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Export Credit Insurance Corporation (ECIC)

To facilitate and encourage South African export trade, by underwriting export credit loans and investments outside the country, in order to enable South African contractors to win capital goods and services contracts in other countries.

To support this mission, the Export Credit Insurance Corporation (ECIC) of South Africa:

• Evaluates export credit and foreign investment risks and provides export credit and foreign investment insurance cover on behalf of the government;
• Focuses on underwriting of medium and long-term loans and equity investments for the export of capital goods and services from South Africa;
• Extends its services as far as it can, consistent with preserving the financial viability essential to its long-term support of exporters of capital goods and services; and
• Provides sound and efficient financial services that contribute to public confidence and comply with international standards.

Through its mission, the Corporation is committed to attaining the strategic goals of the government, namely:

• Acceleration of economic growth;
• Creation and preservation of employment opportunities; and
• Reduction of economic inequalities.

Overview

The ECIC:

• Is a self-sustained state-owned national export credit agency;
• Is a registered insurer and is subject to the supervision and regulation of the Financial Services Board;
• Underwrites bank loans, supplier credits and investments outside South Africa in order to enable South African contractors to win capital goods and services contracts in other countries;
• Is subject to normal income tax at corporate rates;
• Follows normal company policies and procedures in its operations; and
• Conducts its business in a transparent manner, with its annual report made freely available to the public.

Strategic goals

• Focusing on customers: providing high quality service to all clients including exporters, financial institutions, investors, host country authorities, buyers
• Enhancing performance: building a high performance organisation, operating on an effective and self-sustaining basis through prudent underwriting and sound risk management practices
• Engaging in strategic alliances: forging partnerships and alliances with other insurers, government agencies and international organisations to complement services and leverage resources
• Fostering Risk Orientation: create enterprise wide risk awareness and the application of effective risk management techniques; and
• Providing effective stewardship: consistently utilise sound business, environmental and social principles, applying international best pactice.

ECIC Products

Investment Insurance

Equity Investments

A South African entity carrying out business in South Africa, and investing in another country, can be provided with protection against political and related risks. To qualify for this cover, an investment must adhere to the following criteria:

• It must be a new investment and could be associated with a new project, as well as the expansion or financial restructuring of existing projects and acquisitions, involving the privatisation of state-owned enterprises;
• Approval must be obtained from the host country government and the South African Reserve Bank;
• The South African entity must hold at least 26% of the paid up share capital with voting rights in the foreign entity (however, with adequate protection of minority rights, a shareholding of less than 26% may be considered).

Shareholder Loans

Shareholder loans advanced to the foreign entity can also be covered against political and related risks, such as:

• Expropriation, i.e. the nationalisation or confiscation of the insured investment, which will include the gradual erosion of the profitability of the foreign business by actions of the foreign government which are discriminatory against the foreign business with the result that the foreign business cannot operate for at least 1 (one) year, as envisaged, or produce profits for 3 (three) consecutive years.
• War, i.e. loss or damage to the investment due to war, civil war, rebellion, revolution or insurrection in the foreign country as well as loss due to the inability of the foreign business to operate for at least 1 (one) year, as envisaged, or produce profits for 3 (three) consecutive years due to the above-mentioned occurrences.
• Transfer risk, i.e. loss directly due to any action by the designated government that prevents, restricts or controls the transfer of the investment and/or shareholder loan or commercial loan or dividends and/or interest from the foreign country to South Africa for a period of at least 365 (three hundred and sixty five) consecutive days.

Indemnification by the ECIC will be limited to 90% of a loss suffered by an investor.

Premium payable in terms of the investment insurance cover will take into account the following:

• Nature of the investment;
• Country where the investment will be made;
• Investment period to be covered and the ECIC’s capacity; and
• Capital adequacy requirements of ECIC.

Commercial Loans

Cover against political risks is offered to financial institutions that provide commercial loans to foreign enterprises or governments.

Such loans for the financing of investments could be associated with new projects, as well as the expansion or financial restructuring of existing projects and acquisitions, involving the privatisation of state-owned enterprises.

Eligibility for cover is:

• The facility must be provided by a financial institution carrying on business in the Republic of South Africa or a subsidiary of such a financial institution, who will be the insured;
• The facility can be provided to any entity (public or private), or government or project outside of South Africa and such entity need not necessarily be a South African company or a South African owned company;
• Approval must be obtained from the host country government (if required) as well as the South African Reserve Bank for the provision of the loan;

Levels of Cover

• 90% of the investment (actual shareholders cash equity invested), shareholder loan or commercial loan;
• 90% of the value of dividends or interest (but not exceeding in aggregate over the insurance period, the amount of cash equity invested or capital amount of the loan);
• Minimum tenor of 5 (five) years and up to a maximum of 15 (fifteen) years.

