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South Africa: Export Credit Body is to Expand Its Business
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Business Day (Johannesburg)
1 October 2007
Posted to the web 1 October 2007
Johannesburg
The South African government's export credit insurance agency is seeking greater geographical diversification, writes Linda Ensor
THE Export Credit Insurance Corporation (ECIC) has revised its product mix to include for the first time political risk insurance cover to financial institutions that provide loans to foreign enterprises and projects.
This was revealed in chairman Tladi Ditshego's contribution to the agency's 2007 annual report. Previously, the state-owned agency's investment insurance product applied only to direct equity investments and shareholder loans.
The motivation for the change was to complement the government's initiatives to promote economic growth and development in emerging markets, especially in Africa, Ditshego said.
It has also implemented an "exporter's deed" for the first time. This shifts the liability for the verification of local content on supported projects from financiers to exporters and contractors who are involved in a project and have control of the sourcing of products and services.
The 50% minimum local content requirement for all the ECIC's export credit transactions has also been abolished for projects in Africa, to promote intra-African trade and regional integration. However, the 50% threshold will still apply for export credit transactions outside Africa.
The agency underwrites bank loans, supplier credits and investments outside SA to enable foreign buyers to purchase capital goods and services from SA.
CEO Patrick Kohlo said in his report for the year that the agency had given greater emphasis to the financing and insurance requirements of smaller and medium-sized exporters.
In the year to end-March, the ECIC's portfolio exposure increased by 30% to R11,8bn (R9,1bn) compared to the marginal 3,2% rise the previous year.
"The major reason for this increase was the conclusion of the investment guarantee policy in Iran and the drawdowns effected under the Varvarinskoye (Kazakhstan), Obajana (Nigeria) and African Hospitality (Ghana) project policies," Kohlo said.
The ECIC's portfolio exposure is spread over 21 countries, with the highest (47,4%) in Mozambique.
Its biggest exposure is for the Mozal Aluminium smelter in Mozambique (35%), followed by Iran (29%), Mozambique excluding Mozal (12,3%), and Turkey (8,2%).
However, the Mozambican exposure was reduced significantly during the year from 65,4% at its commencement.
Kohlo said the ECIC intended to reduce the high levels of concentration in particular regions.
"Over the past six years the portfolio was highly concentrated in Africa. This situation has since improved due to the addition of exposure in new countries," he said.
The portfolio exposure has two elements: a reinsurance book which it inherited from the former Credit Guarantee Insurance Corporation (CGIC) which will be gradually phased out; and an insurance book.
ECIC management sees significant potential to grow its insurance portfolio in the mining sector, which is likely to expand to take advantage of higher metal prices. By end-March seven mining projects in the Democratic Republic of Congo's copper/cobalt belt were in the pipeline.
Claims amounting to R150m were settled (R63m), the highest level since the inception of the organisation. This was mainly due to one reinsurance claim of R121m paid to the CGIC, which the ECIC replaced.
During the year the insurance book increased by 57% to R8,8bn (R5,6bn) compared with a 33,3% increase in 2005-06.
Gross premium income fell 4% to R131m. This fall was mainly due to the additional unexpired risk provision created to recognise the concentration of risk in Iran.
Underwriting profit for the year amounted to R92,2m (R70m). An additional R172,4m was added to reserves, which Ditshego said placed the ECIC in a good position to cater for the higher demand expected for support for projects in emerging markets.
With regard to the current financial year, Kohlo said the pipeline of potential projects and investments to be underwritten was very healthy.
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Offers of cover issued by March amounted to R2,7bn whereas new applications for cover totalled about R5bn. This boded well for an increasing geographic spread of the portfolio, he said.
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