Introduction
The COVID-19 pandemic has presented our corporation, and governments around the world with unprecedented challenges. There is much to be learned from this period, as ICIEC strives to deliver on its mandate to facilitate trade, even under the most difficult circumstances. Going forward, it is important that we glean lessons from this difficult period, so that our corporation, and the economies of our member countries, are more resilient and adaptive to such economic shocks in the future. The pandemic has taught us about the importance of ICIEC’s support in periods of trade turmoil, the importance of increasing integration and cooperation among markets in the Global South, the need for prudent risk management in global trade, and the acceleration of the digital shift in worldwide commerce.
Protectionism
Over the course of the COVID-19 pandemic, the many decades of ever-increasing global integration have begun to reverse. The confidence that exporters and importers once had when doing business across borders had dimmed significantly in the early months of the pandemic. As it became clear that the virus would be with us for the foreseeable future, with no easy fix in sight, many nations turned more inward, particularly in regard to medical supplies and essential commodities, as 92 jurisdictions imposed a total of 215 export controls on medical supplies, while 62 jurisdictions had imposed a total of 62 export controls on food exports over the course of 2020.
This protectionism, and general unwillingness to trade essential goods, would hurt the least developed countries (LDCs) the most. These LDCs are often net food importers and do not manufacture the medical equipment necessary to support their needs while the pandemic limited their access to essential goods. As such, over the course of the pandemic-induced trade crunch, ICIEC’s role of facilitator for trade and investment was more important than ever before.
ICIEC’s export credit and investment insurance provides exporters and investors with the confidence to do business across borders. During 2020, our cover provided trust when it otherwise may not exist by providing trade partners with the comfort that the risk of non-payment was mitigated; such comfort is especially important in a time of economic uncertainty. We learned that our role is most critical when the trade atmosphere is characterized by barriers and reluctance to trade. The trade transactions facilitated by our insurance cover promoted development, kept the wheels of economic progress turning, and improved the livelihoods of those in our member countries that would otherwise not have access to the essential goods that they needed.
Trade is the engine of the international economy, and the key mechanism by which we are able to gain access to all of the goods we need. As such, ICIEC will continue to address protectionism and reluctance to trade as it continues to facilitate trade among businesses in the OIC and beyond.
The need for strategic south-south trade
With countries in the Global South struggling to access medical equipment and critical goods such as food from their trade partners in more developed countries, the pandemic highlighted the need for enhanced South-South trade. With nations in the Global North hesitating to sell essential goods to other nations, the pandemic showed that North-South trade could not always be relied upon, and that nations would have to diversify their supply chains in order to have consistent access to essential goods.
At ICIEC, promoting trade and investment within our member countries and within the OIC is among our top priorities. Although recent protectionist measures and the breakdown of supply chains presents serious concerns, the OIC region has the potential to insulate itself from such severe trade shocks going forward by working together. By relying on our partners in the OIC, and in the Global South more broadly, not only do we develop one another’s economies, but we also ensure that they are more resilient and self-sufficient. Over the course of the pandemic, ICIEC worked to deepen regional trade and investment ties, across the OIC. This commitment to deepening south-south and intra-OIC trade and investment led to ICIEC supporting USD 5.1 billion of intra-trade and intra-investment among OIC countries in 2020. Of that USD 5.1 billion, USD 4.5 billion supported intra-trade among OIC countries and USD 588 million supported intra-investment among OIC countries.
Economies in the OIC and the Global South more broadly are growing, increasingly diversified and better able to meet consumer demands than ever before. With increased trade integration among such countries, their resilience will greatly improve. For example, OIC member countries are vulnerable to distant trade partners suddenly refusing to trade certain goods. By trading with their partners in the OIC instead, OIC member countries can build more reliable trade relationships that are characterized by greater cultural, political and economic similarities. Importantly, such trade will spur further development in such countries, allowing them to produce more sophisticated goods, which they often rely on the Global North to supply. As our interests are aligned, the unity that comes from such alignment allows us to much better weather crises as our nations are able to lean on one another, thereby providing greater business continuity and protecting the economic livelihoods of our people in the process.
