Partnerships for the goals

The SDGs are a collection of 17 interlinked global goals designed as a blueprint to achieve a better and more sustainable future for all. The SDGs were established in 2015 by the United Nations General Assembly with the intention to be achieved by the year 2030. In September 2019, it was stated at the United Nations General Assembly that 2020 would be the beginning of the Decade of Action for the Sustainable Development Goals (SDGs). Little did the world know that a global pandemic was about to cause severe disruptions to the global economy.

Before COVID-19, the road to achieving the SDGs was already an uphill battle, with the annual financing gap estimated at USD 2.5 trillion in developing countries[1]. The pandemic has exasperated this gap even further, the OECD estimates an additional increase of USD 1.7 trillion[2]. These consequences have highlighted the need to align global finance mechanisms and incentives with the SDGs to get the world back on track to achieve the 2030 Agenda. It has become imperative that public and private sector actors optimize their efforts towards more sustainable initiatives.

Since their adoption, the financing of SDGs has primarily been done through the public sector, relying heavily on international public financial sources, such as Development Finance Institutions (DFIs), including Multilateral Development Banks (MDBs), National Development Banks (NDBs), Regional Development Banks (RDBs) and further supported by Export Credit Agencies (ECAs), Multilateral Insurance Institutions such as ICIEC. Separately, each institution can contribute significantly to global sustainable development, but by working together, these DFI can catalyze finance for development projects worth billions of dollars throughout the world.

Although DFI and public sources of funding are instrumental to financing SDGs, they can’t fill the overwhelmingly large SDG financing gap alone. Collaborations between the public and private sectors are also critical for catalyzing efforts to achieve the SDGs. So much so that the call for collaborative efforts has been inherently built into agenda 2030 via SDG17: partnerships for the goals. The intention of this goal is to strengthen the means of implementation and revitalize the global partnership for sustainable development.

ICIEC’s partnership landscape

The SDGs are influential signposts for ICIEC’s continuing development journey as they play an important role in shaping the Corporation’s strategy and development outcomes. ICIEC has always considered collaboration as an important catalyst for its strategy and operations, marking SDG17 as one of the six SDGs where ICIEC’s development role is most relevant. The Corporation has long pursued partnerships with banks, investors, corporates, and national ECAs, among others, both within and beyond its 48 member countries.

When working jointly with ECAs, banks, and the reinsurance market, ICIEC’s insurance solutions can be bolstered to reduce the risk for larger and more impactful sustainable development projects. For example, through partnerships with banks, ICIEC plays a key role in mitigating risk to mobilizing private sector resources to develop medical infrastructure in its Member Countries. When working with ECAs,  ICIEC’s reinsurance solutions offer risk-sharing support that enhances their capacity to insure sustainable development projects. Together, the Corporation and its partners increase the reach and depth of their service offerings, encouraging critical financing for meaningful projects that would otherwise be deemed too risky.

Additionally, ICIEC is a specialized institution inherently established by the Islamic Development Bank (IsDB) to be a partner in the IsDB Group.  Other members of the Group include the International Islamic Trade Finance Corporation (ITFC), The Islamic Development Bank Institute (IsDBI), the Islamic Corporation for the Development of the Private Sector (ICD) and the World WAQF Foundation (WWF). All IsDB Group member institutions work together towards the same goal – delivering economic prosperity across the OIC by supporting sustainable development through Shari’ah-compliant solutions. Synergies between ICIEC and the IsDB Group strategically allow the entities to deliver on both their shared and individual goals more effectively.

ICIEC’s SDG synergy: Turning Partnerships into Action

Partnerships are integrated into almost all of ICIEC’s activities, and the SDGs are always an underlying consideration in the projects that the Corporation chooses to undertake. By underwriting investments in strategic sectors and projects in coordination with governments, banks, and ECAs, ICIEC supports the development agendas of its member countries.

For example, ICIEC provided USD 20 million in credit enhancement cover to its partner, BMCE Bank of Africa, to rehabilitate a centre for disabled individuals in Cameroon. The rehabilitation project facilitated the modernization of the centre’s technical facilities, the renewal of essential equipment, and the extension of healthcare facilities to accommodate a broader range of disabilities. The rehabilitation also supported expanding the centre’s services, focusing on socio-professional reintegration and empowering people with disabilities to participate in various socio-economic activities. The project contributes to the government of Cameroon’s policy to fight against social exclusion and meet the demands of the sub-region. The project is also contributing to the achievement of multiple SDGs, including SDG 3: good health and well-being, SDG 8:  decent jobs and economic growth, and SDG 10: reduced inequality. The project’s impact reaches beyond Cameroon as the centre provides needed medical services to patients from Chad, Central African Republic, Gabon, Congo, and Equatorial Guinea.

In response to the global coronavirus pandemic and OIC countries facing economic, humanitarian, health, political, and environmental crises, ICIEC tightened its efforts to collaborate, working closely with its partners – both within the Islamic Development Bank Group (IsDB Group) and beyond — to develop and implement innovative and effective solutions to offset the negative short-, medium-, and long-term impacts of the pandemic. Fortunately, most of these efforts also easily align with the achievement of the SDGs.

From the immediate onset of the pandemic, all partners in the IsDB Group unified to take broad and decisive action to protect OIC citizens, committing a total of more than USD 2.4 billion of aid to Member Countries and to Muslim communities in non-Member Countries. In the short-term, ICIEC provided USD 770 million as part of IsDB’s ‘Strategic Preparedness and Response Program’ to ensure the continuous flow of strategic imports, protect investments, and minimize economic volatility. Later, the two entities established a collaborative USD 2 billion credit guarantee facility known as the COVID-19 Guarantee Facility (CGF) to continue their support throughout medium and long-term recovery.

ICIEC also worked particularly closely with the Islamic Solidarity Fund for Development (ISFD) during the crisis. The ISFD sits within the IsDB and works to reduce poverty (SDG1: no poverty), build productive capacities of Member Countries (SDG8: decent work and economic growth), reduce illiteracy (SDG4: quality education), and eradicate diseases and epidemics (SDG3: good health and well-being). ICIEC has formed a bespoke partnership with ISFD known as the ICIEC-ISFD COVID-19 Emergency Response Initiative (ICERI), in which a funding grant of USD 400 million is being used to subsidize insurance premium, facilitating the procurement of medicine, medical equipment, food supplies, and other essential commodities to eligible member countries.

More recently, ICIEC’s ability to bolster support for the SDGs through a partnership with associations was highlighted when the Corporation signed a Memorandum of Understanding (MoU) with the Islamic Organisation for Food Security (IOFS) and a Strategic Partnership Agreement (SPA) with the Islamic Food Processing Association (IFPA), focused on achieving SDG 2: zero hunger. The entities will collaborate using their respective strengths in providing insurance in support of trade and investment towards promoting food security, sustainable agriculture, and rural development. The agreements between the institutions provide a general framework for collaboration, including attracting and promoting investment in agribusiness and food security; promoting best practices in food safety and Halal products to boost intra-OIC food trade in the private sector; promoting South-South Cooperation; and boosting the involvement of SMEs in agri-food business.

Partnerships continue to be a priority for ICIEC and the Corporation seeks to enhance synergies with all of its partners wherever possible towards the faster and more effective achievement of our mutual goals.

[1] https://www.oecd-ilibrary.org/sites/6ea613f4-en/index.html?itemId=/content/component/6ea613f4-en

[2] https://www.oecd-ilibrary.org/sites/6ea613f4-en/index.html?itemId=/content/component/6ea613f4-en

What is an INFF?

The United Nations Development Programme (UNDP) is helping countries to meet their Sustainable Development Goals (SDGs) by encouraging the adoption of an Integrated National Financing Framework (INFF).

An INFF[1] is a planning and delivery tool developed by UNDP to provide a policy focus to financing the SDGs at the national level. The INFFs spell out how the national strategy will be financed and implemented, using a variety of public and private financing sources. Many developing countries are choosing to adopt INFFs in order to help strengthen their planning processes and overcome existing challenges to financing sustainable development.

An INFF lays out the full range of potential financing sources, primarily domestic and international sources from both public and private sectors, to help to increase investment in a country’s SDG priorities. The INFF also sets out a plan for managing risks and provides a governance framework for enhancing accountability. In a nutshell, an INFF has four key building blocks: assessments and diagnostics; financing strategy; monitoring and review; governance and coordination.

The INFF is helping alignment of different types of finance (domestic, international, public, private) with national priorities and needs. It also helps them to enhance coherence across different financing policies, aligning them to medium and long-term sustainable development priorities while better managing risks in a complex financing landscape.

How National Export Credit Agencies (ECAs) play a key role in financing the SDGs.

Most ECAs around the world serve a general mandate to support national exports and foreign direct investment. As such, they generally do not have an explicit mandate to support the SDGs. However, even though they may not have the direct objective to support the SDGs, the trade transactions and projects they support, are likely already well-aligned with the SDG objectives and can be enhanced even further.

As critical policy instruments, ECAs fundamentally – if not intentionally – help achieve SDGs by supporting job creation and the generation of foreign exchange for countries (SDG 8–Decent work and Economic Growth), increasing competitiveness of industries (SDG 9 – Industry, Innovation and Infrastructure), and giving countries balanced access to international trade (SGD 10 – Reduced inequalities). Additionally, as ECAs have the function of providing financing through loans and other credit to consumers who may not be able to access these through traditional banks, they are uniquely placed to finance investments that directly meet any of the 17 SDGs.

