ECIC AR 2024 9TH
2024 INTEGRATED REPORT
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C CONTENTS E C O R P O R A T I O N O
Reference Information
2 3 4 8
Acronyms and Abbreviations
At A Glance
Foreword by the Minister of Trade, Industry and Competition
About this Integrated Report
10 11 12 21 22 26
Materiality Determination Process
Identified Material Issues
Reporting Boundary
Message from the Independent Chairperson
Overview by the Chief Executive Officer
Organisational Overview
30
Organisational Structure
37 38 40
Board of Directors
Executive Management
External Environment
42
Business Model
50
Our Value Creating Business Model
53
Governance Report
58
Remuneration Report
70
Stakeholders
76
Risk Management
84
Performance
90
Value Adding Highlights For 2023/24
93 96
Value Added Statement
Financial Overview
98 121 122
Outlook
List of Tables and Figures
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E Integrated Report 2024 Reference Information X P O R T C R E D I T I N S U R A N C E C O R P O R A T I O N O F S O U T H A F R I C A S O C L T D
Business and Registered Address
Registered name
Export Credit Insurance Corporation of South Africa SOC Ltd
Registration number
2001/013128/30, Registered Financial Services Provider FSP No 30656
Founded
2 July 2001
Enabling Act
Export Credit and Foreign Investments Insurance Act, 78 of 1957 (as amended) South African government, represented by the Department of Trade, Industry and Competition ( the dtic ) Bylsbridge Boulevard Office Park, Building 9, Fourth Floor, 11 Byls Bridge Boulevard, Highveld Extension 73, Centurion
Shareholder
Registered address
Postal address
PO Box 7075, Centurion 0046, South Africa
Telephone
+27 (0)12 471 3800
info@ecic.co.za
Website
www.ecic.co.za
External auditor
Forvis Mazars, Rialto Road, Grand Moorings Precinct, Century City, South Africa First National Bank, Fehrsen Street, Steven House, Brooklyn, Pretoria, South Africa
Banking details
Acting Company Secretary Contact person for this report
Remembrance Ntshiyantshiya
Warren Koen, Manager: Office of the Chief Executive Officer, +27 (0)12 471 3858, wkoen@ecic.co.za
Reporting period
1 April 2023 to 31 March 2024
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Acronyms and abbreviations
AfCFTA
ICT
African Continental Free Trade Area
Information and Communications Technology
Afreximbank
IMF
African Export-Import Bank
International Monetary Fund
ALM
IMU
Asset-Liability Matching
Interest Make-up
B-BBEE
Broad-Based Black Economic Empowerment International Union of Credit and Investment Insurers Chartered Accountant (South Africa)
International Integrated Reporting Framework
Berne Union
IPAP
Industrial Policy Action Plan
MTSF
Medium-Term Strategic Framework
CA(SA)
NDP
National Development Plan
Cert. Dir
Certified Director
OECD
Organisation for Economic Cooperation and Development
CEO
Chief Executive Officer
CRR
PA
Concentration Risk Reserve
Prudential Authority
DIRCO
PFMA
Department of International Relations and Cooperation
Public Finance Management Act, 1 of 1999
ECA
SAA
Export Credit Agency
Strategic Asset Allocation
EXIM
SCR
Export-Import
Solvency Capital Required
FSCA
SA Inc.
