A potentially powerful partnership

What is your interest in Africa and China? Elborne Mitchell is known for its work in the insurance and reinsurance market and has strong connections in the energy, shipping, commodities and aviation markets. It has longstanding interests in Africa and Asia—particularly in China. It has represented many African and Asian clients in their dealings in the London insurance market. On a personal level, my daughter, who is an architect, is currently working for an architecture firm in Nanjing, China. Her firm has been involved in designing important modern architecture, such as universities and hotels in Africa. The vast amount of opportunities Africa presents to China is astounding and I think this unique relationship between the two countries is one worth learning from. How do you view the ongoing relationship between China and Africa developing? I can see the relationship developing and expanding beyond energy, mining and construction to include, for example, agriculture. The Chinese are already expanding in this area, as seen in their recent purchase of one of New Zealand’s largest sheep stations and the deal enabling China to purchase more rice from Thailand (this deal was cancelled in February 2014 but was re-established in August 2014, according to the Bangkok Post). So far, Thailand has reported that it has already exported around 400,000 tonnes of rice to China; this is a 200,000 tonne increase on its yearly export of rice to China.hideHow much variation is there from country to country in terms of the way the Chinese do business? Or do they have the same approach to all? I think it would be instructive to look at what happened in July in another part of the world, namely Chinese President Xi’s visit to four South American countries. President Xi’s visit to South America was largely down to the Brics summit, where he contributed the largest sum of all the participating countries in the creation of a new US$50bn development bank and US$100bn reserve fund for Brazil, Russia, India and South Africa. In Venezuela, President Xi signed some 30 agreements with President Nicolas Maduro in the oil, mining and agriculture sectors. Among these, China’s EximBank signed a memorandum of understanding to lend US$1bn to Venezuela’s state oil company PDVSA for mineral exploration. In Buenos Aries, President Xi pledged US$5bn of loans to pay for two Chinese-built hydroelectric dams and, in Cuba, China entered into 29 bilateral agreements. The Chinese have taken a similar business approach in Africa, and some would say they have gone even further there by entrenching a strong relationship through the governments and businesses acting together with a common interest. China, being Africa’s largest trading partner for the fifth consecutive year, has invested and contributed a lot to Africa’s economic development. The Chinese have helped Africa build important infrastructure such as roads, railways, and universities. Although not widely reported, they have also contributed a lot by sharing their knowledge and skills. Taking one of many examples, the Chinese telecommunications company Huawei, which has become one of the largest telecommunications equipment producers with a global reach, has announced this year that it will provide US$500,000 in funds and ICT equipment to the African University of Science and Technology in Abuja. Some commentators have suggested that China actively courts countries that are at loggerheads with the US. I suspect that any such suggestion is putting an unnecessary political slant on a very pragmatic business approach. One could equally well admire the approach as being simply supremely effective. From a legal perspective, is there any particular point when you encounter problems? If I may, I shall focus on three or four areas in answer to this question. First, sanctions clauses. Some reinsurers work on the basis of European Union (EU) sanctions. Some, particularly those with US parent companies or a significant US shareholding, apply US sanctions. Some reinsurers outside the EU and US do not apply any sanctions clauses. Second, the National Insurance Commissions (NAICOM). The role of NAICOM is to regulate and supervise the Nigerian insurance sector and to ensure that effective administration processes are in place to achieve a high level of ethical standards. Most recently, NAICOM has issued new guidelines for oil and gas businesses, requiring local companies to buy reinsurance at a much lower level than previously. As far as I understand, this has created problems due to the lack of capacity in the world market and this may be leading to some of the local companies not having cover in place until long after the attachment date—which obviously is a major claims problem waiting to happen. Third, the Conference Interafricaine Del Marches d’Assurences (CIMA) code. The signatories to this treaty include Benin, Burkina Faso, Cameroon, Central African Republic, Comoros, Congo, Cote d’Ivoire, Gabon, Equatorial Guinea, Guinea Bissau, Mali, Niger, Senegal, Chad and Togo. The code requires risks to be written by licensed insurers. Reinsurance sessions must be made following the CIMA code. The code permits 75% of a risk to be given to a reinsurer of choice and the remaining 25% must be reinsured locally. The objective of the treaty expressly includes the promotion of investment in the economies of signatory countries by means of insurance and reinsurance operations. It can be seen that Nigeria (not a CIMA signatory) has a developed domestic insurance and reinsurance industry, whereas many of the CIMA signatories do not as of yet. In brief, a fourth contract-writing problem would be how one copes with or anticipates possible problems with governmental contracts in countries that may face incipient civil strife. Should such contracts envisage the possibility of dispute resolution in an international forum, as opposed to a purely domestic forum? Do you think businesses are missing out on opportunities because of the so-called ‘Chinese effect’? I think business suffers because there is not the same sense of partnership between the government and business. What I think is even worse for UK business, for example, is the extremely tough regulatory regime. However, it is not for me to say whether this desire to lead the world in ethical standards is laudable, sustainable or in the long-term best interests of this country. Clearly there are strong arguments in favour of such an approach. In the analogous area of carbon control, it seems that the UK is no longer keen on taking the lead or it no longer sees this approach as necessary. I also observe from day-to-day dealings that some of the UK’s EU counterparts do not have the same regulatory inhibitions, even though theoretically they have signed up to the same high regulatory and compliance standards as we have in the UK. Therefore, I think that businesses in the UK do, to a certain extent, have a double disadvantage. They are not actively partnered with the government and they also have to contend with the UK regulatory regime, which is arguably the toughest in the world. However, on the plus side, in areas such as insurance and reinsurance, the UK has unrivalled experience and expertise, which give it a huge competitive advantage. Is there an opportunity for a new approach? You will have seen above what has recently been pledged by President Xi in South America. Can the West, and in particular the UK, compete with this? Without being unnecessarily downbeat, I suspect not. However, there are other ways in which the government and regulators (who are, after all, answerable to government) could assist businesses. The smart move for any UK government would be to focus especially on promoting the London insurance and reinsurance market including, for example, into Africa and into China itself, where insurance penetration is only about 1% of GDP (as opposed to 50% in the US). The London insurance and reinsurance markets have proven to be much more resilient than the financial markets and the UK government needs to act proactively, not only to protect them, but to promote them. They are essential to the UK’s foreign earnings and I find it slightly surprising that the government does not take more of an active and supportive role. What do you see as the major challenges going forward? I think the major challenge is offering a highly competitive service, not simply in terms of price but also in terms of value added. By value added, I mean what one can add to local infrastructure and knowledge and support to local businesses. I think many in Africa are fed up with what they term ‘briefcase businessmen’, meaning those who simply come to fill up their briefcases with cash and then leave. I think those that actively want to partner with local businesses will be the ultimate winners.

A potentially powerful partnership

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