George O. Otieno, African Trade Insurance Agency's chief executive
What you need to know:
Companies from member countries that include Burundi, Democratic Republic of Congo, Kenya, Madagascar, Malawi, Rwanda, Tanzania, Uganda and Zambia will benefit from the products to be launched in a few months.
Africa Trade Insurance (ATI) is to start issuing surety bonds to companies in the East and Southern Africa region enabling them to bid for larger projects like their competitors from China and India.
Access to surety bonds has been restricted to the commercial banks that demand high premiums scaring off local companies and effectively shutting them out of competition for bigger projects especially on construction.
The development comes at a time when the region is experiencing infrastructure construction boom seen as benefiting foreign construction companies more than the locals.
Companies from member countries that include Burundi, Democratic Republic of Congo, Kenya, Madagascar, Malawi, Rwanda, Tanzania, Uganda and Zambia will benefit from the products to be launched in a few months.
“The immediate product we are launching is issuance of surety bonds to companies required to guarantee their contractual performance,” said Humphrey Mwangi, senior underwriting officer at the ATI.
“There is unsatisfied demand for these products and ATI’s role is to step in and fill the gap either by offering the bonds directly or giving additional capacity to current providers — mainly banks and insurance companies,” said Mr Mwangi.
Surety bonds include performance bonds, bid bonds, advance payment bonds and customs bonds.
The new products ATI plans to launch will be financed with a $15 million equity investment made by the African Development Bank this week.
Part of the money will also be used to guarantee ATI’s underwriting capacity to allow the company to insure more risks in its eligible member states in response to increasing demand for its products.
The mandate of the ATI is to increase its provision of trade, credit and political risk insurance products that encourage foreign direct investment and trade in Africa.
By 2014, the total value of trade and investment projects in Africa supported by ATI is forecast to be as high as $8.6 billion.
By 2014, 37 infrastructure projects should be supported by ATI per year with a total value of $4.6 billion.
Kenya has the highest shareholding at 20 per cent followed by Uganda at 16.6 per cent while Tanzania and Zambia ties at 12.2 per cent.
With the new equity investment, the AfDB will become a Class E shareholder — a class reserved for international development financial institutions with 150 shares — and will obtain a director seat on the ATI Board.
The bank had not invested equity in ATI before but it had made a one million dollar grant to ATI for enhancing its internal systems and procedures, an achievement that was the pre-condition to the bank making the equity investment.
ATI is also eyeing additional capital from Ghana and Benin, the two countries that are nearest to completing the necessary requirements to be ATI-eligible.
“We are continuously engaging with institutional investors who identify with the ATI mandate of promoting trade and investment in the continent. Going forward, we hope to bring on board other stakeholders similar to the African Development Bank,” said Mr Mwangi.
The African Trade Insurance agency is a multilateral financial institution providing export credit insurance, political risk insurance, investment insurance and other financial products to help reduce the business risks and costs of doing business in Africa.
The agency facilitates exports, foreign direct investment into and trade flows within the continent.
ATI was launched in 2001 with the support of the World Bank and the backing of seven African countries, and has since supported over $2.5 billion worth of trade and investments across the continent.
