Issue 15 | 2014 I S S N 1 8 1 2 - 5 9 6 4

RISKAFRICA

THE FUTURE OF TERROR

AFRICA’S HOTSPOTS OF OPPORTUNITY

MOBILE MONEY IN WEST AFRICA

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Dear readerThis issue, we delve deeper into the opportunities on offer in this vast continent. Where they are, which sectors and support sectors they are in, and what investors and business decision-makers need to know about these ‘hotspots of opportunity’.

Reading Christy van der Merwe’s thorough investigation and mapping of growth and opportunity, I am further assured of the wonderful optimism I hear again and again in conferences, interviews and conversations on the future of this so-long disempowered and troubled continent.

It is that optimism which drives us here at RISKAFRICA to do what we do, to keep creating content that supports and enables this positive growth. From our next issue, we will be doing this with a greater focus on risk management in Africa – what the latest risk intelligence is telling us, and how industry leaders and innovators are responding to avoid, minimise and improve these situations in order to build competitive advantage.

With this in mind, in this issue we look at the realities of one of the most unpredictable and unfathomable risks: that of terrorist activity. In the wake of recent surges in terror activity in the key economic hub countries of Nigeria and Kenya, we discuss future scenarios and mitigation measures with leading risk advisors and analysts.

Enjoy the read,

Publisher Andy Mark Editor Sarah Bassett Production Nicky Mark Copy editor Gemma RedelinghuysFeature writers Christy van der Merwe; Dominic Uys; Neesa Moodley-Isaacs Design and layout Herman Dorfling; Mariska Le Roux

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RISKAFRICA is published by COSA Media

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04 Accessing Africa 12 The future of terror: managing, mitigating and understanding your risk

15 Financial crime controls needed to draw investors

16 The rise and rise: Sanlam shares insight into Africa’s middle class

19 Investing in Africa: the numbers

EAST AFRICA

20 Capacity to carry

SOUTHERN AFRICA

26 Southern Africa’s game: high risk, high reward?

30 Accuracy and abnormal loads 36 Lifestyle diseases on the rise across urbanising Africa

WEST AFRICA

40 Mobile money in West Africa

44 International news

46 RISKAFRICA – a new focus

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By Christy van der Merwe

AfricaACCESSING Africa

Africa

Africa

5

Expansion into Africa is at the heart of many companies’ growth strategies, and the continent is bursting with opportunity. RISKAFRICA takes a look at some of the activity taking place on the continent, showing where the greatest potential lies.

Transport and logistics are a major problem. “We are suffering from stranded resources. We have what the world wants, but we cannot move it,” explains Runge. He delivers a familiar story about how it took three hours to travel 68 kilometres in the Democratic Republic of Congo (DRC), and was then stopped at the borderpost for hours. Only this time, it’s business and not an overland adventure trip.

Delays in moving goods across borders within and between regions are significant, and cannot be downplayed. A Deloitte report, Mitigating business risk in Africa through regional integration points out that delays at African customs are, on average, longer than in the rest of the world, with goods taking 12 days to clear in sub-Saharan countries, compared with seven days in Latin America, less than six days in Central and East Asia, and four days in Central and Eastern Europe.

These delays add tremendous cost to importers and exporters, and increase the transaction costs of trading among African

countries. Delays are exacerbated by high paperwork volumes, the high cost of clearing goods at borders, and cumbersome visa requirements.

The problems are well known, and conferences, workshops, task teams, discussions, studies and reports by all manner of countries, corporations and academics have taken place to propose solutions. Regional integration in Africa is a must for Africa if it is to progress and enhance competitiveness. “Regional integration is lauded, but when the tyre hits the road, national interests take priority,” notes Runge.

The costs of internal trade within Africa are exorbitant, and improvements proposed include road and rail upgrades, and one-stop border posts. President Jacob Zuma, for example, is a fan of the north-south corridor, a project aimed at enhancing road, rail and ports in Botswana, DRC, Malawi, Mozambique, South Africa, Tanzania, Zambia and Zimbabwe.

The problemAfrica is experiencing hotspots of exponential growth, all linked to resources. “In 30 years working throughout Africa, I have never

seen as much activity. But now it’s a global game, and Africans are competing on a global stage. There are plenty of projects, and there is much money to be made,” says Africa Project Access director Paul Runge.

NATURAL CATASTROPHES

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There is an infatuation with corruption on the African continent, and there is an emphasis on corporates keeping their hands clean. Corruption is a real threat and the line between relationship building, nepotism and corruption can be vague. “Corruption will return to bite you in the butt sooner or later. You are digging your own grave if you submit to it. We do not advocate corrupt business practices,” says Runge. Foreigners are often viewed as walking cash machines, and will be targeted for bribes. One should be prepared to deal with this.

For all the risks and opportunities on the continent, Runge highlights that there are also a fair number of fallacies doing the rounds. He advises visitors to remain alert and aware while travelling in Africa, and avoid potentially dangerous situations. “The impression that locals are wandering around with sticks, shooting at bodyguards and waiting to kidnap businessmen is

greatly exaggerated. There have been instances where a company has scaled down operations for economic reasons, but blamed this on safety concern, which is unwarranted,” adds Runge. Of course, visitors should play it safe, and make the most of expat services on offer.

This also highlights the importance of conducting health impact assessments, particularly if employees will be working on remote sites. If working in an area where meningitis is a threat, there should be a corporate policy in place so that everyone knows how to deal with it.

One mine operator in the Copperbelt has made it mandatory for workers to have a breathalyser test before they start work – no matter what time of day their shift starts. Nobody is allowed on site without passing the breathalyser test. These are problems that one may not plan for but that can seriously affect operations.

Russell Myers, CEO of Mirabilis Engineering Underwriting Managers, tells RISKAFRICA that 35 to 40 per cent of the company’s premium now comes from outside of South Africa, and this is expected to increase.

The business often comes out of local or London-based brokers, depending on which brokers the client, who is usually the contractor, owner or employer on the project, uses. Global brokerages including Aon, Marsh and Jardine Lloyd Thompson, are increasing their African footprint, as well as smaller local companies such as Hamtern Financial Services.

These companies will analyse the risk of a project and advise on the insurance needs, as commercial insurance requirements form part of feasibility studies required to take a project to a bankable stage.

Owing to the increased political risks associated with working in Africa, political risk insurance is recommended for projects in Africa. This can be purchased through the Lloyd’s market, and through commercial operators such as Munich Re and AIG, although one of the limitations in this regard is the terms, which often only extend to a maximum of 12 years.

Given that a project such as a hydroelectric power station is likely to be operational for well over 20 years, there is a need for longer terms.

The Multilateral Investment Guarantee Agency (MIGA) is the World Bank’s political risk insurance and credit enhancement provider, with a mandate to incentivise private investment into developing countries. MIGA provides political risk insurance with terms up to 20 years.

Cresco Project Finance is the only MIGA-authorised agent for Africa. MD Conrad Hefer, explains that there are five or six MIGA agents globally and the transactors are located in Washington.

The political risk insurance solutions include transfer and convertibility cover, which deals with the inability to convert or transfer dividends or loan payments due to forex restrictions; breach of contract cover, which deals with the failure of a government to honour obligations under key project documents such as concessions or off-take agreements; expropriation cover, for instances where a government could nationalise or make it impossible to operate a project through discriminatory measures; and war and civil disturbance cover, which deals with destruction or interruption of business due to political violence.

The C word

Covering the risks

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its own. The Kenyan coast and the coast of Madagascar are also experiencing an increase in prospecting for natural gas. Development of these resources will require investment into natural gas infrastructure.

The Mtwara gas pipeline is another project on the radar, which will transport gas to Dar es Salaam, where it will be used for power generation rather than being exported. The gas finds in Mozambique mean that the northern city of Pemba has seen a lot of growth. Property companies have started selling industrial land for a potential gas plant.

There is dire need for basic services in the region such as accommodation and catering. Botswana is also seeing its share of the action with continued development of the Mmamabula coal complex by Jindal Africa. There is prospecting for natural gas and coal-bed methane, but the issue of how to get these resources out of the landlocked country has long been debated.

