals from reaching financial close.
“The shortage of Investment insurance capacity is particularly acute in certain African countries like Angola, Ghana, Kenya, Nigeria and Zambia. This is because most investment insurers cap exposures in any given country and these caps are normally based around the sovereign’s rating rather than the size of their economies,” noted John Lentaigne.
Nigeria, for example, is rated B/B+ with a GDP of USD376 billion, has an economy that is approximately 10 times larger than that of its regional peers but it faces acute constraints on available investment insurance.
The problem is compounded because most of the capacity is taken up by high-levels of foreign currency sovereign borrowing, which will generally be de-risked with investment insurance. The end result is that Sovereign borrowing then tends to crowd-out appetite for private sector risks in the very countries in which it is most needed.
ATI is part of the investment insurance puzzle in Africa. The company helps to generate increased investment insurance capacity, including in West Africa where it is expanding membership, by utilizing its own balance sheet and by leveraging private insurance capacity.
The company currently insures about 1% of the annual GDP of its member countries. In West Africa, ATI is currently helping to raise Euros350 million with a 10-year tenure at a competitive borrowing rate for one sovereign.
“With our presence in any given market, we are able to crowd-in a new class of investors who might otherwise have turned their back on opportunities in the region. We are looking forward to Nigeria finalising its membership in order for the country to completely benefit from ATI’s ability to help the country attract more investments,” commented George Otieno, ATI’s Chief Executive Officer.
Many international lenders are bound by regulations that prevent them from lending significant amounts to sub-investment grade borrowers, which is the case for most African countries and corporates. Institutions such as ATI that provide investment insurance can help to mitigate these risks and thereby bring added investment capacity to African markets.
ATI and Afreximbank are both multilateral and pan-African organisations founded with a common mandate to provide a solution to financing and trade challenges on the continent.
While Afreximbank focuses on financing and promoting intra- and extra-African trade, ATI’s core objective is to provide the insurance capacity to underpin private investment flows / FDI into the continent in addition to increasing traders’ access to credit facilities.