Co-guarantee platform to de-risk African projects

Africa’s first co-guarantee platform, created by the African Development Bank, the Islamic Corporation for the Insurance of Investment & Export Credit (ICIEC) and other major organisations, is now operational. The platform is set to increase the volume of insurance and guarantee solutions available to project sponsors and their bankers. 

The promoters of the multilateral Co-Guarantee Platform for Africa (CGPA) comprise the African Development Bank (AfDB); the Islamic Corporation for the Insurance of Investment & Export Credit (ICIEC), the export credit and investment insurance agency (ECA) of the Jeddah-based Islamic Development Bank (IsDB) Group; the African Trade Insurance Agency (ATI), the multilateral African ECA; and GuarantCo, part of the Private Infrastructure Development Group (PIDG), which is supported by the UK, Swiss, Swedish, Dutch and Australian governments.

The ‘Gang of Four’ signed the MoU to set up the CGPA at the inaugural Africa Investment Forum (AIF) in Johannesburg in 2018, with the mandate to “create an innovative and collective de-risking instrument, to address the perceived high risk across the continent and the lack of capacity of traditional lenders to provide risk mitigation products for projects.”

“At the second AIF last November,” explained Oussama Kaissi, CEO of ICIEC, “we strongly promoted the CGPA to governments, companies and institutions of interest, regarding how to maximise investment using the platform. ICIEC played a key role in strengthening the platform and highlighted its value as a partner through its proven track record in providing investment insurance and guarantees for projects.”

The CGPA is intended to increase the volume of insurance and guarantees available to project sponsors and their bankers in a market-responsible manner. The objective is to mobilise greater amounts of investment than would otherwise take place in the region, in the absence of affordable risk mitigation products.

“The platform,” stressed Kaissi, “allows the three prominent risk insurers – ICIEC, ATI and GuarantCo – to combine their efforts and thus de-risk investments made into African markets more efficiently. It allows ICIEC’s African member countries to attract crucial investments for infrastructure development more easily. In our several meetings the partners all agreed that there is a strong need for a joined-up effort in co-funding and guarantees.”

ICIEC, like the other founding partners, has a huge stake in Africa, with 25 years’ experience of operating on the continent since its establishment in 1994. Of its 47 member countries, some 24 are from Africa, all of which are also members of the AfDB.

The initiative has strong support from Akinwumi Adesina, President of the AfDB Group. “There are many guarantee providers that can offer various types of credit enhancement and risk mitigation instruments in Africa, but cooperation among them has been either non-existent or on an ad hoc basis. Hence the need for a more formal collaboration among guarantee providers to maximise the use of their products in Africa,” he said at the launch.

Political risk insurance on the rise

Political risk insurance is on the increase globally. Coface, the French credit insurer, in a recent report warned about internal factors in Africa “such as rising political risks due to conflict and terrorism, and continued high social risk and persistent fragilities”, which have led to a decline in investment and trade flows.

“Our political and social fragility index indicates that 10 countries – Angola, Cameroon, Chad, Djibouti, Egypt, Ethiopia, Mauritania, Mozambique, Uganda and the DRC – could be or continue to be affected in the foreseeable future,” said the report’s authors.

ICIEC’s role in the CGPA is unique in several ways. The corporation is the first dedicated Shariah-compliant ECA in the world, established to provide investment and export credit insurance for member countries from the Organisation for Islamic Cooperation (OIC). These include Muslim-minority member countries such as Uganda and Mozambique.

Kaissi is confident that the CGPA will make an impact, especially in the roads and electricity sectors. “If you do not have decent roads, you cannot link the economies. If you don’t have electricity you don’t have industry. This is not to say we won’t look at anything else. I recommended the financing of SMEs through extending lines of credit to local banks.

“We did that in Egypt with Afreximbank. We guaranteed the €200m loan given by Afreximbank to National Bank of Egypt (NBE) for the use of financing SMEs. ICIEC provided the guarantee against any default by NBE for the repayment. There is a huge need for this kind of cover.”