Credit Insurance

This insurance cover is linked to export transactions involving capital goods and/or project-related services, or undertaking of works of a capital nature in foreign countries. Through the provision of credit insurance to banks, the Corporation facilitates term finance for such transactions/projects.

Insurance cover is provided for losses arising from:

Political Risk Events

• Expropriation - loss incurred due to an expropriatory measure taken by the host government;
• Transfer Restriction - loss incurred due to any action taken by the host government that prevents the conversion of a local currency into SA Rand or US Dollars or the transfer of SA Rand or US Dollars outside that country;
• War and Civil Disturbance - loss incurred due to acts of war, revolution, insurrection, civil war, civil commotion, terrorism and sabotage;
• Breach of Contract - loss incurred due to a material breach, by the host government, of a contract entered into with the host government;
• Protracted Default - payment default by a government borrower/guarantor.

Commercial Risk Events

• Insolvency - sequestration, liquidation or judicial management of a borrower;
• Protracted Default - an undisputed payment default by a borrower;

The Corporation normally provides insurance for credit terms of a minimum of two (2) years, and up to a maximum of ten (10) years or more (if required). Repayment periods more than ten (10) years can be considered in exceptional circumstances, and in line with the Organisation for Economic Co-operation and Development (OECD) arrangement on export credits.

The premium cost relating to credit insurance cover depends on the perceived political and commercial risk in the host country where the goods/project will be delivered; the credit risk assessment of the borrower and/or the project; the length of delivery and repayment period; the ECIC’s exposure and capacity in respect of the particular country and industry, and ECIC capital adequacy requirements.

Levels of Cover

Credit Insurance Cover against political risk includes cover for 100% of the loan amount, and normally 85% of the loan amount against commercial risk provided the prescribed South African content is achieved.

South African Content

The minimum South African content required on projects supported from South Africa is 50%, however no minimum percentage of South African content applies to projects in Africa, given the following:

• The exporter must be resident in South Africa as defined in terms of the Income Tax Act, No. 58 of 1962;
• The exporter must have entered into an export contract with a foreign buyer; and
• The exporter must, in terms of the Broad-Based Black Economic Empowerment (B-BBEE) Scorecard, achieve a minimum score of 30%.

Should the above criteria not be met, the minimum South African content requirement for Africa will also be 50%.

South African Content consists of:

• The cost of materials and manufactured goods purchased from South African suppliers minus the value of any materials, goods or major components of manufactured goods, which have been imported from sources outside South Africa;
• Wages, salaries and other remuneration paid by the exporter in South Africa to its employees and such portions of wages, salaries and other remuneration payable to the exporter's employees who are performing work outside South Africa, and which is paid by the exporter in South Africa;
• Freight charges paid in South Africa;
• Insurance premiums paid in respect of a policy issued in South Africa;
• Finance charges, excluding any interest for post delivery finance, paid to any financial institution normally operating in South Africa;
• Fees and charges paid for any other services performed in South Africa on the exporter's behalf by a South African resident organisation; and
• Fees and profits accruing to the exporter that have been confirmed by the ECIC/Chartered Accountants for qualification as South African content.

Performance Bond Insurance

The ECIC, in partnership with the Industrial Development Corporation (IDC), has developed the Performance Bond Insurance product, enabling Small, Medium and Micro Enterprises (SMMEs) that face financing capacity hindrances, to participate in export projects of capital goods and services.

Product Criteria:

• The performance bond value is limited to a maximum of 10% of the South African contract price;
• The product is restricted to SMMEs only as defined in the National Small Enterprise Act, No. 102 of 1996;
• The value of the South African export contract may not exceed US$10 million;
• The credit term of the export transaction should be 2 (two) years or more; and
• The performance bond is callable on demand.

Chairperson	Mr Tladi P. Ditshego
CEO	Dr Patrick C. Kohlo
Enabling Act	Export Credit and Foreign Investments Insurance Act, No. 78 of 1957, as amended.
Tel	+27 (12) 471 3811
Fax	+27 (12) 471 3850
E-mail	cthirion@ecic.co.za
Postal Address	PO Box 28177, Sunnyside, 0132
Website	www.ecic.co.za