The Republic of South Sudan’s path to economic recovery has not been an easy one, however, the country’s 2017 decision to join the African Trade Insurance Agency (ATI) has been a positive step in the right direction.
ATI, a multilateral provider of investment and trade credit insurance, offers insurance against political and commercial risks, by attracting foreign direct investments into the region.
In just a few short years, ATI’s support for the country is valued at over US$500 million.
Albert Rweyemamu, a Senior Underwriter at ATI, shed some light on the organisation’s work with South Sudan, which has largely focused on the oil/ gas and power generation sectors.
Since South Sudan became an ATI member country in 2017, how has your approach to the country changed?
AR: Generally, ATI supports limited projects in non-member states as we cannot confer our Preferred Creditor Status (PCS), which offers protection against political risks, to non-members. With South Sudan joining the agency, ATI is now able to offer potential investors products that protect against sovereign and investment risks, which is a prevalent risk in the market.
Our PCS adds another layer of comfort for investors because it ensures that, in the event of a claim, ATI-backed transactions will be prioritized by the government. Since the country has joined, ATI has supported several projects including the importation of petroleum. To date, our total support to South Sudan is valued at over US$500 million.
How does the PCS system work and how do ATI enforce the promise that claims will be paid?
AR: ATI’s business model is premised on the strength of its Preferred Creditor Status (PCS) amongst other factors.
Through these legal instruments, ATI is guaranteed preferential payment/ reimbursement by member states for any claims resulting from their payment delays or breach of sovereign or sub-sovereign obligations.
In recent years, ATI has taken practical measures to boost its PCS, which has resulted in near-zero sovereign claims in 2019. In addition, we have been able to mitigate a total of US$91 million recoveries thereby resolving payment default situations before they result in claims.
What current financing and insurance products will assist in increasing investment and trade flows to South Sudan?
AR: ATI’s main mandate is to attract trade and investment into Africa through risk mitigation products that target both local and international private sector players ranging from financiers to suppliers of goods and services. As a major provider of risk-mitigation solutions on the African continent, ATI develops insurance solutions for transactions that would not be insurable in the commercial insurance market, and, where needed, ATI has the flexibility to design innovative solutions.
Where does the government need to attract more investments to diversify its economy?
Political stability, good governance and transparency are key ingredients for any pro-investment government. Joining ATI is a step in the right direction because it signals that a government is open to some level of transparency. Also, the presence of ATI will stimulate important sectors that can help in the push to diversify the economy and provide more stable and sustainable growth that is less commodity-driven, such as agriculture, manufacturing and services.
And what can it do to achieve this?
AR: The key is political stability. The Republic of South Sudan should focus on restoring macroeconomic stability and fiscal transparency.
Why has ATI committed to South Sudan, and what potential does the organisation see in the country?
AR: Our sole mandate is to support African states, the Republic of South Sudan being one of them. Our commitment to supporting the country is even more important given the fact that they’re laying the groundwork to rebuild the economy under the 2018 peace deal. It’s critical for Africa’s key stakeholders, especially Pan-African multilateral agencies, which includes ATI, to bring along the benefits of financing and insurance products designed to increase investment and trade flow to the country. As an African institution, our role is to lift our member countries by finding the best solutions to help them achieve their development objectives.
In what sectors does ATI think there is room for economic diversification?
AR: We see potential in the Agriculture, Manufacturing and Services sectors because the Republic of South Sudan is very fertile, and the people are hard-working. I read that the country is the only place in the world where wild coffee, Arabica and Robusta, grows.
What are the difficulties and challenges when doing business in South Sudan?
AR: Being one of the youngest and the most oil-dependent countries in the world, there are related political and economic challenges that the Republic of South Sudan is currently facing. ATI stands ready to be part of the solution by offering its insurance innovation, which will help the country explore various borrowing options.
What is the country’s current risk situation?
AR: The country’s risk profile is still fragile, but it is getting better. Politically, the transitional government (made up from the national unity government) appears to be functioning smoothly, but with a few teething problems, such as disagreement on the allocation of the ten states among the various political factions and the political and military defections of the parties that constitute the revitalised unity government. But it appears there is a consensus that the people are tired of war, which we view as a positive.
On the other hand, declining oil prices and the COVID-19 pandemic will affect the economy. The country will have to review its project development plans especially those that are oil-related and cut down its overall expenditure. COVID-19 will require South Sudan and all countries to re-evaluate their growth strategies, social infrastructure as the health and well-being of citizens’ moves to centre stage.
What if any financial reforms are needed?
AR: There is an urgent need to restore fiscal discipline, strengthen oil revenue and public financial management. Like other international multilateral agencies, ATI is also discouraging contracting oil advances and off-budget transactions. It’s for this reason that we are more than ready to work with other financial institutions to support the Republic of South Sudan, to source other financing alternatives, which will ensure that oil revenues will be fully available for financing budgetary spending.