Banks Must Query Risks in Africa

Banks financing projects and trade in Africa are being urged to get more involved in security management to avoid losses.

Speaking at law firm Thomas Cooper’s trade finance seminar in London, MS Risk international security advisor Liam Morrissey told bankers security risk management is not just an insurance or operations problem.

“There needs to be improved linkage between the investors and financiers of these projects and the insurance companies underwriting them, working better with the operators. When you put US$100mn into a project in Africa, you need to look at the security risks and how they will be managed; that’s not just an operational thing.”

He pointed out that borrowers don’t necessarily highlight security problems when asking for finance “for fear of scaring [banks] off”, and that therefore, banks should always query these issues.

During his presentation on the various risks impeding business in Africa, including corruption, kidnapping and terrorist attacks, Morrissey said these risks would continue to increase in the next few years, but would not deter investors from coming into the continent due to its undeniable potential.

“There’s a great potential for companies that go to Africa to generate wealth and if some of you are not involved in African project at the moment, the day is coming when you will be.

“The disenfranchise [from rebel groups] will continue to grow, which will mean more threats, more attacks, more involvement from foreign powers, but despite all that, commerce will also continue to grow. Burkina Faso for example has now shifted from a cotton-based economy to a gold-based economy. Mali is continuing to mine gold despite the trouble it is having. 8% of the world’s uranium is provided out of Niger, and the French nuclear industry is powered from this uranium,” he told the audience and GTR.

Africa has proven extractable stocks of energy resources of oil, natural gas, coal, uranium valued at US$13-14.5tn, and holds 70% of the world’s strategic minerals.

On top of corruption, blackmail and extortion, kidnapping, terrorist attacks and medical threats, Morrissey mentioned the risk of shrinkage, which according to him is often overlooked, pointing to a report that Shell is losing 60,000 barrels a day in Nigeria. “Some of it is lost through theft, some of it through inefficient pipelines, some of it through waste, but that’s a significant amount of loss,” he said.

Morrissey advised banks to get involved in the risk assessment process, know how much of the overall project cost is being spent on security, and liaise with insurance companies to ensure the adequate crisis management processes are in place.

~ Article courtesy of GTR.