Feasibility Study on the Establishment of an ECOWAS Investment ...

<strong>Feasibility</strong> <strong>Study</strong> on the Establishment of an ECOWASInvestment Guarantee/Reinsurance Agency

Ecowas Investment Guarantee/Reinsurancce Agency<strong>Feasibility</strong> <strong>Study</strong>April 2012This report has been prepared by Mr. Oumar Seck and Mr Bernard Spinoit mandated by HCL Consultants,under a project supported by the ACP Bussiness Climate facility ( BizClim ), which is a joint initiative ofthe European Commission and the ACP Group of States.This document has been produced with the financial assistance of the European Union. The views expressed herein can in no way be takento reflect the official opinion of the European Union nor that of the ACP Secretariat

Table of contentsI. INTRODUCTION AND REGIONAL CONTEXT 61. Population and Institutional Environment 62. Socio-Political Context 73. Economic Environment 84. Investment Climate 105. Investment Guarantees as a factor in FDI growth 12II. WHAT IS POLITICAL RISK INSURANCE – THE SERVICE CONCEPT 121. Definition 12III. THE STUDY 161. Project Concept 172. Assessment of Investment Climates through Desk Review ofReference Material 183. Consultations with stakeholders 184. Draft <strong>Feasibility</strong> Report 195. Workshop 196. Final Report 19IV. HIGHLIGHTS OF THE FEASIBILITY STUDY 201. PRI - The Benefits and Demand 222. Major Competitors in the Regional PRI Market 263. Marketing, Business Development and Business Origination 27V. STRUCTURING THE ECOWAS INVESTMENT GUARANTEE AGENCY 281. Capital Base 282. Organization and Management 323. Location of the ECOWAS PRI Agency 334. Investment Requirements 345. Overhead and Operating Costs 356. Financial Projections, Profitability & Cash Flow Position 387. Economic Impact of the ECOWAS PRI Agency 428. Next Steps 43

VI. INSURANCE AND REINSURANCE 441. Introduction 442. ECOWAS Insurance Industry Structure and Business Volume: 453. Key Challenges of the ECOWAS Insurance Sector: Heterogeneous SectorConstrained by a High Level of Unpaid Premiums 464. Key Trends in the ECOWAS Insurance and Reinsurance Sector 46VII. REGIONAL REINSURANCE MARKET 471. Key Players of the ECOWAS Reinsurance Market 472. Demand for Additional Reinsurance Capacity 48VIII. ECOWAS REGIONAL REINSURANCE AGENCY 491. Capital Base 492. Choice of Headquarters and Headquarters Agreement 513. Strategic positioning 514. Meeting Interactive Rating Requirements 515. Structuring the ECOWAS Reinsurance Sector Support Project - WAICA Reand CICA Re Relationship 52IX. CONCLUSIONS AND RECOMMENDATIONS 541. PRI Agency Establishment 542. Insurance and Reinsurance Services 55

BackgroundECOWAS was established on 28 May 1975 to promote cooperation and integration among West Africancountries. It was initially made up of the following sixteen (16) Member States: Benin, Burkina Faso,Cabo Verde, Cote d’Ivoire, The Gambia, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Mauritania, Niger, Nigeria,Senegal, Sierra Leone and Togo. Following the withdrawal of Mauritania in 2001, the Member States of the Communityare now fifteen (15).The mission of ECOWAS is to promote co-operation and development in all spheres of economic activity throughthe removal of trade barriers, obstacles to the free movement of persons, goods and services, and the harmonizingof regional sector policies. The main objective is to establish a single West African common market andcreate a monetary union.In terms of population, ECOWAS is the most populous regional economic community in Africa with a populationestimated at 305 million in 2010 that grows at a rate of 2.67% per annum.The political risk profile of the ECOWAS region has seriously deteriorated over the last two decades. At least,five countries in the region have experienced election-related political unrest over the past three years; two othercountries still face an internal armed rebellion; while terrorism-related attacks, though on a relatively small scale,remain a threat two countries have had to deal with over the past two years.The mitigation of investment risk through the provision of insurance will be the objective of the proposed InvestmentGuarantee Agency.<strong>Feasibility</strong> <strong>Study</strong> on the Establishment of an ECOWAS Investment Guarantee/Reinsurance AgencyECOWAS Forum, Sheraton Hotel, Abuja ( Nigeria ), 22-23 may, 2012page 4

<strong>Feasibility</strong> <strong>Study</strong> Objectives andOutcomesThe <strong>Study</strong> was designed to investigate the commercial and practicalfeasibility of setting up an Investment Guarantee and ReinsuranceAgency owned by the Member Countries of ECOWAS. Initially the viewwas that this activity would exclude Trade Credit Guarantees. A series ofField Missions covering both the Investment Guarantee and Reinsuranceaspects of the project resulted in a clear consensus that these two elementsshould be separated.(i)(ii)The ECOWAS Investment Guarantee or Political RiskInsurance (PRI) Agency component; andThe ECOWAS Reinsurance Sector Support Component.There was a significant additional development as African Trade Insurance(ATI) based in Nairobi and owned by the COMESA Countries expressedgreat interest in the possibility of providing these PRI Services forECOWAS Countries through an ECOWAS investment in ATI. This possibilitywas extensively discussed at the validation Workshop held in Abuja andagreement was reached to explore the mechanics of ECOWAS makingsuch an investment. The advantages of such a move were clear as ATIhas an established business and management structure, has an excellentshareholder base including MIGA and is keen to expand throughout theAfrican Continent.page 5

I INTRODUCTION AND REGIONALCONTEXTECOWAS was established on 28 May 1975 to promote cooperation and integration among West Africancountries. It was initially made up of the following sixteen (16) Member States: Benin, Burkina Faso, CaboVerde, Cote d’Ivoire, The Gambia, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal,Sierra Leone and Togo. Following the withdrawal of Mauritania in 2001, the Member States of the Communityare now fifteen (15).The mission of ECOWAS is to promote co-operation and development in all spheres of economic activity throughthe removal of trade barriers, obstacles to the free movement of persons, goods and services, and the harmonizingof regional sector policies. The main objective is to establish a single West African common market andcreate a monetary union.ECOWAS Institutions: The main institutions of ECOWAS are:The Authority of Heads of State and Government (the highest decision-making body of ECOWAS)The Council of MinistersThe ParliamentThe Court of JusticeThe Specialized Technical CommissionsThe ECOWAS Commission (formerly the Executive Secretariat)The specialized institutions - These are: the ECOWAS Bank for Investment and Development (EBID),the West African Health Organization (WAHO), West African Monetary Institute (WAMI), the West AfricanMonetary Agency (WAMA), the Inter Governmental Action Task Force against Money Laundering in WestAfrica (GIABA) and the ECOWAS Centre for Gender Development (ECGD).1. Population and Institutional EnvironmentWith a total surface area of more than 5 million square kilometres (17% of the total surface area of the Africancontinent), the ECOWAS region is a geo-economic space composed of 15 West African countries with significantdifferences in land area, population, economic structure, dynamism, and investment climate.The geography of the region is characterized by two distinct zones: the Coastal zone versus the Sahelian one thatincludes three landlocked countries (Burkina Faso, Mali and Niger). The countries with the largest land mass areNiger (24.8%) and Mali (24.3%) whilst the smallest country of the region is Cape Verde (0.1%).In terms of population, ECOWAS is the most populous regional economic community in Africa with a populationestimated at 305 million in 2010 that grows at a rate of 2.67% per annum.Nigeria is the most populous country with a population estimated at 162 million (53.1% of the region). It is followedby Ghana whose population is estimated at 24.2 million (7.9%). The least populated country of ECOWAS is CapeVerde which has a population estimated at 0.53 million (0.16%).page 6

The ECOWAS space includes eight countries of the WAMU-West African Monetary Union (Benin, Burkina Faso,Côte d’Ivoire, Guinea Bissau, Mali, Niger, Senegal, Togo) covering a total area of 3,5 million km and home to apopulation of about 100 million people that share a common currency, the CFA franc (franc de la CommunautéFinancère Africaine), with a combined GDP level of US$ 72 billion in 2010 (at current US$ exchange rate). Hencethe ECOWAS space covers the WAMU space plus seven other countries which have their own currency each ofwhich Gambia, Ghana, Liberia, Sierra Leone and Nigeria that are engaged in a common currency project (targetdate in 2014) with a further integration of the two monetary zones into one single currency (The ECO) in 2020.Guinea Republic and Cape Verde are the other two countries of ECOWAS. It is anticipated that at least, GuineaRepublic will join the CFA zone or the other planned monetary zone in the near future.ECOWAS and WAMU are engaged in a dynamic of cooperation and synergy that should help avoid duplicationsand redundancies through improved coordination and the joint implementation of programmes and projects toaddress efficiently the multiple socio-economic development and competitiveness challenges their region is facedwith.2. Socio-Political ContextThe political risk profile of the ECOWAS region has seriously deteriorated over the last two decades. At least,five countries in the region have experienced election-related political unrest over the past three years; two othercountries still face an internal armed rebellion; while terrorism-related attacks, though on a relatively small scale,remain a threat two countries have had to deal with over the past two years.In total, the region, characterized by a relatively large number of frontier countries with relatively fragile politicalgovernance institutions, remain largely exposed from a political risk standpoint on four fronts:(i)(ii)(iii)(iv)political governance and election-related unrest;youth unemployment-related unrest;cost of living and service gap-related civil disturbances (food, oil, utility and housing); andterrorism.These risks prevent the region from attracting the foreign direct investment and intra-ECOWAS cross border investmentneeded to support its socio-economic development objectives.The poverty level of a growing population, coupled with high unemployment rates of youngsters across the region,translates into social indicators which are among the most alarming globally. This situation is coupled with humandevelopment indices among the lowest in the world as illustrated in Table 1 below. Indeed, all ECOWAS membercountries, but Cape Verde and Ghana to a lesser extent, are situated in the last quartile of the 2011 UNDP HumanDevelopment Index ranking.page 7