ECAs are often supported by the governments of the countries they support through various models, supporting businesses across various industries. As several of these governments (193 Member States of the United Nations) have also adopted the “Transforming Our World: The 2030 Agenda for Sustainable Development’’, which includes the SDGs, there is increasing opportunity for global ECAs to align their mandates with the SDGs.

ICIEC’s role in supporting national ECAs and the INFF

ICIEC’s mandate is to promote trade transactions and facilitate the flow of foreign direct investment for projects that contribute to the socio-economic development of its member countries. The Corporation fulfills these objectives by providing Shariah-compliant credit and political risk mitigation and credit enhancement insurance and reinsurance solutions. ICIEC is at the nexus of global relationships and networks that are essential for fulfilling its mandate and achieving sustainable development outcomes. ICIEC’s support encourages the participation of national ECAs along with banks, investors, and corporates in transactions involving risky markets.

By necessity and design, ICIEC works closely with partners to share information and risk, provide additional insurance capacity, and promote trade and investment in its member countries. One of ICIEC’s important roles in this regard is strengthening its member countries’ export finance systems and providing Shariah-compliant reinsurance to the national ECAs. It also cooperates with non-member country ECAs to facilitate strategic investments for its members’ economies.

ICIEC’s reinsurance solutions are particularly pertinent to the role it can play in supporting national ECAs and the implementation of INFFs. ICIEC is empowered to reinsure the commercial and political risks on national ECAs in its member countries. By doing so, it enhances their financial capacity to support national exports that themselves are aligned with SDGs. By reinsuring a national ECA, it takes the risk off the balance sheet of the national ECA – and hence national government – and does not add to the debt burden of the country, which in many of ICIEC’s members is already elevated and, in some cases, becoming unsustainable. This frees up more fiscal space for the central government to invest in other SDG-aligned activities.

ICIEC is strategically placed to provide capacity-building, joint marketing, and technical assistance to ECAs in member countries, while serving as a credit services information hub. It is also uniquely placed to help ECAs in non-member countries to cover projects in member countries.

Conclusion

The INFF is a guide for countries to use in sourcing and utilizing finances for meeting the SDGs. ECAs support a country’s export and cross-border investment initiatives, including projects and trades that are aligned with the objectives of the SDGs. ICIEC plays a role in providing additional capacity to ECAs so they can insure against risks that arise from member countries and, in turn, helps member countries meet the objectives of the SDGs. As such, ICIEC, plays a vital role in ensuring that the sources of finance (international public and private sources) that form the framework of the INFF are protected against insured the risks of market failures and non-repayment of debt, which would otherwise limit the financing of the SDGs.

[1] https://inff.org/about

Claims are inherent to insurance and fundamental to its value. When losses occur – and they inevitably will at times – policyholders want their insurer to pay out any legitimate claims. However, fraudulent or illegitimate claims require insurers to be vigilant and, as the world continues to grapple with the Covid-19 pandemic, a pattern of fraud in trade transactions has remained. This article peeks into year-end expectations for the claims landscape and how insurers are insulating against fraud.

Experiences from COVID and post-COVID

The beginning of 2021 was essentially a continuation of 2020, as lockdown measures were reintroduced in many countries, border-crossings were once again limited, and businesses were forced to continue operating amongst restrictions and remote working. Trade credit insurers also had to accept that 2021 was an extension of the status quo regarding emerging claims and claims paid.

At 2020’s end, the expectations for claims throughout 2021 were mixed. A significant increase in volume was expected for the first quarter of the year, followed by a projected decrease in the second quarter, anticipating a rebounding global economy. Despite the earlier predictions for a rise in claims, particularly in credit and political risk insurance (CPRI), there has yet to be a notable uptick in the claims reported amongst the members of the Berne Union, the International Association of Credit Investment Insurers[1].

What is notable is that according to the Berne Union, claims so far in 2021 have been at pre-pandemic levels, with insurers’ risk appetite for new business remaining robust.  However, insurers are generally cautious about the expectation for claims volumes going forward. Given the potential impact of the pandemic continuing to influence the risk environment unpredictably, some insurers now fear the bulk of bankruptcies will emerge in late 2021 and into 2022, while others are predicting a more gradual flow for claims based on a potential link between the extension of government pandemic response programs and financial support, and the elongated claims cycle. This theory suggests that Covid-19 related claims may gradually emerge over several years going forward.

Many public insurers widened their mandates in 2020 to support businesses, including those industries most severely impacted by Covid-19. Naturally, being more exposed to these industries, SMEs, and more vulnerable risks, in general, maybe the reason why public providers continue to expect increasing claims going forward. However, these updated predictions are still nowhere near the tsunami expected at the start of the year.

While the overall volume of claims has not yet been disrupted in COVID and the CPRI market remains healthy, a pattern of fraudulent claims has emerged, requiring the industry to take a more careful stance to ensure that claims lodged are indeed legitimate. With the potential for claims volumes to rise as governments withdraw support measures, we may witness a corresponding influx in fraudulent claims.

What are Fraudulent Claims?

What does a fraudulent insurance scam look like in the credit insurance market? Fraud can be committed by either the buyer or the seller or when they both collude to swindle the credit insurer.

A common way of committing fraud as a buyer is by purchasing goods or services on an open account with the sole intention of not paying. An example might be when they conduct the first few deliveries against cash to gain the seller’s confidence. Over time, now with a track record, the seller may be willing to ship a larger order or to grant credit by selling on open account terms, for 30 or 60 days, for example, during which time, the buyer could receive the goods, re-sell the goods and then disappear without payment.

In other cases, fraudulent sellers intentionally misstate overdues, establish fraudulent payment schemes, or present audited financial statements based on false information.

Collusion between the buyer and seller can look like each legitimate establishing company in their respective countries. These companies would undertake several smaller transactions over a period to create a payment track record and get a credit risk assessment. With this in hand, the buying company will make a big order, which is insurable given the payment history. The seller creates false documentation showing that goods were supposedly shipped or exports bogus goods via ports that have poor adherence to international standards. When the underwriter becomes suspicious, the fraudulent buyer is long gone.

How to spot fraud as a credit insurer?

Of course, fraud has been around since the beginning of time, usually driven by greed or fear. Both characteristics are in play during a pandemic, and unfortunately, trade credit insurers have not been very successful in countering fraud with traditional instruments. Advancements in technology have made fraud easier for scammers to conduct, so insurers have had to become much more diligent in spotting fraud cases, implementing better fraud prevention policies and guidelines than ever before by focusing on the fundamentals at an early stage.

Fraud detection is most successful when suspicious patterns are discovered early.  For example, underwriters need to pay attention to an increase in the number of credit limit applications above a defined threshold or outside an approved period and undertake regular screening of the ownership relations between policyholders and buyers. Where the seller ships 80% of its product to one seller, the risk of fraud might be higher.

When examining financial statements to issue a credit limit, underwriters also need to look for clues in the financial statements. The company’s behaviours and life cycle of its production – from orders at customer service to fill the orders through manufacturing and shipping to invoicing – should be understood to ensure that the process matches the cash cycle and the generated receivables are generated related.

Ultimately, there is no better defense than maintaining thorough Know Your Customer (KYC) or Know Your Transaction (KYT) policies. Nor is there a substitute for an underwriters’ common sense, curiosity, and a good dose of skepticism. At ICIEC, we’re sure to ask the right questions and are confident in our due diligence process before we bind a policy. Insurance is inherently meant to cover the risk of lost payment, and as a leading multilateral ECA, ICIEC ensures that all legitimate claims are honoured and paid. After all, this is why our customers value our insurance.

[1] Berne Union, Business Confidence Index Q4.21. https://www.berneunion.org/Articles/Details/625/Business-Confidence-Index-Q4-21-Published

Introduction

The COVID-19 pandemic has led to unprecedented global health, social and economic crises. In comparison to other regions, such as Europe, Asia, and Latin America, Africa has so far been spared the worst of the Covid-19 pandemic in terms of health outcomes related to the virus. As of November 29^th, 2021, the continent had 8.8 million cases and 223,365 deaths[1]. Still, according to UNICEF, as of September 2021, Covid-19 vaccines had reached just one in every 100 people living in Sub-Saharan Africa, highlighting ever-growing inequality since the rise of the pandemic.

However, while incidents of the disease have been fewer in Africa than in other regions of the world, the economic and social impact has been disproportionately higher. The COVID-19 pandemic has led to the worst underperformance on record for Sub-Saharan Africa, with an economic growth rate of -1.9%, and approximately 32 million more citizens are slipping into extreme poverty[2]. It is estimated that average incomes in Sub-Saharan Africa will not return to pre-pandemic levels until at least 2025, while the risk of losing hard-earned development gains increases exponentially with each passing day.

Essential services, such as healthcare, education and other social services, have been severely disrupted, as have the economic viability of many MSMEs who have had to shut their doors due to lockdown to prevent the spread of the disease. While most regions of the world have relaxed fiscal constraints to make unprecedented funding available to their populations and businesses and support their recovery policies, most African countries lack the flexibility and capacity to follow suit.

Post-Covid needs for African countries

There are three types of needs to be addressed for Africa due to the pandemic: a) response with vaccines, b) economic recovery and c) building resilience for the future.  There is also a need to spark a meaningful dialogue at the global level for an inclusive and sustainable recovery of African economies.

