Indaba increases prospect of project funding

21st February 2020 By: Cameron Mackay - Journalist

Indaba increases prospect of project funding

ATTRACTING THE GLOBE The ECIC’s mandate from government is to make local exports attractive to international buyers to attract foreign income, stimulate local economic growth and create jobs

The Africa Energy Indaba provides an ideal opportunity for State-owned export credit agency (ECA) the Export Credit Insurance Corporation of South Africa (ECIC) to become more involved in the funding of significant energy infrastructure projects.

“The Indaba raises the ECIC’s profile as an important player in facilitating the appropriate funding and bankable solutions that will enable the financing of key energy infrastructure projects,” states ECIC COO Mandisi Nkuhlu.

The yearly event serves as a vital platform for global role-players to debate and find practical solutions for challenges regarding energy supply in Africa, particularly because the event convenes these players in one set location.

Nkuhlu stresses that challenges in energy supply deficiencies present substantial constraints that negatively impact on economic growth in many African countries, as well as the capacity of developing countries to pursue rapid industrialisation.

“Finding solutions that are affordable while addressing climate change concerns, through a just transition, is a critical and enormous task confronting all of us.”

Established by the Export Credit and Foreign Investment Re-Insurance Amendment Act of 1957, the ECIC promotes trade with countries outside South Africa.

The agency does this by providing insurance on behalf of the South African government for contracts in connection with export transactions, investments, loans or other similar facilities connected with these transactions.

This enables local exporters to offer products and services on the global market, with a strong focus on emerging markets considered too risky for conventional insurers.

The agency’s main mandate from local government is to make local exports attractive to international buyers to attract foreign income, stimulate local economic growth and create local jobs.

The ECIC provides the political and commercial risk cover, which assists financiers in mitigating such risks. This enables borrowers to access long-term finance, which is essential for infrastructure projects.

With the potential for significant decisions to be made on funding vital energy infrastructure projects at the Indaba, Nkuhlu emphasises the importance of entities, such as the ECIC, providing cover for such projects.

Considering that the host government or State authorities are involved in most large energy infrastructure projects, entities providing political and commercial risk cover for these projects become even more important, he outlines.

“Governments usually provide credit support for State-owned utilities in the form of guarantees, and the potential failure to honour these obligations increases the political risk and the credit default risk.”

Therefore, comprehensive ECA insurance that provides political and commercial risk cover is a fundamental instrument in securing long-term funding packages for these projects, Nkuhlu adds.

Another important factor in funding energy infrastructure projects is the role of independent power producers (IPPs) as part of the energy mix, with Nkuhlu pointing out that IPPs can enable governments to access off-balance sheet funding to accelerate the delivery of the energy infrastructure.

The ECIC is one of the key partners and sponsors of the Indaba for the sixth consecutive year and will also have an exhibition stand at the event. The agency has also participated in various panels during previous events and will continue to do so this year.

The ECIC’s visible branding at its stand will position and promote ECIC, providing a springboard from which the ECIC delegation will network, create business development leads with potential clients, discuss projects and forge prospective partnerships.

“We know only too well the opportunity costs that arise from delays in the delivery of key energy infrastructure, which is an important ingredient in unlocking ease of access for the transportation of goods and people. Reliable energy supply is critical for economic growth and facilitation of trade – at a time the continent is poised to promote higher levels of intra-Africa trade,” he concludes.