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Business Reporter
INTERNATIONAL and African financial leaders have identified perceived country risk as the biggest challenge to their ability to lend more to African countries. Country risk profile is a critical factor to global financers as it determines a foreign country’s ability to meet its financial obligations.
Economic experts view country risk as the broader notion of the level to which political and economic unrest influences the securities of issuers in doing business in a certain country.
Following a one-day forum on investment risks in Africa hosted by the African Trade Insurance Agency (ATI) in Abidjan, Cote d’Ivoire recently, experts acknowledged that the abundance of current liquidity in the market has not translated to serious gains in reducing capacity constraints faced by most banks when doing business in Africa.
“Lenders are bound by regulations that prevent them from lending significant amounts to sub-investment grade sovereigns, which is the case for most African countries,” financial leaders said in a statement issued by ATI.
“Institutions such as ATI that can offer investment insurance can help to mitigate the risks thereby bringing added lending and investment capacity to African markets.
“Without an increased ceiling in limits, international lenders will continue to be constrained on the amounts they are able to lend both at the sovereign and corporate levels.”
Although the meeting agreed that the risk perception in Africa was exaggerated beyond reality on the-ground, participants recognised that making Africa less risky would require a concerted focus aimed at improving the overall business environment in order to address the risks that do exist. According to a recent Moody’s report, 40 to 50 percent of defaults in developing markets are directly linked to country risks.
Experts who attended the forum also noted positive movements in countries such as Ghana and Senegal for instance, which were recently put on positive watch by the rating agency, Standard & Poor’s. The positive trajectory was largely based on the dividends expected from key infrastructure developments and investor-friendly policies in the two countries. In Senegal, for example, the statement notes that the country has restructured its commercial laws, implemented a Public Private Partnership law that ensures all signed public contracts in the oil and gas sector are published.
The country has also created a department of competition tasked with working hand in hand with investors. Risk analysis experts at the conference cited Botswana, Côte d’Ivoire, Ethiopia, Rwanda and Zimbabwe as countries to watch in the coming months. Positive sentiment in these countries has been based on strong reserves in Botswana and political transitions in the case of Ethiopia and Zimbabwe, as well as strategy to transform its economy into a services hub in the case of Rwanda.
Cote d’Ivoire has also been noticeable in its efforts to create an enabling environment to attract investors. According to the statement, most government representatives at the meeting noted their countries’ efforts to ramp up value addition in the agriculture sector along with an emphasis on removing barriers to trade within the continent.
During the forum, panellists discussed low-cost solutions could help countries reduce their risk including ensuring fair adherence to existing regulations.
“One of our roles at ATI is to educate governments to make them aware of the elements that international investors consider in their assessment of country risks. If countries are made aware that any drastic changes they make to legislation, for instance, could be a key political risk factor, they may make better choices and create more fertile environments for the private sector,” commented John Lentaigne, ATI’s Chief Underwriting Officer.
He added that “a stable investment climate can be demonstrably and directly linked to growth.” International lenders and insurers commented on the importance of ATI’s participation to make projects bankable through its preferred creditor status and relationships with African governments. This was seen as ATI’s core value proposition.
ATI was founded in 2001 by African States to cover the trade and investment risks of companies doing business in Africa.
It provides political risk, surety bonds, trade credit insurance and political violence and terrorism and sabotage cover. As of 2016, ATI has supported US$35 billion in trade and investments across Africa in sectors such as agribusiness, energy, exports, housing, infrastructure manufacturing, mining and telecommunications. Since 2018, ATI has maintained an ‘A/positive’ rating for financial strength and counterparty credit by Standard & Poor’s.
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