Response with Vaccines

Getting vaccinated against Covid-19 remains the most critical tool to save lives, sustain livelihoods and put an end to the pandemic. However, African countries continue to significantly lag behind the rest of the world in vaccination rates. Preliminary studies by the World Health Organization (WHO) shows that as of November 2021, only 27% of health workers in Africa are fully vaccinated against Covid-19. This means that a significant portion of frontline workers remain unprotected from the virus against which they are fighting[3].

The low vaccination rate is attributable to the region’s lack of vaccination facilities, insufficient vaccine supply and vaccine hesitancy. While health agencies and governments are improving supplies and educating populations on the benefits and side effects of vaccination, there is considerably more that can be done, especially in the coordination and delivery of vaccines to rural areas of the continent.

Economic Recovery

The fiscal space for African countries to support their nation’s pandemic and post-pandemic needs is severely limited. To address the desire for an inclusive and just recovery, there is a need to bolster the MSME sector to ensure business continuity and access to finance. While in many developed countries, direct financial transfers to businesses, low-interest loans and support to move enterprises online has helped soften the brunt of lockdowns on small businesses, on the African continent, companies have simply had to shutter their businesses suffering acute revenue declines.

Building Resilience

Resilience for many African countries needs to include health care, education, infrastructure, and any other sector associated with achieving the United Nation’s 17 Sustainable Development Goals (SDGs). However, a significant challenge for Sub-Saharan Africa is the high debt levels that pre-dated the pandemic. In many countries, government spending on debt service is much higher than spending on education, health, and social protection combined.

The lack of available resources to meet the region’s SDGs leads to an additional financing gap to the tune of USD 425 billion over the next 3 to 5 years[4]. Significant investment is needed to address this financing gap. While USD 33 billion has been reallocated from the IMF’s Special Drawing Rights towards African countries, this amount remains small compared to the region’s needs.

Opportunities for recovery

Africa’s pandemic recovery opportunities are immense, as support is galvanized globally, and there is an acute focus on regaining economic standing to pre-pandemic levels. The importation of vaccines and projects contributing to infrastructure development are expected to remain the highest priorities within the region.

Governments in many African countries are improving trade and accelerating local production by incentivizing the private sector to strengthen their economies to pre-pandemic levels. For example, Egypt is increasing its investments in renewable energies, while Rwanda is leveraging technology, and Nigeria continues to push for the development of its agriculture industry, amongst others. Opportunities for recovery are available but require substantial investments to be successful.

Role of the insurance sector in post-Covid recovery

The path to economic recovery from Covid-19 for Africa is both expansive and expensive. During the pandemic, several African nations depleted their national purses to keep their citizens and businesses afloat, causing a significant decline in national reserves. As the continent recovers, it is faced with the task of replenishing its reserves without increasing its national debt burden. Private investments are a critical element of the approach for many governments.

One critical reason for the lack of private investment in developing countries is the high levels of political risk. The economic impact of the COVID-19 pandemic is magnifying these risks because of increasing unemployment and widening inequality, putting critical investments in jeopardy, and threatening to undo many years of socio-economic development. Political Risk Insurance (PRI) is designed to help mitigate perceived risk by protecting against negative political impacts on otherwise sound commercial investments.

The Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) was created to provide investment and export credit insurance solutions to strengthen economic relations between its member countries, many of which are in the African continent. The Corporation offers insurance solutions that can help protect its member country’s economies while allowing them to take initiatives for growth and development. ICIEC offers several political and credit insurance solutions that provide the needed cushion for institutions wishing to make investments that can help to revive their economies.

PRI is one of the many insurance products offered by ICIEC for its member countries. ICIEC’s PRI policies allow firms to expand in regions perceived as a higher risk but with otherwise attractive investment opportunities, as seen with many African countries. ICIEC’s PRI also mitigates the risks involved in cross-border trade, providing support to exporters and banks to facilitate trade between member countries and the rest of the world.  ICIEC also aims to stimulate, promote and increase intra-OIC exports, encouraging businesses to take advantage of the diverse resources within the region.

ICIEC’s Covid Response

The Covid-19 pandemic has presented member countries with unprecedented challenges to the health of their citizens and economies. ICIEC and its partners have been working throughout the pandemic to provide aid and solutions to these member countries, coordinating to find innovative responses to sustain imports of strategic commodities, protect investments, and minimize volatility.

IsDB Group has allocated US$ 2.3 billion of aid to its member countries under the Strategic Preparedness and Response Programme (SPRP) to combat the health and socio-economic effects of COVID-19, including USD 770 million for ICIEC’s insurance support.

As part of an update to the original SPRP, ICIEC contributes to the IsDB Group Vaccine Initiative (IVAC), supporting Member Countries in accessing the Covid-19 vaccine. For its part, ICIEC is providing risk mitigation solutions to international financial institutions through its insurance solutions, facilitating additional resource mobilization from the global market.

To encourage trade and investment during the Covid-19 pandemic, ICIEC and IsDB jointly launched the Covid-19 Guarantee Facility (CGF), an innovative program to support the financing of trade and investment. The CGF also supports SMEs in sustaining activity in core strategic value chains and ensuring the continuity of necessary supplies, mainly to the health and food sectors, including vaccine procurement.

Additionally, ICIEC and the Islamic Solidarity Fund for Development (ISFD) have collaborated to create the ICIEC-ISFD Covid-19 Emergency Response Initiative (ICERI) program, a rapid Covid-19 response that employs an innovative financial structure, providing more confidence to suppliers, investors, and financiers of Covid-19 related transactions and extends some relief to the member countries on their borrowing costs. To date, USD 271 million worth of trade transactions has been supported by the ICERI program in the food and other essential commodities sectors, using only USD 1 million of the subsidies funded by ISFD.

ICIEC’s Focus on Africa

ICIEC demonstrates its support for African member countries through the many response initiatives the Corporation is contributing to or leading in Africa.  ICIEC has provided insurance support for many import transactions across Africa, supporting the governments of Egypt, Senegal, and Nigeria, among others. These transactions have allowed the countries to receive critical commodities, such as foodstuffs and health supplies needed to tackle the outbreaks of Covid-19.

Thanks to ICIEC’s EUR 142 million cover for a Deutsche Bank investment, the citizens of Côte d’Ivoire will have greater access to hospitals and healthcare services. Two new hospitals with a collective capacity of 400 beds have been built in the south-eastern towns of Adzope and Aboisso, bringing state-of-the-art equipment and facilities to the otherwise underserved region. The two hospitals will employ around 600 local people and foster the development of a micro-economy in the areas surrounding them.

Additionally, the project will finance five new medical units in existing hospitals across the country. The project EPC will be conducted by a Moroccan contractor, supporting the export of services from another ICIEC member country and facilitating intra-OIC trade of services and human capital between Cote d’Ivoire and Morocco. The support from ICIEC will help Côte d’Ivoire achieve its National Development Plan targets for 2016-2021 while also improving the Republic’s ability to contain the Covid-19 pandemic.

While there is some hope that the spread of vaccines can help bring an end to the health crisis, Africa’s economic recovery will require continued and sustained focus and effort. During this time, ICIEC will continue to make its insurance solutions readily available to member country governments and businesses.

The Digital Age

The coronavirus pandemic has disrupted the global population’s ability to work and socialize in person since March of 2020. As a result, internet and mobile telephone services play an increasingly important role in supporting economic growth and social inclusion across the world. Additionally, mobile internet connects people to new opportunities and life-enhancing services online, driving growth for the digital economy and advancing progress towards the UN’s SDGs.

According to the World Bank[1], “Digital technologies are at the forefront of development and provide a unique opportunity for countries to accelerate economic growth and connect citizens to services and jobs. In times of crisis, from natural disasters to pandemics such as the one the world experienced with Covid-19, digital technologies are what’s keeping people, governments and businesses connected”.

While the reach of mobile networks across the globe has expanded significantly in recent years, with more than 3.7 billion people connected to mobile internet by the end of 2019, over half of the world’s population remains unconnected. There is a ‘coverage gap’ of approximately 750 million people residing in underdeveloped and remote areas who cannot access a mobile broadband network. There is also a ‘usage gap’ for 3.4 billion people who can access mobile broadband networks but are not subscribed to mobile internet services due to costs or other factors. Increased penetration for mobile networks, specifically for 3G and 4G, can enhance digital connectivity by expanding internet and broadband access, which facilitates the reduction of barriers to trade, commerce, communication, service delivery, and human development.

Telecommunications in CIS Countries

According to GSMA[2], the Covid-19 pandemic has profoundly impacted the digital landscape in the Commonwealth of Independent States (CIS) and around the world. Mobile operators in the region have engaged with both the public and private sectors on initiatives to alleviate the impact of the pandemic for vulnerable groups of the population and the most affected businesses. Measures include zero-rated use of educational services and government websites, discounted tariffs for healthcare workers, and free access to online conferencing solutions to enable business continuity and support economic recovery.

Though still behind most developed markets, the CIS region is witnessing an accelerated shift to mobile broadband. 4G became the leading mobile technology in the region during 2020 and remained a strategic priority for governments, with network availability and performance as the key competitive dimensions. Greater use of data-intensive services and demand for higher speeds will drive further adoption as the pandemic continues, with 4G accounting for nearly two-thirds of total connections by 2025. In certain countries, it is expected that this will also deliver some revenue uplift.

Further to this, in 2019, mobile technologies and services generated 6.1% of GDP in the CIS region – a contribution of USD 137 billion. The mobile ecosystem supported over 830,000 jobs, either through direct employment or indirectly through activity on the broader economy. Mobile technologies and services also contributed USD 14 billion to fund the public sector – mainly via general taxation. Over the coming years, advancing mobile technologies will drive further contributions to the CIS economy, impacting key sectors such as manufacturing, utilities, and professional and financial services.

