South African manufacturers exporting to countries elsewhere in Africa will have access to additional insurance products that underwrite risk outside the control of the exporting entity.

This follows a new mandate signed by Trade, Industry and Competition Minister Ebrahim Patel that is slated to empower insurance company the Export Credit Insurance Corporation (ECIC) to support South African businesses in key priority sectors, as African countries prepare for increased trade and industrialisation following the signing of the African Continental Free Trade Area (AfCFTA) agreement.

The ECIC currently provides insurance cover mainly for capital and project-related goods exported to other countries, insuring against commercial and political risks.

The ECIC will continue to play a crucial role in ensuring that much-needed infrastructure and industrial projects happen on the continent, the Department of Trade, Industry and Competition (DTIC) notes.

The ECIC product offerings will now be expanded, providing product coverage to small and medium-sized enterprises and first-time exporters, who do not typically get access to such trade finance products.

The additional products and businesses covered generate 6% of South Africa’s gross domestic product (GDP) and employ 700 000 workers.

The new mandate will assist new exporters not only in mitigating the export risk, but importantly in de-risking businesses, allowing them to raise capital which can increase prospects of exports to other African markets, the DTIC posits.

The export of goods to other African countries amounted to R346-billion in 2019, prior to the slowdown caused by the Covid-19 pandemic.

Other African countries bought more than R2-billion of South African-made personal protective equipment and related Covid-19 products in the past year, while export volumes of cars, trucks, components and machinery had grown significantly in the period before the Covid-19 pandemic, the department points out.

The ECIC will focus on priority sectors where sector master plans have been agreed. These cover six sectors – automotive; clothing, textile, footwear and leather; sugar; poultry; steel and metal fabrication; and furniture.

Combined, these sectors account for nearly R320-billion of South Africa’s exports in 2019 to countries within Africa and elsewhere in the world, or 25% of total exports.

Additional priority sectors will be added as discussions are finalised during the next 12 months.

During his Budget Vote last month, Patel indicated that, over the coming two years, the DTIC would focus on a portfolio of new sector work covering, besides others, global business services, film animation, the chemical and plastic sectors, green industry, medical products and capital goods.

To support such exports, the board of the ECIC is currently considering policies for a range of trade supportive products, including advance payment bonds/guarantees; letters of credit; discounting and factoring facilities; short-term credit facilities; and other such trade credit support as may be required by South African businesses from time to time.

These will be done within prudent limits and with pricing that takes account of risk profiles, the DTIC informs.

It highlights that these tools form an important element of the financial instruments used to mitigate the risk which businesses have when exporting to other countries. The new mandate signed by Patel expands the ECIC’s remit to include support for a broader range of industrial products aligned to both the Economic Reconstruction and Recovery Plan and AfCFTA.

“The signing of the AfCFTA agreement presents South Africa and the rest of Africa with one of our generation’s key endeavours to boost industrialisation, job creation and reduce poverty for the more than one-billion citizens of this continent.

“We need all of our agencies and government departments to leverage the tools within their mandates to exploit the opportunities. This is a very important step by the ECIC in giving South African businesses the tools they need to compete across the continent,” said Patel.

The work of the ECIC is expected to enhance this package of support and provide South African businesses with additional trade credit support to grow exports into the rest of the African continent.