The Namibian port at Walvis Bay has already allocated space for the export of Botswana coal, but the railway from Botswana through to Walvis Bay is yet to

Santam CEO, Ian Kirk, reiterates the opportunities available through expansion into Africa, but also highlights that this does not come without challenges.

Speaking to sister publication RISKSA at the PSG Konsult conference, he said that there is a significant opportunity on the adviser side as well, and not just for the multinationals, which are already active in Africa. “I think for companies like PSG and other intermediated groups that have got scale in more developed markets, it does create opportunity in Africa, where there are huge opportunities for intermediaries.

Direct is a very popular method, but it is not direct in the context that we understand

direct. Direct means that the agents are employed by the insurance company themselves, and are not independent. I think that the independent intermediary will develop strongly in Africa and there will be numerous benefits to the market as a result of that,” Kirk adds.

Increasing wealth in African countries means more of a need for financial services, and companies would do well to leave their offices, visit the countries where the growth is happening; listen and learn about what is needed by the people on the ground. “Understand the opportunities, understand what it means to have success. Take time and have patience,” Kirk concludes.

Much activity in Africa is linked to resources, and while there is still much focus on raw materials, the need for energy has added a new dimension to the exploration on the continent. South Africa does not possess a wealth of oil and gas expertise, and other nationalities are ahead of the game in this regard. Foreign companies would do well to provide secondary supplies, equipment and services.

The Tete province in Mozambique is teeming with activity as coal prospecting, mine development, transport and export takes hold. The Changara area in the Zambezi Valley is also seeing more action. The Beira railway line needs about $200 million for short-term upgrades; at the moment the capacity is about four million tons a year, but this needs to be increased to transport roughly 20 million tons of coal a year.

There has also been significant natural gas discoveries in northern Mozambique, extending along the Tanzanian coastline. There has been some discussion about a natural gas plant on the border of the two countries, which could be beneficial; however, the Tanzanian Government has indicated that it would prefer a plant of

be constructed. The other option is to construct a railway east; however, crossing borders through South Africa, Swaziland and Mozambique has proven problematic.

Angola’s oil and gas industry continues to thrive, while inland, in Zambia, the Copperbelt is the backbone of the economies. Copper accounts for over 64 per cent of Zambia’s exports, which are mainly destined for China and South Africa. In January 2013, the Zambia Environmental Management Agency (ZEMA), approved 27 mining and exploration licences, showing that there is no likely slowdown.

Construction of a $1.1 billion railway line in Zambia’s Copperbelt, from Solwezi to Kalumbila, a joint venture between North West Rail and JSE-listed logistics company, Grindrod, will start in 2014.

Cameroon and Equatorial Guinea are seeing increased prospecting for iron ore while in Sierra Leone, the Tonkolili iron ore mine is exporting some 15 million tons of iron ore a year along a 270-kilometre railway line to Pepel port. Grindrod is supplying the locomotives.

Grasping the opportunity

Hotspots

Major risks to projects in Africa

Political risks Insurance solutions include: transfer and convertability cover; breach of contract cover; expropriation cover; and war and civil disturbance cover.

Exchange risks Deals have to be structured very carefully to limit the exposure to foreign exchange.

Technology leapfrog

African undersea cables

8

The impact of technology on the continent has been phenomenal, and because there are no legacy systems in place that require upgrades, much of the continent has been able to leapfrog over developed world systems to provide services. Connectivity on the continent has increased exponentially, and access to telecommunications is changing the way financial services such as banking and insurance are delivered, as well as basic rights such as healthcare and education. The map showing connectivity on the continent through undersea fibre-optic cables, which bring Internet and telephony capacity, is a startlingly different picture today to what it was five years ago. Back then, it was only the Telkom operated SAT-3 cable that allowed for international connectivity.

The challenge now lies in extending this fibre capacity inland, and this requires digging trenches to lay fibre terrestrially. This will make connectivity more affordable. To date, the continent has largely relied on mobile telecoms, which have changed the communications landscape dramatically, but are relatively expensive. South African telecoms giants MTN and Vodacom have been active players in this arena, and continue to exploit opportunities in this still expanding market.

Securing bonds This must be done on the government side.

Environmental risks Projects have to be stopped if they are too environmentally sensitive. The ‘soft’ issues have become hard issues.

Social risks The issue of land and ownership is a very complicated one in Africa. The 99-year lease has gone some way to alleviate these complications.

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central MozambiqueGaza Province road and bridge rehabilitation programme, southern MozambiqueBalama graphite and vanadium project, Cabo Delgado Province, northern MozambiqueGas-fired power plantAgriculture projects, Vilankulos region, Inhambane Province, central MozambiqueTourism initiative, Bazaruto Archipelago, Inhambane ProvinceNational airborne geophysical surveyChangara coal project, Tete, Zambezi River Valley, central MozambiqueNacala fuel depot, northern MozambiqueNcondezi 300 MW coal-fired power plant, Zambezi ValleyResidential complex, Palma, far north coastPalma industrial park, far north coastMaputo piped gas network

NamibiaUsed tyres to heavy oil projectOffshore oil exploration

NigeriaBiomass energy project, LagosNasarawa State coking coal programme, Obi Area, central NigeriaDeli Foods biscuit production plant, new production line, LagosAgbaja plateau iron ore project, Kogi State, central NigeriaNew deep-sea port, Port@Lekki project, Lekki, Lagos, southern NigeriaPetrochemical and fertiliser plant, OK-LNG free trade zone, south-western NigeriaTier III Communications data centre, Lekki Peninsula, Lagos

TanzaniaNational E-Health programmeOil and gas exploration programme, north-east TanzaniaCommercial complex project, Dar es Salaam

Runge’s top tips when working in Africa

“Speak to someone who is invested in the market and get the knowledge from people who walk the talk, like operators, not simply academics and diplomats who are represented in the media. And listen carefully. You have to leave your office to understand the major issues. Relationship building is very important,” emphasises Runge.

1. Know who the decision-makers are. If you want to supply products or services, you have got to understand how the game works and who to speak to. Rather than knowing which big company won a tender, it might be more appropriate to find out who the subcontractor on the ground is, and find out what they need.

2. Develop good relations with utilities. This is often where the decisions are being made.

3. Know how development finance works, because buyers’ credit and terms are being offered to many African customers.

4. Specifications for products are written at pre-feasibility stage, very early on in the project food chain – knowing this is incredibly important. Make contact with the people involved earlier in this food chain.

5. Hunt in packs. Form a consortium and share contacts so that an holistic solution can be offered to potential clients.

Soya bean production plant, Rovuma Region, southern TanzaniaArusha–Kibanga–Kongwa road, northern Tanzania

UgandaHoima refinery project, north-west UgandaKingfisher oil field, Lake Albert, western Uganda

ZambiaHydro power projects, Luapula Province, northern ZambiaLuena farm block, Luapula Province, northern ZambiaSamfya beach tourist facilities, Bangweulu, Luapula Province, northern ZambiaGeological survey, Luapula Province, northern ZambiaNchelenge rubber plantation, Luapula Province, northern ZambiaChisinga cattle-breeding ranch, Luapula Province, northern ZambiaNational agriculture investment planFood processing plant, Livingstone industrial area, southern ZambiaDangote power plant, near Ndola, CopperbeltNew hydro power plant, Namalundu, Kafue Gorge lowerRoma Park development project, LusakaMulobezi railway concession, southern ZambiaRevival of Mansa batteries and Manganese processing plant, Luapula Province, northern ZambiaNew power plant, Ndola

ZimbabweTokwe-Murkosi dam, Masvingo Province, central ZimbabweHope Fountain gold mine, MatabelelandTelecel Zimbabwe Telecash mobile money serviceHarare–Beit bridge road dualisationGreater Harare transportation master planThree solar power plants, Matabeleland Province, western Zimbabwe

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terrorThe future of

By Sarah Bassett

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Acts of terror are not new to Africa, but this has been a year in which such horrors have ricocheted across our headlines in relentless sequence. RISKAFRICA chats to risk and advisory experts on how they see future scenarios developing in the East and West African regions, what the impacts are for business, and what busi-nesses can do to ensure continuity and minimise their risk.

Ever since the shocking news of the Westgate Mall attack in Nairobi, Kenya in September last year, and the kidnapping of an estimated 200

(still-missing) girls in northern Nigeria in April this year, an unrelenting sequence of attacks in both regions has created a sense of crisis in these critically important economic hubs, with very real repercussions for business and economic growth.