Telecommunications in Uzbekistan

The Republic of Uzbekistan is a landlocked country rich in natural resources and located in the heart of Central Asia. Home to approximately 32 million people, the nation boasts the largest population in the CIS region[3] and has long been known as a leading influence for informational development within these countries. However, Uzbekistan’s telecommunications networks are still primarily based on modern additions to Soviet-built infrastructure. Challenges to developing Uzbekistan’s telecommunications have constrained the ability to unlock the full potential of the nation’s digital economy.

For many years Uzbekistan has been working to bring its telecommunications up to the standard in developed countries. There has been a positive trend in the country’s telecom market within the last decade due to increased investment in infrastructure, expanding subscriber bases, and rising revenues. Over the past five years, Uzbekistan has seen a rapid increase in mobile broadband penetration, with market penetration driven by a rising level of mobile subscribers and mobile data. However, the nation’s mobile broadband market is still at an early stage of development, and mobile network penetration remains low.

Since the beginning of 2018, the Government of Uzbekistan has announced ambitious development goals for the telecommunications sector, including plans to liberalize markets and actively seek private investment. The Government has set the challenging target of increasing broadband capacity and deploying 277,000 km of fibre optic infrastructure. The Government of Uzbekistan has also demonstrated a commitment to improving access to digital government services and adopting digital development approaches to economic growth.

Importing essential Telecommunications Equipment

ICIEC has provided a combined over USD 50 million cover through Specific Transaction Policy to two Chinese telecommunication giants to accelerate the development of Uzbekistan’s communication and information technologies. The project involved the USD 70 million modernization of the nation’s mobile broadband access network, data storage and processing centre expansion, and DWDM network in the Eastern Region of Uzbekistan, specifically in the capital city of Tashkent and the Western Region of the country.

ICIEC intervention enables the largest and the market leader of a telecommunications operator in Uzbekistan to expand its core services for public authorities at all levels, state institutions, organizations, and individual consumers. As of August 2020, the operator mobile subscriber base reached 6 million users.  This number will continue to grow as the company expands its 4G networks in regions across the country through this project. The company’s mobile coverage is estimated to reach 90% of the population. The mobile telecom operator, which operates with 22 branches and 17,000 employees, supports most of the national territory with its network expansion.

The project is enabling Uzbekistan to facilitate growth in its mobile sector. The project aligns with Uzbekistan’s broader economic and social objectives as slated in their National Development Strategy 2017-2021. It includes the goal to increase 4G penetration and smartphone usage in the country. The project also contributes to foreign direct investment and improves access to telecommunications infrastructure for citizens of Uzbekistan who were previously out of reach.

ICIEC’s support for the project aligns with the Corporation’s development objectives. Uzbekistan is a newly added member country for ICIEC, and this project contributes to several of the United Nation’s Sustainable Development Goals (SDGs). Enhancing Uzbekistan’s telecommunications networks will exponentially promote developments in industry and infrastructure as defined by the SDGs. It will also contribute to decent work and economic growth with the potential of growing the nation’s digital economy. Finally, the project is helping Uzbekistan reduce inequalities concerning the percentage of the population that will access reliable internet services.

The Role of Political Risk Insurance

Political Risk Insurance (PRI) provides coverage for non-commercial risks or political events, including host governments’ direct and indirect actions that negatively impact investments where appropriate compensation is provided. When multilateral and large national insurers do not offer coverage, PRI can also help deter host governments’ harmful actions, help resolve investment disputes, and provide access to best practices in environmental and social standards.

The PRI industry includes many broad categories of providers, where PRI covers export or trade credit and investment insurance.

Specialized multilateral insurers are a cornerstone of the PRI market. These organizations include ICIEC, the Multilateral Investment Guarantee Agency (MIGA) that is part of the World Bank Group, the Arab Investment and Export Credit Guarantee Corporation (Dhaman), and the African Trade Insurance Agency (ATI). The World Bank, Asian Development Bank, and the Inter-American Development Bank also provide types of Political Risk Guarantees.

Next are the PRI providers of national governments. The providers are principally national export credit agencies (ECAs), bilateral development banks, and investment insurance entities. These organizations focus on cross-border trade and investment, generally for clients in their own countries. Berne Union data indicate that the stock of political risk cover from member export credit agencies increased from USD 184.7 billion in 2010 to USD 317.0 billion in 2018.

There is also a growing private market for PRI. This market includes about 20 Lloyd’s syndicates and reportedly as many as 60 private PRI insurers. The largest private insurers are based in three insurance centres— London, Bermuda, and the United States (primarily New York City), and many have regional offices in various locations, principally in Asia. In addition to traditional equity PRI, the private market covers various payment risks for businesses in developing countries, either for political perils alone or comprehensive non-payment cover. Brokers play an essential role in promoting and sourcing PRI for the private market. Broking is a dynamic market segment with players entering and exiting the PRI brokerage market.

Finally, reinsurance companies underwrite PRI-related coverage for both trade and investment and are an essential factor driving both pricing and capacity in the private market. Top reinsurers include Munich Re and Hannover Re of Germany, Swiss Re of Switzerland, and Berkshire Hathaway/General Re of the United States. ECAs and multilaterals also participate as reinsurers of PRI on a smaller scale.

Recent Trends and Developments

Demand for PRI is broadly related to foreign direct investment (FDI) flows, although the relationship is neither linear nor always easily explained. There are also contradictory forces at play. Although, as noted earlier, PRI volumes are generally growing over time, the portion of FDI that PRI covers are declining. According to data from the World Bank and Berne Union, PRI to global FDI ratio fell from about 25 percent in the early 1980s to under 10 percent in the decade after 2010.

Today, only a relatively small share of the inward FDI into developing countries is insured against political risks. A recent study for the G20 confirmed that PRI covers only a small percentage of inward FDI into developing countries globally, and most FDI investments remain uninsured[1] . The average inward FDI stock insured during 2010-18 for all developing countries was around 1%. The average annual inward FDI flows insured during the nine-year reference period for all developing countries is 5%.

Notwithstanding the small share of FDI covered by PRI, before the 2020 pandemic, investing firms and analysts perceived political risk had increased. A 2019 U.K.-based survey by Willis Towers Watson indicated that most firms surveyed thought the political risk was on the rise[2]. Respondents were concerned about political sanctions related to Russia and CIS countries, and many expressed concerns about political instability in parts of the Middle East and Africa, amongst other things.

The COVID-induced recession then hit the global economy. FDI and trade both contracted sharply in 2020; MIGA expected that the pandemic would decrease global foreign direct investment (FDI) by up to 40 percent in 2020, and the World Bank Group expected the global economy to experience the worst recession since World War II. UNCTAD data confirm that FDI did indeed collapse in 2020, falling 42% from $1.5 trillion in 2019 to an estimated $859 billion.[3] This low level was last seen in the 1990s and was more than 30% below the investment trough that followed the 2008-09 global financial crisis. COVID created a flashpoint for investment risk, and traditional areas of concern were compounded by the sharp 2020 recession and by many specific financial and political stresses.

Looking ahead, expectations are that both trade and FDI will see a positive recovery in 2022 and beyond. The WTO and the IMF expect global trade to grow by 6-8 percent in 2021 before slowing to 4 percent annually. The WTO forecasts relatively strong export growth in the Middle East (12.4%) and Africa (8.1%) in 2021, although this export recovery depends on travel expenditures picking up over the year, strengthening demand for oil and oil prices.

UNCTAD projects that FDI will recover and grow by 20 percent in 2021. In 2022 and thereafter, a return to more traditional annual FDI growth rates (i.e. 6-8 percent annually for many countries) would be a reasonable assumption.

Private political risk insurers expect currency convertibility and non-transfer will continue to be popular political risk coverages, particularly in commodity-dependent countries, but also in countries that face severe consequences from the pandemic-induced slowdown.  Political tensions are also elevated in Belarus, Ukraine and US-China relations, giving investors a sense of higher perceived political risk. Climate change and the low-emission energy transition are now underway, posing another area of potential elevated political risk that both investors and insurers are examining carefully.

When taken together, these factors point to an operating environment where demand for PRI should be relatively robust in the years ahead due to both the growth recovery in FDI and the perception of heightened political risk among investors and analysts.

Political Risk in ICIEC Member Countries

ICIEC member countries have a vast array of government systems, policies, trade and investment relationships, and national priorities that affect their relative openness and attractiveness to international trade and foreign investment, presenting various types and degrees of political risk.

As a group, Gulf states have generally taken a series of political decisions and policies designed to create a positive and attractive international trade and investment environment, notably for high-value services trade and investment in addition to extracting value from the traditional energy economy. It is reasonable to expect this supportive policy environment to continue in the future.

In comparison, countries served by ICIEC in Africa and parts of the Middle East are at many different political and policy development stages, with accompanying degrees of political risk. Political uncertainty may remain an underlying factor among many of these countries. At the same time, a more stable and supportive political environment may emerge in some countries. ICIEC members in other regions may also experience events that add to political risk perceptions.

The following table summarizes the average share of FDI stock covered by political risk insurance for selected developing countries, including some ICIEC members.[4] Note: There are substantial differences in cover and perceived risk among countries, even for countries classified in the same IBRD income category.

