afreximbank seminar/workshop 2 december 2010, cairo

All rights reserved. Copyright © 2010Euler Hermes Kreditversicherungs-AG and PricewaterhouseCoopers AG WPG.

Promoting Africa-German Trade: Financing Opportunities under

Hermes Cover-Afreximbank Collaboration

Andreas Klasen

Afreximbank Seminar/Workshop

2 December 2010, Cairo

Agenda

1. Introduction and Background

2. German Exports to Africa

3. Hermes Cover

4. Cover Policy for Africa

5. Cooperation Afreximbank/Hermes Cover

6. Conclusion

Background Germany

►German exports approx. EUR 1,000 bn p.a., thereof approx. EUR 20 bn p.a. to Africa

►Substantial private insurance cover for export economy; restrictions, e.g. regarding risks in emerging and developing countries

►The Federal Republic of Germany is economically interested in promoting German exports

► In 2009, approx. 2.8% of German exports were covered by governmental Export Credit Guarantees

►Approx. 20% of all German exports to developing countries

Background Crisis Response – Consequences on ECAs I

►During the crisis ECAs were forced to act counter-cyclically and flexible

►Substantial increase in demand for ECA cover in combination with ECA related government action

►ECAs are approached by new customers and are getting involved in new industry sectors and/or buyer countries such as EU and other OECD countries

Cover is sought for risks that used to be perceived as save

Background Crisis Response – Consequences on ECAs II

►Governments response with new/amended insurance products and cover policies in order to facilitate export finance

►(Re-) Entry of ECAs in the field of marketable risks (short term cover for EU and OECD countries) due to restrictions of the private credit insurance market

ECAs are extending their umbrella – rather than closing it

Agenda

1. Introduction/Background


3. Hermes Cover



6. Conclusion

German Exports to Africa:African Imports / German Exports

► Total German Exports 2009: USD 1,128 bn

Export Growth 2005 – 2009: +3%

► German Exports to Africa 2009: USD 24 bn

Export Growth 2005 – 2009: +16%

► Total African Imports 2009: USD 455 bn

Import Growth 2005 – 2009: +41%

thereof: Northern Africa: +66% Sub-Sahara: +29%

German Exports to Africa: 2005 – 2009 (m EUR)

5.662

2.662

1.465

1.291

1.276

1.126

1.063

289

209

202

6.672

1.700

1.081

658

926

1.008

760

116

142

229

1. South Africa

2. Egypt

3. Algeria

4. Libya

5. Morocco

6. Tunisia

7. Nigeria

8. Angola

9. Ghana

10. Sudan

2009

2005

Exemplary Composition of Exports to Egypt (2007)

26% Machinery and Equipment

18% Chemicals, Synthetics and Pharmaceuticals

16% Electrical and Optical Devices

14% Vehicles

German Exports to Africa (m EUR):Top 10 - New Hermes cover volume Africa

7

43

24

23

89

53

88

179

141

299

13

30

35

45

49

72

82

89

256

331

10. Togo

9. Uganda

8. Libya

7. Ghana

6. Nigeria

5. Kenya

4. Morocco

3. Algeria

2. Egypt

1. South Africa

01/2010 - 10/2010

01/2009 - 10/2009

South Africa: Infrastructure deals finalised

Egypt: Investments in manufacturing

Kenya & Ghana: Private sector thriving

Agenda



3. Hermes Cover



6. Conclusion

Hermes CoverOur business model

We as Export Credit Agency (ECA) act as intermediate between the German government and exporters/ banks located in Germany

Organisation: Agreement of service provision with German private

companies (mandataries)

Mandataries: Euler Hermes Kreditversicherungs-AG and PricewaterhouseCoopers AG

Pure cover for export credits (Export Credit Guarantees)