The development impact of ICIEC’s support of infrastructure financing is implicit. In Côte d’Ivoire in 2019, ICIEC provided $20.4m reinsurance guarantees in support of MIGA’s financing of Phase IV of the Azito Thermal Power IPP Plant, as it did to support phases I, II and III.

This, says Kaissi, was “integral in spurring MIGA [the political risk insurance arm of the World Bank Group] to proceed with their insuring of Azito IV investment. ICIEC cover helps the country catalyse more FDI in the power sector.”

In a second facility, ICIEC provided a €107.0m loan guarantee to Société Générale to cover its loan from default by Côte d’Ivoire’s Ministry of Finance & Budget. The funds are for the PFO Africa/Veolia water supply facility in Abidjan.

ICIEC also has the ability to leverage its capital, which in turn determines capacity through the reinsurance market. Its current authorised capital is ID400m (about $556m).

“ICIEC on average has leveraged its capital five times from the reinsurance market over the last few years. For every dollar that you give to invest in a project, I can bring you five dollars from the international market which is supported by our reinsurance capacity. Imagine the power leveraging insurance can bring to the table as a major player; it can release capacity to the developers,” explained Kaissi.

Here ICIEC also leverages the AAA rating of its parent, the Islamic Development Bank (IsDB), and its own standalone rating of Aa3 stable, for insurance financial strength, by Moody’s Investors Service.

“This rating,” contends Kaissi, “not only places ICIEC at par with international players in the commercial and political risk insurance industry, but more importantly, it underlines the financial health of the corporation, the sustainability of its operations and strong support from its shareholders.”

Africa’s infrastructure needs increase

In Africa, the lack of efficient infrastructure impacts significantly on per capita growth rates and places significant strain on human development.

The AfDB estimates the continent’s infrastructure needs at $130-$170bn annually, a need which is not matched by the continent’s FDI inflows, domestic investment and public debt programmes. Sub-Saharan Africa (SSA) is also the world’s fastest urbanising region, with 472m people currently living in urban areas, a figure which is projected to double in the next 25 years.

An equally important challenge in infrastructure financing, according to Kaissi, is the mobilisation of the private sector – private equity, pension funds, and retail investors – as part of a wider financial inclusion remit through the ‘democratisation’ of the capital markets.

The second N100bn ($275m) Sukuk issued by the government of Nigeria to fund the next phase of rehabilitation for 28 priority roads, for instance saw a 24% subscription by ultra-retail investors.

The demand for ICIEC’s services to facilitate trade and investment in its member countries has surged, as the volume of business insured climbed to $10.864bn in 2019 compared with $9.03bn in 2018.

The energy sector and manufacturing accounted for $5.585bn and $2.612bn in 2019 with the MENA region accounting for 54.39%, sub-Saharan Africa (SSA) for 42.34% and Asia for 3.28%.

ICIEC facilitated export business in Algeria, Egypt, Cameroon, Sudan, Tunisia, Morocco and Côte d’Ivoire and import business in Algeria, Burkina Faso, Egypt, Côte d’Ivoire and Cameroon in 2019.

Algeria was the single largest recipient of import finance from ICIEC in 2019 at $1.69bn. Algeria, Egypt, Senegal, Côte d’Ivoire, Cameroon, Nigeria and Mali also featured in inward FDI facilitated by ICIEC.

Since its inception, ICIEC has provided trade and investment insurance and guarantees totalling $105bn to 120 countries. Of this, cumulative cover for African member states amounted to $18.09bn, of which $12.8bn was directed to North Africa, $3.89bn to West Africa and $1.4bn to East and Central Africa.

Africa, Kaissi maintains, “is a centre of focus for us. We have a regional office in Rabat. We believe that Morocco can be a gateway into SSA markets and [it] has been at the forefront of African industrialisation. They have reached a certain level in capacity where they are now starting to export excess capacity. They have a great relationship with Africa.”

The ICIEC cooperates closely with sister IsDB entities such as the ITFC (Islamic Trade Finance Corporation), especially in supporting the cotton and rice industries, amongst others in Africa, through providing guarantees for import inputs and export finance. The ITFC in the last decade has provided trade finance solutions to its member countries exceeding $45bn. In 2019 it provided $1.1bn of finance to six African member states.