MARSH TRADE CREDIT & POLITICAL RISK MITIGATING THE RISK WHEN - - PowerPoint PPT Presentation

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MARSH TRADE CREDIT & POLITICAL RISK MITIGATING THE RISK WHEN - - PowerPoint PPT Presentation

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MARSH TRADE CREDIT & POLITICAL RISK MITIGATING THE RISK WHEN EXPORTING INTO AFRICA OCTOBER 2016 Pieter Dingemans National Practice Leader Marsh Africa Sandton Company overview Guy Carpenter Oliver Wyman Mercer Marsh Risk and

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MARSH TRADE CREDIT & POLITICAL RISK

MITIGATING THE RISK WHEN EXPORTING INTO AFRICA

OCTOBER 2016

Pieter Dingemans National Practice Leader Marsh Africa Sandton

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MARSH

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11 October 2016

Company overview

Marsh Risk and insurance services Guy Carpenter Risk and reinsurance Oliver Wyman Global management consultant Mercer HR consulting, outsourcing, and investment services

Marsh & McLennan Companies Marsh & McLennan Companies (NYSE: MMC) are a global group

  • f professional service providers that offer customer advise and

solutions in risk management, company strategy and company

  • management. Marsh & McLennan Companies employ worldwide

52.000 employees with a yearly turnover of more than USD 10bn. To Marsh McLennan Companies belongs next to Marsh also Guy Carpenter, a worldwide leading reinsurance broker; Mercer, a worldwide leading advisor for employee- and finance management and Oliver Wyman, a world leading company advisor.

  • established: 1871
  • worldwide 52.000 employees
  • turnover: over USD 10bn
  • ffices in over 100 countries
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MARSH

Marsh Trade Credit and Political Risk Global Network

2 MARSH TRADE CREDIT PERSONNEL Americas

Argentina 3 Brazil 4 Chile 3 Colombia 1 Mexico 2 United States 31 Canada 6

Europe, The Middle East, and Africa

Austria 3 Belgium 17 Bulgaria 1 Czech Republic 2 Denmark 2 Estonia 2 Finland 1 France 22 Germany 37 Greece 1 Hungary 2 Ireland 3 Italy 17 Latvia 1 Lithuania 2 Netherlands 9 Poland 12 Portugal 5 Romania 3 Russia 5 South Africa 18 Spain 24 Sweden 1 Switzerland 2 Turkey 5 Middle East/UAE 3 United Kingdom 55

Asia Pacific

Australia 11 China 8 Hong Kong 8 India 9 Indonesia 2 Japan 3 Korea 4 Malaysia 2 New Zealand 1 Philippines 1 Singapore 12 Taiwan 9 Thailand 4 Vietnam 1

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Realising The Potential of Africa's Economies

  • Africa as a whole is projected by the International Monetary Fund to be the world’s

second-fastest growing economy to 2020.

  • By 2034, the region is expected to have a larger workforce than either China or

India—and, so far, job creation is outpacing growth in the labor force.

  • Africa could nearly double its manufacturing output from $500 billion today to $930

billion in 2025

  • The continent has 400 companies with revenue of more than $1 billion per year,

and these companies are growing faster, and are more profitable in general than their global peers. Yet Africa has only 60 percent of the number of large firms one would expect if it were on a par with peer regions—and their average revenue, at $2 billion a year, is half that of large firms in Brazil, India, Mexico, and Russia, for instance.

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Source: McKinsey September 2016 Review

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MARSH

But with growth comes ….

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MARSH

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Two years ago..