Table 1: Average Share of Inward FDI Stock Insured 2010 – 2018

Sources: G20 report, based on UNCTAD, OECD, Berne Union data

Regional and geopolitical developments

The vast and diverse regions served by ICIEC have experienced unexpected political developments, instability and tensions. Domestic political tensions are currently heightened in some countries, and there is an ongoing civil strife in a few other cases. The evolution of political relations within, between and among ICIEC members can affect future trade and investment relations and flows and affect the demand for PRI cover from investors and financial institutions.

At the same time, there are signs that a more favourable political environment is emerging in certain areas served by ICIEC, with efforts to strengthen bilateral, regional and multinational political relations. It is thus reasonable to expect that various regional political environments will be subject to both positive and negative forces over the coming years. For some countries, this will mean a political environment supporting increased international trade and investment and likely of greater interest to political risk insurers. For others, there may continue to be destabilizing forces, with political tensions over the medium term that would not be conducive to expanding trade and investment or fostering expanded access to PRI cover.

ICIEC’s product offering

As a specialized multilateral insurer, ICIEC provides political risk insurance for equity investments, debt finance and loan guarantees in its member countries. Its PRI covers four aspects of political risk: currency inconvertibility and transfer restrictions; expropriation; war or civil disturbance; and breach of contract. ICIEC’s reputation as a leader in the market is backed by an Aa3 credit rating from Moody’s.

In addition, ICIEC provides cover for non-honouring of sovereign financial obligations as credit enhancement tools. It offers Political Risk Insurance for equity investments and cross-border loans and covers non-honouring of financial obligations by sovereign / sub-sovereign / state-owned enterprises. ICIEC also uses innovative methods to serve its customer base, such as its website’s digital application forms for PRI. ICIEC also holds a unique role in advocacy and claims avoidance due to the Corporation’s Preferred Creditor Status (PCS) over its member countries.

The political risk insurance market continues to face constant evolution. The expected recovery in FDI in 2022 and beyond, combined with a heightened risk environment, provides the context for solid growth in PRI business going forward. ICIEC promises to remain a key driver in that growth story.

We caught up with Mr Mohamud Khalif, ICIEC’s Senior Manager for Underwriting, to shed more light on ICIEC’s core business function, emerging insurance trends, ICIEC’s role in the Berne Union and the department’s future goals. 

Q: Can you please tell us about yourself and, more broadly, your role at ICIEC?

MK: My official title is Senior Manager, and I have been with ICIEC for close to 19 years. I joined the Corporation as a young professional, and in the beginning, I also did some work within the Islamic Development Bank (IsDB) itself. Over the years, I’ve had the opportunity to work in several different positions with ICIEC, gaining experience across various functions, including conducting country risk assessments as part of the Risk Management department at the time. Currently, I head the Corporation’s Underwriting department, a team of 15 people in total, and I also work very closely with the departments of Business Development, Risk Management, Reinsurance, and Legal. The Underwriting department is divided into two teams: one team deals with underwriting activities for commercial risk transactions, and the other deals with underwriting for sovereign risk, sub-sovereign risk, and state-owned enterprise risk.

Q: As the Head of Underwriting, can you briefly describe underwriting and its role in ICIEC’s broader mandate?

MK: Underwriting is a core function of any insurance institution. The role of the Underwriting department at ICIEC is to receive applications submitted by potential clients and review their project and transaction documentation to assess the risk associated with the transaction. The risk assessment outcome is firstly to evaluate if ICIEC should cover the risk and issue a policy to the client. The second outcome is deciding which of ICIEC’s policies or products would be most suitable for the client and transaction and which risks or perils should be covered under the policy. We then decide the tenor, how long we should cover the risk, and under what terms and conditions we should cover, including the pricing. In summary, our department determines what type of risks we should take, the magnitude of the risks ICIEC can underwrite, for how long, and at what price.

Underwriting is essential more broadly within ICIEC’s mandate; underwriting is crucial as it supports our clients by assuming some of the transaction risks, especially when conducting cross-border business. When businesses engage in activities in new countries, they don’t know the culture, rules, laws, and systems work. They sometimes have insecurities about their ability to succeed in that country. In these situations, businesses typically undertake feasibility studies to assess the project’s profitability and how they will help the host country through job creation, facilitate the transfer of technology and many other benefits. However, what these businesses cannot manage is the political risk. This is where ICIEC’s underwriters come in with our knowledge of and relationships with, Member Countries. Throughout the whole transaction, we develop strong relationships with all the parties involved, including project staff on the ground and key government officials. This puts us in a privileged position to help avoid any potential problems, in addition to the insurance we provide. For example, we actively engage with the involved parties and resolve the matter when something goes wrong. In some cases, we can even arrange meetings between our CEO and the respective minister of finance, for example, to resolve any issues or disputes.

Q: What is ICIEC’s risk appetite like in the current market?

MK: Risk appetite is not something static but is rather dynamic. It is affected by the economic and political environment at the global, country and sector levels. Last year, our risk appetite was revisited to support most impacted member countries due to the pandemic. Now, as the pandemic is slowly clearing up and we see the mass roll-out of vaccines, our risk appetite is returning to the normal baseline again. In general, I can say that our risk appetite is determined through a defined written process. Thus our risk management department determines our level of risk appetite scientifically, analyzing available information at different levels.

Q: What are some of the trends in structuring transactions you have observed recently? Are there any new players, or is there any shift in the share of risk being taken on by other players, e.g. ECAs, private financial institutions etc.?

MK: The COVID-19 pandemic certainly has had a visible impact on the different players in the market. The risk appetites of private financial institutions have decreased significantly. As a result, ECAs and multilateral development finance institutions, including ICIEC, have done a great deal of work filling the gaps left by the private sector players taking more of the share of financing. Member Countries’ governments also played a crucial role by providing stimulus measures to the economy, specifically towards the trade and investment sectors, which also helped mitigate some of the risks caused by the pandemic. Without government interventions, the impact of the pandemic would have been much worse on the economy.

Furthermore, COVID-19 had far-reaching implications for the trade and investment industries globally. We know, for instance, that trade declined in 2020 by close to 10%, whereas some studies indicate that FDI went down by about 40%. These declines were much higher than those observed during the global financial crisis in 2008-09. The upshot of the pandemic and the panic it created scared away a lot of the private sector capital used to support development projects, especially those in countries already perceived to be high risk even before the pandemic. This led multilateral development institutions such as ICIEC and other Islamic Development Bank entities to take center stage and modestly try to fill the gaps left by the private sector capital flight. The trend emerging from this process has been the numerous initiatives that MDBs and ECAs have implemented to provide support to projects that traditionally would have been able to access private finance before the pandemic.

Q: What are some sectors or regions you see the potential for growing ICIEC’s support?

MK: The majority of ICIEC’s Member Countries are developing or emerging economies, which means there is a high potential for growth in these countries. Thus, the need for support from institutions like ICIEC is quite significant. Recently we have seen increased demand for Political Risk Insurance (PRI) in several regions, such as with our three Central Asian Member Countries. We have also seen increased demand in Sub-Saharan Africa, specifically in Cote d’Ivoire, Senegal and Nigeria. In the MENA region, with the political situation getting better in Libya, we expect demand to pick up very quickly, resulting from the need for reconstruction in the country. Indeed, we are ready to play our part in supporting that reconstruction process in the future. We also see a lot of demand in South Asia. In Bangladesh, for example, the economy has been growing very fast, specifically in the banking sector and the textile sector. We also see some increased demand in Indonesia as well. There is a lot of potential for ICIEC services right now.

The global integration of economies is fueling this demand. Many Member Countries are now more in touch with the rest of the world from a business perspective. For example, many Member Countries are trading capital goods with non-Member Countries. We often see this quite often, whether it is exports from these Member Countries or imports of strategic commodities and capital goods.

We see an increase in demand in the health sector, of course stemming from the pandemic. We also see growth in digital technologies because of the new trends emerging as the result of lockdowns. For example, new technologies to adapt operations for people working from home. Another sector in which we see growth picking up is renewable energy. The push for this happening globally, to mitigate against climate change, but the real action is trickling down to Member Countries through climate-related transactions. These are the main sectors in which we see a lot of growth and potential happening.

Q: ICIEC is an active member of the Berne Union; what do you see as ICIEC’s main contributions to the Union, and what are some of the benefits ICIEC gets from being a member?

MK: The Berne Union is an important association for ICIEC. It compromises Investment and Export Credit insurers worldwide from both the private and public sectors (national ECAs and specialized multilateral insurers, like ICIEC). The Union organizes annual meetings which serve as learning and networking opportunities for ICIEC staff. Being a member of the Union affords ICIEC numerous opportunities for actual collaborations. For example, we work with non-Member Country ECAs in Russia, China, the US, Netherlands, France, Belgium, and ECAs in our Member Countries through the Berne Union. In terms of what we contribute to the Union, we partake actively in all the meetings, send staff in for training, and share industry data and information. Over the last two years, we have been a member of the Management Committee, which means we are part of the decision-making process of the leadership of the Union itself and are a very active participant. Previously, ICIEC held the Vice-Chair position for the short-term committee, the biggest committee in the Union. We also actively participate in data collection and surveys used for publications. Lastly, we provide ideas and topics for discussion and use the Union as a platform for us to showcase what we are doing. In these areas, we see opportunities for collaboration among members. So, the Union for us is a forum that we believe is very helpful for us and at the same time, ICIEC plays a crucial role in making it a lively and valuable forum for everyone.

Q: What are some of the short- and long-term goals for ICIEC’s underwriting?

