A strategy to dampen effects of the global downturn
NAIROBI, 2 August, 2012 – The African Development Bank (AfDB) announced its Ksh 1.2 billion equity investment in the African Trade Insurance Agency (ATI) at a press conference today. Gabriel Negatu, AfDB’s Regional Director for East Africa and George Otieno, ATI’s Chief Executive Officer represented their respective organizations at the event.
The partnerships between the two highest rated institutions in Africa will help to shore up the region’s integration initiatives. As the global financial situation worsens, AfDB’s investment is part of a larger strategy to boost Africa’s intra-regional trade and to attract foreign direct investments. Statistical indicators in intra-regional trade underscore the Bank’s strategy – of the 26 member countries in COMESA, EAC and SADC trade increased from US$7 billion in 2000 to US$32 billion in 201l.
Strengthening Africa-to-Africa business is a long term solution to shielding the continent from future external shocks, explains AfDB’s Regional Director for East Africa, Gabriel Negatu. Schemes to boost intra-regional trade such as the Tripartite trading bloc consisting of 26 countries in East and Southern Africa will create a combined GDP and potential market of US$875 billion. This is a viable market in which African countries can benefit from marketing their goods and services to each other.
Mr. Negatu said there is a need for heavy investment in infrastructure in order to increase intraregional trade.
“Africa’s demand for infrastructure is almost insatiable at US$93 billion per year. We are only scratching the surface in bridging this financing gap. With the right investment and policy mix decisions, Africa will continue being an attractive destination for capital, and we are well on our way on this front,” said Mr. Negatu. He added that there is an urgent need to provide seamless border crossing if intra-regional trade is to drive economic growth prospects for the region.
“While Africa continues to record impressive growth rates relative to the rest of the world, we must be cautious to ensure that we continue putting in place the necessary components of a sound economy. This translates to building strong economies that are reliant on trade and investments rather than solely on donor aid,” notes George Otieno, ATI”s Chief Executive Officer.
The capital injection increases ATI’s insurance capacity enabling the insurer to cover more transactions, specifically within the infrastructure sector. Africa will need an estimated US$500 billion over the next decade to meet its infrastructure needs. Additional political and commercial risk insurance will help attract investors while also supporting the ability of local companies and exporters to more safely take advantage of business opportunities within the region.
The investment raises ATI’s capital base to $163 million, which the institution is able to leverage up to 10 times to cover $1.6 billion worth of transactions in each of their nine member countries. ATI is further expecting a further $30 million investment from Ghana and Benin before year end, which will increase its member countries to eleven.
ATI offers political and credit risk insurance products, export credit guarantees and other financial products to support both international and regional trade as well as foreign direct investments in African member states.
The African Development Bank is the sixth organisation to become a member of ATI. Other non-country members include African Reinsurance Corporation (Africa Re), Atradius (Gerling Credit Emerging Markets SA), The Eastern and Southern African Trade and Development Bank (PTA Bank), The PTA Re Insurance Company (Zep Re) and SACE, the Italian export credit agency.