Financial Sector Conduct Authority
Companies whose earnings are predominantly linked to the South African economy. Department of Trade, Industry and Competition
Government
Government of the Republic of South Africa
the dtic
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At a Glance
LEVEL 2 B-BBEE CONTRIBUTOR
2019
2020
2021
2022
2023
2024
35
12
33.3
30
30.0
10
10.2
26.5
9.1
25
8.8
8.5
8.4
8
7.9
20
20.8
6
20.8
15
4
12.0
10
2
5
0
0
Total financial assets (including cash and debtors) (R’billion)
Total insured value (R’billion)
10
800
700
8.5
8
600
611
581
6.6
6.6
6.5
523
500
513
6
499
6.0
400
5.0
4
300
239
200
2
100
0
0
Total equity (R’billion)
Net insurance premium (2019-2022) Insurance revenue (2023-2024) (R'million)
1 000
30
29
900
894
26
25
800
23
22
700
21
20
20
600
573
500
15
509
400
10
300
250
200
5
100
28
0
0
0
Transactions approved ($’million)
Cost to income ratio (Percent)
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Total Claims to SA Content
35 000
0 10 20 30 40 50 60 70 80 90 100
87
30 000
79
79
79
25 000
65
20 000
15 000
%
10 000 US$ Millions
5 000
0
2020
2021
2022
2023
2024
Total claims since inception Total SA content relative to claims
Ratio
Risk Maturity Survey Results
100
80
60
%
40
20
0
2021/22
2022/23
2023/24
Level 3
Level 2
Level 1
B-BBEE Certificate
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ECONOMIC IMPACT ASSESSMENT 2014/15 – 2023/24 Value of ECIC supported projects
• Over the last 10 financial years, ECIC has grown considerably supporting 46 export-led, investment and short-term trade-related transactions across the African continent and other emerging economies. This accumulated to approximately US$2.5 billion (R32.8 billion) worth of loans supported by ECIC in various sectors among them power, mining, rail, construction, manufacturing and telecommunications.
35 Nominal value of loan and investment amounts supported by ECIC (2014-2024)
3,0
R32,78
R32,67
R31,46
R28,06
30
2,5
R24,05
25
R22,85
R22,28
2,0
20
1,5
15
Billions
Billions
1,0
R9,25 R8,98
10
R6,68
0,5
5
$0,55
$0,70
$0,72
$1,82
$1,86
$1,93
$2,20
$2,44
$2,50
$2,51
0,0
0
2014/15
2015/16
2016/17
2017/18
2018/19
2019/20
2020/21
2021/22
2022/23
2023/24
USD Cumulative ZAR Cumulative, rhs
*The figures on the chart use the USD/ZAR exchange rate as at 31st March of the applicable financial year
Figure 1: Value of ECIC supported projects
Value added to SA economy • R11.72 billion is estimated to have been added to the South African GDP.
Impact of ECIC on GDP (2014 – 2024)
3,5
14
0,15
3,0
12
0,17
11,69
11,72
11,33
10,82
2,5
10
0,15
9,81
9,55
9,27
2,0
8
0,12
1,5
6
4,79
R’bn
R’bn
6,35
0,23
1,0
4
2,21
0,24
0,14 0,23
0,5
2
0,029 0,03
0,01 0,28
0,02 0,23
2,06
2,41
1,44
2,77
0,79
0,27
0,0
0
2014/15
2015/16
2016/17
2017/18
2018/19
2019/20
2020/21
2021/22
2022/23
2023/24
Capital Investment Phase
Operational Phase Cumulative, rhs
Note: Results presented consider the Direct, Indirect and Induced impacts of ECIC’s contribution
Figure 2: Value added to SA Economy
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Employment Impact in South Africa • ECIC’s involvement has been instrumental in facilitating the generation and sustainability of an estimated 49 174 job opportunities in South Africa as a result of insured export transactions, over the past 10 years.
Impact of ECIC on Employment (2014 – 2024)
12
60
49,17
49,04
46,72
10
50
43,88
8
40
33,95
36,19
35,10
6
30
16,76
4
20
22,46
Thousands
Thousands
7,71
2
10
0
0
2014/15
2015/16
2016/17
2017/18
2018/19
2019/20
2020/21
2021/22
2022/23
2023/24
Capital Investment Phase
Operational Phase Cumulative, rhs
Note: Results presented consider the Direct, Indirect and Induced impacts of ECIC’s contribution
Figure 3: Employment Impact in South Africa
Revenue Impact in South Africa • R3.7 billion is estimated to have been added to the South African fiscus.
