NAIROBI, Kenya, May 18 – Local exporters have been urged to take up Political and Credit Risk insurance products to protect them from the aftershocks of the global recession.
The African Trade Insurance (ATI) Agency Chief Executive Officer Peter Jones said on Monday that the crisis had led to a decline in demand for exports, and a decrease in access to finance and foreign direct investment.
He said that these negatively impact the traders and thus the need for them to transfer their risks to Export Credit Insurance providers.
“These products are relatively new to Africa, in contrast to regions like Europe and North America, who have been providing their companies with export credit insurance since the 1920’s. What this means for Africa as well as for international investors interested in doing business here, is that these credit insurers like ATI will absorb their risk,” Mr Jones explained.
He underscored the benefits of such covers saying that they allow the exporters to move up the value chain and sell to the end buyer. This move, he added, improves their selling-prices by 100 percent.
Mr Jones particularly singled out the local floriculture industry, which has been grappling with a low demand for flowers and the plunge in prices in these markets, which in some cases don’t even cover the cost of shipping. Such sectors, he explained, could benefit from ATI’s lending.
“We are able to offer them a guarantee of payment if the buyer goes bankrupt, delays payment or is unable to pay altogether. We are also able to run a credit assessment of the exporter’s buyers,” he said of the benefits to be accrued from these products.
A new product that would protect the industry against the impacts of the credit crunch was being developed in Uganda, he revealed, and if it proved successful it would be implemented in Kenya.
Mr Jones disclosed that the demand for such covers in Kenya and Africa in general was increasing significantly and they hoped to cover risks of more than $1 billion in the near future.
“In 2008, we issued insurance polices covering political and commercial risks for transactions worth $779 million and we are confident that in the near term our annual transaction values will increase to US$1 billion,” he bragged.
At a press briefing, the CEO reiterated that with the right products and partners, African trade and investments are capable of competing within international markets despite the current crisis.
“Africa is no more risky than the markets in the US or Europe and that has proven to be over the past year. This is the crucial lesson that we have learnt from the global financial crisis,” he stated.
Commercial Bank of Africa Managing Director Isaac Awuondo lauded the agency’s move to extend guarantees and insurance cover to banks saying this provides them with the opportunity to prevent and monitor credit risks at minor costs.
“ATI benefits do not only accrue to banks but also cascade to bank’s clients. With credit insurance, a client is able to be competitive in the domestic and international markets, protect the balance sheet against bad debt losses, provide collateral without tying up liquid assets and secure cash flow which enhances financial planning,” he said, adding that this translates into better relationships between these financial institutions and their clients.