To fast-track Foreign Direct Investments (FDIs) in West Africa, the Economic Community Of West African States (ECOWAS) is studying a $300 million (about N46.5 billion) investment reinsurance agency.
The agency will be a window for reinsurance to the insurance industry in ECOWAS and at the same time mitigating the political risk to FDIs in the sub-region. The $300 million is expected to underwrite an exposure level around $1 billion (about N155 billion).
Speaking at a workshop to study the feasibility of the agency held yesterday in Abuja, Commissioner, Macroeconomic Policy in ECOWAS Commission, Dr. Ibrahim Bocar Ba, said the agency will cater for risk in investment arising from political instability in the sub-region. West Africa has had a rash of political instability resulting in wars, military coups and armed violence in the last two decades which disrupted the production processes as investors fled.
Ba said that though the sub-region has a higher return on investment than most regions, it still fails to attract its fair share of FDI due to the insecurity of investments.
He added that the reinsurance agency will encourage investment in critical sectors like infrastructure (energy, oil, mining, road, backbone telecommunications infrastructure etc), and traditional sectors like manufacturing, agro-business and services.
In his remark, Minister Counsellor, Head of Operations at EU Services in Nigeria, Pierre Philippe said that ECOWAS was on the right path as investment is a tool to promote economic development and security as have been seen in Europe for many years now.
He expressed EU’s support for the agency but urged ECOWAS not to focus just on political risk alone as there were other factors that shoo away investments from the sub-region.
Of the many structuring options proposed for the ECOWAS Investment Guarantee Agency or ECOWAS Political Risk (PRI) Agency, having it as an independent agency with a business and technical assistance partnership with Multilateral Investment Guarantee Agency (MIGA), a member organisation of the World Bank Group that offers political risk insurance and promotes foreign direct investment into developing countries, looks most promising and viable. PRI is a business insurance that reimburses losses caused by political or social disruption in a country through export credit insurance and long-term foreign investment insurance.
The challenges to this structuring option lie in painful fund raising and setting up of physical structures and personnel from the scratch.
ECOWAS Commission launched the initiative in partnership with West Africa Insurance Companies Association (WAICA) with support from the European Commission.