3. Economic EnvironmentRegarding the structure of the regional economy, agriculture still remains the backbone of the economy ofECOWAS. Based on historical data of 2007 through 2009, the primary sector which involves mainly agriculturalactivity accounted for 40% of the GDP of the region, whilst the secondary and tertiary sectors accounted for 25%and 35% respectively.The region’s 2010 GDP is estimated at US $ 306 billion with an economy that is essentially grounded on fourpillars:An oil and mining sector with limited local content:The oil and mining industry of the region attracts the bulk of FDI investments. However, the impact of suchinvestments in the region remains largely limited as local content is not given priority as a result of bothpoor negotiation of concessions and limited participation of local businesses, namely SME/SMI, in thesupply, beneficiation/processing, and distribution chains of such sectors.The main minerals produced in the ECOWAS region are crude oil (Cote d’Ivoire, Niger, Nigeria and Ghana),diamonds, iron ore, manganese (Guinea, Liberia, Sierra Leone), gold (Burkina Faso, Ghana, Guinea,Mali, Niger), and uranium (Niger).An agriculture and agri-business sector below potential:Despite its poor performance, the agriculture sector (crops, horticulture, livestock and fishing) supportsthe vast majority of people (over 60%) in the region. The huge potential of the region still remains largelyuntapped as a result of many factors:(i)(ii)(iii)(iv)(v)(vi)poor absorption and adoption of modern production, storage, and processing technology, including the inability to adhere to international quality, food safety and environmental norms andstandards;limited availability of infrastructures such as irrigated water, energy, road, storage andconditioning infrastructures;a generally non-existent R&D and technology transfer and extension infrastructure;inefficient market institutions;an exclusion of the sector, namely in rural areas, from the formal financial market;and non-conducive agriculture development strategies, policies and programmes. Overall,like most parts of Sub-Saharan Africa, except in South Africa, the agriculture sector has failed togenerate improved agriculture-related income for farmers, increased value addition, and to turninto an internationally-competitive sector. Food security still remains a challenge across the entireregion.page 8

An under-developed manufacturing and services sector:The performance of the ECOWAS manufacturing and services sector remain largely below referencecountries and international standards on five grounds:(i)(ii)(iii)(iv)investment level;core capability;international competitiveness; andoutput, productivity and value addition.More specifically, the industrial structure of ECOWAS countries like most Sub-Saharan Africa countries(except South Africa) remains characteristically “hollow” with the absence of a dynamic core of mid-rangeenterprises and supporting industries capable of driving the industrial and export development process ofthe respective countries. Another key challenge of the region relates to the lack of large manufacturingor export-based firms (FDI-linked or local) around which to cluster and develop a strong base of dynamicsmall and medium-size enterprises.Hence, the region needs to articulate and implement in a pragmatic way, a manufacturing strategy andpolicies and programmes around the following:1/. Investment climate and business enabling environment conducive to FDI, large local industrialinvestment and SME/SMI development.2/. Industry development programmes around three tracks: (i) promotion of FDI leading to exportand connection to global production networks; (ii) improving local manufacturing investment andmodernization; and (iii) local content maximization and value chain migration in theresource-based and agro-business sector through SME/SMI development.3/. Firm capability building in terms of technical skills, technology capability, international standardsand overall total factor productivity growth;4/. Institutions and infrastructure for industrial technology development for long-termcompetitiveness.The services sector of the region has not yet received the attention it deserves given its significantpotential for both jobs creation and value addition. More specifically, attention should bepaid to platform or foundation services (i.e. services that facilitate the development of othersectors; knowledge-intensive and internationally-traded services (i.e. research and/orinnovation-intensive services and services delivered by highly educated / trained personnel thatcan be traded internationally); and traditional services that can absorb the large supply of bothqualified and unskilled labour.A large and dynamic informal sector:According to the Delhi Group 1 , Sub-Saharan Africa’s informal sector share of GDP is nearly 55% (includingagricultural informal sector) and 37.7% without the agriculture sector. This high level of informalsector contribution to GDP is indicative of the potential of such sector to absorb the large supply of bothqualified and unqualified labour across the region. Policy-makers should therefore make sure that specialattention is given to the sector to further support it._______________________1Delhi Group (2006). Expert Group on Informal Sector Statisticspage 9

4. Investment ClimateThe ECOWAS region is also characterized by a business environment and investment climate among the leastattractive in the world as a result of: (i) its quasi permanent state of instability that does not encourage both foreigndirect investment, intra-ECOWAS cross-border investments and even domestic investment except in the highlystrategic and lucrative oil and mineral resources sector; (ii) insufficient quality and quantity of investment in strategicsectors such as energy, transport infrastructure (roads, rails, ports, airports), education and health; and (iv)insufficient private sector policy reforms, namely in the areas of industry, export, and SME development.Most analysts’ reports on the business environment and the investment climate such as the “Global CompetitivenessReport” of the World Economic Forum and the “Doing Business Report of the World Bank Group, for example,rank the ECOWAS countries as the least attractive ones globally as illustrated in the table below that ranksall ECOWAS countries in the last quartile of the ”Doing Business Report” except for Ghana (63rd), Cape Verde(119th) and Nigeria to a lesser extent (133rd over 183 countries) in the 2011 report.Table 1: ECOWAS - Selected Macroeconomic, Social and Investment Climate IndicatorsPopulation2010 estimate(million)HDI Rank(187 countries), 2011GDP2010(Atlas methodcurrent $)US$ billionPer Capita GDP 2010Atlas method, current $(US$)Budget Revnues2011 estimate(US$ billion)CPI (%)Benin 9,1 167 6,6 780 1,8 3,3Burkina Faso 15,7 181 8,8 550 2,28 3,6Cape Verde 0,5 133 1,6 3 270 0,65 6,5Cote d’Ivoire 21,3 170 24,7 1 160 3,9 5,2Gambia (The) 1,7 168 0,8 450 0,19 6Ghana 24,2 135 31,3 1 230 7,3 8,8Guinea Bissau 1,5 178 0,8 590 0,18 5,2Guinea Rep. 10,2 178 4,5 400 1,1 16Liberia 3,4 182 0,9 200 0,42 10Niger 16,3 186 5,5 370 0,86 4Nigeria 162 156 193,6 1 180 24,5 10,8Mali 14,5 175 9,2 600 2,1 3,6Senegal 12,8 155 12,9 1 001 3,3 3,4Sierra Leone 5,9 180 1,9 340 0,41 18Togo 6,1 162 3,1 490 0,79 4,5Total 305,2 _ 306,2 _ 49,78 _A major factor inhibiting the flow of foreign direct investment into the ECOWAS Region is the unstable political environment of its memberstates and their very weak democratic institutions.page 10

Export2011 estimate(US$ billion)Fixed Asset InvestmentRate 2011 estimate(% of GDP)Doing BusinessReport Rank 2011 (183countries)PRI Center RiskRatingBusiness ClimateAssessment(Coface)1,45 22,1 175 B C1,59 20,8 150 B C0,11 35,7 119 B+ B11,24 10,8 167 C0,12 27,7 149 B+ _13,1 20,1 63 B+ B0,14 12,9 176 _ _1,7 22,2 179 _ D0,36 _ 151 _ D1,1 36,1 173 _ D101,1 14,1 133 BB- D2,7 23,5 146 B- C2,5 25,8 154 B+ B0,47 16,1 141 _ D0,86 17,6 165 _ D138,54 _ _ _ _page 11

5. Investment Guarantees as a factor inFDI growthClearly there are very significant weaknesses in the Region which militateagainst a rapid and sustained increase in inward and cross borderinvestment. This situation is particularly difficult when the Region’s hugerequirement for Infrastructure is taken into account – some $45 billion ofprojects are considered priorities within the Region and since many of theseare cross border and will require outside investors there is a clear needto provide investment risk guarantees.It should also be noted that ECOWAS is moving rapidly to stimulate crossborder investment through a Customs Union and determined efforts to improvethe Business Enabling Environment.These various factors coupled with this project being implemented inresponse to the request of WAICA and the Investment Community ofECOWAS, demonstrates a clear need for investigating setting up a PRIAgency.II WHAT IS POLITICAL RISK INSURANCETHE SERVICE CONCEPT1. DefinitionPolitical risks are associated with government actions which deny or restrict the right of an investor/owner (i) touse or benefit from his/her assets; or (ii) which reduce the value of the firm. Political risks include war, revolutions,government seizure of property and actions to restrict the movement of profits or other revenues from within acountry. Political risks can also have social or political roots; e.g. civil disturbances, war or terrorism. As such,political risks are major impediments to FDI in many developing countries.Political risk insurance (PRI) is business insurance that reimburses losses caused by social or political disruptionin a country. It is also a product that can serve as a loss control or mitigation tool in order to encourageinvestment in a project. As such a tool, even small companies may be required to insure overseas investment withsome form of PRI.PRI can be in two different forms: export credit insurance and long-term foreign investment insurance.More specifically, PRI is defined by the two elements: (i) the transaction for which coverage is provided or theunderlying transaction and (ii) the risks covered.Coverage, pricing, tenor, and eligibility vary widely - by PRI provider, host country (destination of the investment),and sector or type of investment. Investors and lenders typically contact various providers to find thecoverage most suited to them.page 12

