De-risking Business Opportunities along the Silk Road Using Credit and Investment Insurance to Boost Exports, Development Projects, Interconnectivity and Green Growth
Of the six Central Asian countries – Azerbaijan, Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan – four have acceded to membership of ICIEC, with the remaining two, the Kyrgyz Republic and Tajikistan, expected to join imminently following active engagement between the Corporation and the respective governments. Central Asia is a region in transition. Since its extrication from the yoke of the Soviet Union, the republics have been navigating their pathways to economic and societal prosperity based on their respective development agendas. While this journey has at times been difficult at times both at home, in the region and amid global economic uncertainties, the region’s collaboration with the IsDB Group and ICIEC has shown huge potential in national advancement, regional interconnectivity and intra-OIC trade and investment. Oguz Aktuna explores the opportunities and challenges that lie ahead.
The first country I travelled to in Central Asia was Kazakhstan in 2011. It was on a mission to discuss and the subsequent implementation of the IsDB Group’s Member Country Partnership Strategy (MCPS) for Kazakhstan.
By then, Kazakhstan was the only ICIEC Member State in the region. In the last twelve years, we made numerous visits to the region, some of them with the CEO Mr. Oussama Kaissi to invite the central Asian countries to accede to membership of ICIEC. Often colleagues from the Underwriting and Legal Affairs departments accompanied us to deliver due diligence reports and documents of different transactions and sometimes to attend seminars and conferences.
Two common characteristics of ICIEC Member States in Central Asia are that they are former Soviet Union countries and are landlocked. At the same time, they are rich in hydrocarbon and mineral resources. Therefore, their economies are mainly built on the revenues of such resources. Not surprisingly, their governments have been aiming to diversify their economies. In this respect, they are keen to promote private sector development and exports.
In order to attract Foreign Direct Investment (FDI), they have passed new investment laws or improved the existing legal and regulatory frameworks and have established Investment Promotion Agencies (IPAs) such as AZPROMO, UZIPA, and KazakhInvest.
These Members States of ICIEC also follow their National Development Strategies to achieve a diversified economy. As such, they actively cooperate with MDBs such as the IsDB Group, the European bank for Reconstruction and Development (EBRD), Asian Development Bank (ADB), the World Bank (IBRD), the Asian International Infrastructure Bank (AIIB), and International Financial Institutions (IFI) to find innovative solutions and expand the sources of funding for projects in agriculture, infrastructure, energy, healthcare, education, transportation, climate change, food security, and so on.
As an alternative to funding projects from their national budgets, Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan developed their own Public Private Partnership (PPP) legislation frameworks to attract foreign direct investors and IFIs in government projects. Although the application stages of the PPP differ from country to country, all will have projects funded by this method soon. As a priority of the governments, Central Asian Member States have been heavily investing in education and human capital development, and consequently, they possess a growing cadre of young and well-qualified human resources.
Regional Connectivity
Regional cooperation is increasing among these countries, and joint funds and institutions/companies are being established for the common development of their economies. Cooperation also has a geographical perceptive and background. Central Asian countries are all neighbouring states, and they are on the historical Silk Road.
With the rise of East-West trade, due to the congestion of the seaports in the East and the progress of the Central Asia Regional Economic Cooperation Programme, Central Asian countries are becoming a centre of focus, and they cooperate in building new and upgrading the existing transport infrastructure and connectivity, including railways and ports on the Caspian Sea for an efficient and short route to European markets.
Being neighbours to Russia and/or having export-import relations established during the Soviet Union era, Central Asian states face difficulties due to the war in Ukraine and the resulting sanctions on Russia. Consequently, in several cases, they are forced to find new clients in foreign markets to export to. In line with their strategies to support non-mineral exports, some have established their own Export Credit Agencies (ECAs) with whom ICIEC has been cooperating in providing reinsurance services, such as KazakhExport and UzbekInvest. The volumes of exports insured by these entities are increasing as exports increase year-on-year.
At ICIEC, we are confident that as an exporter of agricultural commodities, livestock, and processed food, Central Asia can and will cater to the needs of the world in terms of food security. ICIEC has been closely following the Central Asian region’s needs in trade credit and investment insurance and guarantees to provide on-time and high-quality service to its Member States there as it does in all its 49 Member States. As the number and volume of transactions from the region are increasing, ICIEC has decided to have a physical presence on the ground and has recently appointed staff to its Regional Hub in Almaty, Kazakhstan.
ICIEC and Kazakhstan
Kazakhstan joined ICIEC as a Member in 2003 – its oldest Central Asian Member State. Since then, ICIEC has insured a total of US$7.2 billion for trade transactions in Kazakhstan. This total can be broken down into US$3.1 billion in cover for the import of strategic goods into Kazakhstan and US$4.2 billion in cover exports from Kazakhstan.
ICIEC’s portfolio includes transactions related to imports of excavators and dump trucks from Japan for the mining industry as well as other types of capital goods and strategic goods for other industries. On the export side, ICIEC is supporting the export of locomotives, electronic goods, and other manufactured goods. ICIEC’s involvement in trade transactions helps Kazakhstan’s manufacturing, mining, and other sectors in increasing production capacity and securing new jobs. Diversification of the economy is a major goal of the Government of Kazakhstan as the major source of revenue is from hydrocarbon exports.