Future risk

“Kenya’s participation in the AMISON mission in Somalia has led to a severe risk of attack by Somali Islamist group al-Shabaab and its sympathisers,” explains Natznet Tesfay, head of Africa analysis at IHS country risk. “The group claimed responsibility for the gun and grenade attack on Westgate Mall, with the mall remaining under siege for four days, with at least 67 killed and 175 injured. The fatalities included expatriates and high-profile Kenyans, with sources indicating that non-Muslims were targeted. Al-Shabaab continues to threaten to launch large-scale attacks in Nairobi.”

Since this attack, there has been a consistent and ongoing sequence of attacks, with multiple raids by gunmen in public spaces this

year. “Therefore, large international hotels, Western diplomatic assets and US businesses in Nairobi and Mombasa are at particular risk, most likely from al-Shabaab-sympathiser suicide bombs (either vehicle-borne or on foot), remote-controlled IEDs, shootings and grenade attacks.

Public places such as markets, transport hubs, churches, restaurants and shopping malls are also targets, especially if foreigners or Christians congregate there. Military and government assets are also at severe risk of attack in North Eastern province, particularly the capital Garissa, which borders Somalia,” says Tesfay. According to Frontier Advisory analyst, John De Villiers, “It’s highly unlikely that the security situation in Kenya will reach endemic levels on account of its localised nature.”

Darlington Munhuwani, regional controller for Aon Sub-Sahara Africa, emphasises that with terrorist activity, it is very difficult to predict future developments. “I don’t have specific information on how the response is being coordinated behind the scenes. But my view is that it doesn’t take a large group of people to destabilise a region. Just a few people who are unhappy with the current political situation or

the socio-economic environment can create a sense of insecurity in the whole nation. In Mali for instance, there was a civil war situation last year with a strong element of terrorism and it was brought under control last year. But in the northern part of Mali now, some of the terrorist groupings have regrouped, and the nation is expecting further attacks.

The nature of terrorism is that you don’t know who is going to attack you and from where, so I think it is very difficult to suggest that international intervention is going to bring the situation under control. Consider Somalia, international units came in but could not resolve the situation. So, my belief is that terrorism is here to stay. The level of violence may decrease and attacks may become a lot more sporadic but I don’t think it is going to go away any time soon. However, I do think the Kenyan situation is all dependent on what happens in Somalia. If there is stability in Somalia, then the Kenyan situation will be resolved much sooner,” he adds.

For Nigeria and the West African region, the situation is far less localised and the situation less apparently clear. In Nigeria, ongoing attacks in the northern region have been attributed to local Islamist grouping, Boko

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Haram. Latest reports suggest that as many as 140 000 people in the northern state of Borno have fled due to the threat of attack. But the broader situation is not a local one.

“According to the French military, Islamist militants are regrouping to conduct a more intensive campaign in northern Mali, as well as to extend their operational reach across West and Central Africa, with Niger, Chad, Nigeria, and potentially Central African Republic at the greatest risk of attack. This will expose Westerners in the Sahel to risk of kidnap for ransom and Western businesses, in particular French firms, to targeted IED attacks,” says Tesfay. “The military appears incapable of stifling the attacks in spite of their sizeable presence in the afflicted states. As a result, there have been an increased number of attacks in 2014. While Boko Haram’s attacks have, thus far, not extended as far south as Lagos, where most companies are headquartered, there is an increased likelihood of them carrying out an attack in the commercial capital,” De Villiers notes.

“If the situation in Nigeria isn’t brought under control, it will escalate to a conflict affecting the entire region. Beyond the northern states of Nigeria, Boko Haram has already made in-roads in southern Cameroon, southern Niger, and Chad. I don’t believe the same can be

said for East Africa – where the fighting will probably stay localised.”

“In Nigeria, there are internal dynamics that need to be

resolved. In the northern, Islamic part of the country,

the population feel marginalised and, as

a result, the level of mistrust between the

southern and the northern regions

remains unabated.

So, the

future of the terror situation depends on what happens internally. But this also requires that international terrorist organisations do not take advantage of the situation. If there is an alliance between Boko Haram and Al Qaeda, for instance, then I think the level of tensions are elevated to a different level altogether, and the whole western region may be affected,” says Munhwani.

Managing the risks

At a government level, Munhuwani emphasises the need for cohesive security plans for country borders, and to understand and pay attention to the dynamics within a country – and the continent – that lend themselves to terrorism. “If you have a restless young population, with no guarantee of employment or a good education, then you have laid the ground for terrorism; for a terrorist organisation to manipulate and use people against their own people as well as their government,” he warns, suggesting that it is critical to maintain an enabling environment that supports foreign investment flows and directs these into job creation. For businesses, “Security risk will continue to be an inherent factor when investing/operating in either of these regions over the long-term. This will warrant the use of full political risk insurance for assets against non-commercial risks. Beyond this, there is also the threat to the security of expatriate workers. For companies operating in these regions, security costs will be elevated,” De Villiers notes.

Munhuwani adds the risk and challenge posed by closing borders and import/export embargoes to this list. “In Kenya, at times they have had to close and shut down the borders and the airports, for instance, to avoid attacks at these points. If you are a business reliant on the airport, or are expecting delivery of supplies into the country, you cannot do any business for this period, so it can be a significant disruption to supply chains.”

Planning for continuity

Munhuwani emphasises the need for businesses to stay informed of what is happening on the ground, in the country, and to make use of the tools available to help in surveillance of terrorism and political risk. In the Aon offering, these tools include the Terrorism and Political Risk Map, updated on a regular basis, as well as the Aon WorldAware service, a risk management tool which supplies clients with continuous up to date information on any political-related issues that may take place in a country or region.

He recommends that businesses diversify their risk by not focusing operations in only one country. “If you use Kenya as your hub, make sure that you have support structures and contingency operations in neighbouring countries that will allow you to continue your business from there. Oil companies in Mozambique, for example, anticipate potential issues in Mozambique by investigating the possibility of drilling oil and gas from Tanzania as an alternative.”

“Finally, insurance is another way of transferring the risk,” adds Munhuwani. “Once you have explored all the options, and you can’t contain the risk, then you look to transfer the risk to an insurer to avoid carrying that risk on your balance sheet.” As a final response to the threat posed by terror activity, the world of business operating in Africa would do well to heed and consider the circumstances that enable terrorism to thrive. There is much talk at present of inequality and the risks it poses, Munhuwani notes, but little

being done to convert political rhetoric into action. “I think businesses need to

participate in the conversation and be active because, ultimately, they

stand to suffer – and alternatively to benefit, from peace and tranquillity in the continent. Businesses should not leave it to the government to take a standpoint on some of these issues,” he concludes.

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Financial crime control

needed to draw investors

By Sarah Bassett

risk assessment. The risk-based approach embraces the ‘know your customer’ guidelines to prevent an organisation from money laundering activity. Marc Anley, risk advisory partner at Deloitte, described the risk-based approach as augmenting a company’s internal rules and compliance processes with an element of common sense towards the assessment of customer risk. Companies can do this by taking into account risk factor elements such as:

Geography e.g. private companies headquartered in offshore tax havens generally require far more scrutiny than publically-traded companies, which typically undergo far more public scrutiny in their day to day operations.Inherent Customer Risk e.g. companies that hide behind layers of legal and jurisdictional complexity are more likely to be trying to hide something.Distribution channels e.g. companies that distribute their goods or services on a face-to-face basis are more likely to be open and transparent than those that do so at arm’s length.

Industry e.g. companies that distribute high risk products associated with terrorism, bribery and corruption such as arms, may require extra levels of financial scrutiny. “Financial crime is dynamic and ever-changing, so an efficient and effective risk-based approach needs to evolve constantly in order to act as an adequate deterrent,” said Anley.

Woods says financial crime needs to be tackled in an integrated manner through close partnerships with local and international regulators as well as the private sector, in order for countries and corporate entities to safeguard against financial risk. “It’s more effective if all the necessary stakeholders in a country present a united front against money laundering and financial crime activity than if they try to act entirely alone,” he emphasised. Financial institutions in particular need to ensure that they have the proper systems, processes and procedures in place to combat financial crime in a cost-effective and sustainable manner that offers both them and their customers a suitable degree of protection.