Table 2: Political Risk Insurance ServicesCoverage or UnderlyingTransactionsRisks CoveredTermsCross-border equityinvestmentsCross-border financingCross-border financingguaranteesExport creditTransfer restriction and currency inconvertibilityExpropriationWar, terrorism and CivilDisturbanceBreach of ContractNon-honouring of sovereignfinancial obligationsEligibilityTenorPricingUse of PRIWhether planning to establish a directinvestment abroad or as exporters, multinationalenterprises and foreign investors usePRI to enhance their confidence in marketsperceived to be riskier than home markets.PRI allows investors to concentrate on thecommercial aspects of investments, withthe comfort that someone else - PRI providers- will help them avoid potential losses,or reimburse them in case of a covered lossrelated to political causes.Benefits of PRIA major factor inhibiting the flow of foreigndirect investment into the ECOWAS Region isthe unstable political environment of its memberstates and their relatively fragile politicalgovernance structures. The following graphicdemonstrates the apparent success of theArab Investment & Export Credit GuaranteeCorporation (DHAMAN) in encouraging FDIin the States covered by this organisation incomparison to FDI in the ECOWAS Region.page 13

Comparative Analysis of FDI Inflows between Arab Region and ECOWAS - US $ million1970 - 200780 00070 00060 00050 000Arab CountriesEconomic Community of West African States (ECOWAS)40 00030 00020 00010 0000- 10 0001970-1972-1974-1976-1978-1980-1982-1984-1986-1988-1990-1992-1994-1996-1998-2000-2002-2004-2006-Source: UNCTAD Statistics and Inter Arab Investment Guarantee Corporation Statistics 2008Sincethe project is in response to the request of WAICA and the Investment Community of ECOWAS theRationale for this <strong>Study</strong> appears conclusive.Hence, it is anticipated that, when coupled with consistent effort to improve the investment climate and the economicdeterminants of FDI, the ECOWAS Investment Guarantee Agency should yield the following benefits to theregion:Reduce risk of foreign investments:Although PRI is not a key determinant of FDI flows to developing countries, it can nonetheless play a key role insupporting the changing dynamics of global investment, in facilitating large and complex projects in sectors thathave high development impact and are government priorities, and in promoting investments into underservedmarkets, such as poorer countries and conflict-afflicted environments.Facilitate access to finance and reduce risk premium:Even when investors are comfortable investing in emerging markets or frontier economies, they frequently faceconstraints from lenders. Lenders often must provision for country risk, and PRI may, in certain cases, reduce theprovisioning requirement, and generally gives comfort to lenders. This can improve access to financing, includingthe amounts, interest, and tenor of loans.page 14

Suppliers of PRI Services:The political risk insurance industry helps multinational enterprises and lenders mitigate risk through insuranceagainst adverse government actions or war, civil strife, and terrorism. The PRI market includes four broad categoriesof providers for both export/trade credit and investment related insurance:National PRI providers:Most public providers are national export credit agencies (ECAs), which may cover both export credit/trade transactionsand longer-term investments (e.g. COFACE, ECGD, etc.); as well as national investment related PRIinstitutions (e.g. OPIC). These agencies are typically for constituents or investors from their own home countries.ECAs usually support investors and lenders from their home country going into developing countries. ECAs mayalso have mandates to support development and be self-sustaining.Multilateral or Regional PRI Agencies:These include PRI agencies of regional or global outreach such as: African Trade Insurance Agency (ATI), InterArab Investment Guarantee Corporation (IAIGC), Islamic Corporation for the Insurance of Investment and ExportCredit (ICIEC), Multilateral Investment Guarantee Agency (MIGA). The World Bank, the Asian DevelopmentBank, the European Investment Bank, and the Inter-American Development Bank also provide risk mitigation instrument,such as partial risk guarantee. Increasingly, these development banks also do establish sector-specificPRI funds (e.g. an Infrastructure PRI Fund) to attract FDI into some of the high-risk priority sectors of developingand frontier countries. Multilateral, regional and national PRI agencies often have special programmes for SMEinvestors, companies and banks from developing countries.Private Political Risk Insurers:The majority of private insurers are based mainly in the three insurance centres – London, Bermuda, and NewYork; with other operational offices in Singapore, Hong Kong SAR, China, Sydney and elsewhere. In additionto equity PRI, the private insurers offer protection for a wide variety of developing country payment risks, eitherfor political perils alone or comprehensive non-payment cover. Private providers, who are profit-oriented, also dooffer services that are more selective in terms of coverage, risk coverage, eligibility and tenor.Reinsurers:Reinsurance companies underwrite PRI-related coverage for both trade and investment. Reinsurance is an underlyingfactor driving both pricing and capacity in the private market. Some of the top reinsurers include MunichRe and Hanover Re of Germany, Swiss Re of Switzerland, Lloyds of London of the UK, and Berkshire Hathaway/General Re of the USA. Export credit agencies and multilateral PRI agencies also participate as reinsurers ofPRI, although on a smaller scale.page 15

Mr. Alfred Braimah | Director of Privete Sector, ECOWASIIITHE STUDYThe key beneficiary of this project is the Economic Community ofWest African States (ECOWAS) Commission; and countries coveredare its member States. The West Africa Insurance Companies Association(WAICA) will be a partner in the implementation of the insurancewindow of the project.The Project is funded by the EU Commission and implemented by ACPBusiness Climate Facility (BizClim). HCL Consultants Limited have beencommissioned by Bizclim to carry out this assignment and the ConsultantTeam consists of:G.N.Craze – HCL Project DirectorOumar Seck – Team Leader and Financial Expert.Bernard Spinoit – Legal Expert.Ipek Kilic Alexandratos – HCL Project ManagerThe project aims at empowering key stakeholders (in terms of knowledge,capacity and analysis) in undertaking reforms towards creating morefavourable business and investment conditions in the region. More specifically,the project will determine the feasibility of the establishment of apolitical risk guarantee mechanism for FDIs and, offering a window for reinsuranceto the insurance industry in ECOWAS at the same time, mitigatingthe political risk to FDI and increasing FDI flow into the region.page 16The results achieved were as follows:A feasibility study on the establishment of an ECOWAS Investment Guaranteeand Reinsurance Agency was produced. The feasibility study presentsthe economic and financial justification for the proposed agency, adetailed provisional investment and operational budget over a period of 10years, and recommendations on financial structure and contributions.

Stakeholders have been sensitized on the study outcome through the organisation of a 2 day Validation Workshopin Abuja at which representatives from various ECOWAS States and from the Institutions involved in boththe Investment Guarantee and Insurance Sectors were represented. The Workshop created awareness of theproject and described the objectives and methods of achieving those objectives for which the Agency will beresponsible. Since the Agency will be funded by the ECOWAS Member States it is clearly important that all concernedunderstand fully the scope and advantages which will accrue from such an investment.1. Project ConceptThe study was designed to determine the feasibility of the establishment of an ECOWAS Investment Guaranteeor Political Risk Insurance (PRI) mechanism for FDI; mitigating the political risk to FDI and increasing FDI flowinto the region. The study also articulates the ECOWAS support to the Regional Reinsurance Industry with theview to maximizing insurance capacity and thereby augmenting premium retention and local content in regionalinsurance/reinsurance industry. Therefore, the feasibility study encompassed two components:(i)The ECOWAS Investment Guarantee or Political Risk Insurance (PRI) Agency component; and(ii)The ECOWAS Reinsurance Sector Support Component.More specifically, the study established the investment requirements, the organizational and management structure,the operating costs, the potential turnover and profitability of the planned ECOWAS Investment Guaranteeor Political Risk Insurance (PRI)Agency ; while stressing the critical success factors in the planning, structuringand operations of such an agency. Finally, the study established that the financial outlook of the planned Agencyis good and reasonable.Implementation of the assignment was based on the following main guidelines:Inception meeting respectively with BizClim PMU, ECOWAS;Field surveys, consultation with key stakeholders in key countries and benchmarking against selectedRegional Investment Guarantee/Reinsurance Agencies;<strong>Feasibility</strong> study covering the establishment of an ECOWAS Investment Guarantee/Reinsurance Agency;Preparation and participation in a seminar in Abuja/Nigeria to discuss the feasibility study with stakeholders to ensure high level support, full ownership of project, and make sure that the business planmeets stakeholders’ expectations;Finalisation of the feasibility study by integrating stakeholders’ feedback and promoting the financingand operationalization of the proposed institution;The final report.page 17

2. Assessment of Investment Climates through Desk Review of Reference MaterialThe consultants reviewed selected relevant materials to gather an assessment of the obstacles to FDI in the region,political risk insurance, and reinsurance market in the ECOWAS region.For the political risk component, sources included strategy and policy papers, national legislative and regulatorymeasures, BizClim Climate Investor Indicators and Database, UNCTAD and World Bank Investment Climaterelatedreports, MIGA Investment and Political Risk Report, Annual Reports (MIGA, ATI), Doing Business reports,private sector investment guides, OECD country advisories (e.g. COFACE, Hermes), Report from rating agencies(Standard & Poor’s, Fitch, Moody’s), Reports from Investment Promotion Agencies (IPA) of selected ECOWAScountries, and comparator country indicators.For the Reinsurance component, sources included: various reports from reinsurance-related global or regionalbodies (Sigma, IAIS, FANAF, etc.), companies (AFRICA RE, CICA RE, WAICA RE, SWISS RE) and Rating Agencies(Standard & Poor’s, A.M. Best) conceptual notes and ratings reports, national insurance commissions (NAI-COM of Nigeria, NIC of Ghana, Direction des Assurance of Senegal, Direction des Assurances of Côte d’Ivoire).To that effect, a comprehensive list of documentation and bibliography was prepared.3. Consultations with stakeholdersConsultation with key stakeholders was a key success factor in completing the assignment. Starting with briefingsat the ECOWAS secretariat, the BizClim PMU, WAICA Secretariat, consultations were extensively held in Nigeria,Ghana, WAMU secretariat in Burkina Faso, Cote d’Ivoire, Senegal and Togo to complement desk work findings.Field work involved identifying and sensitising key stakeholders, assessing the national investment climates, identifyingorganisations and individuals with potential to form the National Commissions, and obtaining feed-back onpreliminary proposals. Key stakeholders consulted included:at the regional/international level: ECOWAS, WAMU, International Finance Corporation (IFC) and theMultilateral Investment Guarantee Agency of the World Bank Group, African Development Bank Group,and specialized programmemes (BizClim, CDE, EIB Investment Facility)at national level: Government departments, investment promotion agencies (IPAs), intermediary organisations(IOs) related to insurance and reinsurance, insurance companies and other financial institutions,foreign economic representatives, and established/prospective foreign investors. (see Box below)page 18

