Presentation to Portfolio Committee on Trade and Industry Export Credit Insurance Corporation of South Africa Limited (ECIC) 12 March 2008.

Presentation to Presentation to Portfolio Committee on Portfolio Committee on

Trade and IndustryTrade and Industry

Export Credit Insurance Export Credit Insurance Corporation of South Africa Corporation of South Africa

Limited (ECIC)Limited (ECIC)

12 March 200812 March 2008

2

Mr. Tladi Ditshego- ChairmanTel: 011 456 6316

Dr Patrick C Kohlo - CEOTel: 012 394 3510

Mr. Mandisi Nkuhlu - Senior General Manager

Tel: 012 394 3513

Mr. Emile Matthee - General ManagerTel: 012 394 3532

ECIC RepresentativesECIC Representatives

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Export Credit and Foreign Investments Insurance Act, 1957 (as amended).

ECIC established 2 July 2001 as a self sustained national export credit agency.

Registered insurer subject to supervision by the Financial Services Board (FSB).

ECIC Enabling ActECIC Enabling Act

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Provision of insurance on behalf of Government for contracts in connection with export transactions, foreign investments and loans or similar facilities.

ECIC Mandate in terms of the ECIC Mandate in terms of the ActAct

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Filling the market gap between the requirements of capital goods exporters/investors and the capacity and appetite of private sector insurers (especially in respect of term political risk events up to 15 years or even longer).

Essence of ECIC mandateEssence of ECIC mandate

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ECIC FUNCTIONS

ECIC STRATEGIC GOALS

STRATEGIC PLANS AND BUDGET ANALYSIS

APEX PRIORITIES

ECONOMIC CLUSTER OBJECTIVES

Discussion OutlineDiscussion Outline

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• Formulate underwriting policy

• Evaluate export projects

• Assess credit risks

• Structure securities to mitigate risks

• Manage insurance portfolio

• Endeavour to diversify portfolio

ECIC FunctionsECIC Functions

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• Focusing on customers

• Enhancing performance

• Engaging in strategic alliances

• Fostering risk orientation

• Providing effective stewardship

ECIC: Strategic GoalsECIC: Strategic Goals

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Provide high quality service to all clients including manufacturing exporters, export contractors, financial institutions, investors, host country authorities and buyers of capital goods and services.

1) Focusing on Customers1) Focusing on Customers

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Build a high performance organization, operating on an effective and self-sustaining basis through prudent underwriting and sound risk analysis practices.

2) Enhancing Performance2) Enhancing Performance

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Forge partnerships and alliances with other insurers, government agencies and international organizations to complement service and leverage resources.

3) Engaging in Strategic 3) Engaging in Strategic AlliancesAlliances

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Create enterprise wide risk awareness and the application of effective risk management techniques.

4) Fostering Risk Orientation4) Fostering Risk Orientation

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Consistently utilise sound business, environmental and social principles, applying international best practice.

5) Providing effective 5) Providing effective stewardshipstewardship

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• Sustained growth in insurance portfolio

• Successful reduction of reinsurance portfolio

• Efficiently managed claims and salvages

• Growth in investments to facilitate insurance capacity

Achievements to DateAchievements to Date

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31 March 2006 R5,6 billion

31 March 2007 R8,8 billion

31 Dec 2007 R9,9 billion

Sustained Growth in Sustained Growth in Insurance PortfolioInsurance Portfolio

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Country ExposureCountry ExposureECIC EXPOSURE AS AT 31 DECEMBER 2007

Zimbabwe1.48%

Sudan1.55%

DRC8.94%

Turkey6.35%

Ghana2.46%

Zambia4.76%

Kazakhstan2.04%

Iran26.14%

Mozambique - Mozal Aluminium

13.13%

Mozambique without Mozal

28.90%

Nigeria1.59%

Other Countries2.65%

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02 July 2001 R13,8 billion*

31 Dec 2007 R2,28 billion

*Includes short term transactions which have since been privatised.

Successful Reduction of Successful Reduction of Reinsurance PortfolioReinsurance Portfolio

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Claims Salvages

• 2005/6 R 63,1 m R 38,4 m

• 2006/7 R 150,0 m R 64,3 m

• 2007/8* R 20,8 m R 156,0 m

*Up to December 2007

Well Managed Claims and Well Managed Claims and SalvagesSalvages

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Investment funds at inception: R 1,083 billionFunds as % of portfolio: 7.848%

Investment funds at 31 Dec 2007: R 2,282 billionFunds as % of portfolio: 18.371%

ECIC well placed to accommodate future transactions: total capacity calculated as R30 billion

Growth in Investments to Growth in Investments to facilitate Insurance Capacityfacilitate Insurance Capacity

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Budgeted income statement for the year ending 31 March 2009

Strategic Plan and Budget Strategic Plan and Budget AnalysisAnalysis

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Budget 2008/2009Budget 2008/2009Description   Estimated   Budget  

    2008   2009  

    R'000   R'000  

Gross Premium   215 372   158 090  

Earned Premium   187 893   106 462  

Net Claims Rec/(Pd)   129 890   (25 363)  

Provision - Decr/(Incr)   (2 703)   23 750  

Commission Rec/(Pd)   (2 692)   (800)  

Net Operating Expenses   (24 675)   (34 113)  

Underwriting Profit (Loss)   287 713   69 936  

Other Income   166 409   171 676  

Net Profit before taxation   454 122   241 612  

Taxation   (131 695)   (67 651)  

Net Profit after taxation   322 427   173 961  

Capital Expenditure (CAPEX)   34   871  

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Building on the achievements of 2007/2008;

Key priority initiatives targeted for 2008/2009:

2008/20092008/2009

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2007/2008: Comprehensive interrogation of ECIC insurance policy in collaboration with customers and under supervision of local and international Basel II experts.