The conference brought together key stakeholders required to combat financial crime, ranging from banks to regulators and government

representatives, and demonstrated how companies and governments can tackle financial crime through the use of sophisticated technological solutions.

“Financial crime is international and will inevitably migrate to countries where the implementation of anti money laundering regulations is perhaps lagging the rate at which their markets are developing,” said Martin Woods, global head of financial crime for the Regulated Businesses of Thomson Reuters.

“As the risk of financial crime increases, so too does the level of regulatory scrutiny, so it is in the interests of both companies and countries to continually improve their efforts to combat such crime,” he continued.

It is essential that companies operating in Africa learn from the experience of their international counterparts by migrating from a rules-based approach to financial risk and compliance, which Woods describes as ‘box ticking’, towards a risk-based approach that takes a selective attitude towards client

African markets need to tighten measures to combat financial crime in order to boost investor confidence and avoid migration of crime from stricter nations. This was the message at the Anti Money Laundering Conference hosted in Johannesburg by professional services firm, Deloitte, and financial data provider, Thomson Reuters.

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Margaret Dawes, executive for the rest of Africa, Sanlam Emerging Markets

The United Nations estimates that Africa’s population will surpass 1.5 billion by 2030, making it the world’s fastest growing continent. Couple

this with the increasing income levels and rapid growth of multiple African markets and the motivation for new investments into the region is clear. For early investors, this trend will be a windfall.

Excluding Namibia, Sanlam has been active in Africa (outside South Africa) since its acquisition of African Life in late 2005. This experience has given the group key insights into trends in the financial services sectors of the continent and leaves the group well-positioned to leverage the growing middle class trend.

As Sanlam Emerging Markets (SEM) pursues new partnerships in the diversified financial services sector in order to build on an Africa presence that already spans eleven countries,

Sanlam shares insight into Africa’s middle class

The rise& rise

we have identified four mini-trends that go hand in hand with the rising Africa middle class and make financial services investment into Africa more attractive than ever.

Above average GDP growth prospectsFirst among these is the high growth that emerging markets achieve relative to the developed world. The Africa Development Bank expects gross domestic product (GDP) growth of some 7.4 per cent in West Africa in 2014, with the continent pencilled in for 4.8 per cent. South Africa, meanwhile, looks set to achieve 2.3 per cent GDP growth in 2014.

Most of the African markets we have exposure to are reporting GDP growth rates in the high single digits – multiples of what South Africa achieves. High GDP growth fuels the middle class which in turn underpins a burgeoning consumer-led economy, creating a growth spiral that is evidenced by major infrastructure

17

projects and a boom in cross-border air travel throughout Africa.

Mobile phone penetrationPeople with more money demand more services. Mobile phone penetration across Africa is a godsend for financial services firms as it acts as an enabler for the rising middle class. Technology, the second mini-trend identified by SEM, assists insurers with two processes that are critical for their success, namely distribution (access to product) and the collection of premiums. The rising middle class often have more than one phone, and the impact of smartphone technology and data have yet to be fully felt. Just about everybody in Africa has access to a mobile phone, and SEM has already partnered with a number of cellphone providers to benefit from this trend – technology is a potential game changer.

Consumers throughout Africa can buy

financial products on their mobile phones as well as pay premiums, lodge claims and receive payouts. Product providers meanwhile can use the technology to run cheaper distribution models and achieve wider access.Certain challenges that go hand in hand with selling insurance policies over a mobile phone must still be addressed. Regulators, for example, must be convinced that financial services firms are treating customers fairly at each stage of the business process – from product development to distribution, and on to claims payments.

Political and regulatory stabilityA third significant trend is the shift toward political and regulatory stability exhibited by even the poorest of African economies. Investors have to take political and regulatory uncertainty into consideration before committing capital to a new country. And SEM has noticed improvements in both categories in recent years.

Africa’s rising middle class appears to be broadly supportive of pro-business / pro-consumer regulatory interventions. On the political front, high profile examples include Kenya’s 2013 elections, the peaceful, albeit unsuccessful, challenge of Ghana’s election result by the country’s opposition and most recently the peaceful resolution of Malawi’s election issues.

We have also noticed enhancements to the regulatory regimes in just about all of the countries we operate in. A number of East African countries have taken steps to harmonise financial regulations across the region. It is also encouraging that many sub-Saharan authorities are in contact with South Africa’s Financial Services Board on regulatory matters.” Issues that still need to be addressed include regulatory intervention without sufficient stakeholder consultation and the over reliance by regulators on laws that are appropriate for the operating methodologies of European rather than African insurers.

Increasing trust in insurance productsAnother factor that is critical for financial services success is that consumers trust insurance products more, despite the history of consumer distrust of insurers across Africa.

The trust issue informed Sanlam’s decision not to rebrand the African businesses when it bought African Life in 2005. SEM has subsequently found that entering new markets in partnership with an ‘on the ground’ brand is a faster track to success.

By partnering with a strong local brand, we are able to address the trust issues that consumers have as well as benefiting from their understanding of the local environment. Increasing trust among Africa’s rising middle class is a fourth mini-trend that will drive investment into the region. The rising African middle class is integral to the four mini-trends outlined in this article. These forces combine to create a perfect storm for financial services firms to enter Africa. It is up to companies like SEM – alongside their various country partners – to fine-tune their product offerings and ensure maximum penetration as the African consumer matures.

Historically we have focused on the lower income market with mostly funeral and simple savings type products. We have also identified opportunities in the microinsurance space where we expect good results. One of the challenges that remain is to design sophisticated investment products for the mid and upper-income market given the shortage of appropriate local investment assets.

Whichever country we operate in – and whichever segment of that economy we market to – our success hinges on our ability to work with our country partners to offer value and financial security across the broad spectrum of financial services to the end consumer.

18

Under the theme 2014 Year of Agriculture and Food Security, leaders from across the continent debated the expansion of

agriculture in Africa, as a means of alleviating poverty. The heads of state also adopted a number of ambitious commitments for the next 50 years. Among these were eliminating hunger for all Africans, reducing poverty by half through agriculture, creating job opportunities for at least 30 per cent of Africa’s youth, and tackling under-nutrition in children across the region.

The event also marked 10 years since the introduction of the 2003 Maputo Declaration, which urged African countries to allocate at least 10 per cent of their national budgets to agricultural development. This provided a chance for leaders to deliver feedback on the progress made in this regard.

In the past decade, only eight countries in sub-Saharan Africa have consistently reached the 10 per cent annual public spending target, and on average, African governments allocate just six per cent of their national budgets to agriculture, according to a report by international advocacy organisation, the ONE Campaign. There was positive news to share, however.

“Several countries that significantly increased

By Dominic Uys

The year of AGRICULTURE

The 23rd ordinary session of the African Union (AU) summit held in Equatorial Guinea in June this year focused on a number of key areas for development

on the continent, with particular emphasis on the agricultural sector.

their agricultural investments – such as Burkina Faso, Ethiopia Ghana and Rwanda – experienced tremendous progress, not just in agriculture, but also in economic growth across their economies,” noted Jane Karuku, president of the Alliance for a Green Revolution in Africa, adding that their investments in agriculture have “coincided with major reductions in the percentage of people living in extreme poverty: Burkina Faso by 37 per cent, Ethiopia by 49 per cent; and Ghana by 44 per cent.”

UN involvement

Also during the summit, the Africa Solidarity Trust Fund, managed by the United Nations (UN) Food and Agriculture Organisation, announced support to four new projects in 24 African countries.

UN secretary-general, Ban Ki Moon, stated that the four projects, worth $16 million, will be spread across West, Central, East, and Southern Africa. The projects will focus on youth employment and malnutrition, trans-boundary animal diseases, and food safety and urban food security.

“In Africa we see the growing commitment of countries not only to improving their own food security, but that of their neighbours as well,” said the UN Food and Agriculture

Organisation’s Graziano da Silva. “The Africa Solidarity Trust Fund is a concrete manifestation of Africa’s willingness to work together to guarantee the food security of the entire continent.”

