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Saudi private sector warms to ICIEC's export credit and political risk insurance services

By By MUSHTAK PARKER Contrary to popular misconception, Saudi Arabia is the largest beneficiary of the services of the Jeddah-based Islamic Corporation for the Insurance of Export Credits and Investment (ICIEC), the standalone export credit agency (ECA) of the Islamic Development Bank ( IDB ) Group.

The World Bank's Multilateral Investment Guarantee Agency (MIGA) in its 2011 World Investment and Political Risk report which was published in December in London, indeed confirmed that.

The demand for political risk insurance (PRI) is sharply increasing and PRI supply by members of the Bern Union is remaining robust and pricing is reflecting a buyer's market. In the MENA countries, this includes demand for Shariah-compliant PRI which has increased significantly, according to both ICIEC and the Aman Union, the association of investment and export credit agencies in the Arab and Islamic world.

As the global economic and financial crisis and its impact on markets the world over; the euro zone sovereign debt crisis; and the fallout of the Arab Spring continue to fester, demand for investment, political risk and sovereign risk insurance is soaring as part of risk management and mitigation strategies.

Abdel Rahman Taha, chief executive officer of ICIEC, in an exclusive interview, confirmed that the Kingdom is the main beneficiary of the Corporation's policies. "There are 176 policyholders from the private sector in Saudi Arabia. In fact, most of our policyholders are private sector companies. Due to its multilateral nature, ICIEC has no relation with regulators therefore we are exempt from national regulation. However, ICIEC is cooperating with the Saudi Arabian Monetary Agency ( SAMA ) to encourage commercial banks in the Kingdom to benefit from ICIEC's credit risk mitigation services," he explained.

The corporation also has a good cooperation with the Saudi Export Program (SEP) as a member of ECA. The SEP already has a major cooperation with an ICIEC sister organization the Dubai-based International Islamic Trade Finance Corporation (ITFC), which is the IDB Group 's standalone Islamic trade finance fund. ITFC extends Islamic trade finance facilities to Saudi oil and petrochemicals exports under the SEP to IDB member countries.

However, a word of caution, though. The uptake of ICIEC policies by Saudi corporates may be the single largest volume, but as Taha would be the first to admit, the base is very low and the potential for new business is very high. This is because the ECA culture including in the Kingdom is still developing. Hence the cooperation with both SAMA and SEP to educate the Saudi private sector especially of the importance of commercial, credit and investment risk insurance especially for emerging markets in MENA, Asia and Africa. Not surprisingly, Taha agrees that cooperation with SEP "could be enhanced".

The Kingdom, following recent approval by the Saudi Cabinet chaired by Custodian of the Two Holy Mosques King Abdullah, increased its subscribed capital in ICIEC by over five times from Islamic Dinars (ID) 13.5 million to ID60 million. This brings the Kingdom's total number of shares in ICIEC to 60,000, the second largest after the IDB Waqf Fund's 100,000 shares. Both these subscriptions dwarf the next ones by far - 5,000 shares each by Morocco and Pakistan.

"The ICIEC board of governors," explained Taha, "recently resolved to raise the authorized capital of the corporation from ID150 million to ID400 million. In response to this resolution, many ICIEC member countries have sent in their subscription requests. The first and foremost among them was the Kingdom of Saudi Arabia, which increased its subscribed capital from ID13.50 million to ID60.00 million. This represents the strong commitment of the Kingdom, which also hosts the IDB group headquarters, toward the mandate of the IDB Group in general and ICIEC in particular."

To ICIEC the move from Riyadh is also a clear indication that the Kingdom recognizes the role ICIEC's credit risks mitigation and credit enhancement services in supporting member countries exports and encouraging the flow of inward investments. As a result of the increased Saudi subscription, the Corporation, according to ICIEC "will be in a better position to meet the ever increasing demand for its service by member countries. It will also enhance the availability of the corporation as a trustworthy insurer of credit and political risks."