MK: To summarize, we would like to improve our overall efficiency and cost-effectiveness. The most crucial function of an underwriting department is always the quality of the underwriting, the efficiency by which it is done, the cost-effectiveness, and the results achieved. We have sound quality underwriting and robust results. As such, our short- and long-term goals are to increase the efficiency to serve our clients. Currently, we are expecting to roll out a new digital system to do so. Here it is important to note that our department has two sets of clients – internal and external. The internal clients are our colleagues in the business development unit prospecting for business opportunities that they bring to us to process. However, there are some aspects where we are inefficient in developing the deal. Efficiency and timeliness are essential. Additionally, as a development institution, we also have to be very selective in the projects we choose. We have to make sure that the projects we choose have a clear and measurable development impact. Hence, our long-term goal is to enhance the collaboration agreements with our Member Countries, peer institutions, private sector insurance providers, companies, ECAs and all the other stakeholders in this industry.

The role of FDI in MENA countries

Since the early 2000s, Foreign Direct Investment (FDI) to the Middle East and North African (MENA) region has provided substantial capital and support for national development projects in MENA countries. Sectors such as oil and gas, real estate, coal, chemical manufacturing, services (particularly in tourism and hospitality), and renewable energy have been the primary recipients of this FDI, with the majority of investments coming from the United States, France, the United Kingdom, Italy, China, Japan, India, Germany, and Austria.[1]

Greenfield investment is a type of FDI in which a parent company creates a subsidiary in a different country and builds its operations from the ground up, creating jobs and contributing to economic growth. Greenfield investments represent over 80% of total FDI projects in most MENA countries, creating more than 50,000 jobs to date in Algeria, Egypt, Morocco, Saudi Arabia, Tunisia and the United Arab Emirates. On average, these investments represented 4.86% of MENA GDP from 2003-2012.[2] Gulf Corporation Council (GCC) countries are a significant source for these greenfield investments in their fellow MENA countries, contributing significantly to intra-OIC relations.

Though FDI has provided significant development support to MENA countries, it has become relatively stagnant over the last decade. On average, countries in the region struggled to secure FDI following the 2008 global financial crisis and the Arab Spring movements of 2010-2011. While inward FDI did eventually rise again in 2015, inflows plateaued by 2018, still only reaching less than half the levels of total FDI inflow found in MENA countries at their peak in 2007. Conflict-ridden countries in the MENA region have experienced further difficulties attracting FDI, reporting negative FDI inflows. By 2019, net FDI inflows to the MENA region sat at a mere USD 57.8 billion compared to USD 126.5 billion in 2007.

Factors influencing FDI into MENA countries

Several factors influence FDI flows to MENA countries. Former colonial ties, religious affiliation, and the use of a common language all act as major influences in ways unseen in the rest of the world. Furthermore, differences between the economies of oil-producing and non-oil producing MENA states play a significant role in attracting FDI. Generally, non-oil producing MENA countries attract more significant greenfield investment than their oil-producing counterparts.  This can be attributable primarily to oil-producing countries utilizing their abundant in-country oil resources to generate national capital instead of seeking foreign sources.

The most significant factor influencing the limitations witnessed for FDI in many MENA countries is the perceived risk associated with the region, which results in heightened concern from foreign investors regarding immediate and long-term regional stability. These risks can include political instability, low GDP, and infrastructure deficiencies, amongst others. To mitigate against these risks and counter the decline of FDI in the region, various MENA governments have advanced policy reforms, using policy and regulation to promote and facilitate the return of foreign firms and money. Such reforms have led many MENA states to revise investment legislation, ease market entry, streamline regulations in business operations, strengthen investment promotion agencies (IPAs), and adopt policies to direct investment into under-performing regions. However, despite these efforts, many MENA governments have been unable to secure FDI at levels equal to that found amongst other emerging and developing economies, limiting sustainable development in the region. While the MENA region currently has the market, resources, and human capital potential required to attract FDI at high levels, it faces significant challenges that hinder incoming FDI’s flow and effectiveness.

MENA’s FDI and COVID-19

The onset of the COVID-19 pandemic further exasperated the issues regarding FDI inflows to the MENA region. No nation was spared from the economic impacts of the virus, as all governments had to close borders and implement lockdowns and quarantines, grinding global economic activity to a halt and causing a contraction of the global economy by 3.3% in 2020.[3] Furthermore, as a result of the pandemic, global FDI flows fell by 35% from US$ 1.5 trillion in 2019 to US$ 1 trillion in 2020.[4]

Early estimates suggested the MENA region would lose up to 45% of its FDI inflows in 2020, though varied outcomes have been suggested since this prediction. [5] Such concerns were raised primarily in response to the impact of the pandemic on greenfield investments, which had already dropped by 80% in the first six months of 2020. This was a drastic loss compared to the anticipated reduction in greenfield investments in other emerging and developing economies (42%) and amongst OECD countries (17%).[6] The projections were based on significant greenfield investment-reliant industries such as tourism and manufacturing being hit particularly hard due to lockdowns and border closures.

As oil prices dropped, greenfield investments from the GCC oil-producing countries to their MENA neighbours were also anticipated to fall drastically, primarily affecting the region’s real estate (65% of investments) and energy (14% of investments) sectors.[7] Despite these bleak projections, greenfield investment drops appear to primarily result from projects being put on hold rather than being cancelled or shelved, meaning a greater likelihood of FDI bouncing back in the region.

Despite bleak early projections, states throughout the MENA region have experienced positive and negative FDI inflows during the COVID-19 pandemic. FDI flows to West Asia increased by 9% in 2020. Meanwhile, North Africa saw FDI inflows contract by 25%. These variations in FDI have largely been sector-driven, with specific sectors seeing higher or lower investments due to the pandemic-based valuations of different industries.

Many MENA countries have worked to support select industries based on these disruptions. Some states are positioning themselves as premier destinations for FDI in specific industries. For example, the Tunisian government is encouraging international automobile manufacturers to refocus their funds away from the Chinese and American markets into the country through implementing various investment-friendly policy and regulation schemes. Furthermore, states are revising investment laws to focus on priority sectors and improve regulatory and institutional structures that facilitate increased FDI. Turkey is extending a specialized free zone programme encouraging investment in software and ICT activities to include other high value and technology-intensive activities, resulting in Ford’s recent construction of USD 2.6 billion electric automobile assembly plant.

ICIEC and FDI in MENA

ICIEC’s mandate is to bolster economic growth and sustainable development in its 47 Member Countries. With much of its Membership located within the MENA region, the Corporation is a significant support for attracting FDI flows to MENA countries, specifically for projects that boast substantial developmental impact. ICIEC supports FDI by providing investment cover against the potential risks that lead to barriers for investors through its Preferred Creditor Status and the Corporation’s Political Risk Insurance (PRI) products, namely its Foreign Investment Insurance Policy (FIIP) and Non-Honoring of Sovereign Financial Obligations (NHSFO). ICIEC’s cover helps to provide investors with increased security.

Since the Corporation’s inception in 1994, ICIEC has provided more than USD 78 billion in total business insured, including USD 15.6 billion toward investment protection. In 2020, ICIEC provided a total of USD 9.86 billion cover for trade and investment across its 47 Member Countries. Over USD 6 billion of this total is being used to provide insurance cover for transactions in the MENA region, and USD 1.98 billion is being used specifically for investment insurance cover.

ICIEC has been highly active in promoting FDI in MENA countries, providing cover for several notable investments. One such example is ICIEC’s USD 68 million FIIP cover for the construction and operation of the Benban Solar Complex in Aswan, Egypt. ICIEC’s support for this transaction promoted FDI inflow to the MENA Member Country and contributed to the growth of renewable energy sources, bolstering the nation’s energy security. ICIEC also provided USD 32.5 million in NHSO cover for the Sharjah waste-to-energy (WtE) project in the United Arab Emirates, earning the Project Finance International (PFI) Award for the Middle East Clean Energy Deal of the Year in 2019. Meanwhile, ICIEC won the PFI award for Turkish Deal of the Year in the same year for its various levels of insurance cover toward the construction of the Çanakkale bridge in Turkey, which is set to have an immense impact on both trade and development in Turkey.

As vaccines become more available and MENA countries reopen their borders to trade and promote their industries to investors, ICIEC will continue to work with our Member Countries in the region to facilitate the return of FDI. Though most MENA governments are currently working to provide responses negating the immediate impact of COVID-19 on trade and investment, now is an opportune time to implement ambitious long-term programs that encourage further investment into the region. ICIEC is ready to help MENA governments attract high-quality investments that increase jobs and capital within the region and promote an inclusive, sustainable, and resilient recovery. While the pandemic has posed a difficult stretch for FDI, ICIEC and its MENA Member Countries will work together to ensure the next decade is one of prosperity and openness for MENA-oriented FDI.

https://www.brookings.edu/blog/future-development/2019/12/13/encouraging-transformations-in-central-asia/#:~:text=Nearly%2030%20years%20ago%2C%20the,the%20middle%20of%20the%201990s
https://www.forbes.com/sites/arielcohen/2020/12/08/foreign-investment-in-renewables-and-beyond-the-last-best-hope-for-central-asias-economic-recovery/?sh=26368a2f5ebf
https://read.oecd-ilibrary.org/view/?ref=134_134467-ydi12subjo&title=Investment-in-the-MENA-region-in-the-time-of-COVID-19&_ga=2.157186872.245605971.1622493830-457525634.1622493830
https://www.iemed.org/publication/fdi-in-the-mena-region-factors-that-hinder-or-favour-investments-in-the-region/

Central Asia as a Strategic Region for Trade and Investment
The geographical region widely considered as Central Asia comprises Kazakhstan, Azerbaijan, Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan. The diverse region boasts a mix of upper-middle- and low-income countries with significant strategic importance due to their geographic location and abundant natural resources^[1]. The region has a long history as a central area for global trade, dating back to the Silk Road trade network during China’s Han Dynasty over 2000 years ago. These historic routes extended more than four thousand miles from China to Europe, connecting eastern and western markets and putting Central Asia at the epicentre of trade and globalization, generating immense wealth^[2].

