Prices may surge by 20% as insurers factor in crisis in parts of Arab world, says export agency
Trade insurance costs for United Arab Emirates exporters may
jump by up to 20 percent in the short term due to ongoing political turmoil in
the Arab world, the Gulf Arab country's export credit agency said on Wednesday.
Popular unrest over entrenched poverty and high unemployment
has been sweeping through mainly poorer Arab countries in the Middle East and
North Africa over the past two months, unseating military-backed oppressive
leaders in Tunisia and Egypt.
"There will definitely be an increase in premium rates
to countries like Egypt, Tunisia, and Libya," said Schuyler D'Souza, chief
commercial officer at the Export Credit Insurance Company of the Emirates
(ECIE), owned by Dubai's government.
"On average, insurers price these markets between 0.45
to 0.6 percent. But in the current political situation in these countries,
premium rates are expected to rise at an average of 15 to 20 percent," he
said. "Libya is an area of concern to us."
While that looks like a tiny increase for now relative to
overall costs, Dubai's export agency warned of the impact on companies.
"Any increase in costs for our exporters makes them
rather uncompetitive in the global environment," said Ashraf Mahate of the
Dubai Exports Development Corporation. "If the situation continues, then
exporters may even seek to look at alternative forms of payment security such
as cash against documents."
He also said the large gold and jewellery sector would be
less affected by the increase in credit insurance premiums than food and
industrial products businesses.
Weeks of political unrest that also engulfed Bahrain have
sent debt protection costs and yields on government debt up across the Gulf,
the world's top oil exporting region.
"There has definitely been an increase in demand for
insurance to these markets over the last three weeks, especially to ensure
against political risk," D'Souza said.
Premium volumes in the UAE's short-term trade credit
insurance market are estimated at $30m, he said. Around 150 companies
are covered in the OPEC member mainly in the manufacturing and trading sectors.
"We have an environment which changed in a few weeks
from low to high risk," said Nila Davda, senior executive officer at
Sovereign Risk Insurance, an underwriter of political risk insurance.
"Nobody really knows how it's going to play out."
Sovereign Risk Insurance has exposure in over 100 emerging
markets and is owned by a subsidiary of ACE.
Arabic countries accounted for only 2.4 percent of the UAE's
non-oil exports and re-exports last October, data from the country's federal
customs authority show.