Other summit developments

The summit also focused on the advancement of education, health, trade, women and youth development, with a number of key decisions being made at the event. On the side-lines of the summit, the Department of Trade and Industry convened the third High-Level African Trade Committee meeting, to facilitate fast-tracking of the continental free-trade area and the action plan for boosting intra-African trade.

The summit also established a clear link between security and agriculture. “We need conditions of peace and stability, and for our people not to be under threat from armed gangs, terrorists, human and arms traffickers and poachers,” AU commission chairperson, Dr Nkosazana Dlamini Zuma said.

The assembly adopted the AU Budget for 2015, which amounts to around $522 million. The budget is comprised of around $142 million for operational costs and $379 million for programmes across all of the key areas identified.

19

Africa is tied with Asia as the second-most attractive market in the world for foreign direct investments (FDI) in 2014. This is

an increase from fifth position in 2013 and 2012, and from eighth and third from the bottom in 2011, according to the new Africa attractiveness survey by Ernst & Young (EY). Only North America is considered a more desirable destination for investors. Respondents say that Africa is 60 per cent more attractive as a place to do business than it was in 2012.

EY noted three key trends in previous

Investing in Africa:

By Luka Vracar

Africa’s attractiveness as an investment destination is on the rise, and a 2014 survey by Ernst & Young illustrates the continent’s rapid growth to becoming one of the most desirable investment destinations worldwide. These are the numbers.

The Numbers

Africa attractiveness surveys, and in 2013 those areas continued to influence the positive perceptions placed in the continent. Firstly, FDI into sub-Saharan Africa (SSA) continues to rise, and it reached an all-time high last year with 83 per cent of Africa’s FDI share directed to this region. This is a 4.7 per cent increase in new FDI projects for sub-Saharan Africa.

Secondly, the growing share of intra-regional investment in Africa is encouraged by improving regional value chains and strengthening integration. The share of FDI projects in Africa with other African countries as their source, reached an all-time high of 22.8 per cent last year, and is second to Western Europe as a source for FDI on the continent.

The last shift was a change in sector focus from extractive to consumer-facing industries. Metals and mining, and coal, oil and natural gas, used to be the key sectors of interest for foreign investments, but consumer-related industries have now increased in importance. Technology, media and telecommunications (TMT) has 20 per cent share in FDI projects, whereas metal and mining has only two per cent. Retail and consumer products, financial services and

business services have significantly increased in their shares of FDI projects as well.

Even with 3.1 per cent of FDI projects decreased in North Africa, due to

political instability, and 3.1 per cent decrease in the number of FDI projects, Africa’s share of global projects reached an all-time high last year with 5.7 per cent. Furthermore, the average size of FDI projects increased from $60.1 million in 2012 to $70.1 million 2013.

Sub-Saharan Africa remains key for investments in Africa, with South Africa still considered the top FDI destination. However, Ghana, Kenya, Mozambique, Tanzania, Uganda and Zambia have emerged as desirable destinations as well, with Morocco representing North Africa. Investments in West and East Africa have increased by 28 and 23 per cent respectively. Southern Africa still has the majority of FDI projects, with 33 per cent of Africa’s share – an increase of 14 per cent from the previous year.

The survey points out those investors that are not already established in Africa are not as confident in Africa’s prospects as current investors. Only 39 per cent of non-established investors believe Africa’s attractiveness has improved over the past year, and only 51 per cent of non-established investors think Africa will improve over the next three years. However, EY indicates that the perceptions of the non-established investors are turning in Africa’s favour – improving from last year’s 31 per cent and 47 per cent respectively.

Publication

19

EAST AFRICA

EAST 20

Prior to September last year, terror risk seemed to many Kenyan businesses a remote and low priority risk. However, in the wake of last year’s high-profile

Westgate Shopping Mall attack in Nairobi by Al-Shabaab insurgents, followed by the ongoing sequence of attacks throughout this year, this trend has shifted and demand in the market has surged.

“In response to increased demand, many insurance companies are now developing terrorism insurance for enterprises, domestic and personal covers,” says Christian Ramamonjiarisoa, group director for Afro-Asian Insurance

Insurance cover for terror-related risk in East Africa has increased dramatically as the war in South Sudan wages on and Islamic militant attacks intensify in Kenya, Somalia, Ethiopia and Uganda, pushing the limits of the market’s capacity. A newly launched product will more than double capacity, but some call for further government intervention on the matter.

to Capacity

carry By Sarah Bassett

EAST21

in Eastern and Central Africa, confirming that the market has changed quickly as the threat of terror has become a prevalent reality in the country.

International credit rating agency A.M. Best, confirms that the demand for political and terrorism risk cover has increased tremendously following the Westgate attack. The agency predicts an increase in premium rates across Africa due to the ongoing attacks.

The London-based Afro-Asian Insurance is the regional brokerage representative of Lloyd’s of London and set up regional offices

in Nairobi last year. It was the main reinsurer for Nakumatt’s Westgate Mall branch, which was destroyed during the September attack. The company has now announced a new product to increase the region’s political and terrorism risk reinsurance capacity by more than 220 per cent.

Previously, the maximum insurance risk that regional underwriters could undertake for a single business was Ksh400 million ($4.7 million), but with the new product the risk can be underwritten for up to $15.2 million.

“This additional capacity allows insurance companies to take bigger risks relating to political and terrorism risk, and offers companies and organisations more leeway to increase their investments without the worry of such risks,” says Ramamonjiarisoa. “If the capacity exceeds this amount, we can still transfer the reinsurance to London for up to $40 million,” he adds.

The new product will come as a relief to regional insurance companies, who have been facing capacity challenges to insure large risks. It also means local insurers do not have to seek for reinsurance services for such risks abroad, a move that has contributed to capital flight from Africa, notes Ramamonjiarisoa.

Souvik Banerjea, senior marketing officer at the African Trade Insurance Agency (ATI), notes that awareness of political risk had been on the increase since the post-election violence of 2008, when looting and rioting caused extensive damage to property.

Demand in the Kenyan market began increasing from the start of 2013 in the lead up to national elections, driven by individuals as well as businesses.

“Consumers have learned the hard way

that their vehicle’s comprehensive insurance cover does not include the terrorism and political risk element,” Banerjea says. In the run-up to the 2013 election, the spike in demand was so severe that political risk premiums went up by 100 per cent, with rating agencies raising the risk of operating in Kenya.

“It is our feeling that the government should involve itself actively and make this insurance a compulsory add-on with property and motor insurances. This is the only way to generate more spread and revenue, and thereby bring down the prices,” he continues, calling on the government to step in and create a fund or encourage the setting up of a terrorism pool, where all premium collected from such insurance could be shared, and policies set up for equitable compensation.

According to the 2014 Aon Risk Solutions Terrorism and Political Violence Map, 46 per cent of East Africa region is rated as high or severe risk in both categories. The report suggests that terrorism is the predominant risk reinforced by the internationally high profile attack on the Westgate Mall in Nairobi. The inability of the Government of Somalia to establish its influence in the country underpins to the continued high terrorism threat across the region, according to Aon.

Kenya’s risk rating is four, which is considered high, the same rating given to Uganda, Ethiopia and Burundi. South Sudan is rated five, which is severe, as is the Democratic Republic of Congo and Somalia. Rwanda and Tanzania are rated two, which is considered low.

22EAST

The report presents key findings from the 2013 survey and asks captive executive and non-executive directors for their opinions on the rankings of

various risks and findings as identified by over 1 400 risk decision-makers including risk managers, CFOs and CEOs globally, representing over 100 organisations from a broad range of countries, revenue sizes and business sectors.

Most notably, more than half of the research

Business leaders significantly underrated global terror risk in 2013. This was a key finding of the Aon Risk Solutions 2014 Underrated threats report, Aon’s first research report into the perceived importance of risks as seen by captive directors and is a follow-up to the 2013 Global Risk Management Survey.

risk of terrorThe underrated

respondents stated that the ranking of 46 in the 2013 report was too low for terrorism risk. “Not a day goes by without news of political unrest and terrorist attacks which are taking place all over the globe, destroying lives and disrupting businesses, but it seems that the world has become de-sensitised to such news as these events are now occurring with regular frequency and may soon be regarded as a normal part of our lives,” comments Darlington Munhuwani, regional controller for Aon Sub-Sahara Africa.

