COVID-19 has dealt severe blows to the global economy. Supply chains collapsing, international trade sharply declining, and global investment appetites drying up have further exacerbated the challenges for recovery. Essential workers have been forced into unsafe conditions, while many others have found themselves unemployed. While some governments have successfully implemented policies to manage the pandemic and protect businesses, many countries have struggled to keep economic activity afloat. The pandemic has exposed deficiencies in both national economies and the global economy, while highlighting the importance of mutual coordination and strategic multilateral responses to ensure the health, safety, and economic security of citizens worldwide.
The economies of ICIEC’s Least Developed Member Countries (LDMCs) have been particularly affected by the pandemic. A primary driver of the affects being the striking drop in foreign trade. World trade had already slowed prior to the COVID-19 pandemic due to geopolitical tensions, regional conflicts, and trade wars, with both exporters and investors feeling cautious regarding trade in uncertain conditions. This slowing of trade advanced to a near halt when crisis mitigation efforts led to disruptions to economic activity such as closed borders and fractured supply chains, plummeting the value of the international trade in goods by 27% as of April 2020 according to UNCTAD figures.
ICIEC LDMCs have seen particularly poor economic situations, highlighted in UNCTAD data showing exports from regions well represented by ICIEC members such as the Middle East and South Asia, Africa, and Central Asia, declining by 40%, 36%, and 27% respectively as of April 2020. Greatly contributing to this decline has been the drop in oil prices, as trade in energy products declined by 39%, sharply contracting the economies of energy-export reliant countries. Meanwhile, imports in these regions dropped by 23%, 21%, and 18%, limiting access to crucial goods and supplies for citizens and businesses.
Partnering with IsDB peers
As the multilateral Export Credit Agency (ECA) representing 47 countries across the OIC, and a member of the Islamic Development Bank (IsDB), ICIEC is a key player in many IsDB Group initiatives and often partners with peer IsDB members for events, cooperative agreements, and a number of other strategic initiatives. The COVID-19 pandemic wreaking havoc in OIC countries has only further encouraged intra-IsDB partnerships in efforts to strengthen the organization’s response to the crisis.
ICIEC’s immediate response to the pandemic was to participate in IsDB Group’s ‘Strategic Response Preparedness Fund”, where the Corporation’s contribution of $150 million in credit and political risk insurance is helping to sustain imports of strategic commodities, protect investments, and minimize volatility in Member Countries.
ICIEC also partnered with the Islamic Centre for Development of Trade (ICDT) to co-host a webinar to disseminate information from OIC ECAs regarding their local situations and their institutions approach and actions in response to COVID-19.
More recently, ICIEC has partnered with the poverty alleviation arm of the IsDB Group, the Islamic Solidarity Fund for Development (ISFD), to establish the ‘ICIEC-ISFD Covid Emergency Response Initiative’ (ICERI). The fund has structured a concessional all-in pricing mechanism to help preserve the flow of essential imports to OIC countries.
Partnering with National ECAs
Another essential means by which ICIEC is catalyzing trade and investment in a sluggish global market, strengthening coverage for struggling businesses, and facilitating economic recovery from the pandemic in MCs is through strategic partnerships with national ECAs. ICIEC has long pursued partnerships to meet the UN Social Development Goal (SDG) number 17, the purpose of which is to foster partnerships that help achieve the goals. To achieve this goal prior to the pandemic, ICIEC created agreements with banks, investors, corporates, and national ECAs that encourage investment and exports in unlikely and risky markets, having as of 2019 secured 82 partnerships to insure USD8.4 billion in exports and USD1.6 billion in national ECA business.
Through partnerships and agreements ICIEC’s insurance products reduce export risks and provide financial space to large firms, as well as small and medium enterprises (SMEs), to obtain access to working capital while minimizing lending risk. For SMEs, financial risk of lending is significantly reduced, and access to much needed investment capital allows the SME to expand and grow into new markets. Furthermore, by underwriting investments in strategic sectors and projects in coordination with national ECAs, ICIEC supports the development agendas of its member countries. The investment projects often provide employment, enhanced, modern and efficient infrastructure, and a better quality of life for citizens.
Through close cooperation with national ECAs, ICIEC is able to provide them with additional insurance capacity through facultative and treaty re-insurance mechanisms. ICIEC offers technical assistance and supports national OIC ECAs to launch new insurance instruments by providing tailored co- and re-insurance support and facilitating smart partnerships with other development players. Through expanded trade coverage under coinsurance and reinsurance agreements, firms in member countries can access new markets, grow in existing markets and in the process generate employment and economic growth, giving a much-needed economic boost to ICIEC member countries.
The pre-pandemic partnership between ICIEC and Turk Eximbank exemplifies the benefits of ECA cooperation. In 2019, ICIEC and Turk Eximbank signed a Memorandum of Understanding (MoU) which allowed risk sharing between institutions, credit enhancement of Turk Eximbank’s financing and borrowing, increased information sharing, joint marketing efforts, and cross-training. The partnership between ECAs has been highly valuable for Turkish businesses, allowing them greater access to transactions with ICIECs African MCs. Furthermore, the partnership is providing long-term economic prospects for Turkey’s growth through SMEs by enhancing loan coverage, exemplified in ICIECs EUR 180m cover for a loan to Turk Eximbank which the bank is using to expand the SME sector.
Forging New Relationships in Response to COVID-19
Understanding the value of partnerships in expanding trade, strengthening coverage, and growing economies, ICIEC has made efforts to forge new partnerships, in addition to strengthening existing ones, throughout the pandemic. ICIEC has signed a number of new MoUs, cooperating with national ECAs from both MCs and non-MCs. The Corporation’s CEO, Mr. Oussama Kaissi, addressed the importance of fostering partnerships during the pandemic, stating:
“During this time of economic uncertainty, ICIEC has placed high importance on building relationships with peer ECAs. Despite, or perhaps due to the troubling times we are living in, demand is growing for guarantees in OIC markets where credit and political risks pose a greater challenge. By working jointly, the Corporation and its partners can increase the reach and depth of service offerings, therefore enabling all parties to provide the best support possible to our member countries”.
Four MoUs have been signed by ICIEC the pandemic began with non-MC national ECAs, including Uzbekistan’s Uzbekinvest, Austria’s OeKB, the U.K.’s UKEF, and Spain’s CESCE. The MoUs provide benefits to the agreeing entities such as the opportunity to enter co-insurance, reinsurance, or cooperation agreements, to engage in strategic joint projects that support exports and investment, and to participate in capacity building and technical assistance programs. Of the opportunity to partner with European ECAs during the pandemic, Mr. Kaissi proclaimed “The partnerships are a critical move to demonstrate the dynamic and growing market potential that exists in the OIC despite perceived risk, thus incentivizing more western countries to consider the OIC region for foreign direct investment and trade.” Much like the pre-pandemic partnerships, these partnership advance both parties’ respective operational mandates of providing insurance support for trade and investments and will foster jobs and projects to boost the economies of ICIEC member countries.
While the world is in a state of uncertainty, ICIEC is using successfully tested methods to help stabilize OIC states and grow their economic prospects. There is ample room for future partnerships between ICIEC and national ECAs, and the success of these partnerships will be critical to economic recovery following the pandemic. While the longevity of the crisis is a great unknown, and further issues could arise that change the economic landscape once again, ICIEC will continue to seek intuitive solutions and work with strategic partners to protect and develop the economies of the OIC states.