Impact of ECIC on Revenue (2013 – 2023)
0,8
0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0
3,70
3,68
3,46
3,21
0,6
2,52
2,42
2,61
0,4
R’bn
R’bn
1,72
1,29
0,2
0,60
0,0
2014/15
2015/16
2016/17
2017/18
2018/19
2019/20
2020/21
2021/22
2022/23
2023/24
Capital Investment Phase
Operational Phase Cumulative, rhs
Note: Results presented consider the Direct, Indirect and Induced impacts of ECIC’s contribution
Figure 4: Revenue Impact in South Africa
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Integrated Report 2024
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Foreword by the Minister of Trade, Industry and Competition
Minister Parks Tau
It is my pleasure to table the annual report of the Export Credit Insurance Corporation (ECIC) for the 2023/24 financial year. In the year under review, the ECIC has had to navigate multiple complexities and uncertainties presented largely by local and global developments in the economic and political landscape. In particular, the persistent geopolitical tensions had a far-reaching impact on declining trade and demand levels, as well as high inflation and interest rates experienced during most of 2023. As such, most businesses encountered challenges in generating revenues, which affected their ability to service debts, increase investments, and expand operations to create more jobs. Economic growth is expected to pick-up at a pace below what is required to address poverty. However, South Africa is in the fortunate position of having negotiated significant trade preferences with key trading partners such as the EU, SADC, BRICS+, US, UK and Africa. The dtic will therefore strengthen its export promotion and exporter development activities to substantially increase manufactured
exports including from SMMEs, black- and women owned firms. In addition, we continue to work with our African counterparts to fully operationalise the AfCFTA and its economic benefits. South Africa has reached a pivotal milestone in its engagement with the African Continental Free Trade Agreement (AfCFTA) by officially launching its implementation on January 31, 2024. By connecting South Africa with regional production networks, the AfCFTA facilitates collaborative growth and unlocks new export opportunities in a rapidly expanding region. During the financial year the ECIC continued to implement the expanded mandate with $8,3 million worth of short-term transactions underwritten. The Export Passport Programme was also initiated this year, which is a collaboration between the dtic , ECIC, IDC and NEF to benefit potential exporters, emerging exporters and the specific needs of established exporters. These initiatives will play an important role in the export-led industrialization goal of the seventh Administration.
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The first year of IFRS 17 implementation brought several significant challenges for insurers globally. IFRS 17 requires a complete overhaul of accounting policies and actuarial methodologies, making the drafting process more complex and time consuming. These challenges did not escape the ECIC and resulted in the Corporation receiving an unqualified audit opinion with findings (not achieving a clean audit for only the second time). With these challenges having been addressed in this audit process, the entity expects to return to a clean audit outcome in 2024/25. I extend my gratitude to the Chairperson and members of the Board, the Acting CEO, Management, and staff of ECIC for their
contributions to the entity’s performance during the year under review. I look forward to working with the ECIC as we strengthen the dtic’s institutions to create a dynamic, competitive, and inclusive economy that benefits all South Africans.
Mr Parks Tau, MP Minister of Trade, Industry and Competition Date:
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E Integrated Report 2024 About this Integrated Report X P O R T C R E D I T I N S U R A N C E C O R P O R A T I O N O F S O U T H A F R I C A S O C L T D
Responsibility and Assurance The Board, as the Accounting Authority, is responsible for the integrity of this report. In the opinion of the Board, the report addresses all strategic and material issues and presents an integrated and accurate view of the Corporation’s performance during the year under review. This assurance is based on effective internal processes and precludes the need for third party assurance over any information in the report. The Board believes that the report provides the South African government, as the single ECIC shareholder, and key stakeholders with an accurate summary of its financial and sustainability performance and a balanced appraisal of the material issues that affected its business value during the 2023/24 financial period. The Board approved the report on 31 July 2024 and submitted it to our shareholder representative, the Department of Trade, Industry and Competition ( the dtic ) and related entities, including National Treasury, the Auditor-General of South Africa and Parliament. Material Issues The Corporation’s approach to identifying and managing material issues are guided by Board and governance processes and its risk framework. The Executive team regularly identifies material issues to recognise their impact and significance to the Corporation and its stakeholders. A key objective of integrated reporting is to report on value creation over time. Value creation depends on resources that are influenced by an organisation’s external environment and stakeholder relationships.