The modern-day Central Asia region still benefits from its strategic geographic position between China and Europe and the abundant natural resources, low public debt, a young population, and a growing labour force found in the countries that comprise it. These countries have also benefited through their increased integration into the global economy over the last decade, driven mainly by natural resources and labour. During the 2000s, the Central Asia region emerged as one of the most dynamic global economic regions, trading goods and services globally to help support domestic demand, reduce poverty, and share prosperity throughout the region. These resource-rich countries have already achieved or are approaching the upper-middle-income status, mainly on the back of solid demand for their natural resources^[3].

Being such an important geopolitical and economic region, Central Asia has been swiftly developing; thanks to foreign direct investments (FDI), the gross inflow totalled $378.2 billion between 2007-2019^[4]. The European Union (EU) countries invested 40 per cent of total FDI in Central Asia. China has been developing logistics and transit routes through projects as part of its Belt and Road Initiative (BRI), sometimes referred to as the New Silk Road. In addition to investments, the EU and the United States provide significant grant funds to support public and political institutions, projects for environmental protection, and civil society development. The EU alone provided the region with approximately $1.2 billion in aid between 2014 and 2020^[5]. These initiatives recognize the importance being placed on integrating Central Asian countries into the global economic arena.

Economic Development and Opportunities in the Region

While the investment activities in Central Asian countries have been picking up, there are still significant opportunities for economic growth and sustainable development within the region. With its plethora of natural resources and location as one of the main transit passages between EU countries, China, and Russia, the region has many inviting attributes for further investments.

Despite being a central trade route between Europe and China, improving conditions for trade within the Central Asia region itself is particularly critical, given some of the inherently challenging conditions. The economic structure of Central Asia is one of low density and long distances. The combined population of the countries in Central Asia is approximately 75 million^[6], spread unequally over a relatively large geographical area, including large deserts and high mountains with limited connectivity^[7]. The landlocked and remote location of the Central Asia region paired with its rugged topography means there are additional transport costs and transit times needed for regional and international shipments within the region^[8].

Despite these barriers, the economic expansion of other nearby countries, such as China and Russia, creates an unprecedented opportunity for Central Asia to emerge as a hub for trade and commerce. The region should benefit from closer intra-regional connectivity, deeper ties with traditional partners, and growing trade relations with some fast-growing nearby economies such as China, India, and Turkey^[9].

Although each Central Asian country pursues its own individual development paths, they share similar challenges regarding cross-border resource management, underinvestment in sustainable infrastructure, and economic diversification and growth challenges. Since Central Asian countries are all relatively small economies, they will need to promote regional trade policies and closely integrate into the international trading system to achieve sustainable economic development^[10].

ICIEC’s Role in Central Asia
Currently, three of the five Central Asian countries are ICIEC Member Countries – Kazakhstan, Turkmenistan, and Uzbekistan. ICIEC supports trade and investment flow for these Member Countries by providing insurance solutions to mitigate political and commercial risks. Through its range of solutions and its preferred creditor status, ICIEC also assists Member Countries in attracting FDI for projects in critical sectors for their sustainable development and national objectives.

ICIEC  plays a critical role in promoting intra-OIC trade between Central Asian Member Countries and Member Countries in other regions. As part of its mission, ICIEC seeks to increase global trade integration, foster cooperation among markets in the Global South, and support in periods of trade turmoil. To achieve this, ICIEC is working closely with its IsDB Group peers, namely IsDB, ITFC and ICD, to enhance the Group’s synergy and expand joint operations in Central Asia.

Kazakhstan
Kazakhstan attained ICIEC Membership in 2003. Since joining, ICIEC has insured a total of USD 1.94 billion for trade and investment in Kazakhstan: USD 996 million in coverage for the import of strategic goods into Kazakhstan and USD 939 million in cover for exports out of Kazakhstan.

During this time, ICIEC has maintained an excellent relationship with Kazakhstan’s national Export Credit Agency to help them support their national exports. In 2014, ICIEC signed a Memorandum of Understanding for cooperation with KazakhExport to promote collaboration and expand the insurance capacity of both institutions. In 2015, ICIEC extended USD 21 million in reinsurance support to KazakhExport to export locomotives to Azerbaijan Railways.

In 2020, ICIEC worked with Eurasian Machinery, the official distributor of Hitachi Construction Machinery (HCM) in Kazakhstan and Central Asia, extending USD 9.5 million in Specific Transaction Policy, covering 80% of the total sales contract and assisting in the import of capital goods. This cover provided Eurasian Machinery with four Hitachi excavators to the Kazakhstan mining sector and helped support Kazakhstan’s mining sector by increasing production capacity and securing new jobs.
ICIEC is also closely following the PPP projects in Kazakhstan and is contacting the Kazakhstan PPP Center and international banks to support PPP projects in Kazakhstan.

Turkmenistan
Turkmenistan is the most recent Central Asian country to join ICIEC membership in 2019. Since then, ICIEC has been growing its presence within the country, seeking opportunities to promote foreign direct investment, expand Turkmenistan’s exports, and prioritize support for projects that contribute to Turkmenistan’s strategic development goals. The Corporation stands ready to catalyze support in Turkmenistan by mitigating political and commercial risks for trade and investment by providing its Shari’ah compliant insurance solutions for banks, corporates, export credit agencies, and other insurers.
Currently, ICIEC is engaging with several international banks to support transportation and agricultural sector projects.

Uzbekistan
Uzbekistan joined ICIEC Membership in 2019. ICIEC has since facilitated several seminal sustainable development projects in Uzbekistan, amounting to USD 126 million in total cover. ICIEC contributes to foreign direct investment and advances Uzbekistan’s specific development goals by facilitating investments in strategic sectors.

In one such project, ICIEC provided a total cover of USD 54 million in Specific Transaction Policy for transactions between two of China’s largest telecommunications equipment manufacturers and Uzbekistan’s state-owned telecommunication operator in line with the Government’s National Development Strategy for 2017-21. The two projects involved modernizing the mobile broadband access network in the Eastern and Western regions of Uzbekistan, expanding the data storage and processing centre, and supporting new technology that will increase access to critical services.

ICIEC’s continued support of infrastructure-related projects in Uzbekistan can help mobilize the private sector and financial resources from abroad. For example, ICIEC is in contact with the PPP Development Agency and international banks to explore opportunities to support PPP projects such as energy and hospital projects in Uzbekistan. ICIEC is cooperating with international banks for their lines of finance to Uzbek banks and entities. ICIEC is also in dialogue with the Investment Promotion Agency under the Ministry of Investments and Foreign Trade to sign an MoU to attract FDI into the country.

In June 2020, ICIEC and Uzbekinvest, the Export-Import Insurance Company of Uzbekistan, signed a Memorandum of Understanding that supports joint efforts, expanding the insurance capacity of both institutions.

Looking Ahead
The diverse natural resources, plentiful human capital, and burgeoning SME sector in the Central Asia region are grabbing investors’ attention, providing many promising future opportunities. To enhance growth and overcome the existing challenges of a lack of sustainable infrastructure and economic diversification, the Central Asia region will have to implement new policies and strategies and lean on political risk insurers, such as ICIEC, to support ventures into new markets.
Greater infrastructure development could give Central Asian economies a critical boost by enhancing growth, poverty eradication, climate change mitigation, and recovery from the impacts of the COVID-19 pandemic. Effective infrastructure projects, such as ICIEC’s reinsurance support to KazakhExport to export locomotives to Azerbaijan Railways, can induce positive spillover effects on economic growth, employment, and trade. The Central Asia and Caucasus region require a combination of the soft and physical infrastructure to achieve a sustained growth pattern. This will require financing solutions and new funding sources to tackle the region’s infrastructure investment gap. Along with infrastructure development, regional connectivity barriers need to be scaled down so that potential inter-, intra-, and extra-regional trade can be expanded^[11].

Central Asian countries and their respective governments should also seek to expand economic diversification, having primarily integrated with the world economy through their natural resources, which account for about 65 per cent of exports in Kyrgyzstan, Tajikistan, and Uzbekistan, and more than 90 per cent in Kazakhstan and Turkmenistan^[12]. This heavy reliance on a few primary commodities exports makes the Central Asian region vulnerable to abrupt swings in volatile world prices for these commodities and complicates economic management. To counter this, some of Central Asia’s more advanced economies have already begun pursuing economic diversification and advancement accompanied by structural reforms to invite further new investments in the region^[13]. This will help expand FDI flows beyond extractive industries. ICIEC’s services in the region can also expand FDI flows and foster economic diversification by supporting local exporters of non-oil commodities in reaching new markets.

ICIEC will continue to support its Member Countries, businesses, and citizens in the Central Asia region by facilitating sustainable development projects in both soft and hard infrastructure, by encouraging investments in strategic sectors, and by offering a range of risk mitigation solutions to help increase global trade integration and prosperity in the region.

