By Abdi Ali
Published July 1, 2018
Lenders have identified country risk as the biggest challenge to their ability to lend more to African countries as 40% to 50% of defaults in developing markets are directly linked to country risks.
Speaking in the Ivorian capital, Abidjan, during a one-day forum on investment risks in Africa hosted by African Trade Insurance Agency (ATI) that was founded in 2001 by African States to cover trade and investment risks of companies doing business in Africa, experts acknowledged that the abundance of current liquidity in the market did nothing to alleviate the capacity constraints faced by most banks when doing business in Africa.
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They noted that 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. Without an increased ceiling in limits, they noted, international lenders will continue to be constrained on the amounts they are able to lend both at the sovereign and corporate levels.
According to a recent Moody’s report, 40% to 50% of defaults in developing markets are directly linked to country risks. During the forum, panelists discussed low-cost solutions that could help countries reduce their risk including ensuring fair adherence to existing regulations.
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Participants agreed that making Africa less risky would require a concerted focus aimed at improving the overall business environment in order to address the risks that exist.
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“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,” John Lentaigne, ATI’s Chief Underwriting Officer, said. “A stable investment climate can be demonstrably and directly linked to growth.”
ATI says it provides ‘Political Risk, Surety Bonds, Trade Credit Insurance and Political Violence and Terrorism and Sabotage cover’ and that it had by 2016 ‘supported USD35 billion in trade and investments across Africa in sectors such as agribusiness, energy, exports, housing, infrastructure manufacturing, mining and telecommunications’.