Indeed the ICIEC Board also adopted a resolution allowing financial institutions and business enterprises in its member countries to participate in the capital of the Corporation through a special class of shares. This would allow ICIEC's business partners including Saudi Basic Industries Corp. (SABIC), Zamil Group and Saudi Industrial Export Companies in the Kingdom to become shareholders of ICIEC, albeit without voting rights.

Taha on behalf of ICIEC recently signed a comprehensive short-term policy (CSTP) with Ziad S. Al-Labban, the president and CEO of PetroRabigh covering the whole $400 million turnover of PetroRabigh. "The turnover of PetroRabigh is composed of 50 percent sales inside the Kingdom, and 50 percent exports to more than 10 countries. This policy insures PetroRabigh against the risk of non-payment by its buyers. This insurance product enables the policyholder to offer open account credit facilities to its buyers which increases the Exporter's competitiveness in the international markets," he maintained.

PetroRabigh is a leading joint venture petrochemical company based in Saudi Arabia run by Saudi Aramco and Sumitomo Chemical of Japan, and comprises of 23 plants producing 18.4 million tons of petroleum-based products and 2.4mtpa of ethylene and propylene-based derivatives per annum. The company has the highest component of inward FDI in the Kingdom.

The ICIEC management recently also approved an enhancement of its specific transaction policy with the inclusion of a new cover: Contract frustration. This is important especially for contractors and companies involved in cross border projects.

The policy, according to ICIEC, covers the risk of the frustration of the execution of contracts due to: government actions such as trade embargoes, import/export license cancellations, and currency transfer restrictions; (ii) termination of contracts by governmental entities or private buyers; (iii) non-payment by a sovereign buyer or by a private company; (iv) non honoring of an arbitration award by the buyer; (v)war in the buyer's country.

"This policy," stressed Taha, "is offered to contractors in ICIEC member countries executing projects in any other country and to contractors from non-member countries executing projects in ICIEC's member countries. Given the geo-political developments worldwide, such risk mitigation tool has become very important. So far and few months after the enhancement of the specific transaction policy, we received have many inquiries from contractors in member countries and non-member-countries and a number of transactions under this policy are currently under consideration."

ICIEC is helping Saudi and other member country exporters in other ways as well. It recently signed a cooperation agreement with Atradius, the Dutch state ECA to cover the import of capital goods from the Netherlands by ICIEC member countries for infrastructure and construction project finance. This, said Taha, is particularly important after the recent political turbulence occurring in MENA region which made it difficult, if not impossible from some attended member countries to obtain credit facilities from suppliers overseas.

While the financial statements for ICIEC business for the year 2011 have not been finalized as yet, Taha is confident that he expects the trend of substantial increase in the business insured to have continued in 2011 through to 2012.

ICIEC, he revealed, is planning to continue to expand its services in 2012 with a special focus on the post conflict countries, and is keen to support those countries to meet their development objectives particularly through providing credit insurance for project finance and political risk, and insurance for inward investments.

"Due to the financial difficulties in so many regions around the world, we expect a considerable change in the international trade map to take place in 2012. Exporters from member countries will have to reposition their markets with expectations to orient their sales to the Far East. Therefore, ICIEC will be developing its credit information sources to be ready to access importers in that region. Overall, we are expecting the same high rates of growth in ICIEC business indicators to continue for 2012," he concluded.

ICIEC's 2012 strategic focus is aimed at developing new products for various market segments, especially a sukuk guarantee fund in particular, which may be transformed into a new policy; the implementation of the corporation's capital increase; the improvement of ICIEC's expense ratio, which was high in its formative years, but should be now brought near to the industry average; at reaching out to ICIEC member countries in Sub-Saharan Africa to support the developmental objective of the corporation and the IDB Group ; at enhancing the investment income of ICIEC to accelerating the build-up of reserves; at increasing the medium-term and foreign investment insurance business of the corporation to complement the short-term insurance business that has now matured; and at reviewing the corporation's organizational set-up for Insurance Operations to help remove operational bottlenecks, and to enhance customer relationships.

© Arab News 2012