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MARSH

Potential trade risks

Trade related: shipment goods or services rendered

Political Risks

  • Transfer Risk - political/economic events preventing or delaying transfer of payments
  • Angola
  • Mozambique
  • Nigeria
  • Government Moratorium - decision from the government preventing release of funds
  • Contract Frustration - decision preventing performance of the contract
  • Civil turmoil - insurrection, war, natural disaster

Commercial Risks

  • Insolvency (business rescue)
  • Protracted default (non-payment)

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Potential trade risks

Investments and Operations

Assets

  • Expropriation
  • Full Political Violence
  • Forced Abandonment

Project Equity

  • Confiscation, Expropriation, Nationalization
  • Forced Divestiture
  • Cancellation/ breach of License or Concession

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MARSH

Risk mitigants

Documentary Collections:

  • Letters of Credit (LC, ILC, CILC)
  • Cash against documents
  • Accounts Receivable Factoring / Bank A/R Purchase Agreements (forfaiting)
  • Credit insurance
  • Self Insurance

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Risk mitigating tools

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Potential trade risks

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Top 10 Limits Issued Top 10 Commitments Market Concerns Claims Kenya Kenya Nigeria (FX) Nigeria (10 M USD Steel) Tanzania Ghana Angola (FX) Angola (1 M USD Steel) Uganda Tanzania Mozambique (Foreign Debt) Mozambique Ivory Coast Uganda Zimbabwe Ghana (Food and Steel) Zambia Zambia Ghana Kenya Mauritius Mauritius DRC (Elections) Ghana Mozambique Zambia (Commodity dependent) Mozambique Ivory Coast DRC Zimbabwe Senegal DRC R16bn

Source: Credit Guarantee Insurance Corporation

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MARSH

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What is Trade Credit Insurance?

Trade Credit Insurance protects a company’s Accounts Receivable against a default from a customer.

  • Coverage Triggers:

– Insolvency – Non or Slow Payment due to Financial Difficulty – Non or Slow Payment due to Political Risks

Sample Balance Sheet

Sample Company

  • A/R is typically the largest Current Asset.
  • A/R is typically the 2nd most liquid asset,

besides Cash & Equivalents.

In Millions of USD (except for per share items) As of SEP 30, 2012 Cash & Equivalents 218 Total Receivables, Net 305 Total Inventory 365 Prepaid Expenses

  • Other Current Assets, Total

37 Total Current Assets 927 Property/Plant/Equipment, Total - Gross 1,224 Accumulated Depreciation, Total

  • 246

Intangibles, Net 17 Other Long Term Assets, Total 21 Total Assets 2,014

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MARSH

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What is Trade Credit Insurance?

The Contractual Parties:

Insured / Supplier Buyer (Risk)

Insurance contract

  • coverage-

Checking of risk and risk underwriting Goods or services Terms of credit

Insurer

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MARSH 11/10/2016

What is Credit Insurance

Collection Information on your Buyers

The Insurer will analyse a limit

  • n your request, that should be

based on your trading requirement.

Credit Protection

Due to the analysis and due to possible claims payments you prevent a loss.

Credit Management

Policy conditions enable good credit management

Collection

Insurers offer to take over the collection activity. This can also undertaken by a third party your choice.

Information Credit Protection

Credit Insurance

Credit Management

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Benefits of Credit Insurance

Reduces Financial Risk Improves Cash Flow Supports Credit Management Improves Sales Risk protection - political and commercial Releases bad debt provision Hedges against catastrophe Claims payment Maximises debt Collection Helps to create financial sources like factoring, invoice finance, credit enhancement Credit control via Insurer systems Creates discipline/control Offers a second opinion Fewer bad debts Encourages most attractive terms for buyers. Financial health check on potential Prospects Creates new markets.

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Cover possibilities Africa

CGIC

  • > 154 000 credit limits
  • 17076 limits outside SA
  • 8820 continent (excluding SA)
  • 66% Risk Appetite

CIS

  • 184 limits outside SA
  • 78% Risk appetite
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MARSH

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Trade Credit insurers active in Africa

Outside SA BECI Botswana ATI Benin, Burundi, DRC, Kenya, Madagascar, Malawi, Rwanda, Tanzania, Uganda, Zambia, Zimbabwe

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