With the world’s attention firmly fixed on the COVID-19 pandemic, the good news is lacking. However, writes Oliver Wright, director of BPL Global, through a credit and political risk insurance (CPRI) lens, one region has shown resilience in the face of economic volatility: Africa.
The article appeared in ESI Africa Number 1-2021.
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The continent continues to be exposed to political instability and violence, while its economies remain susceptible to shocks such as Zambia’s recent sovereign default. Conversely, BPL Global’s experience in 2020 and early 2021 shows that the appetite of CPRI clients and underwriters to venture into new African transactions has remained strong.
As the implications of COVID-19 began to become apparent, governments rushed a series of financial buffers to help absorb the fallout. From the G20 Debt Service Suspension Initiative (DSSI), which suspends some $ 11.5 billion in debt repayments owed by 73 Paris Club debtor countries, to the temporary relaxation of the consensus rules of the OECD by numerous Export Credit Agencies (ECAs), the MIGA’s $ 6.5 billion Fast Track Facility, the $ 3 billion Afreximbank Support Facility and the CDC’s recent announcement of a £ 1billion development initiative for Africa, there is a clear will to help Africa navigate its way through the crisis.
BPL Global has found that the flow of investigations and the number of related policies over the past year supports the widespread anecdotal view within the financial community that African deals are still being closed and that the private market for CPRIs is ‘is intensified. This has been driven by clients and insurers who are looking for structured, affordable deals with strong fundamentals.
Indeed, Africa represents BPL Global’s largest regional exposure with around $ 9 billion in global insured ceilings as of February 2021. Despite a reduction of around 20% year-on-year, over the past 12 in the last few months we have received around 450 formal requests for Africa.
Two-thirds of this total came from banks, with the remainder being split between commodity traders (20%) and exporters and businesses (14%). Business inquiries continue on established trends, with strong demand for traditional PRI for energy projects – particularly solar and wind, and on the mining side, for battery minerals.
In addition, requests are for almost every country in Africa – the most popular being Côte d’Ivoire, Ghana, Nigeria, Egypt and Senegal.
Underwriters have tightened their underwriting criteria in terms of insurer interest, choosing to support sovereign or sub-sovereign debtors with a preference for transactions with the ECA, DFIs or multilateral involvement (60% of bank inquiries) . It was therefore more difficult to obtain support for transactions with private debtors as insurers.
Critically, the appetites of customers and insurers have also translated into reality. In 2020, we found 82 new policies where the “country at risk” was in Africa, with an overall limit of $ 2.4 billion. The most common risk countries in these policies are Côte d’Ivoire, Ghana and Nigeria.
While commodity finance remains the engine of many African economies and commodity traders, we have completed deals in Nigeria, Ghana, Tunisia, Equatorial Guinea, Gabon, Morocco, Burkina Faso and Libya . In addition, and despite a significant reduction in transactions related to exporters, given that many large projects were put on hold during the pandemic, we also made deals in Benin, Egypt, Togo and Ethiopia. ESI