Target for 2008/2009: More consumer friendly policy certified as Basel II compliant by Reserve Bank.

Cost: Absorbed in salary expenses.

Initiative 1Initiative 1

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Economic Impact Assessment Model built in collaboration with the dti and National Treasury.

Aimed at undisputed economic impact results.

Cost: Absorbed in salary expenses.

Initiative 2Initiative 2

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Documentation TrainingDocumentation Training Training of staff on intricate project

finance documentation.

In previous years external facilitators provided extensive training on project structuring techniques.

Total training budget R350,000

Initiative 3Initiative 3

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Portfolio Management System Portfolio Management System (PMS)(PMS)

New PMS to enhance effectiveness, efficiency and accuracy of ECIC portfolio administration.

Cost: R500,000

Initiative 4Initiative 4

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Comprehensive and up to date industry Comprehensive and up to date industry and relevant research reportsand relevant research reports

Industries covered / to be covered: aluminium, copper, zinc, cobalt, gold, oil, tourism, global political environment, toll roads, shipbuilding, call centres.Further sectoral research will be driven by global risks identified. Conduct legal reviews of buyer countries.

Cost: Industry research cost absorbed in salary expenses; Legal reviews R250,000.

Initiative 5Initiative 5

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International Credit Risk Insurance International Credit Risk Insurance ForumsForums

Active participation in International Union of Credit and Investment Insurers (Berne Union):

- Drafting guiding principles– Pricing review team

Increased participation at OECD.

Budgetary implication (incl. membership fees) R1,581,000

Initiative 6Initiative 6

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Increased Deal Flow into AfricaIncreased Deal Flow into Africa

• 62% of ECIC’s current exposure in Africa

• 89% of ECIC’s deal pipeline of USD 1.4 billion (R ± 11 billion) towards Africa

Cost of due diligence expenses = R1,150,000

Initiative 7Initiative 7

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New ApplicationsNew Applications

USA0.48%

Georgia0.51%

Russia6.05% Poland

0.72%

North America0.66%

Gabon21.74%

Botswana15.49%

DRC39.40%

Malawi8.03%

Seychelles3.56%

Uganda1.67%

Mozambique0.12%

Malaysia1.05%

Nigeria0.54%

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QuotationsQuotations

North America0.77%Indonesia

4.01%

Togo31.09%

Nigeria2.51%

Malawi2.57%

Kenya10.64%

Ghana6.41%

Gabon18.65%

DRC1.98%

Angola21.36%

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Assistance to SMEsAssistance to SMEs

• Performance Bond Insurance

• Developed in partnership with IDC

• Focus on SMMEs facing financing capacity hindrances

• Enable SMMEs to participate in exports of capital goods and services

Policy InterventionPolicy Intervention

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Product Criteria:• Bond value to 10% of contract price• Bond callable on demand• SMMEs to benefit (National Small

Enterprise Act, Act 102 of 1996)• Export contract value not exceeding

USD10 million• Credit term two years or more

SME Performance Bond SME Performance Bond InsuranceInsurance

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Eastern Cape Development CorporationTrade and Invest KwaZulu Natal (TIKZN)Invest North WestMpumalanga Economic Growth AgencyWESGROSA Boatbuilders Business AssociationEntrepreneurs Month organised by the dtiSouth African Association of Consulting Engineers Gauteng Economic Development AgencyLimpopo Economic Development AgencyKhula EnterprisesBlack Management ForumTIKZN road show (6 workshops)

Roadshows done onRoadshows done onSME ProductSME Product

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APEX PRIORITIES

ECONOMIC CLUSTER OBJECTIVES

Government Policy PlansGovernment Policy Plans

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Project 13: Assistance to SMEs (ECIC Performance Bond)Project 21: Resolution of challenges facing Zimbabwe, (support dti in finalization of investment protection agreement to facilitate ECIC supported projects).Project 22: Reconstruction in DRC (strong pipeline of ECIC supported projects – mining; scanning equipment for border posts)Project 23: Intensified economic diplomacy (OECD, Berne Union, Prague Club, Conferences – international relations work to benchmark and align ECIC’s business practices).

Apex PrioritiesApex Priorities

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INCREASE ECONOMIC EFFICIENCIES

• Basel II compliant policy

• Conduct host country legal reviews to develop appropriate legal templates to be replicated for future transactions

• Re-negotiate with banks financing costs pertaining to export credit transactions (utilize OECD studies)

Economic Cluster ObjectivesEconomic Cluster Objectives

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PROMOTING DYNAMIC SECTORS

• Conducting research and developing new products for Call Centre Operations, (foreign exchange cover, breach of contract) - labour intensive sector , Shipbuilding industry

INTEGRATED SUPPORT FOR SMEs

• Covered under APEX Priorities

Economic Cluster ObjectivesEconomic Cluster Objectives