4. Draft <strong>Feasibility</strong> ReportA draft feasibility study on the establishment of an ECOWAS Investment Guarantee/Reinsurance Agency wascompleted roughly three months after the start of the assignment.5. WorkshopThe workshop gathered around 50 key stakeholders to discuss the feasibility of the creation of the ECOWAS InvestmentGuarantee/Reinsurance Agency. The logistical organisation of the seminar was the responsibility of theContractor selected for that purpose but the preparation of the content was the responsibility of the Consultant.This included the identification of key note speakers, moderator and invitees, in close coordination with the beneficiarywho will provide an initial list of participants which should be approved by the PMU.6. Final ReportThe workshop was followed by the finalization of the feasibility study through the integration of stakeholders’feedback.page 19

IVHIGHLIGHTS OF THE FEASIBILITYSTUDYThe original Terms of Reference for this assignment specifically excluded the provision of insurance forTrade Credit. The mandate was to examine the feasibility of an Investment Guarantee and InsuranceAgency.As the <strong>Study</strong> progressed it became clear that the activities of the proposed Agency would have to differentiate betweenthe provision of Political Risk Insurance (PRI) and Insurance/Reinsurance generally. As discussed abovethere exists a significant difference between the technical requirements of PRI and Insurance/Reinsurance and asa result the Stakeholders in these two differing types of activity have very separate structures and requirements.Accordingly after discussions with Bizclim, ECOWAS, PRI Agencies and Insurance and Reinsurance Agenciesit was decided to split these two activities and examine how each could be best established or improved withinthe ECOWAS Region. In the following pages each of these activities is examined in greater detail and potentialstructures are proposed to develop and improve the services that the Region needs.The question as to whether the Agency should provide Trade related guarantees was also extensively discussedduring the Validation Workshop – as discussed in more detail below ATI does provide this service and forcefullyrecommended that the new Agency should do the same. The view of the Workshop was that this service shouldbe included in the portfolio of the proposed Agency and financial projections have been based on this change.The participation of ATI (African Trade Insurance) in the Validation Workshop provided an opportunity for thisorganisation’s experience over the last 11 years to be thoroughly discussed and reviewed in relation to the aimsand objectives of the new PRI Agency. Accordingly since ATI expressed a keen desire for ECOWAS to invest inits existing activities and abandon the setting up of a separate Agency it is worth reviewing the history, structureand activities of ATI as it has clearly made the decision to expand and play a much greater part in the developmentof PRI in the Region.ATI itself was founded in 2001 and after a difficult start was restructured in 2006 – its shareholding is as follows:12 COMESA member countriesCOMESA, Eastern & Southern Africa Bank for Commerce and Development, ZEP REAtraduis GroupATI is negotiating the participation of ECOWAS countries such as Ghana, Côte d’Ivoire, Liberia andBenin in its share ownership. The company also intends to convince Nigerian authorities to makeNigeria a shareholder for a target of US$ 50 million of contribution. An office is expected to be opened inGhana if the country’s US $ 20 million contribution is secured.page 20

No one single country should have more than 25% share ownership. As of March 2011, the total paid-in Capitalfor ATI stands at US $ 150 million. MIGA capital fund is raised through its member countries’ and other shareholderscontributions (minimum of $7.5 million per member country) that are disbursed by the World Bank as a loanto the given countries.ATI promotes trade and investment in Africa and minimizes transactional costs by helping investors reduce andmitigate risk. More specifically, ATI insures against political risks such as: currency inconvertibility, expropriation,war and social disorder, etc; both for trade and investment. As of December 2011, ATI services initially skewedtowards trade-related PRI present the following profile:Investment-PRI (85%) and trade-PRI (15%)Number of investment projects FY 2010: 17 Projects all in East Africa but one from the DRCOutstanding guarantees FY2010: US$ 383 million ( one project worth US $ 160 in DRC)Project size FY2010 in millions of US $: 4 projects (+15 million) , 7 projects (5 -15 million), 4Projects, (1-5 million), 2 projects (less than 1 million)Result for FY2010: Income: US $ 3.5 million Expenditure: US $ 4.2 Loss: US $ 616,000Aggregate exposure 2006-2011: US$ 600 million (net exposure is 300 million)page 21

1. PRI - The Benefits and DemandBenefits of PRI:PRI can promote investment into large and complex projects in sectorsthat have high development impact and are government priorities but thatwould not be able to attract FDI otherwise (such as energy, road infrastructure,etc.).PRI does also promote investments into underserved markets, such aspoorer countries and conflict-afflicted environments that are common inthe ECOWAS space. Lastly, even when investors are comfortable investingin emerging markets or frontier economies, they frequently face constraintsfrom lenders. Lenders often must provision for country risk, and PRImay, in certain cases, reduce the provisioning requirement, and generallygives comfort to lenders. This can improve access to financing, includingthe amounts, interest, and tenor of loans.Suppliers of PRI Services:The PRI market includes four broad categories of providers for both export/trade credit and investment related insurance:(i)(ii)(iii)multilateral or regional PRI agencies;national PRI providers that include Export Credit Agencies (ECAs)and national investment-related PRI agencies such as OPIC of theUSA;private political risk insurers; and selected private reinsurers thatalso participate in the PRI market.Demand for PRI Services:Demand for PRI Services across the ECOWAS region is largely justified onthe grounds of the immense need for investment into large, complex andPRI-sensitive projects in infrastructure (energy, oil, mining, road, backbonetelecommunications infrastructures, etc.) as well as in traditional sectorssuch as manufacturing, agri-business and services.page 22

Table 4: Market Volume, Growth Rate and Anticipated Users of ServicesNumber ofprojects ,first year ofoperationsAverage unitproject size(million US$)Total annual grossunderwriting exposure(million US$)Reinsurance(million US$)AnnualgrowthratePotentialinvestorprofileAnticipated political risks to becoveredPower 2 150 300 100 5% Foreign Expropriation, regulatorychange, break of contract,terrorism, war and civildisturbanceRoad, port &airportWater andSanitation2 50 100 - 5% Foreign Expropriation, regulatorychange, break of contract,war and civil disturbance1 50 50 - 5% Foreign Expropriation, regulatorychange, break of contract,war and civil disturbanceTelecom 1 5 5 - 5% Foreign,regionalExpropriation, regulatorychange, break of contract,war and civil disturbanceOil, gas andmining1 250 250 300 5% Foreign,regionalExpropriation, break ofcontract, terrorism,war and civil disturbanceManufacturingAgri-business2 15 30 - 5% Foreign,regional,national1 10 10 - 5% Foreign,regional,nationalExpropriation, break ofcontract, war and civildisturbanceExpropriation, regulatorychange, war and civildisturbanceServices 1 5 5 - 5% Foreign,regional,nationalTotal 10 470 700 300Expropriation, regulatorychange, break of contract,war and civil disturbancepage 23

2. Major Competitors in the Regional PRI MarketThe Agency’s major competitors include MIGA, ATI, ECAs of industrial countries and public PRI agencies ofinvestors’ countries (OPIC, SINOSURE, etc.) and private providers’ of PRI services. The relative strengths andweaknesses of the two main competing agencies in the ECOWAS region, MIGA and ATI, are identified in thebelow table.Table 5: Major CompetitionMIGAATILocation Washington D.C. NairobiRating AAA A+ with stable outlookCapital baseUS $ 954 million(1.9 billion authorized capital)US $ 954 million(1.9 billion authorized capital)US$ 150million (2011)Shareholding175 member countries(150 developing countries and 25 industrialcountries)12 COMESA member countries COMESA,Eastern & Southern Africa Bankfor Commerce and Development,ZEP RE Atraduis GroupNB : ATI Was promoted/created byCOMESA in 2001Product range• Transfer restriction and currencyinconvertibility• Expropriation• War, terrorism and Civil Disturbance• Breach of Contract• Non-honoring of sovereignfinancial obligations• Transfer restriction and currencyinconvertibility• Expropriation• War, terrorism and CivilDisturbance• Breach of Contract• Non-honoring of sovereignfinancial obligationsTenor of product Up to 20 years Up to 10 yearsBusiness volume in Africa US$ 249.2 million (2011 newgross exposure for Africa)NB: Total gross exposure as of June 2011 is$ 9.1 billion and net exposure is 5.2 billionUS$ 383 million(2010 new gross exposure for Africa)NB: Total gross exposure as of March 2012is $ 600 million and net exposure $300millionMarketing strategiesMarketing strategy through a network ofPRI intermediaries (IPA, PRI intermediaries,PRI consultants and lawyers, etc)Marketing strategy through a network ofPRI intermediaries ( PRI intermediaries,PRI consultants and lawyers, etc)Distinctive strength• AAA rating,• Supranational entity with strongrecourse options,• Strong capital base and technicalcapacity• Positioned as the first PRIAgency in AfricaKey Weaknesses in ECOWAS Market• ECOWAS region is one among many keymarkets MIGA covers on a very selectivebasisStarted operations with mixed signals asfocus was on trade-related PRIFocused more on the COMESA regionUnsustainable funding mechanismsupported by the World Bank advance/loanon behalf of the subscribing country.page 26

