Time for Africa’s political risk insurance agency

By John Oyuke

Africa might have a specialised government backed political risk insurance agency to boost confidence of firms investing in the continent.

The African Insurance Organisation (AIO), the umbrella association of insurers and re-insurers in Africa is pushing for the initiative, which could have a significant impact on trade and investment flows in the continent.

African Reinsurance Corporation Regional Director George Otieno said the state-backed insurer would be an add-on cover to give investors surety as Africa works to overcome the social and economic challenges that dots its past.

Several countries, including the United Kingdom, Spain and South Africa, have state-backed insurance pools for commercial terrorism risks, all of which developed out of recognised political threats.

Otieno said the new agency could take the shape of a pool, which has worked at the continental level with other specialised classes of risks such as Aviation and Oil or the South African Special Risks Insurance Association.

"Africa is seen as a continent which has more than its fair share of political instability and this has reduced its capital inflow," he told FJ.

He explained that any of the insurance models chosen by the insurance organisations would be an add-on to the Kenya-based African Trade Insurance Agency (ATI), the continent’s only multilateral trade and political risk insurer.

Otieno was in charge of organising the 15th chapter of the Africa Insurance Organisation’s African Reinsurance Forum, which ended in Nairobi last week.

The two-day forum discussed different available insurance solutions that would create or boost confidence of companies that see commercial opportunities in Africa but are worried about political and credit risks.

Africa has a history of political and social activism, and mass action, which have resulted in damage to property and losses and marred confidence.

The theme of the Nairobi Forum was "Credit and Political Risks Insurance in Africa."

The AIO established the forum to encourage contacts among African insurers, re-insurers and brokers within the continent. The forum is also open to international insurers and brokers.

Political instabilities

AIO President, Israel Kamuzora said credit and political risks insurance in Africa would be timely given the wild swings of uncertainties ranging from bearish stock markets, faltering interest rates, increasing inflation and political instabilities.

"All these unprecedented shifts create enormous turbulence and erode confidence in businesses," he said.

Speaking during the conference, Deputy Prime Minister Musalia Mudavadi said development and introduction of appropriate insurance products would boost confidence of companies to exploit business opportunities in Africa.

Potential investors, he added, do not see Africa, as a destination where investments are safe due to bad governance, instability and high political and credit risks.

"We witnessed this during our last election, memories of which are still fresh in our minds," Mudavadi who is also in charge of the Ministry of Local Government said referring to lasy year’s post election violence.

He said the reality that traditional insurance do not cover political risks became apparent after the post election violence when a number of insurance companies repudiated claims because they were not covered. Trade Minister Amos Kimunya asked African governments to support insurers by undertaking necessary reforms in their trade regimes and remove trade barriers.

"Developing trade and investment capacities will be necessary to integrate countries and indeed Africa into the global economy," he stated.

Political instabilities

He noted that the perception of political risks in Africa is high and impacts negatively on the development of trade and on the level of productive activities.

It is also an obstacle to availability of finance and foreign direct investment, he added.

"Africa’s rating as a destination for foreign trade and investments and global capital flows is still quite poor, due to the perception problem, which in many African countries is unfounded and lacks justification," Kimunya said.

He however stressed that to address these negative perceptions, partnership between the private and the public sector is of paramount importance.

"The public sector needs to create an enabling environment necessary for business to thrive, while the private sector take full advantage of services rendered by institutions deliberately created to support their business," he stated.

Kimunya said the credit and political insurance pool would help underwrite large risk businesses, which have been ceded and managed from outside the continent.

He expressed confidence that by the time the insurance organisations meet again next year they would have actualiSed key resolutions of the forum.

The forum – which reviews events of the year and plan for following year - rotates each year in member countries and was the second time it, was being held in Kenya.

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