Export-driven insurance, the foundation of national competitiveness and the engine of market dominance

By Amanda Ellen Nicola Jojo

BUSINESSES are constantly seeking new avenues for growth and expansion, and exporting to international markets is an increasingly attractive option. The lure of international markets is undeniable – the prospect of reaching new customers exploiting varied consumer needs, and the prospect of greater earnings may be extremely irresistible.

As the United Nations Development Programme (UNDP) notes, “Expanding into export markets opens up new opportunities for businesses to grow and thrive.” UNDP research has shown that exporting can lead to higher productivity, innovation, and job creation, particularly for small and medium enterprises.

Tapiwa Kapisa, the driving force behind the exotic clothing brand Izigqoko Closet Addicts, is one such business leader who has eagerly seized the opportunity to broaden his organization’s international footprint. Kapisa’s decision to target export markets reflects a common trend, as businesses increasingly look beyond their domestic borders for growth and expansion.

However, Kapisa openly acknowledges that while the idea of international expansion is desirable, the reality of navigating the export market can be fraught with risks.

“It’s a dilemma that many entrepreneurs face as they weigh the potential rewards of exporting against the very real risks.

“Without the proper safeguards in place, such as comprehensive trade insurance, businesses like mine can find themselves exposed to a host of uncertainties, from shipment delays to non-payment from foreign buyers,” he told The Entrepreneurial Magazine.

It is not all bleak for small businesses such as Izigqoko, as there are two key types of insurance that can play a crucial role in supporting their operational capabilities for international trade. These are export trade insurance and trade credit insurance.

Against this background, the Export Credit Reinsurance Act in Zimbabwe underscores the vital role of export trade insurance for businesses engaged in international commerce. The Act establishes a framework where the government can reinsure insurance contracts related to export transactions and associated financing. This allows registered insurers to offer coverage that safeguards Zimbabwean companies against losses stemming from factors beyond their control, such as currency restrictions, war, or civil unrest.

In an interview, Insurance and Pension Commission (IPEC) Director of Insurance Sibongile Siwela reinforced that export trade insurance unlocks new growth opportunities for local exporting companies. It boosts their confidence to explore new markets, contributing to increased export earnings and employment creation for the country.

Siwela noted, “There are risks associated with the export business such as non-payment of goods by buyers abroad, currency exchange fluctuations, trade disputes or disruptions in shipping. To this end, implementing robust risk management practices becomes key for businesses that are into the export business as this will help minimize financial losses, which may be caused by any of the above-cited risks.”

“This can ultimately contribute to broader economic growth in Zimbabwe by increasing exports.”

Siwela highlighted that the IPEC only approves insurance products that meet the needs of policyholders, to ensure they support Zimbabwe’s export growth and economic transformation targets under the National Development Strategy 1 (NDS1).

“Therefore, we expect that insurers develop insurance products that are relevant and appropriate to the policyholders. Where exporters with export trade insurance feel they have been shortchanged by any of our regulated entities, they can report to us for recourse.”

As a signatory of the African Continental Free Trade Area (AfCFTA), Zimbabwean businesses are positioned to benefit from increased cross-border trade. In this context, export trade insurance is indispensable in facilitating these opportunities by mitigating risks associated with trade.

Buttressing this notion, trade advisor Dr. Levious Chiukira said: “Export trade insurance and trade credit insurance are important because intra-African trade is predominantly conducted by medium and small enterprises, even when dealing with multinational corporations. However, there is a lack of trust between trading parties across borders, and trade insurance could serve as a guarantor for trade among Africans.”

To ensure the full benefits of these insurances, Dr. Chiukira emphasized that managing the documentation and ensuring its readability across linguistic barriers (Portuguese, English, and French) is a critical element.

He said, “Some of the key issues to address if we are to talk about credit insurance for cross-border trade include the failure to receive payments, the wrong orders or missing quantities, and delays at the border leading to spoiled goods. These challenges need to be eliminated for credit insurance to be effective, as insurers are also businesses that need to minimize the likelihood of unlikely events occurring.”

Because insurance uptake is relatively low in Africa, Afreximbank launched Afrexim Insurance Management Company (AfrexInsure), a 100% owned subsidiary of Afreximbank, which offers specialty insurance solutions for trade and trade-related investments across Africa.