^[1]https://www.worldbank.org/en/region/eca/brief/central-asia

^[2]https://www.cfr.org/backgrounder/chinas-massive-belt-and-road-initiative

^[3]https://www.wto.org/english/thewto_e/acc_e/Session1SarojKumarJha12stCenturySilkRoad.pdf

^[4]https://astanatimes.com/2020/12/fdi-to-central-asia-reached-378-2-billion-over-past-13-years/#:~:text=NUR%2DSULTAN%20%E2%80%93%20The%20Central%20Asian,of%20which%20totaled%20%24378.2%20billion.&text=FDI%20to%20Kazakhstan%20reached%20%243.6,important%20geopolitical%20and%20economic%20region

^[5]https://astanatimes.com/2020/12/fdi-to-central-asia-reached-378-2-billion-over-past-13-years/#:~:text=NUR%2DSULTAN%20%E2%80%93%20The%20Central%20Asian,of%20which%20totaled%20%24378.2%20billion.&text=FDI%20to%20Kazakhstan%20reached%20%243.6,important%20geopolitical%20and%20economic%20region

^[6]https://www.worldometers.info/world-population/central-asia-population/#:~:text=Countries%20in%20Central%20Asia&text=The%20current%20population%20of%20Central,among%20subregions%20ranked%20by%20Population

^[7]https://www.wto.org/english/thewto_e/acc_e/Session1SarojKumarJha12stCenturySilkRoad.pdf

^[8]https://www.adb.org/sites/default/files/publication/29927/central-asia-trade-policy.pdf

^[9]https://www.wto.org/english/thewto_e/acc_e/Session1SarojKumarJha12stCenturySilkRoad.pdf

^[10]https://www.adb.org/sites/default/files/publication/29927/central-asia-trade-policy.pdf

^[11]https://www.adb.org/sites/default/files/publication/688061/adbi-book-developing-infrastructure-central-asia.pdf

^[12]https://www.brookings.edu/blog/future-development/2019/12/13/encouraging-transformations-in-central-asia/#:~:text=Nearly%2030%20years%20ago%2C%20the,the%20middle%20of%20the%201990s

^[13]https://www.forbes.com/sites/arielcohen/2020/12/08/foreign-investment-in-renewables-and-beyond-the-last-best-hope-for-central-asias-economic-recovery/?sh=26368a2f5ebf

The World Health Organization (WHO) declared a Public Health Emergency of International Concern on 30 January 2020 due to the fast spread of COVID-19. With the threat of a pandemic looming and noting the crumbling health infrastructure in Côte d’Ivoire, on 5 March 2020, Deutsche Bank and ICIEC signed a financing facility agreement to support Côte d’Ivoire’s health infrastructure through the construction of two new regional hospitals as well as five new medical units in five additional hospitals. The agreement was signed a few days before the WHO declared the pandemic on 11 March 2020; the same day, the first case of COVID-19 was detected in Côte d’Ivoire.

Mr Raphael Fofana, Underwriter in ICIEC’s Underwriting Department, Sovereign Risks Division, provided some insight on the Corporation’s involvement in this award-winning project.

Q: Could you please briefly introduce the overall project and financing structure?
RF: Of course. The government of Côte d’Ivoire mandated Deutsche Bank to mobilize financing of around 142 million Euros to fund the construction of two regional hospitals, with approximately 200 beds each. One of the hospitals is located in Adozpé (100 KM north of Abidjan) and Aboisso (100 KM east of Abidjan). The project also funded five new medical units in five additional hospitals located across the country.

Deutsche Bank sought insurance from ICIEC for capital relief to more comfortably finance the transaction given the size. ICIEC’s cover provides Deutsche Bank with increased security against the risk of default. If the bank were to fund such a transaction without ICIEC’s cover, the transaction would have been too expensive for the Government of Côte d’Ivoire to bear.

Q: Why was ICIEC sought as a partner over other insurers?
RF: ICIEC was the clear choice of insurer for this project from the start. Based on the considerable value of the transaction, few insurers would have the risk appetite for this project in the first place. As a long-standing partner and client of ICIEC, Deutsche Bank is familiar with the unique added value we offer as a multilateral institution. We have additional tools to make our clients more comfortable.

One such unique aspect of our coverage is ICIEC’s Preferred Creditor Status (PCS), which helps ICIEC mitigate the risk of default in transactions. When a government knows that ICIEC is involved in a project, they are less likely to default on payments. And, if for any reason they do default, and they only have a limited amount of funds available to pay us or any private banks involved, they would be required to pay us before other creditors.

Our clients also appreciate that we hold high standards and implement a rigorous due diligence process in terms of developmental impact and environmental and social issues. ICIEC brings a development lens to the transaction because we make sure that the projects we support are impactful and that the results of our transactions benefit a broader population of our Member Countries.

Q: What was the developmental rationale for ICIEC to get involved in this transaction, and how does it align with Côte d’Ivoire’s national development plans?
RF: Under Côte d’Ivoire’s President, Alassane Ouattara, who was elected in 2010, the construction and renovation of the country’s hospitals were highlighted in the country’s national development plan. An additional, and more specific, National Health Development Plan was also prepared with the clear objective to build and renovate hospitals with an estimated cost of EUR 1.5 billion. The two hospitals and five medical units covered in this project are part of this program.

When assessing the project, ICIEC recognized the priority placed by the government of Côte d’Ivoire on renovating the existing healthcare infrastructure and building new facilities. It was an easy choice for us to proceed. As a multilateral insurer, part of our role is to support the private sector in financing seminal Government projects and bolster investments in critical sectors. In addition to this project, we support Cote d’Ivoire in constructing a potable water plant and renovating the country’s education infrastructure.

Q: What was the development impact of this project on the healthcare sector?
RF: The state of healthcare infrastructure in Côte d’Ivoire before this project was less than ideal. Malaria, yellow fever, sleeping sickness, leprosy, trachoma, and meningitis are all endemic to the Member Country. While government programs exist to control these and other diseases, the healthcare sector suffered from insufficient and deteriorated infrastructure. Therefore, strides in the government’s National Health Development Plan, of which this project is a part, significantly impact citizens’ access to healthcare. The project created 400 new hospital beds in the two hospitals and brought in state-of-the-art equipment and facilities, enhancing access to and healthcare quality in the typically underserved regions. Additionally, five new medical units in five other hospitals have been built. By insuring the financing of this project, ICIEC is supporting better health and well-being for citizens of our Member Country.

Q: What was the development impact of this project beyond the healthcare sector? Are there any links to SDGs you can make?

RF: The development of basic infrastructure in the health sector is crucial to achieving sustainable development and empowering communities in Côte d’Ivoire and beyond. The two new hospitals contribute to job creation, employing around 600 local people and fostering a micro economy in the surrounding areas. The construction element of the project also facilitates the trade of services and human capital between Côte d’Ivoire and Morocco.

By insuring the financing for the hospitals and medical units, ICIEC contributes to the achievement of the United Nations’ Sustainable Development Goals (SDG), specifically to SDG3 – Ensure good health and well-being for all. However, the project contributes broader impacts to SDG1 – End poverty in all its forms everywhere; SDG9 – Build infrastructure, promote sustainable industrialization and foster innovation; and SDG10 – Reduce inequalities between social categories.

Q: What were some additional unique features of the project that piqued ICIEC’s interest?

RF: An extraordinary bonus feature of this project was that it is an intra Organisation of Islamic Cooperation (OIC) investment. The Engineering, Procurement, and Construction (EPC) contractor was Moroccan. As Côte d’Ivoire and Morocco are both OIC members, this makes the transaction eligible to be classified as an intra OIC investment. This is precisely the collaborative type of transactions that ICIEC seeks to encourage.

Another unique feature of this project was the sheer size of the transaction. It is the most significant direct cover for the healthcare sector in ICIEC’s history, and the largest transaction ICIEC has closed in Côte d’Ivoire.

Q: This project started right when the COVID-19 pandemic started. How has the project contributed to Côte d’Ivoire’s COVID-19 response?
RF: The COVID-19 pandemic is ongoing in Côte d’Ivoire, and the two new hospitals will naturally be used as part of the national response. They will be operational any day now and will, of course, receive and treat COVID-19 patients as necessary. There will also be some designated facilities for COVID-19 testing and treatment.

The five additional medical units have also been integrated into the national response since their respective operationalizations. In these critical times, any reinforcement to the healthcare system will significantly impact citizens.

Q: Were there any specific challenges or lessons learned you would like to reflect on?
RF: On the financing side, it was very straightforward. There is direct financing from a bank to the government, and ICIEC provides insurance against the government’s default. This is something we inherently do.

The main challenge was in the execution of the project, which took place in the middle of the COVID-19 pandemic. The construction was planned before the virus took the world by storm. While the crisis created a sense of urgency given the critical nature of the healthcare infrastructure being developed, there was a period of adjustment to ensure workers’ safety and mitigate any challenges to the logistics, such as access to materials.

Q: Finally, this project won the Islamic Finance News Sovereign & Multilateral Deal of the Year 2020; can you tell us about what made this project so notable?
RF: This reflects how dire the healthcare situation in Côte d’Ivoire was before the project and highlights just how impactful investments in critical sectors could be. The size of the transaction and the intra-OIC nature of the project also contributed to this becoming a high-profile and award-winning project. ICIEC is proving that there is a need for Shariah-compliant insurance solutions and demonstrating how impactful its involvement can be.