The Sunday Mail
Local insurance companies have raised consternations over what they view as being deliberately sidelined from critical national infrastructure projects in favour of global firms.
To this extent, the local insurance sector wants to play a role in insuring national infrastructure projects. NicozDiamond managing director David Nyabadza says the law has a requirement for risks emerging within the country to be insured locally.
“The first place to start is what the law says. The law says all risks that originate in Zimbabwe should be insured locally. So what has been happening is that when our officials have negotiated some of the bigger projects that have been happening, they have gone on to give dispensation for those projects to be insured outside the country.
“We just see it happening and the local industry does not benefit. When we say that the risk has to be insured locally, we are basically saying that one of the registered insurance companies should actually issue the policy,” said Mr Nyabadza.
“It doesn’t necessarily mean that we have the capacity to do everything here, but what we are trying to promote is that if that policy is done here then whatever can be retained locally can then be retained locally. It means we don’t have to waste foreign currency; secondly we get skills transfer because if it’s a big project and we are working with some external re-insurers then as Zimbabwe, we are also getting better in terms of underwriting those risks.”
But currently in Zimbabwe, several huge infrastructure projects that have or are still being implemented have been financed by Chinese banks. And in such cases payment guarantees or default insurance is exclusively provided by the China Export & Credit Insurance Corporation, more commonly known as Sinosure.
Who is Sinosure?
Sinosure is a state-funded policy-oriented insurance company, established in 2001 for promoting China’s foreign trade and economic cooperation.
According to Fernanda Lomenso from CCA Ontier, “If you are trying to have access to investment, credit facilities and lending related to offshore projects, it is important to know that Sinosure is a policy-oriented insurer and this is bound by the same policies that apply to official credit facilities. In this sense, it is very likely that when discussing a credit with a commercial bank in China, such as Bank of China, Agricultural Bank of China, Industrial and Commercial Bank of China, China Construction Bank, Bank of Communications, China Minsheng Bank Corp, Ltda and HSBC, any risk would be evaluated and taken according to Sinosure regulation and policies.
So that basically puts paid to any Zimbabwean insurer’s ambitions to providing cover for a Chinese funded local project.
But how about non-Chinese Projects?
Zimbabwean insurance firms still seem to be losing out, they claimed.
Despite having a loss ratio on guarantees or bonds of just 7,5 percent, the local insurance industry missed out on guaranteeing the country’s first US$5 million mobile retail bond by Untu Capital.
The retail bond was guaranteed by the African Guarantee Fund (AGF) in late 2017, providing a 50 percent guarantee.
But earlier this year, the AGF put on hold the cover it was providing for the US$5 million bond the local micro-finance institution failed to remit guarantee fees.
As a result of the crippling foreign currency shortages, Untu said it had failed to pay guarantee fees leading to suspension of the cover by the AGF.
The Untu bond issue raises significant topics around the request by local insurance firms to insure huge projects and/or transactions.
First is that foreign insurers do not fall under the purview of the sector regulator, the Insurance and Pensions Commission (IPEC), so when such issues come up — as in suspension of the guarantee of the Untu bond, then the regulator cannot intervene and perhaps resolve the issue.
Mr Nyabadza elaborates: “The other thing is that if an entity is offshore then it means that IPEC cannot regulate it because it is outside the country, so if something then happens it becomes more difficult to come up with a resolution, but if it’s a local company that has issued the policy and is here it can be summoned to IPEC and explain why we are making a certain decision.”
The second issue relates more to prevailing macroeconomics, namely currency risk.
With the Reserve Bank of Zimbabwe eliminating the 1:1 peg between bond notes/the RTGS$ and the United States dollar, as well as introducing the interbank foreign currency market, currency risk should be a major concern for local insurers intending on securing big US dollar-based projects.
Not many — if any — infrastructure projects in Zimbabwe have dollar-denominated income streams hence the revenues from toll roads or electricity generation projects are denominated in local currency and there is, therefore, a mismatch with the financing of the projects.
With the RTGS$ devaluing over the past few weeks, the projects are likely to struggle to pay back their debt, a huge risk that local insurers may find difficult to swallow.
ZimSelector founder Luke Ngwerume (who is also former CEO of Old Mutual Zimbabwe) says local insurance players need to be progressively factored into these big projects as they develop their capacities and enhance their skills in this particular area.
“Normally, what happens with these projects is that it’s a turn-key solution. They bring the contractors, they bring the specialist services and they bring the money in the form of a loan and part of the deal normally, is that we will fund this project provided that we are happy that it is properly insured and, therefore, as part and parcel of the total project cost they also bring the insurance.
“I personally have tried to explain to Government that whenever these big deals are negotiated, they should go out of their way to try and negotiate for space for local players, be it on the insurance side, be it on the funding side. Because ultimately these big projects give a one-off opportunity for local firms to grow significantly, otherwise we will never grow to a point of being able to carry these big projects.