Speaking to this publication, Afreximbank Business Development Manager, Alson Nhari said: “AfrexInsure is a single-entry point for all your specialty insurance needs that assists clients in optimally managing risks. Our specialty insurance solutions cover cargo movement, construction work and equipment, and operations and maintenance insurance. We provide insurance solutions for all energy projects (power, oil & gas). In addition, we also offer non-conventional insurance solutions such as cells and captive management.”

AfrexInsure seeks to develop specialty insurance in Africa and make it more accessible and readily available to all players to support trade and trade-related investments. This will bring down the cost of specialty insurance and contribute to making African goods and services more competitive.

According to the International Risk Management Institute (IRMI), specialty insurance refers to insurance coverages that are designed to address specific, unique, or hard-to-place risks that are not typically covered by standard insurance policies. For that reason, AfrexInsure seeks to ensure that the insurance programs are placed locally. For huge risks that cannot be absorbed by African markets, AfrexInsure approaches international markets (retrocessionaires) that are at least A- or better rated by S&P.

The pan African firm’s mandate is to develop specialty insurance on the continent, retain insurance premiums raised on the continent and avail bankable insurance programs which are normally a requirement of most lenders.

“AfrexInsure works with local players in structuring and placing insurance programs in compliance with local rules and regulations. To achieve this AfrexInsure is engaging regulators across the continent to get their buy in and push for harmonization of insurance laws on the continent which are currently fragmented,” Nhari said.

“This means that African businesses and risks will be insured on the continent allowing retention of premiums on the continent which will allow sustainable growth of insurance entities on the continent. In addition, retention of premiums on the continent contributes to capital formation on the continent and this can be accessed by African businesses at reasonable rates. Our model also allows the local businesses to be able to access bankable insurance programs supported by top rated reinsurers, which is normally a requirement by most lenders. Our ability to deliver bankable insurance programs will help local businesses access capital and thus achieve sustainable growth even for local businesses,” he added.

In line with the objective of AfrexInsure to develop specialty insurance in Africa, Invent Multiple Agents and Actuaries, a Zimbabwean actuarial consultancy firm, has developed a trade credit insurance product to cover exports between Zimbabwe and South Africa.

“To ensure that both South African and Zimbabwean businesses receive unbiased support, the trade credit insurance scheme ensures that companies being considered for cover are underwritten and assessed by different layers/reinsurers within the partnership, which removes bias,” said Taurai Craig Museka, Head of Short-Term at Invent Multiple Agents and Actuaries.

The partnership is supported by reinsurers in different countries, not just in Zimbabwe or South Africa. The analysis looks at the business’s capacity, capital and character to meet the conditions of the insurance program, based on financial statements and bank statements.

“For example, should a business apply for a cover of US$10 million, our assessment checks the business’s capacity to trade at that level from their financials. If the same company has never traded on any transaction valued at over US$500,000, it is not bias to exclude them on an application of US$10 million,” Museka explained.

Export returns play a crucial role in many economies including Zimbabwe. However, the economy of Zimbabwe is riddled with poverty, inequality, informality, chronic and recurrent phases of economic stagnation, poor institutional climate, low savings and investment, high interest rates, high costs of production, lack of competitiveness, low aggregate demand, poor infrastructure as well as high rates of unemployment

Addressing the economic challenges in Zimbabwe, Museka said that economic volatility should be the reason why this insurance is considered, just like people insure cars because of the likelihood of an accident.

“Our credit insurance scheme is backed by reinsurers who are based in different economies and jurisdictions, not just in the region. The same reinsurers also spread the risk by sharing it with other reinsurers called retrocessionaires. As such, risk is spread across the world and isn’t just placed within the region. Therefore, economic volatility of the region does not necessarily affect the credit insurance scheme,” he added.

According to Tralac, South Africa remains one of the most important trading partners for Zimbabwe, and the consultancy has put in place strategies that facilitate equitable trade opportunities and minimize disparities between the two countries.

“We have been and we still are providing credit insurance for exports from Zimbabwe to South Africa and also to the rest of the world. Local exporters need to begin to utilize credit insurance when they are entering new markets, be it in South Africa or any other country,” Museka noted.