Cooperation and collaboration
COVID-19 has greatly damaged the global economy. Supply chains have come under pressure, trade has declined, and interest in cross-border investment has waned sharply. All of these factors have greatly hampered the speed of the world economy’s recovery. While some governments have successfully implemented policies to manage the pandemic and protect businesses and citizens, many have found it challenging to keep economic activity afloat while keeping their populace safe. The pandemic has taught us at ICIEC the importance of cooperation and collaboration in delivering health, safety, and economic security to citizens across the OIC. With a crisis such as COVID-19, that can grow exponentially, a coordinated response is crucial. As the presence of the virus expands, so too do the disastrous health and economic implications that come with it. As such, ICIEC has diligently worked with its partners to address the effects of the pandemic in the OIC.
As the multilateral export credit and investment insurance arm of the Islamic Development Bank (IsDB) Group representing 47 countries across the OIC, partnering with our sister institutions in the IsDB Group is a crucial way by which we work to overcome the pandemic. The COVID-19 pandemic decimating economies in the OIC countries has only strengthened intra-IsDB partnerships as our organizations work to protect the livelihoods of the citizenry across the OIC. As an example, ICIEC participated in the IsDB Group’s ‘Strategic Preparedness and Response Program (SPRP)”, through which ICIEC’s contribution of USD 150 million in credit and political risk insurance is helping to facilitate imports of strategic commodities, protecting investments, and minimizing volatility in member countries. Recently, ICIEC has partnered with the poverty alleviation arm of the IsDB Group, the Islamic Solidarity Fund for Development (ISFD), to establish the ‘ICIEC-ISFD COVID Emergency Response Initiative’ (ICERI). The fund has structured a concessional all-in pricing mechanism to help preserve the flow of essential imports to OIC countries. Through our OIC partnerships, we have ensured that our citizenry has better access to essential goods, and that the business continues flowing, thus softening the blow that COVID-19 has had on our member country economies.
ICIEC not only has worked to mitigate the effects of COVID-19 by partnering with fellow IsDBG institutions, but also by partnering with fellow ECAs. By covering investments in coordination with partner ECAs, ICIEC supports the development of its member countries, thus helping them better insulate themselves from the effects of economic crises as these projects can provide employment, improved infrastructure, and a better quality of life for citizens.
Through close cooperation with national ECAs, ICIEC is able to provide them with additional insurance capacity through facultative and treaty re-insurance mechanisms. ICIEC offers technical assistance and supports national OIC ECAs to launch new insurance instruments by providing tailored co- and re-insurance support and facilitating smart partnerships with other development players. Through expanded trade coverage under coinsurance and reinsurance agreements, firms in member countries can access new markets, grow in existing markets and in the process generate employment and economic growth, giving a much-needed economic boost to ICIEC member countries.
Over the course of the pandemic, ICIEC has made efforts to form new partnerships, while strengthening existing ones. To this effect, ICIEC has signed four new MoUs, cooperating with national ECAs from both MCs and non-MCs. These were with Uzbekistan’s Uzbekinvest, Austria’s OeKB, the U.K.’s UKEF, and Spain’s CESCE. These MoUs provide the opportunity to enter co-insurance, reinsurance, or cooperation agreements, to engage in joint projects that support exports and investment, and to participate in capacity building and technical assistance programs. Such partnerships are crucial for supporting economic interest in the OIC region as they allow both OIC, as well as foreign actors to more safely and easily do business with OIC markets.
Overall, the COVID-19 pandemic has showed us that together we are stronger. ICIEC enacted this lesson by forging new partnerships and participating in strategic initiatives which would allow it to have a greater effect in mitigating the crisis than would otherwise be possible. This direction of increased integration and partnership is one which ICIEC will continue to pursue long after the COVID-19 crisis has been overcome.
Risk Management
ICIEC’s export credit and investment Takaful allows for customers to better manage the risk of doing business across borders, thereby providing them with the confidence to trade and invest with foreign actors. Its cover provides protection against negative political, economic and non-payment risks, on what would be otherwise attractive trade transactions and investments. Over the course of the pandemic, we have learned how crucial the risk mitigation we provide is in order to ensure business continuity. Our cover provides support to exporters, investors and financial institutions as it reduces the downside risk of transacting, thereby increasing these entities’ trust that they will receive the money they are owed. The large degree of demand for our support, despite a challenging economic environment, was exemplified through our USD 9.9 billion in business insured.
