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Africa may be strong new market for Indian exports

Sanjay Suri in London

Africa can open up as a strong new market for Indian exports under a new fund that will insure trade against political risk.

The new Africa Insurance Trade Agency will be launched on August 20 with its headquarters in Nairobi. The agency is being launched with loans from the World Bank.

"The new fund could prove to be a big encouragement to companies in India who want to expand business into Africa, a World Bank official told rediff.com.

Indian exporters are focussed on the US and Europe for growth in business. Traders haven't looked to Africa as much for fear of uncertain systems and political risks. The new fund will cover businessmen against all that at relative low premium rates.

Giving an example of how the new fund can benefit Indian business, a spokesman for the ATI said "the bank of a chemical company in Malawi handles a letter of credit issued by an Indian bank to a firm selling raw material to the company in Malawi." In such a case, he said, the Indian bank would be insured.

The fund is not confined to business from India but it is being set up to overcome resistance to doing business in several African countries by many companies around the world. The fund will get going with a $105 million loan. "Over the next ten years a conservative estimate is that it will generate trade worth about $50 billion," a World Bank official said.

Seven African countries have joined the ATI to begin with. The member countries of the agency which will be headquartered in Nairobi are Kenya, Burundi, Malawi, Rwanda, Tanzania, Uganda and Zambia.

"Eventually we want all African countries to join," Onno Ruhl from the World Bank told media representatives in London earlier this week.

Member countries have a given share of the fund to back business with firms of that country with highest share of $25 million for Kenya, $20 million for Uganda, $15 million each for Malawi, Tanzania and Zambia, and $7.5 million each for Rwanda and Burundi.

The ATI will be run independently but it means in effect that the governments backed by the World Bank will underwrite risks to deals with businessmen from their countries.

"It is self-insurance in some form," Ivan Rossignol from the World Bank told media representatives.

"This initiative is unique as it is the first multilateral export credit and political risk agency in which its own member countries assume financial liability for the political risks affecting trade within their countries," Bernie de Haldevang, the newly appointed chief executive and managing director of ATI said.

De Haldevang is a former political risk underwriter at Lloyd's of London. Several leading syndicates at Lloyd's of London are supporting the insurance fund.

The premium rates to be charged by ATI and the private insurers sharing the risks will range from 0.4 per cent flat to a maximum of 2.5 per cent per annum.

The transactions to be covered will include sale of goods, letter of credit confirmation, financial and operational lease, import and export of capital equipment for use by an insured in carrying out its business, loans by foreign and local lenders, contracts and performance bonds, import and export of goods for sale or processing, and services.

The risks that can be covered will include embargos, expropriation, government interference, inability to convert or transfer money, arbitrary increase of taxes, interference with transportation of goods, seizure of goods, prevention of sale or export, and war or civil disturbance.

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