“Based on the research in the 2014 Underrated threats report, it appears larger organisations place a much lower priority on this risk which leads us to the belief that they are better prepared for such events and have appropriate measures in place to address and manage the impact of human and economic loss to their organisations, either through insurance or business continuity planning. But can any of us be fully prepared for these events and have the capacity to carry the risk in our balance sheets?” he asks.

“Given that this is a global report, we need to consider more closely the relevance of the findings to what is happening in Africa. From an African perspective, there can be no denying that the threat of terrorism or political risk is real. The ranking of country risk ranges from medium to severe in 43 out of 54 countries on the continent. This has significant implications for multinational and Africa-based businesses in terms of their risk

management strategies, business continuity plans and decisions on where to deploy their capital. Risks arising from civil unrest and terrorism had limited effect on business 10 to 15 years ago, this is no longer the case,” Munhuwani adds.

The war in South Sudan and terrorism threat by the Al-Shabaab in Somalia, Kenya and Uganda, political instability in the Central African Republic and Boko Haram activities in Nigeria, are key political and terrorism issues facing regional and multinational businesses as they seek to increase their African footprint. The report authors suggest that these risks have, and will, continue to have a negative impact on the flow of foreign direct investments and expansion plans of most companies.

“This constellation effect of, or interconnectivity between risks, might not always have been recognised by organisations but could have a significant impact on their approach to risk management and overall business performance,” concludes Munhuwani.

Anton Roux, CEO: Aon South Africa, explains:

“This award follows a number of innovative risk management and insurance solutions, empowering human and economic possibilities for our clients to help them achieve sustainable growth, continuity and profitability. Aon has the largest majority-owned network in Africa, servicing clients in 45 out of 54 countries.”

Best Global Insurance Broker in Africa for 2013*

* Aon received the Best Global Insurance Broker in Africa award from Global Finance magazine in its 2013 Best Global Insurers Awards.

Partner with Aon

Partner with Aon – put us to the test.

Call 0860 453 672 or SMS** ‘Africa’ to 31762 or visit aon.co.za

Aon South Africa (Pty) Ltd is an Authorised Financial Services Provider (FSP #20555). Aon is the Principal Sponsor of Manchester United.

** Standard rates apply.

Risk. Reinsurance. Human Resources.

#AskAon

Aon07273_1_E.indd 1 2014/06/10 9:11 AM

24EAST 24

EAST AFRICA NEWS

East Africa most affordable region for start-upsEast Africa has been revealed as the most affordable region in sub-Saharan Africa to start-up a business, according to research from venture capital group Savannah Fund.

The survey considered six countries regarded as ‘key’ on the continent – Ghana, Kenya, Nigeria, South Africa, Tanzania and Uganda. It compared costs of start-ups in their first year, including administrative costs (sales, business, permits, legal, accounting and travel), office space, as well as hiring of staff.

SEM acquires $24.3 million stake in Rwanda’s Soras GroupSanlam Emerging Markets (SEM) has acquired a 63 per cent stake in Rwanda’s largest life and non-life insurance company, Soras Group. The acquisition is valued at $24.3 million.

The transaction will see Sanlam doing business directly for the first time in Rwanda, which has one of the fastest growing economies on the continent. The Kigali-based Soras Group was established in 1984 and has over the years maintained a strong growth record, a strong brand and a well-established local management team.

“Rwanda is an attractive market because of the low insurance penetration rate and the country’s economic growth prospects. We believe Sanlam has the requisite technical expertise and experience which will add value to the business,” says SEM’s chief executive officer, Heinie Werth.

The country’s average real growth rate was 8.2 per cent a year from 2000 to 2012, with its current GDP approximately $7 billion. There are currently eight industry players, including three new entrants – Radiant, BRITAM and UAP, both from Kenya.

Zep-Re gets $4 million AfDB equity injectionNairobi headquartered specialist reinsurer Zep-Re (PTA Reinsurance company) has had its request for an additional $4 million equity investment from the African Development Bank (AfDB) approved.

The request was submitted to the AfDB as part of the final phase of Zep-Re’s capital base increase programme. The company intends to use this additional funding to support the next phase of its strategic business plan, which seeks to expand its reinsurance services in Africa and, more generally, to foster the development of the

insurance and reinsurance industry on the continent

The AfDB’s investment will be used to expand Zep-Re’s capital base from $79 million (end 2012) to $143 million by the end of 2014. This is expected to boost the company’s credit rating.

The AfDB says that Zep-Re’s capital base increase project will contribute to the development of the insurance and reinsurance industry in the region; boost the company’s underwriting capacity; and ensure it is better placed to meet regional insurance sector needs. This additional capacity will also help to drive down retrocession costs and will improve overall risk coverage.

According to the research, infrastructure is cheapest in East Africa. Administrative costs and human resources also come cheaper than in competing regions including West and Southern Africa. South Africa is seen as the most expensive country in Africa for startups.

With regard to costs of paying engineers, costs in East African countries, Kenya and Uganda were lowest overall, with average total costs slightly below $30 000 in Uganda and $35 000 in Kenya. Tanzania however recorded $50 000 average cost.

The majority of start-ups from Kenya apply for financing with a financial technology idea.

the world’s specialist insurance marketJoin Lloyd’s South Africa and participants from the Lloyd’s market at our Meet the Market event during The Insurance Conference Southern Africa event at Sun City on 27-30 July 2014.

At the Meet the Market event, meet:

• Abelard Underwriting Agency• Amlin• Arch Underwriting Managers• Ark Underwriting• Arthur J. Gallagher• Camargue Underwriting Managers• Catlin• CFC Underwriting• Chaucer• Factory & Industrial• Hiscox• Natsure• Novae• Praesidio Risk Managers• RFIB• Talbot Underwriting

To register for the IISA conference, visit www.iisa.co.za

Find out about Lloyd’s in South Africa

www.lloyds.com/southafrica

John Linda Sibanda, General RepresentativeTelephone +27 (011) 505 0000

john.sibanda@lloyds.com

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8273 SA AIO Ad A4 Photo AW.indd 1 12/05/2014 14:48

26SOUTH

Southern Africa’s game:

By Sarah Bassett

high reward?

high risk,

SOUTHERN AFRICA

SOUTH27

Rare-game breeding is a rapidly growing sector in several Southern African markets, enticing savvy investors and businesspeople. But if ever there was truth to the

truism ‘high risk for high reward’, this is it. RISKAFRICA takes a look at the risks, returns and insurance options for this intriguing high-growth sector.

In the last two years, in particular, the values of rare game animals in South Africa have exploded, driving a self-perpetuating surge in interest and demand, and the Namibian market looks set to follow suit. Rare species such as buffalo, sable, roan antelope, tsessebe or Livingstone eland, and rare colour variations such as golden wildebeest and black impala, are highly sought after among game farmers, breeders and a widening pool of investors.

“Up until as recently as two or three years ago, the very exotic bloodlines were largely kept and traded between a few individuals and there was little broad market interest in these animals,” explains Donald Munro, managing director of specialist wildlife insurer, Animalsure. “But this has shifted, with many investors buying into animals and breeding programmes in order to drive returns through breeding and reselling for profit, rather than only to hold for trophy hunting,” Munro explains.

There are varied theories for what precisely has driven the shift, but most agree that increased interest from foreign buyers, coupled with increased awareness of the industry and new mechanisms for opening investment opportunities to a variety of buyers, has driven the increased demand. “Foreign

If you had thought to buy a black impala four years ago, it would have set you back around

R40 000 (US$4000). Today, you could sell that same animal for close to R400 000 (US$40 000). Had you bought a few and bred them,

well, we’re talking retirement.

buyers in particular are able to inject large sums into the market, given their currency advantage. Three to four years ago, if there was a R15 million or R20 million turnover at auction, it was considered exceptionally successful. An auction this year saw a R150 million turnover,” Munro says.

While Namibia remains a small market by comparison, a lift on border regulations this year has allowed the transport of live animals from South Africa into Namibia. With South African farmers and investors drawn by the reduced cost of land, Munro reports that the change has already driven an increased variety of game into the market. “Where Namibia used to be purely a hunting and biltong market, there are now more and more farmers getting involved with the more exotic species rare breeding. Last year, Namibia saw its highest game auction turnover yet at US$2.5 million where previously the average was around US$100 000 to US$300 000. The Namibian breeding market is definitely on the way up,” notes Munro.

