In this interview, George Otieno, Chief Executive Officer of African Trade Insurance Agency (ATI), speaks on factors delaying Nigeria’s membership of the regional body. He also spoke of the role of ATI in enhancing trade on the continent. Excerpts.
By Favour Nnabugwu
What does Nigeria stand to gain as a member of ATI?
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 scale 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 the following 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 could not 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 around five percent of all new FDI into Africa, so joining ATI literally boosts growth. Lastly, ATI is now paying dividends to shareholders making membership a near budget neutral decision for governments.
What is delaying Nigeria’s membership of ATI?
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 set aside its own contributing fund with AfDB supporting with part contribution under its window with $20 million. 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 ATI fund.
The process of becoming a member involves certain fundamentals which a country must first of all go through and satisfy. 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 when Dr. Olusegun Aganga, was the Minister of Finance. He was quite supportive because he knew the product that we were providing and also because Nigeria is member to other affiliate bodies that we provide products for, which are in fact World Bank’s 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, 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 African Development Bank, AfDB, because the bank requires that the treaty has to be ratified 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 stabilize the economy and attract some other funding from the international financing institutions that will give them good concessionary loans.
What are the agency’s plans for Nigeria and 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 ATI’s capitalisation benchmark?
Our capital at the moment is $250 million while authorized capital is $1 billion which we hope to hit in the next couple of years because three years ago, we were only about $150 million and with Nigeria and Ghana joining we have moved up to about $350 million. 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 couple 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 is that the election will put a little drawback and so they were not too sure whether that could happen before the election.
ATI wants it to be finalized 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 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 and Ghana coming in through AfDB. The bank is a very strong partner to ATI because of the same interest that African countries have and the common shareholders and destiny.
What are the challenges of 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 organizations, ATI in most cases makes it happen 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 by joining ATI. It is not just simply signing documents, it requires certain issues which have to do with parliamentary approval and recommendation, and these challenges run through a lot of African countries.