This Annual Integrated Report of the Export Credit Insurance Corporation of South Africa SOC Ltd (ECIC) for the financial year ended 31 March 2024 provides material information about our strategy and business model, operating context, material risks and opportunities, stakeholder interests, performance, prospects, and governance. The scope and boundaries of the report are similar materially to those of the previous financial year. The principles of the International Integrated Reporting (
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Materiality Determination Process Table 1: Materiality Determination Process
Stakeholder Feedback (Refer to pages 77-83) Input from internal subject matter experts, thought leaders and external stakeholders through workshops and interviews facilitated by our marketing and communication, and business development functions. Implementation of Stakeholder Management Framework and related Engagement Plans. Own Risk and Solvency Assessment (Refer to page 89) The ORSA process is an integral element of the Corporation’s risk governance system. It is designed primarily to satisfy the internal need to manage all material risks and ensure sufficient capital to meet solvency and business requirements. The ORSA identifies the relationship between risk management, and the level and quality of financial resources required and available. The assessment is conducted annually and can occur more frequently, if necessary. Approval of Integrated Report (Refer to page 10) The annual Integrated Report is reviewed and approved by EXCO, Audit Committee and Board for tabling in Parliament. Assurance is provided by the work performed by Internal Audit on the Quarterly Performance Reports and commentary received from both Internal Audit and External Audit on the Integrated Report. The Office of the CEO monitors and advises EXCO, Audit Committee and Board on any changes to the International
Development of ECIC Corporate Plan
Strategic Planning Sessions held in September each year where the following is discussed: 1) S trategic Themes for the year; 2) O ur external environment with an emphasis on outlook, products, pricing and research; 3) L egislative and regulatory developments, such as our compliance universe; 4) E merging risks; and 5) E conomic performance data and analysis regarding finance, investments and our portfolio. Strategic objectives and targets for a 5-year period are then finalised and submitted to the Shareholder for review in October. Included in this is an annual Materiality and Significance Framework approved by the Board on recom mendation from the Audit Committee. The final Corporate Plan is approved by the Audit Committee and Board in January each year for the Minister's sign-off. The Quarterly Performance Report is presented quarterly to the Audit Committee and Board for approval before submitting to the shareholder. Internal audit performs a review on each Quarterly Performance Report before the approval. In-Year Management Reporting (Refer to Governance on pages 59-74) Audit Committee approves an annual internal audit plan which is reported against quarterly. This identifies risks and weaknesses to be reported on by management. Quarterly feedback to Board Sub-Committees based on the implementation of Operational Plans linked to the Corporation Balanced Scorecard. Tracking of Performance (Refer to page 92)
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IDENTIFIED MATERIAL ISSUES The material issues, with our strategic objectives, are integral to the way in which we manage the implementation of our strategy and performance assessments. The Board concurs that the following material issues are salient to our business operations and most likely to cause risk for the Corporation, our shareholder, and key stakeholders. We describe the issues here, as well as their impact on our key stakeholders to either create or erode value. Amendment of the ECIC Act We are engaging with the dtic on the amendment of the ECIC enabling legislation to authorize ECIC to cover non-South African financial institutions. The proposed legislative change would have to be processed through Parliament. A process most likely to be extensive bringing with it amelioration and growth. The revision of the ECIC legislation will be key in positioning ECIC to be competitive and structurally placed to support South African exporters through a range of insurance products that are complemented by corresponding financial products. In considering the revision of the ECIC legislation, a key focus will be on broadening the scope of insurance products range, including potentially considering the expansion of ECIC’s mandate to have a lending or financing capability, Currently, there is a need of a “One Stop Shop “entity that can provide wholesale financing which should, amongst others, include trade financing facilities, credit facilities at concessional funding or credit margins, provide capacity building funding especially to aspiring exporting companies, especially SMMEs and Black Industrialists. The Corporation’s mandate is to make South African exporters attractive to international buyers and to stimulate economic growth through export transactions that contribute to job creation and global competitiveness. The competitive and collaborative landscape is within the international export credit agency (ECA) market. The South African financing institutions use these ECAs, and these ECAs work together, to compete on the African continent. As such, ECIC and SA exporters are competing with international ECAs and suppliers for projects.