3. Marketing, Business Development and Business OriginationFor its outreach, customer identification, business development, business origination and client relationship managementactivities, the ECOWAS Agency will rely upon the following network of partners and intermediaries:(i)(ii)national investment promotion agencies of ECOWAS member countries andselected insurance and reinsurance companies of the ECOWAS region.Like, MIGA, the ECOWAS Agency will also use a group of PRI brokers, PRI consultants and PRI lawyers able toidentify important new investment projects. These marketing agents will enter into a relationship with the Agencyfor the political risk insurance market, and will be an integral part of the Agency’s outreach and client relationshipefforts. In particular, these agents will be capable of advising investors on the advantages of political risk insurance.However negotiation of contract terms will be directly negotiated between the ECOWAS Agency and the clientinvestor.Mr. Oumar Seck | Team Leader, HCLpage 27

Mr. William Coker | Seretary General / CEO, WAICA SecretariatV STRUCTURING THEECOWAS INVESTMENTGUARANTEE AGENCY1. Capital BaseFor a PRI company, the capital base determines the confidence level ofother ceding PRI companies, its premium retention capacity, and the abilityto meet financial obligations. Furthermore, the quality of the rating of a PRIcompany, itself function of the capital base and liquidity level of the Agency,is crucial to latter’s ability to attract business.Therefore, for any ECOWAS-supported reinsurance company, the capitallevels of competing reinsurance companies, and the ambitions of that reinsurancecompany should determine the adequate level of capital required.In that respect, it is worth indicating what the shareholders’ funds are at keyreinsurance companies operating in and outside the ECOWAS region:Table 6: Share holders’ capital of key PRI companiesMarch 2012Authorized Paid-upMIGA 1,9 billion 954 millionATI 1 billion 150page 28

In this context it is useful to review ATI’s Business Plan asreported by Standard and Poor’s in 2011.Box 1: ATI Strategic Plan 2011 - 2013ATI’s business plan for 2011-2013 sets the following financial targets:To expand membership to30 additional African states (currently nine), and increase the number of investing non-African states andInternational Financial Institutions;To achieve shareholder’s funds of $595 million by Dec. 31, 2013;To achieve a return on average weighted paid in capital and reserves of 2.1%;To achieve gross and net commitments of $1.3 billion and $0.6 billion, respectively, providing gross and net written premium of $19million and $9 million, respectively;To achieve a net combined ratio of no worse than 83%.On the basis of development to date, the plan to expand covered gross risk commitment of $1.3 billion annually by 2013 ($384 million in 2010)is viewed as ambitious from a timing perspective, as it is dependent upon successful and timely expansion of membership. There is significantexecution risk in this business expansion plan, but Standard & Poor’s views the capital control and corporate governance mechanisms asprudent, and able to support the plan.Against this background, a minimumstart-up capital level ofUS$ 300 million is proposed to supportan activity level of up to US$ 1.2 billionof guarantee for the Agency from Year1 based on industry standard of 1 unitof capital for 4 to 5 units of exposure.The capital level will be increased byUS$ 200 million to reach US$ 500 millionfrom Year 5 onward based on theanticipated business growth to supportguarantee level up to US$ 2 billion.However, overall authorized capital forthe Agency will be set at US $1 billion.Mr. Bernard Spinoit | <strong>Study</strong> Expert, HCL Consultantpage 29

We propose the following capital level and fund raising schedule for the Agency:Table 7: Capital and Fund Raising Schedule(In millions of US$):AuthorizedcapitalYear 1 Year 2 Year 3 Year 4 Year 5 Years 6 to 10US$ 1000 US$1000 US$ 1000 US$ 1000 US$ 1000 US$ 1000SubscribedUS$ 300 US$ 200capitalCalled-up capital US$ 300 US$ 200Paid-up capital US$ 300 US$ 200Total capitalraisedUS$ 300 US$ 300 US$ 300 US$ 300 US$ 500 US$ 500From Year one, paid-up capital level should reach the total level of subscribedand called-up capital at US$ 300 million to avail the Agency with thecapital needed to support a meaningful level of operations. The paid-upcapital level should be increased to US$ 500 million from Year 5.The shareholding of the companies will be composed of:Class one shareholders: ECOWAS member countries, regionaldevelopment finance institutions (AfDB, EBID, AFRICA RE, etc.),insurance companies of the region.Class two shareholders: Development Finance Institutions – IFC,EIB, FMO, etc.Subscription to the capital of the Agency will be done through private placementof shares of the Agency as per the following schedule:Authorized number of shares: 1 000 000 000 valued at USD 1eachYear 1: 300 000 000 ordinary shares issued and fully paid for atotal of USD 300 millionYear 5: 200 000 000 additional ordinary share issue and fully paidfor USD 200 millionpage 30

The sources of funds and the following levels of contributions are anticipated per category of shareholders:Table 8: Non Exhaustive Indicative Sources of Funds (Paid-up Capital*)Unit Average Amount (US $ million) Total Funds Mobilized(US $ million)Headquarters’ location premium - - 15Tiers 1 ECOWAS countries3 40 120( 3 countries)**Tiers 2 ECOWAS countries (2 countries) 2 25 50Tiers 3 ECOWAS countries (3 countries) 3 15 45Tiers 4 ECOWAS countries (7 countries) 7 10 70Regional financial institutions: Insurance companies, 15 5 75commercial banks, equity, funds.Regional development finance institutions: EBID,2 10 20BOADMultilateral Development finance institutions: World3 35 105Bank, European Investment Bank, African DevelopmentBankTotal - - 500(*) NB: Paid-up capital for year 1 will amount to US$ 300 million; additional US$ 200 million will be paid on year 5.(**) ECOWAS countries’ tiers will be defined based on GDP levels and anticipated levels of PRI-sensitive investment projects. Actual contributionlevel per country will be defined by ECOWAS.Mr. Tom Vis | World Bankpage 31

2. Organization and ManagementThe organizational structure of the Agency at its initial stages, based on key management and operating positions,presents as follows:Graph 1: Organizational StructureChief ExecutiveInvestors RelationshipOfficerAudit & Risk ManagementOfficerChief UnderwritingOfficerChief Counseling,Legal Affairs & ClaimsOfficerChief Financial Officer(also Head of Administration)The key staffing requirements of the Agency is indicated below:Chief Executive Officer’s OfficeChief Executive OfficerInvestors’ Relationship OfficerExecutive AssistantUnderwriting DepartmentDirector of UnderwritingUnderwriting officer 1Underwriting officer 2General Counsel, Legal Affairs and Claims DepartmentDirector for Counselling, Legal Affairs & ClaimsCounselling, Legal and Claim Officer 1Counselling, Legal and Claim Officer 2Finance, Auditing and Risk ManagementDirector for Finance, Audit and Risk ManagementFinance OfficerAudit and Risk Management OfficerAdministration OfficeAdministration OfficerHuman Resource OfficerAdministrative Assistants (4)Drivers (4)For benchmarking purpose, the MIGA’s legal, shareholding and governance structures,as well as its immunities and privileges are indicated in Annex 8 of the study.page 32

Facilitation and incentives:Local government incentives: the location country will offer immigrationincentives, tax-free salary incentives, duty and customfreematerials and equipment import incentives, and up-to-standardoffice premises to the ECOWAS Agency.Office location premium: The location country will provide an ”officelocation premium” of 10 million US Dollar minimum in additionto the established capital contribution for that specific country.Capital contribution: The location country will settle fully its establishedcapital contributions before it can be considered for thelocation of the Agency’s headquarters.4. Investment RequirementsThe Agency’s investment requirements and investment costs are indicatedin the below table. It is anticipated that the Agency will build itsheadquarters in its main country of location.Table 10: Investment RequirementsInvestment Items Unit Unit Cost(US$)Total Cost*(US $)Building /Office Premises 1 5 000 000 5 000 000Transport equipment 6 50 000 300 000Office furniture and fixtures** c 6800 150 000Computer and communication17 3 000 50 000systemStaff training and consulting programmes10 100 000 1 000 000Other 1 500 000 500 000Total Investments 7 000 000(*) Total costs are rounded(**) Include reception area, one (1) board and conference room and four (3) meeting roomsNB: Excess office space will be rentedpage 34

5. Overhead and Operating CostsPersonnel requirements: The Company’s personnel requirements in termsof numbers and skill levels together with their estimated costs are indicatedin the table below:Table 11: Overhead Costs*Human resource requirements Unit Unit Cost (US$) Total Cost(US $)Chief Executive Officer (CEO) 1 200 000 200 000Investors relationship officer 1 130 000 130 000Chief Underwriting Officer 1 150 000 150 000Underwriting officer 1 1 100 000 100 000Underwriting officer 2 1 100 000 100 000Chief Counseling, Legal &1 150 000 150 000Claims OfficerCounseling officer 1 1 100 000 100 000Counseling officer 2 1 100 000 100 000Audit & risk management officer 1 100 000 100 000Head Administration and1 140 000 140 000FinanceFinance & accounting officer 1 80 000 80 000Administration officer 1 80 000 80 000Human resources officer 1 80 000 80 000Executive assistant 1 60 000 50 000Administrative assistants 4 30 000 100 000Drivers 4 20 000 60 000Total 22 - 1 620 000page 35

