African Trade Insurance Agency in Ghana to boost industrialisation

Ghana through the Finance Minister, Ken Ofori Atta has welcomed the African Trade Insurance Agency (ATI) into its market last month.

The Ministry co-hosted a series of launch activities aimed at sensitising the private sector and government agencies to the benefits of using ATI’s guarantee and insurance instruments.

Since October 2019 Ghana became a full member of the ATI with shareholding valued at $17.6 million that was provided with the financial support of KfW through the German government.

Membership will help mitigate Ghana’s investment risks thereby unlocking additional investments as well as lowering its borrowing costs.

ATI is a multilateral and pan-African institution that provides insurance guarantees which helps its African member governments attract investments and spur trade with increased access to credit.

In 2019, ATI insured transactions across Africa valued at $6.4 billion and expects to insure much of its current pipeline of transactions in Ghana valued at $1.2 billion.

Ken Ofori-Atta is convinced ATI is an institution that will be a strong partner for Ghana.

“ATI is a unique institution because the list of benefits it brings to countries goes well beyond insurance. It is not a typical insurance company.

“It operates on the level of investments and trade by supplying the insurance that fuels all the major investments and trade transactions in other regions of the world.”

“In Africa, this type of insurance has been in short supply largely because African economies got a later start to development than more developed regions. As a result, African governments tend to obtain lower credit ratings. Africa also has a risk perception challenge because it is perceived as riskier than other regions. These factors have led to a shortage of investment insurance.

Samson Akligoh, Finance Ministry

Ofori-Atta added, “Importantly, it is an African institution with the respect and credibility of an international financial institution. ATI provides a valuable tool for governments because its insurance is well-rated security.

“ATI’s insurance, strong international financial network, coupled with their investment-grade credit ratings have helped African governments create more sustainability within their economies.

“I’m also confident that the benefits of Ghana’s membership into this important institution will extend well beyond the government as many sectors stand to gain from increased access to ATI’s credit and investment insurance facilities,” he said.

The Agency plans to support Ghana in several key areas of its economy.

Specifically, the institution can support Ghanaian banks by providing access to credit insurance that will act as much needed collateral.

This will, in turn, allow local banks to be able to lend more to local corporates and ultimately help generate more jobs in the economy while also strengthening the competitiveness of local banks and boosting private sector growth.

The government also stands to benefit from ATI’s entrance into the market. ATI has successfully helped neighbouring governments attract lower-cost financing at longer durations by providing a novel insurance scheme that effectively ‘wraps’ the government’s borrowing requests with insurance.

This makes the request more appealing to commercial lenders and thus attracts better terms (such as longer durations or lower all-in cost of finance).

According to John Lentaigne, Acting CEO of the Agency, IMF’s estimate that Ghana is currently the fastest growing economies in the world is a huge feat for Ghana.

“ATI is delighted to welcome such an important African economy into its membership. We are looking forward to supporting the government’s 10-Point Industrialization Strategy and other strategies aimed at strengthening the economy to ultimately create more jobs and a sustainable future,” he said.

He said countries like Ghana are very prospective for investors with high growth, relative stability, democracy, rule of Law, English law;

“These are attractive to investors but the rating of the country is a big problem and once you have the likes of ATI guarantees you certainly have big opportunities from investors,” he said.

Trade is another important sector, providing the highest sectoral contribution to Ghana’s GDP at 15.2%. ATI can support Ghana’s drive to increase trade with other African countries and internationally in a number of ways.

ATI can insure exporters seeking to expand into new markets protecting them against payment risks with new trading partners.

ATI can also insure foreign importers providing critical inputs into the economy that can help the Government scaleup exports in the manufacturing sector and create higher-paying and more jobs in the sector.

The energy sector is another area that ATI hopes to support with its Regional Liquidity Support Facility (RLSF). The Facility was created to help tackle climate change by supporting renewable energy projects in ATI’s member countries.

The RLSF supports small and mid-scale renewable energy projects with an installed capacity of up to 50 MW (and in exceptional cases up to 100 MW) by protecting the developers against the risk of delayed payments by public off-takers.

This ensures that more renewable energy projects reach financial close, which can help the government of Ghana create a greener energy mix to help mitigate climate change.

The Facility can be accessed once Ghana signs onto the RLSF Memorandum of Understanding. ATI is currently in discussions with the Ministry of Energy on Ghana, which may result in Ghana joining the Facility in the near term.

ATI is actively encouraging other countries to sign on as a way of providing more cost-effective and clean energy solutions to the continent.

Commenting on the developing, John Peter Amewu, Energy Minister said the country’s energy sector will receive a boost of confidence with ATI’s entry into the market.

“My Ministry is strongly looking at signing onto ATI’s Regional Liquidity Support Facility (RLSF). By signing onto the RLSF Memorandum of Understanding, Ghana will become the third West African country to do so.

“The Facility will help Ghana mitigate against climate change by helping to make our energy mix greener and this will ultimately benefit the environment by supporting our strategy of reducing the sources contributing to climate change.”