Investment options

Becoming an exotic game owner is now easier than you might think and does not necessarily require that you own your own farm, vehicles or employ specialist staff. For those who do not have the capital or other practical prerequisites, there are investors who syndicate by pooling investor money to buy game. Investors can also simply buy into a breeding programme on an established game farm.

The risks

As with any investment that offers the possibility of significant returns, the risks are correspondingly extreme. “A prospective investor must realise that the investment is made by buying live animals and that brings about a number of risks,” notes Wehann Smith, managing director of Kuda Insurance. These risks include death from illness, predation, poaching and theft, all of which can be included in a standard all-risk policy. “In the case of rhino specifically, poaching poses a major risk, which is insurable but at a considerable premium.”

“Cashing in on your investment in game does not merely entail calling your stockbroker and getting your price and money upon settlement being completed. When selling game you have to physically capture the animals and move them to auction or to the buyer’s farm.

Roan antelopes

28SOUTH

Capture and transport causes stress to the animals which can lead to death,” he adds.

“The reality is that the animals that promise the highest return – the ones with the unusual colour variants – are rare and valuable precisely because they are so vulnerable and high risk.” The highest risk is during the capture and transit stage. “These are not animals that come from generations of being captured by man, so it is extremely stressful for them,” Munro explains.

After relocation, the first 14 days in which the animal adapts to the new environment remain extremely high risk. “These two stages account for our highest risk and claims ratio and the greatest portion of the premium is allocated to these,” says Munro. “The interaction with humans is very stressful as is the acclimatisation to a new habitat, perhaps a more controlled or restricted environment, can be too much for them. This is why we place certain restrictions on animals and relocations. For instance, we do not cover oryx being moved from the Kalahari to the North West because the species does not adapt to the bushveld-type habitat. With black impala, we restrict movement to nothing beyond 200 kilometres because anything more is just too much and the animals do not adapt.”

Once an animal has made it through the first 14 days of readjustment, risks decrease significantly, at which point the standard all-risk mortality policy is applied. A further risk for investors is that of price movement, warns Smith. “The price of game has been moving up constantly in recent years

across a wide range of species. There is always a possibility that supply could outstrip demand for a specific species and prices will then go down. Price risk is not an insurable risk.”

In Namibia, certain risks are much reduced, while others are exacerbated. “From a geographical point of view there are far fewer diseases and less climate risk, so from that point of view the market is a better risk for us. On the other hand , the country is vast and there are fewer highly qualified vets available. If disease breaks out in South Africa, you can make a call to four or five vets in your area who can reach you within an hour. In Namibia, it will take a couple of days to get to your farm. So, controlling an outbreak is much more difficult in countries like Botswana and Namibia,” says Munro. It is due to a shortage of veterinary skill that Animalsure has not entered Mozambique.

Most valuable species to invest in

“In our experience sable, buffalo and colour variants like saddleback, king wildebeest, black and white impala are most valuable and fetch the highest returns,” says Anthony Jackson, divisional manager of commercial insurance at One Insurance.

“There are a lot of new species and variants. In general, the most expensive animals remain rare buffalo and sable and, on average, these animals remain the primary investment opportunity. The risks with these animals also tend be lower, so from an outsider’s perspective this makes them most attractive,” Munro comments.

Insuring your investment

When it comes to risk, value and the calculation of premium – no two animals are ever the same. “There are no two animals in any species that are exactly the same and therefore there could not be a standard insurable value across any species,” Smith explains. “The first base used for insuring game is the prices being achieved on game auctions. Generally the insurable value is the value for which an animal was bought or sold on auction.”

“Animals can be insured only for a year or any shorter period agreed to by both parties. When the period expires there are a number of factors taken into account if there is a request for renewal. Firstly, the average market price for similar animals would be taken into consideration. Secondly, consideration would be given as to whether the animal has risen in value because of factors such as horn growth. Another consideration is the age of the specific animal. Age adds value to an animal up to a certain point; the animal could be in the productive breeding phase. Past this and age starts to deplete the value, as older animals pose a higher risk of death,” he continues.

“We require the clients to complete a proposal form and submit their game register with any and all supporting documentation such as DNA certificates, animal profiles and identification of the animals. We will take into account the management styles of the farms; the claims and losses history; the lightning and fire risks; what species to be insured and the values. We would ascertain whether the client is a full-time breeder or a ‘weekend’ breeder. In some cases, we would appoint an assessor to evaluate the farm and the management style; the camp system; feeding and watering; and any additional risks,” Jackson explains.

Note to the broker

“The wildlife insurance market is definitely growing. We face a lot of issues: lack of historic knowledge, specialist support, claims assessing, brokers who are not specialists in the market or who lack knowledge on the product. This often results in incorrect information being supplied to the client via the broker,” notes Jackson.

Brokers and clients need to understand the product and what the conditions are, they need to follow the claims procedures. Once an animal dies, there is a limited time to extract samples for pathology reports. The weather is also a determining factor in how long the carcass stays viable for sample collection, he cautions.

As with all form of specialist cover, brokers should be selective and rather than cover based on premium, they need to consider what cover best suits the needs of the client and their risk.

The new integration is the result of an alignment to

the overall objective of the company, one that sees

it broaden its to both current clients and

intermediaries of Mutual & Federal and Old Mutual

Namibia.

The main objectives are to define a shared, clear

and streamlined vision of the company, which will

enable it to build on its portfolio of products and

continue its aim of being the leading financial

services franchise in Africa; one which can clearly

identify, communicate and harness sources of value

and therefore benefit clients in the long- and short-

term.

Sakaria Haufiku Nghikembua, the former Chief

Executive Officer of Operations at Old Mutual

Namibia, was appointed as the new head of the

Old Mutual short-term insurance division in July of

last year. On his appointment, he declared: “I feel

privileged that I have been accorded the opportunity

of serving our customers and the Old Mutual Group

in this new role. I look forward to providing added

value to our customers and other stakeholders,

as we strive to build a dynamic and responsive,

integrated, financial services provider of distinction

in Namibia.”

What will happen to current policy holders of

Mutual and Federal?

Whether clients have comprehensive short-term

insurance cover, business, or farmers’ insurance, all

Mutual & Federal policies will remain active without

Together with the peace of mind that comes from

knowing that their policies remain unchanged,

clients of Mutual & Federal can also look forward to

a host of product enhancements and new product

launches under Old Mutual.

According to the company, these changes include

an added range of tailored insurance packages

for customers and intermediaries alike, while still

providing the same competitive premium rates that

are currently available for personal, company and

agri-business insurance.

Says Mr. Nghikembua: “Combined, Old Mutual

Namibia and Mutual & Federal will deliver a full-

service to customers, ranging from investment and

long-term insurance management to short-term

insurance; while the resulting synergistic operation

and focus will ensure additional value to current

and future stakeholders across both companies.”

In this time of growth, while flexibility and value are

fundamental, another positive change for clients of

the new operating sector is in place. Whilst Mutual

& Federal branches and offices will still remain the

chief points of access for clients of that company,

Old Mutual Namibia Advisors and Broker Houses

will be available to their clients, in order to add to

the ease of submitting claims. The latter will also

provide information about the new extended range

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Accuracy and

abnormal loads

Sub-Saharan Africa has witnessed a steady increase in projects that require cover for special and oversized cargo. A softening insurance market may, however, make the underwriter’s task more challenging.

By Dominic Uys

SOUTH31

Steffen Siljeur, marine underwriting and business development manager at Mutual & Federal, explains that a new development in the industry has been

the notable upsurge in new renewable power generation projects in South Africa, Botswana and Namibia. With this, overland shipping of abnormal and oversized components via South Africa has also been on the increase.

“The real challenge has been to make sure that the various projects are correctly underwritten and what we have been doing at Mutual and Federal is coordinate the various components for these projects in-house from an insurance perspective. Our marine cover for the components coming in from China or Europe ties in with our engineering department and we have done a lot to become a one-stop provider for these kinds of projects in terms of cover,” he says.