Operating expenses:The Agency’s operating expenses schedule costs are indicated in the tablebelow and the basic assumptions underpinning the expenses’ figures.Table 12: Operating ExpensesExpense Items Year 1 Year 2 Year 3Promotional expenses 250 000 100 000 100 000Recruitment expenses 150 000 50 000 25 000Business development & acquisition expenses 150 000 200 000 350 000Office supplies 20 000 20 000 25 000Energy, water, telecom, internet expenses 100 000 120 000 125 000Transport expenses (oil and auto repair) 15 000 20 000 30 000Office maintenance and cleaning expenses 50 000 50 000 50 000Security expenses 20 000 20 000 20 000Consulting and technical assistance expenses, including legalexpenses500 000 200 000 100 000Reporting and printing 75 000 75 000 50 000Office rental expenses (outside HQ) - 60 000 120 000Rating services 100 000 100 000 200 000Miscellaneous 50 000 50 000 50 000Total Expenses 1 480 000 1 065 000 1 245 000page 36

Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 1075 000 75 000 75 000 75 000 75 000 75 000 75 00025 000 5 000 5 000 5 000 5 000 5 000 5 000350 000 350 000 350 000 350 000 350 000 350 000 350 00025 000 30 000 30 000 30 000 30 000 30 000 30 000150 000 150 000 150 000 150 000 150 000 150 000 150 00030 000 30 000 30 000 30 000 30 000 30 000 30 00050 000 50 000 50 000 50 000 50 000 50 000 50 00020 000 20 000 20 000 20 000 20 000 20 000 20 00075 000 50 000 50 000 50 000 50 000 50 000 50 00030 000 30 000 30 000 30 000 30 000 30 000 30 000120 000 120 000 120 000 120 000 120 000 120 000 120 000200 000 200 000 200 000 200 000 200 000 200 000 200 00050 000 50 000 50 000 50 000 50 000 50 000 50 0001 200 000 1 160 000 1 160 000 1 160 000 1 160 000 1 160 000 1 160 000page 37

6. Financial Projections, Profitability & Cash Flow PositionThe determination of the financial profitability of the project through a 10-year projection of the income statement;determination of expected cash flows of the project over the 10-year horizon and the definition of the projectedbalance sheet of the Agency for the first 4 years of the project are provided below. These are based on the followingassumptions:Capital base: The Agency start-up capital base is set at US$ 300 million to authorize a meaningful levelof business for the ECOWAS region and the additional non-ECOWAS market to be served. This capitalbase could be potentially increased to US$ 500 million from the fifth year based on the anticipated growthin business volume.Project business volume and their expected build-up over the next 10 years: ATI 2010 gross exposurelevel stands at US$ 383 million per year with a capital base of around US$ 89 million (total gross exposuresince its 2006 restructuring stands at $ 600 million with a capital base that has reached 150 million inMarch 2011). MIGA 2011 exposure for Africa stands at US$ 249 million (MIGA total 2011 gross exposurewas US$ 9.1 billion and net exposure was US$ 5.2 billion, corresponding to an average cession rate of43%; New gross exposure for 2011 was US$ 2.4 billion and new net exposure US$ 1 billion).Based on the demand for PRI-sensitive projects across the ECOWAS region, we anticipate an averagelevel of gross exposure of US$ 100 million, US$150 million and respectively US$700 million (including 80% of investment-related PRI and 20% of export-related PRI and credit risk insurance) for the first year anda net exposure level of US$ 400 million (i.e. 42% of cession to other PRI and reinsurance companies).Demand is expected to grow at a yearly rate of 5%.PRI premium rates: MIGA premium rates are in the range 0.35% to 1.30% based on the specific countryrisk and the risk of the project involved; OPIC rates are in the range 0.20% to 1.60% depending on thecountry risk and the project risk involved as indicated in the below table. Premium rates applied by ATI arein the range 1% to 2% given the very high risk profile of most countries covered. The average premiumrate used for the purpose of the financial projections for the project is set at the pessimistic level of 0.8%(from a premium income point of view) with a scenario analysis at 0.5% and 1%.Financial position: Based on the above; after small losses the first year and the second year, the projectdisplays a solid profitability level with an Internal Rate of Return (IRR) around 14.13% as well as robustcash flow and liquidity position..The balance sheet structure and corresponding financial ratios of the Agency are equally strong on theground of the solid capital base and the large portfolio of investment into liquid and quasi-risk free assets.Sensitivity analysis: It is anticipated that a weak capital base for the Agency may jeopardize its credibilityand its ability to offer meaningful level of PRI services (in terms of both level of guarantee per project andnumber of projects covered). Hence, one of the most sensitive variables for the success of the Agencyremains its level of capital. The level of demand for the services of the Agency also represents a key variable,critical to the success of the Agency. But overall, the level of investment (hence the capital base)is the key driver of the profitability, the cash flow and the liquidity position of the Agency.page 38

The economics of the sector, the ambition expressed by ECOWAS and the anticipated demand for PRI inthe target market suggest that a minimum start-up capital base of US$ 200 million is needed to support ameaningful level of operations that is estimated in the range US$ 400 million to US$ 1 billion of exposureper year.Base scenario: At the average start-up capital level of $ 300 million; which is our base scenario,the Agency profitability and cash flow position are strong at an average gross exposure level of US $ 100million, 150 million and 700 million for respectively the first year, the second year and the third year ofoperation. From year 3 onward we assume a yearly aggregate exposure level (for investment and exportPRI as well as credit risk insurance) of operations that grows at a yearly rate of 5%.Sensitivity to changes in the capital base of the Agency: At a minimum capital level of US$ 150 million,the Agency profitability and cash flow position remain equally strong with a business level in the rangeUS$ 400 million to US$ 1 billion of exposure per year.Sensitivity to the level of demand for PRI services: At a minimum business volume of US$ 400 million, theAgency’s profitability, cash flow as well as liquidity position remain equally strong with a business level inthe range US$ 400 million to US$ 1 billion of exposure per year.page 39

PROJECTED INCOME/LOSS STATEMENTSTable 13: INCOME STATEMENTYear 1 Year 2 Year 3 Year 4INCOME (US $, 000)Income from guaranteesOutstanding exposure 100 000 150 000 700 000 735 000Premium income 800 1 200 5 600 5 880Less premium ceded 480 720 3 360 3 528Total Income from guarantee 320 480 2 240 2 352Less: Unearned premium income 160 240 1 120 1 176Net Earned Premium 160 240 1 120 1 176Miscellaneous Income (Fees and Commissions) 25 38 175 184Income from Investments 2 800 2 850 2 840 5 660Translation gain (losses) - - - -TOTAL INCOME 2 985 3 128 4 135 7 020DIRECT COSTSGross claims incurred & provisions 500 600 600 1 100Reinsurance share of claims incurred/provisions 300 360 360 660Net claims incurred 200 240 240 440GROSS PROFIT/LOSS 2 785 2 888 3 895 6 580EXPENSESOperating expenses 1 480 1 065 1 245 1 200Overheads 1 620 1 652 1 685 1 719Depreciation expenses 335 335 335 335Less provision for (plus release of) claims - - - -TOTAL EXPENSES 3 435 3 052 3 265 3 254NET INCOME BEFORE INTEREST & TAX (650) (165) 630 3 326plus Other Income (incl Interest Received) - - - -Less Interest Payments - - - -NET INCOME BEFORE TAX (650) (165) 630 3 326Less Corporate Tax - - - -NET PROFIT AFTER TAX (650) (165) 630 3 326Minority Interest: Add/ (Less) - - - -Extraordinary Income, Gains/(Expenses) - - - -NET PROFIT AFTER TAX & MINORITY INTEREST (650) (165) 630 3 326Less Ordinary Dividends distributed - - - -Less Preferred Dividends - - - -RETAINED INCOME (LOSS) (650) (165) 630 3 326Earnings per share (EPS) (0.65) (0.16) 0.63 3.32Dividend per share (DPS) - - - -page 40

Year 5 Year 6 Year 7 Year 8 Year 9 Year 10771 750 810 338 850 854 893 397 938 067 984 9706 174 6 483 6 807 7 147 7 505 7 8803 704 3 890 4 084 4 288 4 503 4 7282 470 2 593 2 723 2 859 3 002 3 1521 235 1 297 1 361 1 429 1 501 1 5761 235 1 297 1 361 1 429 1 501 1 576193 203 213 223 235 2469 640 9 840 9 620 9 600 9 580 9 560- - - - - -11 068 11 339 11 194 11 253 11 315 11 3821 300 1 800 2 000 2 400 2 400 2 600780 1 080 1 200 1 440 1 440 1 560520 720 800 960 960 1 04010 548 10 619 10 394 10 293 10 355 10 3421 160 1 160 1 160 1 160 1 160 1 1601 754 1 789 1 824 1 861 1 898 1 936335 405 405 405 405 405- - - - - -3 249 3 354 3 389 3 426 3 463 3 5017 299 7 266 7 005 6 867 6 892 6 841- - - - - -- - - - - -7 299 7 266 7 005 6 867 6 892 6 841- - - - - -7 299 7 266 7 005 6 867 6 892 6 841- - - - - -- - - - - -7 299 7 266 7 005 6 867 6 892 6 8411 663 3 650 3 633 3 502 3 433 3 446- - - - - -5 636 3 616 3 372 3 365 3 459 3 3955.63 3.61 3.37 3.36 3.45 3.391.66 3.65 3.63 3.50 3.43 3.44page 41

