Minister Ndagijimana speaks at the opening of the Berne Union 2022 Annual General Meeting. Photos/Eric Ruzindana.
As the African continent looks to recover from the effects of the Covid-19 pandemic and the Russia-Ukraine conflict, removing barriers that affect cross-border trade and ensuring access to export credit facilities will be key in driving growth and the realisation of the African Continental Free Trade Area (AfCFTA).
This was observed at the 2022 Annual Meeting of the Berne Union which opened in Kigali on Tuesday and Rwanda hosted as a member of the African Trade Insurance (ATI).
Speaking at the opening of the meeting which brought together 77 financial institutions from across the globe, the Minister of Finance and Economic Planning, Dr. Uzziel Ndagijimana said that removing trade barriers, political and economic risks will be key in unlocking the trade potential of Sub-Saharan Africa.
“This AGM comes at a time when the world is experiencing unprecedented challenges in the global economy caused by the COVID-19 pandemic, the Russia-Ukraine war and climate change,”
Dr. Ndagijimana said access to export credit facilities will unlock AfCFTA potential.
“Their collective impact has driven a global surge in prices especially of essentials, such as food, fertilizers and energy, resulting in a high cost of living and subsequently slowing down the efforts to fight poverty,” Dr. Ndagijimana said.
He pointed out that for Africa, these global challenges have disrupted supply chains, escalated consumer prices and forcing many countries to look for unfamiliar alternative markets.
“Despite being a host to almost one fifth of the world population and being the most endowed continent with natural resources, Africa accounts for only 5.2% of global foreign direct investment and participates in less than 3% of global trade,”
“However, the potential for Africa to improve its position in global trade and investment is huge. Africa has the youngest and growing population, it is endowed with most of the natural resources used in the modern industry,” he pointed out.
Minister Ndagijimana said that Africa is also among the regions in the world with the highest rates of returns, according to UNCTAD, with the AfCFTA, presenting a unique opportunity for investment and intra-African trade.
“It is a game changer that aims to create the largest single market of 1.3 billion people with a combined GDP of over USD3.5 trillion and set to grow,” he said.
With most African governments implementing reforms to remove policy and structural impediments to trade and investments, Dr. Ndagijimana said this should result in lowering many of the risks that are covered by the Berne Union and ATI and in improvements in terms of cover for transactions supported by members of the Berne Union and in reducing the cost of financing on the continent.
“All these positive development in the economic landscape of Africa call for change in the negative perception of the continent in terms of investment and trade,”
“There is a growing number of notable success stories on the continent and Rwanda is one of many examples. Africa is ready for business; Africa is ready to grow its business with the Berne Union,” he added.
Minister Ndagijimana said that the Berne Union plays a key role in facilitating cross-border trade and foreign investment globally as well as facilitating dialogue and knowledge transfer, particularly for emerging economies especially on the African continent.
He observed that in the past decade, Sub-Saharan Africa has gradually been making up a larger share of insurers’ portfolios in medium-to-long-term business export credit and in political risk insurance and other cross-border support.
At the meeting, the Berne Union released data on global industry performance in the first half of 2022, which showed positive progress in pandemic recovery, despite rising risk in the global economy.
Berne Union members voted new officials into office for the coming two-year term, with Maelia Dufour from France elected president of the union while Benjamin Mugisha, the chief underwriter at ATI, was voted the vice president.
Outgoing Berne Union President, Michal Ron, said that the meeting in Kigali presents an opportunity for the African continent to take its place on the global trade pedestal, given its potential.
“Sub-Saharan Africa has long been an important destination for export credit insurance support. Abundant natural resources and favourable demographics mean that this importance will only increase further in future, and, particularly today, with pressure to replace dislocated supply chains, there are huge opportunities for the continent,” Ron said.
Outgoing Berne Union President Michal Ron talks to Gregory Stamatopoulos, President Export Credit Greece
ATI CEO Manuel Moses pointed out that the meeting in Kigali comes at a time when the continent is positioning itself to unlock the full potential of the AfCFTA by removing barriers that still hamper cross-border trade.
“It is important for us to be meeting in Rwanda, a country that has showed us that things can get moving if we are deliberate about it,” he said, pointing out that the ATI will play its central role in facilitating trade.
“ATI will continue to provide the Berne Union with every support that is necessary to keep the organization vibrant and to enable it remain a key player in the realization of Africa’s developmental objectives in line with Agenda 2063 of the African Union,” he added.
Emmanuel Moses from ATI.
As a member of ATI since 2001, Rwanda has benefited from increased trade flows as a result of access to investment, credit and risk solutions provided by the organisation.
With the operationalization of AfCTA, Dr. Ndagijimana said that ATI and Berne Union will play a central role in promoting intra-African trade and also continue to increase trade flows between Africa and the World.
Sub-Saharan Africa is a region of growing importance for export credit insurance
Collectively, in the first half of 2022, Berne Union (BU) Members provided new commitments totalling USD 44 billion in support of trade and cross-border investment in Sub Saharan African countries.
In recent years, the number of BU members active in Sub-Saharan Africa has increased, along with the total volume of business underwritten and the distribution of this among different destination markets across the continent.
But rising risks mean that attracting long-term finance is becoming more difficult.
Increased risk
In the first half of 2022, Sub-Saharan Africa saw the highest level of new cover of political risk insurance (PRI) since 2017 (USD 3.9bn) – a sign of increased risk perception among investors.
At the same time, long-term finance in the region is becoming more difficult to secure, and, similarly to other emerging markets, the return of serious infrastructure projects to Africa has been slower than for more developed markets – seen in the USD 20% drop in new MLT commitments to the region in the first half of 2022, compared to the same period in 2021.
The report notes that creating bankable projects requires cooperation from all different stakeholders
The developmental impact of increasing trade and investor confidence is well recognised, and in an African context, creating bankable projects which can attract international capital is vital to closing financing gaps for essential infrastructure.
It notes that export credit insurance is a flexible de-risking tool which can help catalyse much-needed finance from both public (development finance) and private sources (commercial banks and institutional investors).
According to the Berne Union, the first half of 2022 showed solid signs of continuing pandemic recovery, with year-on-year growth across business lines in H1 2022, and a partial normalisation of claims patterns
The report shows that both short term and medium long-term business saw higher new commitments and lower claims paid year-on-year.
The increasing value of trade and strong demand for product is keeping short term business growing in double digits. Short-term limits increased a further 10% y-o-y, and are now 13% higher than pre-pandemic.
According to Berne Union, this is driven largely by the strong increase in the value of underlying trade on the back of elevated prices across commodities.
Demand for cover remains strong, and underwriters report higher utilisation and limit increases for existing clients.
The private insurance market is benefitting from the post-pandemic return of investment projects and their ability to select the best risks to grow their MLT business
The report shows that medium-long term business remains 10% lower than 2019 levels overall, despite further growth this period.
