Zambian manufacturers told ‘cover your non-payment risks to reduce costs & obtain more credit’

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LUSAKA, 17 April, 2012 – At a breakfast forum co-hosted by the Zambian Association of Manufacturers (ZAM), Jef Vincent, the Chief Underwriting Officer for the African Trade Insurance Agency (ATI) and Pizzaro Lukhanda, ATI’s Resident Underwriter based in Lusaka outlined the inherent risks facing local manufacturers, who may be interested in purchasing capital equipment or selling their products outside of Zambia.

Speaking from a background of over 20 years of credit insurance experience spent working in Asia, the Middle East and Europe, Jef Vincent, the Underwriting Head of ATI points out that “As a newly classified middle income country, Zambia has tremendous export possibilities that could be better realised with the help of credit risk insurance products.”

Insurance that protects against non-payment risks can offer a solution to common challenges faced by companies in Zambia. On the import side, Zambian companies may be told to pay up front because they are unable to negotiate credit terms with their foreign suppliers as a result of default risks.

And on the flip side, Zambian exporters continue to face non-payment and other risks as their clients in Europe and elsewhere default on payments. Trade Credit Insurance can cover these risks and allow Zambian companies to conduct business on credit terms that will not tie up their collateral or delay their production cycle.

Banks can also take advantage of these products, which although new to Africa, have been in existence in Europe and North America since the beginning of the last century. For banks, the product covers similar risks but it can be applied to, for instance financing/loan facilities or on their clients. In one transaction conducted in 2011, for example, ATI insured an African multilateral bank’s financing facility, which was set up to assist the Zambian government import fuel.

Demand for ATI’s credit risk insurance products has been growing over the past few years in Zambia.

ATI’s local Representative, Pizzaro Lukhanda notes “In 2011 alone ATI facilitated trade and investments into the Zambian economy valued at over $453 million. Of these, local companies benefited from the knock-on business opportunities and investments these deals brought into the country.”

2011 ATI Transactions in Zambia

Rating

Product

Value (US$000)

Protection of a Business

Political Violence, Terrorism & Sabotage 

13,500,000

Agricultural exports

Credit Risk Insurance

7,600,000

Equipment Purchase

Credit Risk Insurance

82,000

Purchase of transportation vehicles

Credit Risk Insurance 

200,000

Supply of Copper Cathodes

Credit Risk Insurance

22,500,000

Supply of digital Microwave equipment

Credit Risk Insurance

8,700,000

Financing facility for mining operations

Credit Risk Insurance

50,000,000

Fuel Imports

Political Risk Insurance

350,000,000

Total

 

452,582,000

 

Companies in Zambia, like in other African countries, have traditionally been asked to establish Letters of Credit or pay upfront for capital equipment or the importation of raw goods, which has prevented them from competing head to head with their global competitors who transact such business on credit terms.

This, in part is why ATI was established just over a decade ago as a COMESA initiative by seven East and Southern African countries. The organisation provides insurance to cover the types of risks that traditional African insurance companies could not cover due to issues of capacity. Risks that involve non-payment, political risks, political violence, terrorism & sabotage fall squarely in ATI’s domain and help to attract investments and facilitate trade into the continent.

The breakfast event, which took place at the Taj Pamodzi Hotel is a ZAM initiative which aims to keep members updated on policy, financing and other issues related to their industry. ZAM was founded in 1985 with the objective to provide a link between government and industry for the purpose of increasing Zambia’s industrial output. Other featured speakers at the event included Bwalya Ng’andu, Deputy Governor of the Bank of Zambia and Freddie Kwesiga, African Development Bank’s Resident Representative.

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