Taking the risk out of trading with Africa

AS STRAWS in the wind go, it is a slim reed. But the announcement today that seven African nations have set up an agency to provide political risk insurance through Lloyd's of London - to support their trade and investment - is an interesting development.

Although the scheme has been researched by the World Bank, which is providing $105 million (74 million) of start-up funds, the African Trade Insurance Agency is not your typical multilateral aid institution.

First of all the countries involved, and several others, are negotiating membership and covering themselves against political risks over which they have some control.

So, if an exporter in Britain finds he cannot get paid for some buses he has sent to Kenya, because the goods did not clear customs after the importer refused to pay the necessary bribes to officials, the government itself has an incentive to investigate or bear the cost of higher premiums to the market.

Secondly, it is a private sector operation with Berry Palmer and Lyle, a leading Lloyd's broker for political risk, working closely with the underwriting syndicates.

The agency has signed a former Lloyd's underwriter to manage the business and has three private sector members on its six-person board. Ivan Rossignol, an Africa-based World Bank official involved in setting up the institution, says it is indicative of the way in which more and more African countries are looking for private sector solutions to some of their economic problems.

In this case, the Bank has estimated that over 10 years, perhaps $5 billion of trade could be covered against political risk, one of the biggest inhibitors of cross-border trade because cover for such risk is either unavailable or prohibitively expensive.

Copyright 2001
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