7. Economic Impact of the ECOWAS PRI AgencyThe benefits of the project on the regional economy are multi-fold:Reduce risk of foreign investments an FDI attraction:The project will facilitate FDI into large and complex projects in sectors thathave high development impact and are government priorities, and in promotinginvestments into underserved markets, such as poorer countriesand conflict-afflicted environments.Facilitate access to finance and reduce risk premium:The project will in certain cases reduce the provisioning requirement, andgenerally gives comfort to lenders. This can improve access to financing,including the amounts, interest, and tenor of loans.Promote exports from the ECOWAS region and intra-ECOWAS trade:The project will contribute to the development of both exports from theECOWAS region and intra-ECOWAS trade.Economic impact:The project potentially yields significantly positive effects on the ECOWASeconomy as it will translate into increased investment levels in the infrastructure,OGM, manufacturing, agri-business and service sectors; therebyspurring industrial development and generating substantial increases inthe employment level.Demand and services gap to be filled by the ECOWAS project:MIGA insisted that the ECOWAS project should make sure that it conductsa comprehensive survey of PRI service demand and fill services gaps (e.g.local currency products, intra-ECOWAS cross-border investment, local investors)in segments not covered by other players so as to guarantee demandfor its planned services.The Agency will abide by sustainability requirements by making sure thatthe project it gets involved in pass the test of environmental impact assessmentas per international standards; and namely from the followingperspectives:Health and safety issuesEnvironmental impactsImpacts on workersImpact on consumersResource management concernsImpacts on local communitiespage 42

8. Next StepsAfter the completion of the feasibility study and based on its major conclusionsand findings, major steps to be taken to implement the project withina 24-month timeframe include the following:Setting-up of a “Technical Committee for the Implementation of theProject”Proposing a draft Convention creating the AgencyECOWAS Council of Ministers’ approval of the projectECOWAS Authority of Heads of State and Government’s ratificationof the projectsStructuring and formalizing the Partnership Agreement with MIGAand/or ATI. Possibly discussing ATI shareholding, board, operationalrestructuring requirements to meet ECOWAS specific PRIservices’ needs.Possibly negotiating the establishment of a “PRI Funds forECOWAS Infrastructure Projects” with the World Bank, the EuropeanInvestment Bank (EIB) and the African Development BankDrafting the “Headquarters Agreements” document; and decidingon the location of the Agency’s headquarters based on theagreed-upon criteria of location premium, competitiveness andincentives.Securing ECOWAS member countries’ contributions to the capitalof the AgencyUndertaking Road Shows towards identified potential investors tosecure equity investment into the Agency.Secure/build office premises based on the collected OfficeLocation PremiumRecruit competitively and internationally the CEO if the newAgency option is adopted.Recruit competitively the Chief Underwriting Officer, the ChiefClaims and Legal Officer, the Audit and Risk Management Officer,and the Finance and Administration Officer if the new Agencyoption is adopted.Start the operations of the Agency.page 43

VIINSURANCE ANDREINSURANCEMs. Abiba ZakariahManaging DirectorGhana Reinsurance Company LtdThe two interrelated markets of Re-insurance and Insurance havebeen studied in this second part of the <strong>Feasibility</strong> <strong>Study</strong>. For theReinsurance sector, setting-up a new agency has been excluded as anoption in favour of a financial and technical support programme towardsthe existing regional institutions, namely, WAICA Re and CICA Re. Forthe insurance market, a technical support programme is proposed aroundimproving insurance penetration rate and enhancing the ECOWAS BrownCard programme.1. IntroductionIn 2010, Africa’s share of the global insurance market for both life and nonlifesegment stood at only 1.3%.This very low share of the African market is indicative of the equally verylow insurance penetration rate (i.e. ratio of Gross Premium to GDP) whichis at less than 2% for the ECOWAS region (South Africa – 12.90% andFANAF region 0.89% in 1989).2. ECOWAS Insurance Industry Structure andBusiness Volume:The ECOWAS region has two major insurance markets:- The WAMU region, an eight (8) country economic grouping (Benin, BurkinaFaso, Côte d’Ivoire, Guinea Bissau, Mali, Niger, Senegal and Togo)which is part of a larger regional insurance market, CIMA (ConférenceInterafricaine des Marchés d’Assurance) which is composed of 15 Francophonecountries in West and Central Africa plus Madagascar. The specificityof CIMA member countries is that they all share a common currency(CFA franc), the same official language (French, except Guinea Bissauand Guinea Equatorial), the same legislation and the same supra-nationalregulatory and supervisory body of the insurance sector.- Near this structured and highly integrated space co-exist seven (7) countriesof which 5 Anglophone (Gambia, Ghana, Liberia, Nigeria and SierraLeone), one francophone (Republic of Guinea) and one Lusophone (Capepage 44

Verde). Each of this group of non-homogenous countries has a separate legislation and regulation of its insurancesector, a more or less structured and modern organization of the insurance sector.The total 2009 turnover of the ECOWAS direct insurance sector stands at US Dollars 2.273 million with the followingcomposition:99 insurance companies in the WAMU zone for a total turnover of US $ 815,7 million;49 companies in Nigeria for a total turnover of US $ 1,187 million;41 companies in Ghana generating US $ 239,3 million of turnover;8 companies in Sierra Leone for US $ 10,7 million of turnover;8 companies in the Gambia for US $ 7,3 million of turnover;7 companies in Liberia and 2 in Guinea Bissau which premium data are not available.The leading markets of the ECOWAS region are Nigeria and Côte d’Ivoire with respectively 52% and 16% of marketshare. They are followed by Ghana with 10% of market share and Senegal which enjoys 7% of the ECOWASmarket. The market share of the other member countries remains marginal at 15% total of 11 countries.The specificity of the ECOWAS region is that cession rate (in favour of the reinsurance sector) stands at 23%. Thisrelatively high cession rate means that the capital (i.e. equity) base of the large majority of insurance companiesremains largely insufficient. This translates into increasing difficulties of the region to absorb large insurance riskswithout external reinsurance support.Ms. Funmi OmokhodionG. Assistant DirectorAFRICA REpage 45

3. Key Challenges of the ECOWAS Insurance Sector:Heterogeneous Sector Constrained by a High Level of Unpaid PremiumsGiven the limited availability of data outside the CIMA zone, an objective and exhaustive assessment of the regionalinsurance market is difficult. Our assessment will therefore be based largely on data from FANAF (Fédérationdes Sociétés d’Assurance de Droit National Africain) of the CIMA countries which include 8 member countries ofECOWAS, based on FANAF 2009 report.The ECOWAS insurance market remains therefore characterized by the following:Large players with an adequate level of turnover and good management which translates into a control ofmanagement and operating costs and an acceptable level of unpaid premiums.Players of average size, different levels of management and operating capacity, and different levels ofpremium income rather on the high side.Many small players that have not yet achieved the critical mass that should guarantee their financialviability. Most of these small players have a relatively high level of unpaid premiums.The magnitude of unpaid premium coupled with the poor control of expenses (overhead and technical charges)constitute the key vulnerability factors and impact negatively the solvency of insurance companies and their capacityto meet their financial obligations vis-à-vis policy holders and other partners.4. Key Trends in the ECOWAS Insurance and Reinsurance SectorKey trends in the regional insurance and reinsurance sector include:Regulatory authorities’ decision to Increase the minimum capital requirements for insurance companiesto enhance capacity in the large majority of ECOWAS countries: CIMA (francophone) countries (from $2 million to 5 million), Nigeria from $ 5 million to 10-15 million)Consolidation in the industry and the emergence of regional insurance groups such as NSIA group,Colina group, Sunu group, and the Globus network.Emerging risks are being increasingly considered by customers and insurers: political risk (such asterrorism) and pollution risk.The development of new capital-intensive sectors (oil, mining, infrastructure, etc.) requires increased insuranceand reinsurance services not adequately supplied by the existing indigenous ECOWAS insurance/reinsuranceplayerspage 46

VII REGIONAL REINSURANCEMARKET1. Key Players of the ECOWAS Reinsurance MarketReinsurance services in the ECOWAS region are supplied by a limitednumber of players that include:Africa Re, the only pan-African reinsurer, African reinsurancemarket leader, and 40th reinsurance company globally;Two regional reinsurance companies: (i) CICA RE a US $ 40million capital reinsurance company created by CIMA and inoperation since 1984 that covers CIMA member countries and isheadquartered in Lome-Togo; (ii) WAICA RE, just created in 2011with a US $ 25 million capital target ($10 million raised s atDecember 31st, 2011). Both CICA RE and WAICA RE profile areattached as annexes to this study.National private reinsurance companies: e.g. Continental Re inNigeria, Aveni Re in Côte d’Ivoire, Mainstream ReinsuranceCompany in Ghana.National state-owned reinsurance companies (all in the processof being privatized): Ghana Re (in Ghana), SenRe (in Senegal),Nigeria Reinsurance Corporation, etc.Except Africa RE which is the only meaningful African reinsurance player,the other reinsurers suffer from a low capacity in terms of capital base anda relatively low credibility outside their natural marketpage 47

2. Demand for Additional Reinsurance CapacityIn light of the low insurance/reinsurance retention rate in the region and the increasingly high demand for additionalinsurance/reinsurance services for emerging sectors such as the oil, mining and infrastructure ones, demandfor additional local capacity in the sector has been unanimously validated by the totality of the insurance sectorstakeholders. Incidentally, the significance of the regional demand for reinsurance services has been confirmedby the near totality of stakeholders.Key drivers of demand for insurance and reinsurance services in the ECOWAS region include the following:Regional economic growth is projected to be consistently above 3% - 5% annual growth rate for the largemajority of ECOWAS countries over the near term.Demand for and prospects for new investments in the region are high, namely with significant demandin energy infrastructures, transport infrastructures, oil and mining, manufacturing, agri-business and theservice sectors.The region’s middle class is growing steadily with increasing awareness for insurance.Insurance penetration rate which is at less than 2% for the region is expected to increase in the near termwith the promotion of micro-insurance, further development of the life insurance sector with the expansionof the region’s middle income class, the advent of compulsory insurance in sectors such as construction,the promotion of financial literacy among the general population as well as improved insurance awarenesscampaign by insurers namely micro-insurers.Regulators in key insurance markets have vowed to promote life insurance coverage through fiscal incentivesat both insurance premium and capitalization levels.Compulsory insurance is being gradually instituted across key risky industrial sectors such as construction.page 48