Hermes Cover:Risks covered

Political risks General political risks (e.g. war, revolution, nationalisation) Convertibility and transfer risk (impossibility of converting or transferring

amounts deposited into foreign currency) Loss of the right to receive payment due to frustration of contract for

political reasons The loss of goods before the risk has passed to the foreign buyer due to

political circumstances

Commercial risks Irrecoverability of claims (e.g. insolvency) Protected default

Hermes Cover:Criteria for cover of exports

Eligibility for promotion e.g. job promotion, market entry, promotion of SMEs

Justifiability of the risk e.g. reasonable prospect for the smooth execution of

the project

Terms of contract Conformity with intergovernmental agreements and

international guidelines for transactions

Budgetary restrictions Statutory max. exposure limit: EUR 120.0 bn

Hermes Cover:International framework

Organisation for Economic Co-operation and Development Applicable to all official support provided by or on behalf of a government

for export of goods and/or services, which have a repayment term of two years or more

Advanced and interim payments of at least 15% of the export contract value at or before the starting point of credit

Maximum credit periods, differentiated by country groups:

High-income: max. 5 - 8.5 years

Low-income: max. 5 - 10 years Limit for local cost – max. 30 % of the export contract volume Semi-annual repayment profile in equal instalments First instalment not later than six months after the starting point of credit

Hermes Cover:Product portfolio for exporters and banks

Whole-turnover and revolving cover

Whole-turnover and revolving cover Single transaction coverSingle transaction cover Supplementary forms

of coverSupplementary forms

of cover

Whole-turnover Policy

Whole-turnover Policy light

Revolving supplier credit cover

Revolving buyer credit cover

Supplier credit cover Buyer credit cover Framework credit

cover Manufacturing risk

cover Constructional works

cover Airbus Guarantee Project financing Ship financing

L/C confirmation risk cover

Counter-guarantee Confiscation risk

cover Leasing cover Securitisation

Guarantee Securitisation

Guarantee for the KfW Refinancing Programme

Contract bond cover

1,4%2,2%

3,3%

4,0%

6,2%12,2%

20,1%

19,3%

21,4%

9,9%

Infrastructure

Aircraft industry

Ships

Manufactoring industry

Energy

Papertrade, timber, leatherand textile industryService industry

Mining industry

Agriculture and food industry

OtherSource: Annual report 2009

Award of Excellence – Best ECA2005, 2007, 2008, 2009 & 2010

Hermes Cover:Facts and figures

Agenda



3. Hermes Cover



6. Conclusion

Cover Policy for Africa:Facts and figures

Cover Policy for Africa:OECD Country risk categories

LK = Country Risk Ranking Category

LK 1 LK 2 LK 3 LK 4 LK 5 LK 6 LK 7

Algeria

Angola

Cote d'Ivoire

Egypt

Ghana

Gabon

Kenya

Libya

Morocco

Nigeria

South Africa

Uganda

General Cover Policy for Africa:

Despite Africa’s high market potential, urgent needs still remain unsatisfied

Federal Republic of Germany has opened cover possibilities for Africa

Maximum credit periods, depending on country groups: Some countries were opened up for cover during the last five years

(Nigeria, Libya, Angola) Benchmark countries are even listed without country limits (Algeria,

South Africa)

However, only limited market response

Restrictive approach on local costs and foreign content

Consideration of sustainable lending practices

Cover Policy for Africa:Sustainable lending

Purpose Lending that supports a borrowing country‘s economic and social progress Without endangering its financial future and long-term development prospects

Transactions concerned Only public buyers Only medium and long term transactions (> 360 days)

Considerations Public debt situation of the respective country according to IMF / World Bank IMF and World Bank conditions (Concessionality Requirement) as of March 1,

2010 (subject to constant change) Kenya and Nigeria are not subject to IMF/WB Concessionality Requirements

Angola => case-by-case approach

Mauretania => case-by-case approach (usually grant element required)

Cover Policy for Nigeria:

General terms: Short term credit deals with public buyers require guarantees from the

Ministry of Finance or the Central Bank No cover for credit deals with public buyers

