Tusekile Kibonde Resident Underwriter – Tanzania November 2015 Dar es Salaam, Tanzania Introduction to Political Risk Insurance & Underwriting

“Compared to 2011, Africa today seems more risky than during the Arab Spring.”

A Key Question: What are some of the Challenges for Investment? Z $1.9 m ● Investment Risks (government actions affecting foreign direct investment) ● Regulations from the country that limits where, when and how business is done ● Access to finance ● Non-acceptance of goods ● Currency issues on cross border transactions ● Non-payment for goods supplied on credit ● Lack of supporting infrastructure, ineffective legal systems, and interest rate increases ● Political Violence, Terrorism & Sabotage

Possible Solutions Z $1.9 m Focus on Assets & Receivables

Overview of Political Risk Insurance

Definition ● Political Risk Insurance is a type of insurance that protects investments, projects, goods and contracts against any unfair political action or inaction by a government that would cause damage, financial loss or business interruption ● It is also known as Investment Risk Insurance ● Provide investment insurance to commercial bank lenders and private sector equity investors

What is Investment Insurance? Investment Insurance provides protection against specific non-commercial risks including: ● Currency conversion and transfer restrictions ● Expropriation – outright and creeping ● Political Violence – asset damage or inability to operate ● Non-Payment by sovereign and public borrowers Our insurance helps investors, lenders & traders improve the risk profile in member states. Many need this insurance as a condition of internal approvals in many developing countries.

Types of Investment Insurance (1) Currency conversion and transfer restrictions ● This cover protects against losses caused by currency transfer restrictions ● Cover applies to the interruption of scheduled payments or repatriation of capital or dividends due to currency restrictions imposed by the host government Expropriation – outright and creeping ● Also referred as Confiscation, Expropriation, and Nationalization ● This cover protects against losses caused by various acts of expropriation ● Cover usually applies to outright confiscation of property or funds

Types of Investment Insurance (2) Political Violence – asset damage or inability to operate ● Cover protects against losses caused by war, civil disturbance, or terrorism Non-Payment by sovereign and public borrowers ● These can be categorized in three forms: 1. Contract Frustration covers: – sale/contract is frustrated due to specific political risk perils (e.g. political violence) thereby causing the exporter to lose its sunk costs and profit – payment risk of the sovereign buyer to the extent the supplier has completed its obligations under the contract and the sovereign buyer has acquired a payment obligation to the supplier..

Types of Investment Insurance (3) 2. Arbitration Award Default covers: – the sovereign (or sub-sovereign) entity has payment obligations under a contract with a domestic entity in which the insured has an ownership interest, and the insured is seeking coverage to protect that investment – compensation would cover the failure of the sovereign to pay an arbitration award. 3. Non-payment of Sovereign (Sub) Obligation covers: – protects the lender against losses resulting from a government’s failure to make a payment when due under an unconditional financial payment obligation or guarantee, because of inability or unwillingness to pay.

Underwriting of Political Risk Insurance

13 Underwriting Sovereign Payment Risk Evaluation is based on: Obligor – Sovereign or Sub-sovereign Review of the Agreement/Contract Allocation of Funds for the project Commitment/Support from the Sovereign Country Risk Analysis Government/Political Stability Economic Performance – Inflation, Exchange Rate, National Debt, Economic policies Sector Risk Analysis - Regulations

14 Key Policy Features Tenor: Up to a maximum of 10 years Size (Gross Exposure):  Sovereign Risk: Up to US$150 million  Political Risk: Up to US$100 million Indemnity - Insured Percentage:  Up to 100% (Political Risks) Waiting Period: 180 days

Pricing & Payment Key Questions Pricing: Price to risk, depends on perils being insured, country risk, tenure and bank’s margins among others  1.5% to 3.2% p.a.  Minimum Premium: US$ 3,000 Flexible Premium Payment: Pricing/premium rate. Payable up front, annually. Other options can also be negotiated

Case Examples

Main Political Risk Covers $3.1 m Zambia $1.9 m$1.3 Rwanda $1.1 Kenya $749 Uganda $349 Burundi $130 US$ 9 million PRI – Expropriation, Currency Inconvertibility, War A loan to part finance the establishment of a new hotel in Kampala Insured: A South African Bank Country: Uganda US$ 12.5 million PRI – Expropriation, Transfer Restriction A US$ 12.5 million investment in the telecommunication sector Insured: Foreign Investor Country: Burundi US$ 26.6 million PRI – Loan Cover (Expropriation) Loan for expansion of a cement plant Insured: A Kenyan Bank Country: Rwanda US$ 250 million PRI – Sovereign Non-honouring Cover A syndicated loan to facilitate infrastructure development by the government Insured: An International Bank Country: Tanzania

Others $3.1 m Zambia $1.9 m$1.3 Rwanda $1.1 Kenya $749 Uganda $349 Burundi $130 US$ 167,000 Sovereign Non-Payment Cover Contract for the supply of uniforms to a government department Insured: A Kenyan Company Country: Malawi US$ 150 million PRI – Sovereign Non-honouring Cover A US$ 350 million participation on an import finance facility for petroleum products Insured: A Regional Bank Country: Zambia US$ 6.0 million PRI – Sovereign Non-honouring Cover Upgrading of Telecommunication systems for a government department Insured: A Tanzania Company Country: Tanzania $1.75 million Sovereign Non-honouring Cover Non-payment on a road project in Nairobi, Kenya. Bank providing facilities to the contractor with ATI support Insured: Kenya Contractor Bank: A Kenyan Bank Country: Kenya

Unlocking your Potential Areas of Opportunity ● Manufactures/traders who sell to GoU or gov’ts in member countries ● Contractors with GoU, Parastatals & gov’ts in member countries ● Syndicated loans to government ● Cross border loans ● Lines of credit from international banks

ATI Headquarters Kenya-Re Towers | Upperhill, Nairobi ATI Tanzania Office 1st Floor, Private Sector Hs | Mwaya Road Dar es Salaam ATI Uganda Office Workers House, 9th Floor Southern Wing Plot1 Pilkington Road | Kampala ATI Zambia Office Kwacha House Annex | Cairo Road Lusaka ATI Contacts Africa’s Export Credit Agency

Questions?