Even with unfavorable global conditions defined by limited sources of development funds and increased borrowing costs, African Trade and Investment Development Insurance (Atidi) has stayed supportive, helping many countries access borrowing.
Using its investment-grade status, the pan-African insurer has helped minimize borrowing costs for African governments. This was evident recently when Tanzania and Kenya received significant reductions in borrowing expenses by avoiding exorbitant rates associated with individual country lending.
“Given the current financial challenges faced by African governments, we have observed an increase in lenders requesting our assistance to facilitate loans. By acting as intermediaries between lenders and governments, we have (for instance) recently successfully secured a €300 million ($ 324 million) loan for Tanzania.
Similarly, in the past, we’ve done it with Kenya, where we have helped to reduce the overall cost through syndicated loans due to our investment-grade status,” explained Atidi Chief Executive Manuel Moses.
The aiding factor has been its stellar international investment grade ratings, with a decade-long A rating by Standard & Poor’s and an AAA+ rating by Moody’s.
Established by Comesa in 2000, Atidi was created as an insurer of investment risk and political risk for investors engaging in business across Africa.
Originally known as the African Trade Insurance Agency (ATI), this initiative emerged due to concerns among African leaders regarding low levels of foreign direct investment on the continent.
According to Moses, despite efforts made by governments to attract local, regional, or international investors through regulatory changes and environmental improvements, there remained a need for a risk partner or insurer who could bridge any gaps if governments were to change their stance on repayment of investment.
The core solutions provided by Atidi include political risk coverage in the event of changes or unforeseen political disruptions, and credit risk coverage that ensures that private sector-to-private sector lending both regionally and internationally has a safeguard against uncertainties such as delayed payments or deals gone sour.
Since its establishment in 2000, Atidi has insured transactions worth $78 billion, with a net exposure of $8 billion in 2022 alone, a demonstration of the organization’s effectiveness in providing assistance. Furthermore, as of June, performance stood at around $9.8 billion.
While these numbers showcase its relevance to the economy, they remain modest when compared to the estimated $1.3 trillion size of the continental free trade area.
With the renewed mission of facilitating intra-African trade through the development of the African Continental Free Trade Area (AfCFTA), Atidi aims to promote economic growth within Africa.
With time the organisation has garnered significant membership interest from across the continent.
“Member states are benefitting. However, our requirements are not small,” says Moses.
For a country to benefit from ATIDI a significant amount of money for shareholding and the need to domesticise the treaty in local legislation is required.
“Incoming member states have to buy shares worth about the equivalent of $14 million because we have to be capitalized by capital from member countries. Countries for whom this might be a big amount can get support from organizations like the African Development Bank, the German Development Bank, and the European Investment Bank. They draw on a grant which they can use to capitalize us,” explained Moses.
“Also, because we are multilateral by treaty, these countries’ parliaments must authorize the treaty to give Atidi preferential creditor status. What this means is that a country that subscribes is saying, should there be a default, and Atidi paid out on behalf of a government, that government then reimburses Atidi preferentially.”
In the initiation stages, the World Bank played a crucial role in capitalizing on the first countries joining the institution through a regional facility accessible to African governments wanting to subscribe.
“Unfortunately, only the seven African countries that saw the vision subscribed and used that facility. We are currently at 21 countries, yet to onboard all 55 African States. Our latest member is Angola who joined in April this year. And we are appealing to the rest of Africa to join because they would benefit from our services.”
Some of the early adopter countries were Kenya, Tanzania, Burundi, Rwanda, Uganda and Zambia.
In line with the AfCFTA, Atidi envisions an even greater role in serving as the catalyst that facilitates trade between exporters and importers on the continent.
Thus far, Atidi has concentrated on covering political risk in the 21 subscribing countries while also being receptive to credit risk across the entire continent. For example, despite Morocco not being a member, it requested coverage for a company in Kenya involved in importing fertilizer. Atidi agreed due to its familiarity with the buyer –KTDA – enabling shipment of more affordable fertilizer.
Even with its sights set on facilitating Africa’s continued growth, Atidi aims to foster and promote sustainable development, hence its strong focus on incentivizing environmentally friendly projects.
Moses explains that with each project it undertakes, Atidi ensures rigorous evaluation from an environmental, social, and governance (ESG) perspective as part of its overall mission.
To combat climate change and encourage smarter and eco-friendlier growth strategies in Africa, Atidi has implemented two key programs – the Regional Liquidity Support Facility (RLSF) and the Africa Energy Guarantee Facility (AEGF), both aimed at advancing clean energy projects across the continent.
The RLSF program was established in collaboration with the German Development Bank (KfW) to address liquidity risks associated with energy projects. By providing insurance coverage and incentives for ventures utilizing wind, geothermal, solar, and hydro energy sources, ATIDI promotes environmentally responsible practices while mitigating liquidity risks faced by off-takers. Notable beneficiaries of this initiative include Malawi, Burundi, Kenya and Uganda.
Through the RLSF program, guarantees are provided to independent power producers ensuring prompt payment through instruments like Letters of Credit. This approach helps organizations avoid accumulating excessive liabilities on their balance sheets.
In addition to addressing liquidity risks through the RLSF program, the AEGF initiative provides political risk coverage appealing to equity investors concerned about potential risks related to debt investments within African green energy sectors.
ABOUT THE AUTHOR: PAULINE KAIRU