Short-term transactions: Strict private buyer audit, in case of doubt bank guarantees required Cover for future deliveries will be automatically suspended if payment is

not received 8 weeks after the agreed due date at the latest

Long-term transactions (credit periods of more than 12 months): Private buyer: EUR 200m ceiling

(Above only for project financed and other structured finance deals) Volume limit EUR 20 m

Cover policy for Ghana:

General terms: No cover for credit deals with public buyers

Short-term transactions: Strict private buyer audit, in case of doubt bank guarantees required

Long-term transactions (credit periods of more than 12 months): Cover facilities are available on a case-by-case basis for smaller

transactions with private buyers as well as such public buyers which are established as private sector organization without recourse to public funds

Cover facilities available for project financed and other structured finance transactions

Cover policy for Gabon:

General terms: Reopened cover possibilities for deals with public buyers

Short-term transactions: No restrictions

Long-term transactions (credit periods of more than 12 months): Public buyer: case-by-case basis & major contract values only on the

basis of eligibility for support Cover facilities are available for project financed and other structured

finance transactions; if necessary based on countertrade deals

Cover Policy for Africa: Hospital facilities in Angola

► Buyer: Angolan Government

► Exporter: Simed International GmbH

► Project:

Set up a dialysis ward in Saurimo

Delivery of medical equipment for another hospital

► Contract value: USD 18.7 m

► Cover: Buyer credit cover (8.5 years)

► Specifics: The order is particularly eligible for cover since it makes an important contribution to the healthcare system of the country, which was severely impaired by the civil war.

Cover Policy for Africa:Emergency vehicles in Egypt

► Buyer: Egyptian Ministry of Health

► Exporter: Wietmarscher Ambulanz- und Sonderfahrzeug GmbH (WAS)

► Kind of goods: 600 ambulances with high-performance air-conditioning and complete set of medical equipment

► Contract value: EUR 31.4 m

► Cover: Counter guarantee for advance payment guarantee, maintenance bond and contract bond

► Specifics: The order is particularly eligible for cover since the Ministry will deploy the ambulances both in big cities and in rural areas and since it makes a substantial contribution to securing jobs at WAS.

Agenda



3. Hermes Cover



6. Conclusion

Cooperation Afreximbank/Hermes Cover:Jointly finding business solutions for Africa

Cooperation with Afreximbank will allow:

► Cover for short-term trade and medium- and long-term projects

► Cover of projects in countries where a strong business partner was not available

► Consideration of projects with substantial contract values

Cooperation Afreximbank/Hermes Cover:Criteria for partnership

Main factors to be assessed:

► Financial Statements, particularly the equity position

► Quality of risk management Quality of the loan portfolio Management of currency risk Management of liquidity risk

► Transparency of business figures

► Shareholder structure

Afreximbank has convinced us

to be a reliable partner

Cooperation Afreximbank/Hermes Cover:Different types of acceptance

► Acceptance on a case by case basis Specific characteristics and eligibility of the project are evaluated Build up a common business experience

► General acceptance Streamlined procedures up to a certain exposure limit Re-negotiations necessary once exposure limit has been reached

► Most favourable acceptance is yet to be determined

Afreximbank can act as guarantor or as loan and contract partner

Cooperation Afreximbank/Hermes Cover:Inclusion of further partners

Classical ways of cooperation:►Parallel insurance ►Joint insurance►Reinsurance

Exploration of new types of cooperation:►Cooperation with the private market

Agenda



3. Hermes Cover



6. Conclusion

Conclusion

Promotion of Africa-German Trade:

►Emerging countries as major partners also in the years to come

►ECA-financing as a factor of stability in an environment of

instable world financial markets

►Hermes Cover is looking forward to a mutual beneficialpartnership

Thank you for your attention!

Further information is provided under:

Hotline: +49 (0) 40/88 34-90 00

www.agaportal.de

[email protected]

Andreas Klasen

Telefon:+49 (0)40 / 8834 – 9500

afreximbank seminar/workshop 2 december 2010, cairo

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