ICIEC insures against a range of commercial and political risks which would lead to non-payment, such as insolvency of the buyer, currency inconvertibility and transfer restrictions, contract frustration etc.. This carries a number of benefits for exporters, including balance sheet protection, increased international sales, improved access to working capital, and many others. Over the course of COVID-19, with insolvency rates high and rising, and with the risk of non-payment looming, such risk mitigation was essential. By covering such risks, ICIEC was able to support trade and investment in 34 member countries, while having its products utilized by a total of 764 entities.
By reducing the risk of international trade and investment transactions, ICIEC has been able to facilitate business that otherwise might not have taken place over the course of the pandemic. Of course, this benefit is of value to businesses and governments alike, especially while their economies are suffering against the backdrop of the COVID-19 pandemic. By spurring such business, ICIEC is able to ensure a better quality of life for the citizens in its member countries.
Shifting to a digital economy
The COVID-19 pandemic has greatly accelerated the digital transformation in business, with companies increasingly moving their services, products, and operations online in order to adapt to the new normal that is imposed by the pandemic. ICIEC has worked to support economies in the OIC as they make this digital shift.
As governments have sought to minimize infection risk by enforcing social distancing measures – and in some cases lockdowns – citizens and businesses have been relying on technology, to continue essential tasks, stay connected with each other and to do business across borders. Through ecommerce, companies and consumers have been able to avoid the risk of infection that exists when shopping at a brick-and-mortar storefront. To illustrate the extent of the digital revolution catalyzed by COVID-19, in Saudi Arabia, the value of the ecommerce market in 2020 amounted to USD 5.5 billion, as compared to USD 3 billion in 2017. Across the Middle East more broadly, the value of the ecommerce market was valued at USD 17.1 billion in 2020, as compared to USD 10.3 billion in 2017. Many corporations have transitioned to allow employees to work from home with videoconferencing platforms. These platforms have become a mainstay for businesses and households worldwide, allowing for a continuity in business and communication that would otherwise not be possible.
In order to take advantage of these technologies, the surrounding telecommunications infrastructure must be in place. ICIEC understands the importance of developing the technical infrastructure needed to facilitate the adoption of digital technologies by businesses across the OIC. In 2020, ICIEC provided nearly USD 586 million toward supporting telecommunications infrastructure, which is necessary to facilitate the digital shift. This included EUR 50 million in cover for a telecommunications project in Indonesia that was intended to expand access to 4G coverage from 40% of the population to 90%. The completion of this project ensured that more businesses and citizens located in rural areas had the necessary access to internet and data coverage in order to do business online. Through such support, Indonesian businesses had access to new international markets, while consumers had access to goods that may be challenging to find locally especially in the presence of the COVID-19 environment. Additionally, such access to digital mediums and platforms gives both businesses and consumers greater access to large volumes of data, which helps to inform better decisions in both their selling and buying.
The digital shift during COVID-19 has not only been characterized by the marketplace moving online, but also by the increased importance of having access to large and accurate volumes of data. With COVID-19 restrictions imposed, consumers and businesses often cannot assess counterparty risk in-person. If you are a consumer, you cannot assure the quality of a product you are buying online from a manufacturer that may be thousands of miles away, while at the same time, if you are an investor, you cannot visit a host-country to see the business conditions firsthand. Digital platforms and databases can alleviate these risks as they are able to store large aggregations of datapoints that can help a business or consumer determine whether a transaction is risky. Such a function is especially important for bolstering the volume of lending, and thereby spurring development in most OIC countries. Many OIC countries struggle with insufficient credit information. Large and reliable volumes of credit data are instrumental for gaining an understanding of the state of business activity in any country. Inspired by the successful databases that ICIEC helped develop in cooperation with the Aman Union, ICIEC is in the process of developing an OIC Business Intelligence Center (OBIC) to provide comprehensive credit information for OIC member countries.
The OBIC will harness AI and blockchain technology in order to deliver credit information that is more accurate, convenient, predictive, and quickly accessible. The center will be a significant value-add to ICIEC’s mission of enhancing trade and investment across the OIC. The OBIC will provide meaningful benefits to member countries, including an increase in intra-OIC trade and investment volumes, along with greater financial inclusion for MSMEs and the unbanked citizens across the OIC. The OBIC is slated to boost private sector lending in the least developed OIC member states by an estimated USD 670 billion a year.
