It is no longer news that African economies offer many opportunities and potential for innovative problem-solving. One of these is trade credit insurance (TCI), a form of insurance that involves the protection from risks associated with trade. Despite being a relatively new product, TCI has enjoyed considerable success in some parts of Africa. For instance, in Morocco, trades worth around $7 billion are insured annually, while in South Africa, around 14% of GDP is covered by trade credit insurance. All this shows that the continent is a fertile ground for trade credit insurance.  

Yet, much more can be achieved. Africa’s trade credit insurance industry is fast-growing, and people must take advantage of it. The experts at Tinubu and ICISA posit that the $420 billion trade finance gap in Africa can be closed through efficient trade credit systems. To this effect, they provided a roadmap for developing trade credit insurance services in intra-African trade. 

The leap of faith 

Being awake to the potential of trade credit insurance in Africa isn’t enough. Admittedly, Africa’s TCI industry is plagued by several factors hindering business growth. To begin with, most businesses are unaware of trade credit insurance and its benefits. This information gap makes selling TCI services in Africa difficult. 

Data, the soul of the TCI business, is hard to curate and assess in Africa due to a lack of techn ological infrastructure. In addition, most African countries have weak economies, which may cause businesses to fold up, posing a risk to TCI companies. Frankly, it is easy to create an endless list of reasons why trade credit insurance companies won’t thrive in Africa. However, aspiring market participants must look beyond these hurdles to achieve their goals. The recent Tinubu and ICISA whitepaper proposes a roadmap to kickstart trade credit insurance services in Africa. 

The pathway to TCI success in Africa

Doing the groundwork: 

For trade credit insurance to truly thrive in Africa, foundational blocks of awareness and sensitisation must be built. Exporters and importers should be educated on the benefits of ensuring their business processes. Similarly, aspiring insurers should arm themselves with technical expertise to develop market-fit products. They need to understand and design what their approach to the market will be. 

This also involves understanding and complying with the legal framework governing insurance in their respective countries. The problems associated with TCI in Africa are unique and must be treated as such. 

Harnessing technology

Risk assessment is an integral aspect of TCI, which presents a unique problem for trade credit insurers in Africa, as there is a lack of infrastructure and systems that can enable effective curation and assessment of available data. 

To combat this, insurers in Africa must turn to technology. Digitalisation of processes in trade credit insurance can help to improve the speed, quality, and accuracy of outputs. 

Partnership and collaboration

Trade credit insurance is still an emerging African industry, so stakeholder collaboration is essential. Companies that provide insurance services must join forces to organise workshops and conferences to attract and educate their clients on the benefits of their services. Similarly, insurers must lobby and assist policymakers in designing laws and systems to inspire growth. This partnership can also include established trade credit insurance companies outside Africa and development finance institutions (DFIs).  

Setting up TCI services in Africa

Successful TCI services exist due to properly planned and executed structures. Insurers that intend to build trade credit insurance companies in Africa must aspire to replicate global standards. Tinubu and ICISA advise the following: 

1. Commercial activation: One of the foremost priorities should be to make your business and its benefits known. Starting a marketing campaign for your insurance company can be very impactful in Africa, where TCI is less prevalent. Insurers must also conduct thorough research to determine the type of TCI (whole turnover, single buyer, export, etc.) which is best suited for the market and how to scale it. The risks they wish to cover and the kinds of businesses they want to cater to are other essential questions that must be considered. All these and many more are part of the steps to be taken before offering trade credit insurance services in Africa. 
2. Efficient business leadership and structure: TCI’s inherent nature demands that efficient minds manage it. Trade credit insurers should strive to ensure their corporate governance is filled with experienced professionals. 
3. Delivering stable service: Reliability and trust are the crux of trade credit finance. In the same way, the insurer vouches for the policyholders to fulfil their obligations; insurers are expected to do the same when the tides turn. Thus, the best business growth hack would be consistent excellence in services.

Win-win situation?

Running a TCI company in Africa is a net profit endeavour for all stakeholders. Insurance companies launch as pioneers in an emerging market and scale. The political and economic instability experienced in most African countries necessitates TCI services, guaranteeing a demand. On the other hand, businesses can extend their credit and sell more, thus making more profit. As for the government and multilateral institutions, trade credit insurance companies can help them achieve their intra-African trade objectives. 

—

In the last seven years, especially after the establishment of the African Continental Free Trade Area (AfCFTA), the focal point of countries, organisations, and DFI has been how to increase trade flow in Africa. TCI services can solve this and, by so doing, bolster emerging economies as they bloom in Africa.

For more information, register to join the Tinubu webinar ‘Kickstarting Trade Credit Insurance in Africa – Why now and how?’ here!