Friday, June 21, 2024
InterviewInsuring Africa's growth, de-risking the development path

Insuring Africa’s growth, de-risking the development path

Manuel Moses, Chief Executive Officer of the African Trade & Investment Development Insurance (ATIDI), has a distinguished career spanning over 25 years working in finance, banking, insurance and investment across Africa and internationally.

Prior to his appointment as ATIDI CEO in 2020, he spent 15 years at the International Finance Corporation, culminating as Country Manager for East Africa. Moses also holds previous senior roles at organizations such as the Eastern and Southern African Trade and Development Bank, Commercial Bank of Zimbabwe, and Zimbabwe Development Bank.

Holding an MBA in Finance from the University of Leicester and a BSc in Civil Engineering from the University of Zimbabwe, Moses is also an associate member of the UK’s Chartered Institute of Management Accountants. The Reporter’s Samson Berhane recently sat down for a video interview with Moses, as he explored ATIDI’s mission of promoting investment across Africa, including in Ethiopia.

We have a lot of conventional insurance companies across Africa, including in Ethiopia. What differs the African Trade & Investment Development Insurance (ATIDI) from these? Is ATIDI’s business model different?

Let me give you a simple example. The traditional insurances give you coverage for your life, if anything happens to you. They also insure your house or car. We call all of that property and casualty. That is the traditional insurance business. ATIDI’s type of client is not in a personal capacity. ATIDI insures investments against unforeseen political decisions. Governments may change policies or something might happen which might impact investors. In this regard, there was a need to find a third party neutral organization that gives assurance when governments come up with new policy changes. Having that enables you to put a claim towards an insurance organization and that was why ATIDI was formed. ATIDI signs concessional contracts with governments and it should be understood that ATIDI is not displacing the conventional insurance companies. ATIDI works with reinsurance companies. The type of reinsurance companies ATIDI works with are international. If ATIDI gives USD 100 million, ATIDI may keep USD 10 million and transfer the USD 90 million risk to reinsurers. In the last fiscal year, ATIDI provided eight billion dollars in coverage while retaining one billion dollar of risk on its own balance sheet, transferring seven billion dollars of risk to reinsurers. ATIDI’s typical clients are usually banks and investors.

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One of the reasons ATIDI was set up is said to attract investment and create an enabling environment by giving assurance. What have you achieved in this regard?

You see a lot of foreign direct investment coming to Africa through us. But not everything; our cumulative coverage amount reached USD 78 billion until the end of 2022. We have achieved our dream. Member countries including Ethiopia have benefited from such support. This is a pan-African organization and membership is open to everyone. Countries need to go through a rigorous process to subscribe to ATIDI.

Why is it difficult to subscribe to your organization as an investor?

Joining our organization is quite a long process. It involves parliament and ratification by member governments. The idea was that all African countries are eligible to join. From day one, we have invited all African countries. But the process was long. Some governments were expected to meet some financial obligations to join at the beginning, but they struggled to meet their commitment. Today, we have 21 countries that have joined as shareholders. Ethiopia is one of them. We expect other African countries to join too. In 2027, we targeted getting 10 more African member countries. Since Ethiopia joined, we have provided three billion dollars in investment coverage over the last four years. We believe that we are filling a gap in this regard.

Of course, we want to do more. Our ambition is to double our capital from half a billion dollars until 2027. We want to increase our coverage from eight billion dollars to USD 11 billion. The last country that joined was Angola. We have a good credit rating status – it is stable at A+++. Such a rating gives assurance that we are ready to provide coverage for investors if things go wrong. Just to give an example, our rating from the same organization is much better than member countries’. You can look at Ethiopia’s rating and understand the gap that we are filling. Some things we need to do are make ourselves more relevant. For instance, COVID showed us that we need to work in a more flexible way and be ready for any circumstance. We are also sensitive to climate threats. It is an existential threat to all mankind. We are also responding by introducing products that could contribute to addressing the climate situation. We are also providing products that help independent power producers generate power from wind, solar, and geothermal. If things go wrong, they can rely on us for coverage if they buy our product. The money we use to provide coverage comes from the governments themselves. So we are truly a public-private partnership. By identifying gaps, we are responding to ensure Africa is not perceived as high-risk.

If there is anything first on the list among roadblocks for investment, political risk comes at the top. What ATIDI does in ensuring that investing under political uncertainty is possible by providing guarantees to investors?

You can go across Africa and find many types of political risks. In West Africa, there are coups. In the Horn of Africa, there is a threat of terrorism and instability. So because of these reasons, investors are wary of investing their money. Yet we are filling the gap. If you look at our three billion dollars portfolio in Ethiopia, it is clear that the investors would not have come if we had not supported them. Another example is that if you look at the largest investment in Africa, it was the Safaricom deal. That was the largest investment made on the whole continent. Our support in the consortium was that they would go ahead with the investment and we guarantee you in case of any unforeseen circumstance, even under political risk.

How affordable are your products?

Our premium is very small. Let’s say it is a $100 million investment. What we get is probably one percent of that as a premium.

You said ATIDI has provided three billion dollars in insurance coverage for Ethiopia. Is that the premium that you have written or total coverage?

It is the latter. It is the amount of investment that we guaranteed.

Have you paid any claims in Ethiopia?

We have not paid any claims. We want to keep it that way. That is the promise that we want to make investors who think there is a risk, yet our zero claims prove otherwise. We are not as risky as they think.

Can we say there is a misperception about the risk in the Horn of Africa if there have been no claims?

That is our challenge. We don’t have many claims and that shows it is just a perception. We have to be creative in addressing misperceptions.

Climate change is a big issue in Africa and is making the key segments of African states’ economies, the agriculture sector, unsustainable for growth.

Yes, it is being faced by everyone on the continent. We have seen in the Horn of Africa drought for four consecutive periods. In Southern Africa, they are facing more than usual rainfall. Malawi and Durban were destroyed by floods. Africans are feeling the impacts of climate change. At the recent Nairobi meeting, we discussed how to address this by introducing a loss and damage fund, which would enable states to be more resilient to unforeseen climate hazards. Understanding climate change, we are also supporting green solutions. Africa needs to grow but in a green way.

Lastly, I wanted to ask how the insurance sector remains underdeveloped in Africa, even worse in Ethiopia, where there is low insurance penetration. What would you advise for such countries with low insurance penetration to show improvement?

It’s not just Ethiopia. The most advanced country on the continent is South Africa, where insurance penetration is just 20 percent. Even that is very low. It is a problem across the continent. What you have witnessed is insurance penetration grows with an increase in disposable income. A simple example, if you have one dollar, would you buy food or insurance? Obviously, food is what you buy. So income has to increase. Insurance penetration depends on the level of disposable income. The unique thing about African states is that they need to open up the sector. The market needs to be competitive. It has to be opened up.

[speaker]
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