ECIC is an instrument in government’s hand to facilitate expanded trade and investments by SA companies. It is in this context that ECIC wants the issue of the authorisation to provide insurance to non-SA banks and other financial institutions to be resolved. In the effort to reposition ECIC to play a stronger role in support of intra-Africa trade, the option to work with some of the financial institutions on the African continent who have better footprint in some of the regions on the continent may broaden access to funding to buyers who seek to buy goods and services from South Africa. This will include foreign subsidiaries of South African financing institutions established, amongst others, to manage their foreign or hard currency financing requirements. The partnership with non-SA banks may also take the form of risk sharing arrangements. For instance, as a shareholder in Afreximbank, ECIC has concluded a cooperation agreement with Afreximbank which includes the provision of risk sharing facilities. Through these risk sharing facilities, ECIC can underwrite higher values of exports while retaining a lower net exposure. The level of South African content that the buyer under the export contract commits to is pegged to the gross loan value insured by ECIC. For instance, in the Moz LNG transaction ECIC has supported a loan commitment of USD800m on the back of the Afreximbank guarantee of up to USD400m. The ECIC target net exposure is USD430m, and the other portion of the reinsurance to ECIC will come from the private reinsurance market in London. In as much as ECIC will not utilize the full USD400m commitment from Afreximbank, the value add of the partnership speaks for itself, as it fosters higher levels of exports from South Africa whilst limiting the impact of concentration risk of the total sum insured on the ECIC insurance book. Progress on ECIC expanded mandate Three transactions to the equivalent value of USD8,3 million were approved during the financial year: 1) W orldwide Rail and Mining (Pty) Ltd – USD3,3 million 2) B ond Equipment – AUD3,7 million 3) H all Longmore Holdings (Pty) Ltd – R50 million
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Euro Policies insurance coverage On 15 May 2024, the Minister approved the ECIC request to provide insurance cover for Euro denominated transactions. Expanding the insurance coverage to Euro currency will help ECIC unlock opportunities for exporters and investors in regions where transactions are denominated in Euro currency. In addition, the repatriation of Euro currency in South Africa offers an advantage of diversifying the foreign currency reserves basket. New enquiries which are coming from Francophone countries can be supported to allow South African exporters to seize new opportunities in new markets. ECIC is an instrument in government’s hand to facilitate expanded trade and investments by SA companies. The Euro is gaining momentum in the international financial system. As demonstrated in comparative studies, the Euro dominates as a second currency after the US dollar, in terms of accumulated foreign exchange reserves; international debt issuances; international loans; foreign currency turnovers; and global payment currency from countries that transact in both USD and Euro. ECIC Thought Leadership The Corporation conducts research to identify potential trade and investment opportunities in countries and economic sectors, so that South African exporters and investors may take advantage of these opportunities, and by so doing, take advantage of the ECIC insurance support scheme. The following reports were finalised during the year: 1. Benin Country Report 2023 2. Togo Country Report 2023 3. Green Metals Sector Report 4. Uganda Country Report 5. T rade & Investment Opportunities in the African Plastics Sector Stakeholder Feedback During the 2023/24 financial year, the Corporation conducted the Employee Engagement Survey. The outcomes of this survey are detailed in the Stakeholder Section on page 78. This section also highlights the Click-Through Rate achieved during the first years of the AfCFTA media campaign.
