With the world’s attention firmly fixed on the COVID-19 pandemic, good news has been in short supply. However, writes Oliver Wright, Director of BPL Global, through a credit and political risk insurance (CPRI) lens, one region has shown resilience amid the economic volatility – Africa.
The article appeared in ESI Africa Issue 1-2021.
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The continent continues to be exposed to political instability and violence, while its economies remain sensitive to shocks such as the recent Zambian sovereign default. Conversely, BPL Global’s experience during 2020 and early 2021 shows that appetite from both clients and CPRI underwriters to venture into new African deals has remained strong.
As the implications of COVID-19 started to become apparent, governments rushed out a series of financial cushions to help absorb the fallout. From the G20’s Debt Service Suspension Initiative (DSSI) suspending some $11.5 billion of debt repayments owed by 73 Paris Club debtor countries, to the temporary loosening of the OECD consensus rules by many export credit agencies (ECAs), to MIGA’s $6.5 billion fast-track facility, to Afreximbank’s $3 billion support facility and CDC’s recent announcement of a £1 billion development initiative for Africa, there has been an evident willingness to help Africa steer a path through the crisis.
BPL Global has seen that both enquiry flow and the number of policies bound last year support the widespread anecdotal view held within the financing community that African deals are still being closed and that the private market for CPRI has stepped up. This has been driven by both clients and insurers seeking well-priced and structured deals with solid fundamentals.
Indeed, Africa represents BPL Global’s largest regional exposure with approximately $9 billion of aggregate insured limits as of February 2021. Despite a reduction of around 20% year-on-year, over the last 12 months, we have received around 450 formal enquiries for Africa.
Two-thirds of this total was from banks, with the remainder split between commodity traders (20%) and exporters and corporates (14%). Enquiries from corporates continue along established trends, with strong demand for traditional PRI for energy projects – particularly solar and wind, and on the mining side, for battery minerals.
Furthermore, enquiries relate to almost every country in Africa – the most popular being Ivory Coast, Ghana, Nigeria, Egypt and Senegal.
Underwriters have tightened their underwriting criteria in terms of insurer interest, choosing to support sovereign or sub-sovereign obligors with a preference for those deals with ECA, DFI, or multilateral involvement (60% of bank enquiries). It has, therefore, been more challenging to obtain support for transactions with private obligors as insurers.
Critically, client and insurer appetite has also translated into reality. During 2020, we found 82 new policies where the “country of risk” was in Africa, with an aggregate limit of $2.4 billion. The most prevalent countries of risk across these policies are Ivory Coast, Ghana and Nigeria.
As commodity finance persists as the lifeblood for many African economies and commodity traders, we have concluded transactions in Nigeria, Ghana, Tunisia, Equatorial Guinea, Gabon, Morocco, Burkina Faso and Libya. What’s more, and despite a material reduction in exporter-related transactions, given that many big projects have been paused during the pandemic, we have also placed deals in Benin, Egypt, Togo, and Ethiopia. ESI