In line with ICIEC’s priority to cooperate with the national ECAs of Member States and help them support their countries’ exports, ICIEC has maintained an excellent relationship with KazakhExport, signing an MoU for cooperation in 2014. The MoU promotes cooperation and expands the insurance capacity of both institutions. In 2015 and 2023, ICIEC extended US$25 million in reinsurance support to KazakhExport for the export of locomotives to Azerbaijan Railways. In 2021, ICIEC concluded a Facultative Reinsurance Agreement with KazakhExport for exports to Uzbekistan, Tajikistan, and other countries.
ICIEC is closely following the PPP projects in Kazakhstan and is in contact with foreign investors, the Kazakhstan PPP Centre, and international banks to support PPP projects in the country. ICIEC is also working with its IsDB Group peers IsDB, ITFC, and ICD to enhance the Group’s synergy and expand joint operations in Kazakhstan.
ICIEC and Turkmenistan
Turkmenistan became an ICIEC Member in 2019. In 2022, ICIEC provided US$40 million in insurance coverage to ING Bank for a financing facility in Turkmenistan for the purchase of Komatsu earthmoving machinery from Japan for the development of the country’s agriculture sector. The seven-year insurance cover mitigates non-payment risk and comes under ICIEC’s Non-Honouring of Sovereign Financial Obligation (NHSFO) Policy. The facility was extended to the Government of Turkmenistan through the State Bank for Foreign Economic Affairs (TFEB).
Agriculture is a significant economic sector in Turkmenistan. The imported machinery will be used to build and maintain irrigation canals in the agricultural regions. This will help the economy to diversify from dependence on the hydro-carbon sector. The development impact of the facility and insurance coverage is wide-ranging. It includes reducing Turkmenistan’s exposure to volatile commodity prices, diversifying the economy and exports, stabilizing import substitution and balance of payments, improving food self-sufficiency and the efficiency of the agriculture sector by providing the latest irrigation technology, thus increasing yields, and promoting the rational use of water resources and the provision of clean water.
The facility is in support of five U.N. SDGs, namely achieving Zero Hunger (SDG2) through food security, improved nutrition, and sustainable agriculture, provision of Clean Water and Sanitation (SDG6), promoting Responsible Consumption and Production (SDG12), contributing to Climate Action (SDG13) and forging Partnerships for Sustainable Development (SDG 17).
Similarly, in 2022, ICIEC provided US$20 million in insurance coverage to ING Bank (Tokyo Branch) for a financing facility to Turkmenistan to buy Toyota taxis, buses, and minibuses supplied by Sumitomo Corporation. The vehicles will be used for intra and intercity transportation in Ashgabat and throughout Turkmenistan and will help ease congestion.
The seven-year insurance cover mitigates non-payment risk and comes under ICIEC’s Non-Honouring of Sovereign Financial Obligation Policy. The financing facility was similarly extended to the Government of Turkmenistan through the State Bank for Foreign Economic Affairs (TFEB).
The transport infrastructure is an important part of the development of the economy. In 2020, transport contributed 4.5% to the country’s GDP. Roads are the predominant mode of transport in Turkmenistan, carrying roughly 86% of total freight volume and about 60% of total passengers. Throughout the country, existing roads are being upgraded, and new roads are being built. The vehicle fleet is also being upgraded with the purchase of new buses, trucks, and taxis.
The transport sector plays a vital role in Turkmenistan, which is becoming a key transit country in Central Asia under the Central Asia Regional Economic Cooperation Programme. The efforts to provide better links to and within Turkmenistan are expected to lead to more jobs, higher incomes, and less poverty throughout the country.
The facility is in support of three U.N. SDGs, namely achieving Decent Work and Economic Growth (SDG8) through promoting sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all, Industry Innovation and Infrastructure (SDG9) through building resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation, and Sustainable Cities and Communities (SDG11) by making cities and human settlements inclusive, safe, resilient, and sustainable.
Since Turkmenistan’s membership accession to ICIEC in 2019, the Corporation has contributed to promoting foreign direct investment and expanding the country’s export base. ICIEC stands ready to support Turkmenistan by mitigating political and commercial risk for trade and investment through the provision of its Shariah-compliant insurance solutions for banks, corporates, export credit agencies, and other insurers. ICIEC prioritizes support for projects that contribute to Turkmenistan’s strategic development goals.
ICIEC and Uzbekistan
Uzbekistan joined ICIEC as a Member in 2019. ICIEC has insured a total of US$758 million business activities in Uzbekistan to date, comprising US$495 million in trade and US$263 million investment-related transactions.
In the telecommunications sector, ICIEC provided a total cover of US$50 million for transactions between two of China’s largest telecom equipment manufacturers and Uzbekistan’s state-owned telecom operator. ICIEC’s support enabled Uzbekistan to facilitate growth in its telecom sector and aligned with the Government’s National Development Strategy for 2017-21.