Black Industrialists and Exporters Conference As part of stakeholder engagement, ECIC participated at the second Black Industrialists and Exporters Conference (BIEC) on 20 March 2024 at the Sandton Convention Centre aligned under the theme ‘Black industrialists catalysing economic growth and jobs’. This landmark event attracted hundreds of black industrialists drawn from myriads of industries including steel, healthcare, clothing, tourism and technology. The objective of the Black Industrialists Programme is to increase the participation of black South Africans in the ownership and control of productive enterprises in key sectors and value chains of the country’s economy in pursuit of building an inclusive economy and depending the attainment of the transformation objective. ECIC also launched a Trade Credit Insurance product which is the primary product offered by short term insurance companies. The product does not require any bank financing, and it is offered directly to the exporter to advance goods and/or services based on agreed payment terms to the foreign buyer. The payment or invoicing circle could range from 30 to 180 days. The key risk covered is non- payment by the foreign buyer after the due date of payment, as a result of commercial causes (inability to pay or insolvency of the foreign buyer) or political causes of loss (expropriation, change in law, currency transfer restriction or inconvertibility, war and civil disturbances) . The role of the product is to: • Promote export trade between the exporter and the foreign buyer • Support for the short-term trade transactions up to two years, will also include bond transactions of more than two (2) years • Filling in the market gap, by providing solutions for the exporters to augment the role played by the private sector • Support export transactions that fall within the priority sectors of the dtic ’s masterplans Trade Credit Insurance Product Launch
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Export Passport Programme In response to the urgent need to tackle unemployment and economic inclusion in South Africa, ECIC pursued a Cooperation Agreement with the Department of Trade, Industry and Competition ( the dtic ), the Industrial Development Corporation (IDC) and the National Empowerment Fund (NEF), which has now been concluded. This collaboration has taken the form of the Export Passport Programme which is a new and energised offshoot of the dtic ’s Global Export Passport Programme. The programme aims to address the following key challenges: • Lack of access to finance-to-finance export transactions; • Lack of access to key markets; and • Provision of institutional support through training and incubation programmes.
In this regard in November 2023, the dtic , IDC, NEF and ECIC concluded a Cooperation Agreement which sets objectives and operational framework of the Export Passport Programme, which will leverage on each of the entities’ existing product offerings and export related programmes. The new programme will combine existing exporter training elements with access to export finance and guarantees that will be extended to the participating companies, amongst others, which will be drawn from the existing Enterprise and Suppliers programme.
ECIC at the Black Industrialists and Exporters Conference
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Legal Proceedings In January 2024 the Corporation received a summons relating to an insurance claim that was rejected during the financial year. ECIC is defending the litigation action.
The salient terms of the agreement are that all four entities will pool their resources to support identified and selected eligible South African companies with different forms of support (within their mandates) in order to enable the selected companies to participate in an exporter incubator programme and/or go straight into the Export Passport Programme, which will provide them with a customised ‘export passport scheme’ that will assist them in either entering the export value chain or increasing their current contribution in the export value chain. In this regard, the Export Passport Programme will focus on potential exporters, emerging and established exporters with a view to enhancing their market access or diversifying their products and potential markets. ‘Export value chain’ means that the participants in the Export Passport Programme may be a sub-contractor to the ultimate exporter, or be the ultimate exporter themselves. Either way, the participants in the Export Passport Programme would be eligible for all forms of support on offer by the programme. The role of ECIC in the Export Passport Programme is to provide insurance cover to NEF and IDC for finance granted to participants under the Export Passport Programme. The maximum insurance cover to be provided by ECIC will be 90% of the export-oriented loans (supply chain finance) or export credit loans. ECIC insurance cover under the Export Passport Programme may include cover for short term loans, working capital facilities, guarantees etc. During the 2024/25 financial year, the Corporation will conduct its biennial Culture Entropy Survey and continue tracking the effectiveness of the AfCFTA media campaign through a Click-Through-Rate measure.
ECIC Tax Leakage on Unrealised Foreign Exchange Gains
ECIC actively participates in the Berne Union (International Union of Credit and Investment Insurers), an international non-profit association and community of global export credit and investment insurers. The ECAs present on the African continent from the USA, UK, Canada, Australia and China do not pay any income tax. The ECIC insurance revenues and liabilities are predominantly in US dollars, therefore, the majority of the ECIC investment funds are held in US dollars as approved by SARB. There is a mismatch between the International Financial Reporting Standards and the Income Tax Act, causing ECIC to pay excessive taxation over the past 15 years. In most of these years exchange losses on the US dollar holdings convert to profits on the income tax calculation, resulting in tax payable on top of those losses. In the few years where the reverse has happened, the tax receivable is a fraction of the tax paid. This puts a strain on the Corporation’s ability to increase its capital base, which would increase the underwriting capacity, enhancing the ability to fulfil the mandate.
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The table below shows the quantum of the misalignment from inception. The analysis is performed from 2009. Prior to that period, ECIC was using Rands as its operating currency and as a result, there was no misalignment between the profit before tax and the tax charge.
