MARSH TRADE CREDIT & POLITICAL RISK MITIGATING THE RISK WHEN EXPORTING INTO AFRICA OCTOBER 2016 Pieter Dingemans National Practice Leader Marsh Africa Sandton
Company overview Guy Carpenter Oliver Wyman Mercer Marsh Risk and insurance services Risk and reinsurance Global management HR consulting, outsourcing, consultant and investment services Marsh & McLennan Companies • established: 1871 Marsh & McLennan Companies (NYSE: MMC) are a global group of professional service providers that offer customer advise and • worldwide 52.000 employees solutions in risk management, company strategy and company • turnover: over USD 10bn management. Marsh & McLennan Companies employ worldwide • offices in over 100 countries 52.000 employees with a yearly turnover of more than USD 10bn. To Marsh McLennan Companies belongs next to Marsh also Guy Carpenter, a worldwide leading reinsurance broker; Mercer, a worldwide leading advisor for employee- and finance management and Oliver Wyman, a world leading company advisor. 1 MARSH 11 October 2016
Marsh Trade Credit and Political Risk Global Network MARSH TRADE CREDIT PERSONNEL Americas Argentina 3 Mexico 2 Brazil 4 United States 31 Chile 3 Canada 6 Colombia 1 Europe, The Middle East, and Africa Austria 3 Lithuania 2 Belgium 17 Netherlands 9 Bulgaria 1 Poland 12 Czech Republic 2 Portugal 5 Denmark 2 Romania 3 Estonia 2 Russia 5 Finland 1 South Africa 18 France 22 Spain 24 Germany 37 Sweden 1 Greece 1 Switzerland 2 Hungary 2 Turkey 5 Ireland 3 Middle East/UAE 3 Italy 17 United Kingdom 55 Latvia 1 Asia Pacific Australia 11 Malaysia 2 China 8 New Zealand 1 Hong Kong 8 Philippines 1 India 9 Singapore 12 Indonesia 2 Taiwan 9 Japan 3 Thailand 4 Korea 4 Vietnam 1 2 MARSH
Realising The Potential of Africa's Economies • Africa as a whole is projected by the International Monetary Fund to be the world’s second-fastest growing economy to 2020. • By 2034, the region is expected to have a larger workforce than either China or India—and, so far, job creation is outpacing growth in the labor force. • Africa could nearly double its manufacturing output from $500 billion today to $930 billion in 2025 • The continent has 400 companies with revenue of more than $1 billion per year, and these companies are growing faster, and are more profitable in general than their global peers. Yet Africa has only 60 percent of the number of large firms one would expect if it were on a par with peer regions—and their average revenue, at $2 billion a year, is half that of large firms in Brazil, India, Mexico, and Russia, for instance. Source: McKinsey September 2016 Review 3 MARSH 11 October 2016
But with growth comes …. 4 MARSH 11 October 2016
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Two years ago.. 6 MARSH 11 October 2016
Potential trade risks Trade related: shipment goods or services rendered Political Risks • Transfer Risk - political/economic events preventing or delaying transfer of payments • Angola • Mozambique • Nigeria • Government Moratorium - decision from the government preventing release of funds • Contract Frustration - decision preventing performance of the contract • Civil turmoil - insurrection, war, natural disaster Commercial Risks • Insolvency (business rescue) • Protracted default (non-payment) 7 MARSH 11 October 2016
Potential trade risks Investments and Operations Assets • Expropriation • Full Political Violence • Forced Abandonment Project Equity • Confiscation, Expropriation, Nationalization • Forced Divestiture • Cancellation/ breach of License or Concession 8 MARSH 11 October 2016
Risk mitigants Documentary Collections: • Letters of Credit (LC, ILC, CILC) • Cash against documents • Accounts Receivable Factoring / Bank A/R Purchase Agreements (forfaiting) • Credit insurance • Self Insurance 9 MARSH 11 October 2016
Risk mitigating tools 10 MARSH 11 October 2016
Potential trade risks Top 10 Limits Issued Top 10 Commitments Market Concerns Claims Nigeria (10 M USD Kenya Kenya Nigeria (FX) Steel) Angola (1 M USD Tanzania Ghana Angola (FX) Steel) Uganda Tanzania Mozambique (Foreign Debt) Mozambique Ghana (Food and Ivory Coast Uganda Zimbabwe Steel) Zambia Zambia Ghana Kenya Mauritius Mauritius DRC (Elections) Zambia (Commodity dependent) Ghana Mozambique Mozambique Ivory Coast DRC Zimbabwe Senegal DRC R16bn Source: Credit Guarantee Insurance Corporation 11 MARSH 11 October 2016
What is Trade Credit Insurance? Sample Balance Sheet Trade Credit Insurance protects a company’s Accounts Receivable against a default from a Sample Company customer . • Coverage Triggers: In Millions of USD (except for per share As of SEP 30, items) 2012 – Insolvency Cash & Equivalents 218 Total Receivables, Net 305 – Non or Slow Payment due to Financial Total Inventory 365 Difficulty Prepaid Expenses - – Non or Slow Payment due to Political Other Current Assets, Total 37 Risks Total Current Assets 927 Property/Plant/Equipment, Total - Gross 1,224 Accumulated Depreciation, Total -246 Intangibles, Net 17 Other Long Term Assets, Total 21 Total Assets 2,014 • A/R is typically the largest Current Asset. • A/R is typically the 2 nd most liquid asset, besides Cash & Equivalents. 12 MARSH October 11, 2016
What is Trade Credit Insurance? The Contractual Parties : Insured / Supplier Insurance contract Goods or services -coverage- Terms of credit Checking of risk and risk Buyer (Risk) Insurer underwriting 13 13 MARSH October 11, 2016
What is Credit Insurance Information on your Buyers The Insurer will analyse a limit on your request, that should be based on your trading Credit Protection requirement. Credit Protection Due to the analysis and due to Credit possible claims payments you prevent a loss. Information Collection Credit Management Insurance Policy conditions enable good credit management Collection Credit Management Insurers offer to take over the collection activity. This can also undertaken by a third party your choice. MARSH 11/10/2016
Benefits of Credit Insurance Supports Credit Reduces Financial Risk Improves Cash Flow Improves Sales Management Risk protection - Claims payment Credit control via Insurer Encourages most political and systems attractive terms for commercial Maximises debt buyers. Collection Creates discipline/control Releases bad debt Financial health provision Helps to create financial Offers a second opinion check on potential sources like factoring, Prospects Hedges against invoice finance, credit Fewer bad debts catastrophe enhancement Creates new markets. 15 MARSH 11 October 2016
Cover possibilities Africa CGIC • > 154 000 credit limits • 17076 limits outside SA • 8820 continent (excluding SA) • 66% Risk Appetite CIS • 184 limits outside SA • 78% Risk appetite 16 MARSH 11 October 2016
Trade Credit insurers active in Africa Outside SA BECI Botswana ATI Benin, Burundi, DRC, Kenya, Madagascar, Malawi, Rwanda, Tanzania, Uganda, Zambia, Zimbabwe 17 MARSH 11 October 2016
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