In energy investments in Uzbekistan, ICIEC provided US$60 million in support for Uzbekistan’s energy generation and transmission investments in a transaction signed on 11 April 2022. In the five-year deal, ICIEC provided political risk insurance (PRI) coverage for Hidro Enerji to make an equity investment of US$40 million in Odas Enerji CA, Uzbekistan.
This is a special purpose vehicle (SPV) for the Engineering, Procurement, and Construction (EPC) of a 174-megawatt combustion engine combined cycle power plant in the Khorezm region of the country. The project is estimated to generate US$20 million of revenues under a Power Purchase Agreement (PPA) signed with the Government of Uzbekistan.
The equity investment insurance is against three risks (breach of contract, expropriation, and transfer restriction) and follows an investment agreement signed by Odaş Enerji and the Government of Uzbekistan (represented by the Ministry of Investment and Foreign Trade). The investment aims to improve energy infrastructure, increase energy efficiency, reduce power outages in the Khorezm region, support employment and economic growth, and contribute to the government’s industrialization and import substitution ambitions.
ICIEC has been active in supporting the mining and metals industry in Uzbekistan. ICIEC extended EUR30 million reinsurance support to EXIAR (the Russian ECA) for the construction of the Tashkent Metallurgical Factory, which will produce steel for the automotive industry and create over 600 jobs.
In 2022, ICIEC provided a US$75 million cover in support of Uzbekistan’s vital mining capital expenditures. The five-year deal provided cover to ICBC Standard Bank (UK), for non-payment risk in a syndicated financing facility for Navoi Mining and Metallurgical Company (NMMC) in Uzbekistan. NNMC will use the funds for capital expenditure purposes.
NNMC is specifically involved in the production of precious metals. Gold is Uzbekistan’s major export, and the mining industry provides a major source of growth to the economy, which was impacted by the pandemic. The project aims to help with the government’s industrialization and sustainable mining efforts. NMMC currently supports the economy as it contributes to increasing tax and dividends amounting to around 20% of GDP, helping to narrow the budget deficit.
ICIEC provided a non-payment cover to ICBC Standard Bank using its Non-Honouring of Financial Obligation by a State-Owned Enterprise (NHFO-SOE) policy. Through the creation of direct and indirect jobs and the modernization of mining equipment, the project is contributing to two of the UN Sustainable Development Goals (SDGs). These include SDG8 (improving sustained, inclusive economic growth and decent and productive employment), and SDG9 (improving industry, innovation, and infrastructure by building resilient infrastructure, fostering innovation, and promoting inclusive and sustainable industrialization).
ICIEC has also been active in financing the agriculture, SME, and banking sectors in Uzbekistan. Since 2020, ICIEC provided insurance coverage to international financial institutions for their lending to banks in Uzbekistan, such as Sanoat Qurilish Bank (SQB), Agrobank, Mikrokreditbank, and Asakabank. The banks further on-lend to the agricultural sector, SMEs, and clients for trade financing purposes.
By facilitating investment in strategic sectors, ICIEC promotes FDIs as well as financings, thereby supporting Uzbekistan’s specific development goals. In August 2021, ICIEC, Uzbekinvest, the Export-Import Insurance Company of Uzbekistan, and Uzbekinvest International Insurance Company Ltd (UK) signed an MoU supporting cooperation in expanding the insurance capacity of the institutions. In June 2021, ICIEC signed another MoU with the Investment Promotion Agency (UZIPA) under the Ministry of Investments and Foreign Trade to cooperate in attracting FDI into the country.
Similarly, on 20th July 2023, ICIEC and the State Asset Management Agency of the Republic of Uzbekistan (UzSAMA) signed an MoU, whereby the two entities will collaborate in exchanging experiences in the privatization process. Both parties have committed to advancing their cooperation to attract potential investors for privatized state assets in Uzbekistan. ICIEC is in contact with the PPP Development Agency and international banks to explore opportunities to support PPP projects in Uzbekistan’s energy and healthcare sectors. ICIEC is cooperating with international banks for their lines of financing to Uzbek banks and entities.
ICIEC and Azerbaijan
Azerbaijan acceded to ICIEC Membership in 2023. To date, ICIEC has insured a total of US$104.8 million in business activities, comprising US$59.5 million in trade and US$45.2 million in investment-related transactions in Azerbaijan.
ICIEC is working closely with the Government of Azerbaijan to support economic and social infrastructure projects in trade, agriculture, infrastructure, healthcare, education, renewable energy, water, sanitation, transportation, and urban development. ICIEC supports Azerbaijan’s 2030 National Priorities for Socio-Economic Development Plan by promoting sustainable economic growth and high social welfare through its financing and insurance in line with the Government’s priority of building a country of “Green Growth” and a clean environment.
ICIEC’s presence as a partner provides a measure of reassurance and encouragement to potential investors seeking opportunities in Azerbaijan. The investment projects provide employment, enhanced, modern and efficient infrastructure, and better quality of life for citizens.