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Tax on forex movements Table 2: Tax misalignment
Report 2024
Integrated
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Total
Forex on USD accounts Forex on Rand accounts
-217 798 205 631 157 657 -252 749 -405 418 -361 524 -353 392 -501 611 241 850 360 795 -582 513 -347 899 408 754
65 431 -611 631 -191 384 -2 385 801
-3 651
-82 834
-25 957 37 238 132 121 108 443 282 313 442 932 -190 397 -173 389 367 805 727 080 -834 060 -108 202 902 479 394 417 1 976 338
Less forex on Afreximbank Taxable forex movements Forex included in the tax computation Forex not allowed as a deduction
-
-
-
-
-
-
-
-
- 100 748 -119 735 -149 260 116 757
14 476 -132 886
- -169 900
-3 651
-82 834
-25 957
37 238 132 121 108 443 282 313 442 932 -190 397
-72 641 248 070 577 820 -717 303
-93 726 769 593 394 417 1 806 438
3 651
82 834
25 957
-37 238 -132 121 -108 443 -282 313 -442 932 190 397
72 641 -248 070 -577 820 717 303
93 726 -769 593 -394 417 -1 806 438
-217 798 205 631 157 657 -252 749 -405 418 -361 524 -353 392 -501 611 241 850 360 795 -582 513 -347 899 408 754
65 431 -611 631 -191 384 -2 385 801
(Over)/Under forex movements -214 147 288 465 183 614 -289 987 -537 539 -469 967 -635 705 -944 543 432 247 433 436 -830 583 -925 719 1 126 057 159 157 -1 381 224 -585 801 -4 192 239
Tax rate
28% 28% 28% 28% 28% 28% 28% 28% 28% 28% 28% 28% 28% 28% 27% 27%
(Over)/Under tax payments done
-59 961
80 770
51 412 -81 196 -150 511 -131 591 -177 997 -264 472 121 029 121 362 -232 563 -259 201 315 296
44 564 -372 930 -158 166 -1 154 157
Effective tax rate on USD accounts 76,91% 22,12% 21,18% 45,71% 76,48% 80,82% 75,57% 104,98% -11,80% 14,24% 96,09% 96,70% 8,75% -19,97% 3,02% 16,54% 73,41% Translation effect -56,90% 18,68% 5,81% -21,00% -51,06% -54,38% -49,35% -77,03% 3,42% 12,89% -67,24% -69,64% 18,12% -46,03% 108,20% 504,69% -41,78% Effective tax rate on Rand accounts 20,01% 40,79% 26,99% 24,71% 25,42% 26,44% 26,22% 27,95% -8,38% 27,13% 28,85% 27,06% 26,87% -66,00% 111,22% 521,23% 31,62%
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The analysis above shows that due to the misalignment, over the years ECIC reported total net foreign exchange losses of R2.4 billion but was taxed on total net foreign exchange gains of R1.8 billion which then resulted in ECIC paying R1.1 billion more tax. In an effort to reduce the leakage, the parties below were engaged: • SARS to request for a ruling to calculate the tax charge on US dollar accounts; and • National Treasury to amend the Income Tax Act. The engagements were unsuccessful, and management with the assistance of a tax consultant is considering a tax ruling to exclude unrealised foreign exchange movements when calculating the tax charge. ECIC Tax Leakage on Unrealised US Dollar Denominated Insurance Salvages IFRS 17 pertains to insurance contracts and aims to standardise insurance contract recognition, measurement, presentation and disclosure. IFRS 17 requires that we account for salvages which are receivable for the entire duration of the policy. For tax purposes, these salvages are taxable on recognition. This creates a challenge with regards to the Ghana claims given that they are receivable so far into the future, i.e., between 2039 and 2042 and there is a high uncertainty regarding the recoverability thereof. There is a high probability that another restructuring might happen in the future, which then reduces the amount receivable. A tax deduction will then be received at that point. This then creates a liquidity issue whereby we are taxed in year one and only get a tax deduction much further down the line. As at the 31 March 2024, the future salvages amounted to R1.3 billion net of reinsurance thus resulting in an additional tax payment of R363 million.