VIII ECOWAS REGIONALREINSURANCE AGENCYThetheoretical requirements for setting-up and operation of an ECOWAS Regional Reinsurance Agencyneed to be built around a number of requirements.1. Capital BaseFor a reinsurance company, the capital base determines the confidence level of ceding insurance companies,its premium retention capacity, and the ability to meet financial obligations. This is all the more important that thenew solvency norms implied by the IAIS “Solvency II Norm” stress the migration from a « resources – expenses» approach to a « risk – capital » one.Furthermore, for any ECOWAS-supported reinsurance company, local regulation, the capital levels of competingreinsurance companies, and the ambitions of that reinsurance company should determine the adequate level ofcapital required. In that respect, it is worth considering what the shareholders funds are at key reinsurance companiesoperating in and outside the ECOWAS region are.Against this background, a minimum start-up capital level of US$ 50 million is proposed to support an activitylevel of US$ 200 million for a new reinsurance company in the region; capital level that could be progressivelyincreased based on business growth.page 49

Hence for the ECOWAS region we propose the following capital level and fund raisingschedule for the new Reinsurance Agency:Table 14: Capital and Fund Raising Schedule(In millions of US$):Year 1 Year 2 Year 3 Year 4 Year 5 Years 6 to 10Authorized capital US$ 100 US$ 100 US$ 100 US$ 100 US$ 100 US$ 100Subscribed capital US$ 50 US$ 50Called-up capital US$ 50 US$ 50Paid-up capital US$ 50 US$ 50Total capital raised US$ 50 US$ 50 US$ 50 US$ 50 US$ 100 US$ 100From year one, paid-up capital level is supposed to reach the total level of subscribed and called-up capital at US$50 million to avail the Agency with the level of capital needed to support its operations.The shareholding of the companies will be composed of:Class one shareholders: Private insurance companies and reinsurance companies of the ECOWASregionsClass two shareholders: Reinsurance companiesClass three shareholders: Development Finance Institutions – IFC, EIB, FMO, and governments ofECOWAS countries2. Choice of Headquarters and Headquarters AgreementThe project headquarters and location choice will be based on competitiveness criteria (acceptable country riskfactors, logistical services requirements, dynamism and size of the local insurance/reinsurance market) and incentivescriteria (local government incentives, office location premium, capital contribution) displayed by the targetlocation country. This should be complemented by a comprehensive headquarters agreement around foreign currencyaccount, transferability, and fiscal and diplomatic status related incentivespage 50

3. Strategic positioningThe agency should be positioned as one of the primary reinsurers in Africa. To that end two critical success factorsshould be proactively managed:The agency should secure legal cessions, like regional agencies such as CICA-RE which receives 15%of all conventions and AFRICA-RE which enjoys a 5% rate of legal cessions. Given the fact that the newagency will cover a region larger than that of CICA RE, a 10% legal cession rate could help the agencyachieve its objectives. However, it is anticipated than number of difficulties needs to be overcome:The agency should develop a strategy by offering additional capacity in: (i) niche sectors that enjoys alimited supply of services such as the energy sector, a segment largely reinsured on the London market,given its specific nature and the significant level of capital involved; (ii) special risks (civil unrest, war,terrorism, sabotage, etc.) for which reinsurance capacity is quasi non-existent in the west African market.4. Meeting Interactive Rating RequirementsOne of the primary objectives of the sponsors and the management team of any regional reinsurance agencyshould be to secure a certified rating of at least « Investment Grade, (i.e. BBB-) from Standard & Poor’s which isthe most credible rating agency for the insurance and reinsurance sector.This rating is crucial to enhancing its competitive position on the traditional ECOWAS market as well as the developmentof business linkages with other markets and major players which consider credible rating as a prerequisiteto any business relationship.Hence, from the start of operations, Standard & Poor’s (S& P) should be approached with the view to adoptingthe strategy, organization and procedures of the agency around rating requirements.Rating methodology for reinsurance companies, as defined by S&P’s is based on the following eight (8) specificareas:Rating of Reinsurance Companies – Key Areas 4• Economic risk and sector-specific risk• Competitive risk• Management strategy and business strategy• Risk management• Operating performance• Investment• Capital adequacy (adequacy of reinsurance cover and reserves included),• Liquidity and financial flexibility4 Refer to Standard& Poor’s, « Guide for the analysis of the financial strength of insurance companies».Document available at :http://www2.standardandpoors.com/spf/pdf/fixedincome/AGAIFS_French_14.9.07.pdf.page 51

Mr. Daniel Fola | Commissioner, NAICOM5. Structuring the ECOWAS Reinsurance Sector Support Project - WAICA Re andCICA Re RelationshipThe regional insurance/reinsurance market welcomed the idea of supporting the regional reinsurance sector namelywith the view to keeping reinsurance premium in the region and, incidentally, maximizing “industrial” localcontent, namely, in sectors such as oil, mining, infrastructure and manufacturing.However, the overwhelming majority of stake holders suggested strongly that ECOWAS support to the regionalreinsurance sector does not result in the creation of a new institution. They rather suggested that the support bearticulated in the form of developing the financial and technical capacity of the existing regional reinsurance institutionssuch as WAICA RE for English-speaking ECOWAS countries and CICA RE for French-speaking countriesand Guinea Bissau.Both the nascent WAICA RE and the existing CICA RE have welcomed the idea of a partnership with ECOWASin this endeavour via modalities that need to be discussed in further details with ECOWAS.Hence it is suggested that ECOWAS considers a support programme to the regional Reinsurance sector throughthe following:Reinsurance sector financial capacity support programme through a conditional capital contribution supportto WAICA Re and CICA Re through a matching equity injection programme.Reinsurance sector technical capacity support programme to WAICA Re and CICA Re and other reinsurancecompanies of the region in partnership with AFRICA Re and Global Reinsurance Companies in theareas of:(i)(ii)(iii)(iv)underwriting and claims management;risk management;rating management;emerging insurance/reinsurance risk underwriting in the oil, infrastructures and agriculture sectors.page 52

However, beyond its targeted support to the reinsurance sector, ECOWAS and UEMOA should closely work withthe main regulatory bodies and business associations of the regional insurance sector (CIMA, NAICOM, NIC,FANAF and WAICA) to:Enhance the regulatory framework of the regional insurance sector.Articulate and implement specific programmes aimed at improving insurance penetration rate across theregion, namely through the development of life insurance and micro-insurance, etc.Enhance the ECOWAS Brown Card programme.ECOWAS overall support programme to the regional reinsurance and insurance sector involves a total of US $117.5 million of equity capital injection and US $ 1.88 million of grant and technical assistance.Table 15: ECOWAS Support Programme to the Regional Reinsurance/Insurance SectorProgramme Components Type of Capital Amount (US $ million)Matched Equity Capital Injection Programme forWAICA REMatched Equity Capital Injection Programme forCICA RETechnical Capacity Building for the ReinsuranceSectorTechnical Capacity Building to the InsuranceSectorEquity 55Equity 62.5Grant 1.22Grant 0.66page 53

IXCONCLUSIONS ANDRECOMMENDATIONS1. PRI Agency EstablishmentPractical <strong>Feasibility</strong>:There is significant quantifiable demand for a PRI Agency providing cover for, in particular, cross borderinfrastructure projects in the ECOWAS Region.The idea of setting up such an Agency is supported by the Members of ECOWAS.Potential support is also forthcoming from MIGA and ATI.Financial <strong>Feasibility</strong>:Based on detailed estimates of potential income and operating costs the Agency is likely to quickly become profitable (14.5% RRI) – subject to proper capitalisation (a minimum of 300 million US$) and the installationof good management.The inclusion of Trade Finance Insurance in the Agency’s portfolio is considered to be important.Partnerships:MIGA has expressed potential interest in becoming a shareholder in a new Agency and in supporting itwith technical knowhow.ATI has forcefully made clear its wish that the ECOWAS Region as a whole should become a Shareholderin ATI thus extending cover for the Region through an expansion of ATI’s Branch Network.Conclusion:There is significant demand for a new PRI Agency for the Region – this demand can either be met by providingthese services through a new stand alone Agency set up by ECOWAS or by investing in ATI thus allowing anexpansion of that Agency’s Branch Network.page 54

2. Insurance and Reinsurance ServicesThe consensus amongst existing Insurers in the Region – both from the English and French speaking Countries– was that there were sufficient Agencies in the Region to provide the services required. What was required wasa support programme covering the following:Reinsurance sector financial capacity support programme through a conditional capital contributionsupport to WAICA Re and CICA Re through a matching equity injection programme.Reinsurance sector technical capacity support programme to WAICA Re and CICA Re and other reinsurancecompanies of the region in partnership with AFRICA Re and Global Reinsurance Companies inthe areas of:(i) underwriting and claims management;(ii) risk management;(iii) rating management;(iv) emerging insurance/reinsurance risk underwriting in the oil, infrastructures and agriculture sectors.However, beyond its targeted support to the reinsurance sector, ECOWAS and UEMOA should closely work withthe main regulatory bodies and business associations of the regional insurance sector (CIMA, NAICOM, NIC,FANAF and WAICA) to:Enhance the regulatory framework of the regional insurance sector.Articulate and implement specific programmes aimed at improving insurance penetration rate acrossthe region, namely through the development of life insurance and micro-insurance, etc.Enhance the ECOWAS Brown Card programme.ECOWAS overall support programme to the regional reinsurance and insurance sector involves a total of US $117.5 million of equity capital injection and US $ 1.88 million of grant and technical assistance.page 55