‘De-risk your economies or risk investors’ flight’
Nigeria, and indeed other African countries have been urged to focus on de-risking their economies and build confidence in their financial systems or risk facing issues of investors’ flight.
The Chief Executive Officer of African Trade Insurance Agency, ATI, Mr. George Otieno, gave the advice at a roundtable event on financing and regulatory considerations around AfCFTA, on the sidelines of the African Export-Import Bank’s Annual Meetings and 25th anniversary celebrations held in Abuja.
Otieno warned that investors would run away from Africa unless adequate risk measures were put in place to address actual and perceived risks.
He said investment insurance remains a critical missing piece that will enable Africa to reach its full growth potential. Such insurance Otieno said, 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.
Also at the event, the ATI’s Chief Underwriting Officer John Lentaigne said the shortage of Investment insurance capacity is particularly acute in certain African countries like Angola, Ghana, Kenya, Nigeria and Zambia.
He said, “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.”
ATI explain that Nigeria, 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 they said 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.
“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,” Otieno further explained.
He said 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.