to qualifying borrowers. The incentive therefore compensated policyholders for the loss in income they would have received from the borrower. This US Dollar denominated incentive is linked to the term of the loan as well as the insurance policy issued by the ECIC. As of 1 October 2016, ECIC assumed the outstanding IMU liabilities as approved by the Ministers of Finance, and Trade and Industry and is currently subsidised to a limited extent by the dtic to fund the payments under this scheme. In addition to shortfalls in the dtic funding transfers, additional IMU expenditure has arisen due to variable inputs e.g. the statutory costs, foreign exchange movements. No further transactions have been covered under the IMU since then. The below IMU reconciliation presents the gap between the payments made by the Corporation in terms of the IMU Scheme and the IMU Grants received to date. The cumulative shortfall as at 31 March 2024 is R878 million (per Table 3 below). This represents 8% of the ECIC total assets that have been used to fund the IMU scheme payments due, not considering lost investment income. IMU scheme payments are due until 2029. The indication from Government is that the IMU grant receivable over the medium-term will not seek to reduce this shortfall. The following should be noted: • The IMU liabilities and payments are in US dollars and as such the ECIC is exposed to foreign currency movements which are taxable/ deductible for income tax purposes; • The IMU grants received were taxable until the end of the 2021 financial year; and • The IMU claims paid/payable to the financial institutions are not deductible for income tax purposes The pointers raised above have the impact of reducing the funds that are available to pay the IMU claims.
Impact of IMU Shortfall on ECIC Financial Position
The IMU Scheme was an incentive scheme whereby financial institutions (who are policyholders of Export Credit Insurance Corporation (ECIC) insurance and who fund capital goods exports) were incentivised to cap the interest rate charged
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Reconciliation of the IMU liability account Table 3: Reconciliation of the IMU liability account
2017 March
2018 March
2019 March
2020 March
2021 March
2022 March
2023 March
2024 March
Total
R’000
R’000
R’000
R’000
R’000
R’000
R’000
R’000
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Opening IMU liability
1 633 022
1 172 883 1 257 288 1 181 056
–
749 802
564 706
516 072
-
Expenses
2 032 445
38 904
101 527
(34 704)
64 375
(39 489)
10 781
55 386 2 229 225
Payments
(328 494) (319 230) (281 623) (284 427) (322 185) (130 487)
(179 656)
(159 517) (2 005 619)
Foreign exchange (gains)/losses Closing IMU liability IMU cash flow transactions IMU grant receipts from the dtic IMU claims paid to the financial institutions IMU surplus/ (shortfall) before tax Cumulative IMU surplus / Tax on IMU grants received Tax on foreign exchange movements Additional tax receipts/ (payments) as a result of the IMU Total IMU shortfall for the period (after tax) Cumulative IMU surplus / (shortfall) (shortfall) before tax
(70 929) (179 813)
264 501
242 899 (173 444)
(15 119)
120 241
32 156
220 491
1 633 022
1 172 883
1 257
288 1 181 056
749 802
564 706
516 072
444 097
444 097
–
188 272
183 248
233 511
162 710
208 078
150 000
155 505 1 281 324
(328 494) (319 230) (281 623) (284 427) (322 185)
(130 487)
(179 656) (159 517) (2 005 619)
(328 494) (130 958)
(98 375)
(50 916) (159 475)
77 591
(29 656)
(4 012)
724 295)
(328 494) (459 452) (557 827) (608 743) (768 218) (690 627) (720 283) (724 295)
(724 295)
–
(52 716)
(51 309)
(65 383)
(45 559)
–
–
(214 967)
(19 860)
(50 348)
74 060
68 012
(48 564)
(4 233)
33 667
8 682
61 416
(19 860) (103 064)
22 751
2 629
(94 123)
(4 233)
33 667
8 682
(153 552)
(348 354) (234 022)
(75 624)
(48 287) (253 598)
73 357
4 012
4 670
(877 846)
(348 354) (582 376) (658 000) (706 287) (959 886) (886 528) (882 516) (877 846)
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