CEO of Tradesure, David Leclezio, also notes that the demand for new mining projects has been on the increase, and a significant number of the abnormal loads that the company has underwritten, related to new plant equipment and mining infrastructure entering the country. “We have seen a lot of mining machinery being shipped to Zambia and Mozambique. One of the abnormal load specialists that we work with, Transcor, reports that they have been transporting around 450 to 500 abnormal loads per month, and they get about 25 times more than that in enquiries,” he says.

Softening in the market

While one cannot complain about an increase in business, a weighty problem has developed

from an underwriting standpoint. Petra Fordyce, head of marine at Zurich Insurance, tells RISKAFRICA that the marine insurance industry currently finds itself in a soft market cycle, putting the underwriting process under strain.

“Especially with project cargo, your underwriting needs to be sensible and you need the right level of expertise. We are, unfortunately, seeing less and less that the underwriting for these projects is being done wisely. There are many juniors and inexperienced players entering the marine insurance market, and we generally see a lack of appropriate expertise,” she starts.

According to Fordyce, abnormal loads are predominantly linked to substantial projects and issues arising from their transport inevitably having a knock-on effect into the project costs and liability side. “So to get that cargo from point A to point B in good condition is absolutely vital. With the economic pressure being what it is at the moment, we see that many clients are looking to save money wherever they can. It predictably leads many companies going with the cheapest insurers and policies, instead of the most sensible ones,” she says.

Fordyce attributes the influx of capacity in the market to the fact that marine insurance has always been viewed as the sector with the most profitable lines. “There are many companies entering this sector in order to diversify from the less profitable lines like the motor portfolios that have been experiencing much difficulty lately. The barriers for entry into the sector are perceived to be low, and it has resulted in increased pressure on our rates,” she says.

Fordyce says that on Zurich’s side, the company does not compromise on pricing for these policies. “One cannot compromise on sensible premiums and cover but as a large company, we have made the benefit of being able to offer better value-adds and global support, so we are still able to make a good case with clients on why they should be covered by us.”

The effect of this softening in the market is a major source of frustration to other companies as well and Leclezio points out that it has impaired the ability to accurately underwrite cover for the overland transporters as well.

“The biggest challenge here is quoting and insuring correctly and there is a major problem that creeps in when clients (transporters) are making an enquiry. They can give you the weight and dimensions of the cargo, but they generally don’t know the value of the cargo until the last minute. These clients now need insurance, but they don’t know how much cover they need,” he says.

“In the case of intermediaries, we’ve found that they often do not take the time to gather all the information that they need for a proper valuation. Part of the problem is that

a transporter and an underwriter can’t hold out on a quote until a client provides all the required information, because the competition in the market is such that this client can simply take his business to someone who offers a looser approach to underwriting the risk and a lower price,” he says.

Another industry insider comments that the short lead times regarding cargo information has meant that some transport companies do not have enough time to acquire the proper permissions. “We have seen more than a few abnormal loads being transported without licences because they simply didn’t have enough time,” he says.

Educating the industry

“We have covered our share of abnormal loads going to the major coal-fired power stations under construction. We have also seen an increase in abnormal cargo intended for mining projects in sub-Saharan Africa. The modes of transport have obviously changed very little over the years, but project cargo, and the necessary skills to manage their risks, have certainly become more complex,” says Andrew Walker, AIG’s marine loss control manager for Africa and the Middle East.

“We have found that every single aspect of the transport needs to be scrutinised, from the lashings and transport used, to the port where the cargo is offloaded. It has happened before that the project cargo could not fit through the exit gate of the harbour,” he continues.

Walker states that, along with that, risk management has started taking on an increasing role. “Obviously getting these project loads to their destination intact and on time is becoming more and more important. Getting the route planned and mapped out is a huge part of managing this risk and some of the biggest pains for us have been when one of these loads gets stuck under a bridge or cargo shifting because of uneven road surfaces,” he starts.

Walker also points out that proper route planning in Southern Africa has its own complexities. “A road may look fine on paper, but we need to make sure that there are no road works planned on that route and that all the traffic arrangements are in place. Even then, there could sometimes be unexpected surprises and last minute route changes that once again increase the risk to the cargo,” he says.

Walker adds that the need for detailed information regarding the project cargo is paramount to managing risk in this respect. “AIG now provides presentations aimed at intermediaries, clarifying exactly what the value-adds are that clients can benefit from, how our cover works and what kind of information we need to accurately underwrite that risk,” Walker concludes.

By Hanna Barry and Sarah Bassett

Performance bonds are vital in developing economies – an imperative well understood at Santam Bonds and Guarantees, as it lays a firm foundation to support its presence in Africa’s rapidly developing markets well into the future.

32SOUTH

Quinten Matthew,executive head of

specialist business, Santam

As good as yourguarantee

Performance contracts, a promise given to a third party by a guarantor, usually a bank or insurance company, confirm that the client is

good for what they have been contracted to do. “It is essentially selling confidence in your client, confirming that you have vetted their business, skills, capabilities and the way in which they operate,” explains Quinten Matthew, executive head of specialist business at Santam.

It goes without saying that building roads, bridges and buildings is expensive. Investors, therefore, demand security against a possible default on the part of the contractor. With the enormous backlog on infrastructure in so many African markets, such products are critical to development – and represent considerable opportunity for the company.

Currently operating in the South African and Namibian markets, there are plans to partner with other local companies in Africa including Botswana, Ghana, Malawi, Tanzania, Uganda and Zambia, thereby expanding the Santam business model.

“The Santam Bonds and Guarantee offering has always been available to the Namibian market. However, the Bonds and Guarantee value proposition and capacity effectively started towards the latter part of 2011. The arrangement is certainly a partnership, with Santam Namibia the marketing and distribution ‘face’ of the product locally, and the underwriting expertise support from Santam Bonds and Guarantees SA,” Matthew explains.

“In recent years, the Namibian construction industry has experienced a year on year growth of over 15 per cent and the growth forecast is expected to continue for the medium-term. This is an ideal opportunity to grow this business for both parties. We believe that the Namibian economy is a vital part in the growth and development of the SADC region and our partnership will benefit our clients looking to expand into this area.”

Opportunity knocks

The construction sector remains the brightest spot in domestic demand in Namibia, due to mineral mega projects scheduled over the medium-term. The sector is projected to grow at over 30 per cent in 2014 due to new projects such as a mass housing project, proposed port expansions by the Namibian port authority, Namport and the continuation of various projects started in 2013.

According to Matthew, a growing economic boom in recent years has seen a flurry of contracts signed and building permits approved, promising continued growth into the future.

area to build a profitable and sustainable business unit, rather than aggressively pursue growth.

Establishing effective systems and laying the foundations for strong underwriting principles has thus been her focus for the past three years, in which time the book of business has tripled, surpassing its 2012 target.

“The fact that we have written conservatively, but still managed to surpass targets is fantastic. The foundations are strongly entrenched and we are now ready to take the business further,” says Matthew.

In it for the long haul

Current and future renewable energy projects under the South African Department of Energy’s Integrated Resource Plan are a good example of this. Santam has already written a few guarantees for the first and second round of bidders in the Independent Power Producer Procurement Programme and will be looking to extend guarantees to the third round of contractors.

“Although these are large risks that are new to South Africa, we have done fairly extensive risk assessment and are happy with what we have seen,” notes Matthew. “Renewable energy technology is well-tested overseas and South Africa’s climate is highly conducive to it.”

Although premiums are a one-off upfront payment and once the guarantee has been given to the employer there is no reneging on it, risk management remains an ongoing concern. Santam stays close to its clients by, for example, conducting site visits and examining site-meeting minutes to evaluate how well the project is running. “It is so important to remain on top of the risk, especially if the project is running for four or five years.”

That it is intent on doing so is good news for a market where insurer support is tantamount to having a viable business operation.

“There has been acceleration in approvals filtering through to activity on the ground, with a year-on-year increase of over 60 per cent in the value of buildings completed in Q1 2013. This is fuelling the expectation for accelerated growth over 2011 to 2014, with construction industry real growth forecast to average 16.3 per cent a year over this four-year period.”

Risk and reward

A challenge in both markets remains insufficient underwriting skill in the bonds and guarantees business. “This is not the type of business that you go into aggressively to reach high growth or income levels. We are fairly selective about whom we do business with, which has been our key competitive advantage. Our risk selection has been spot on,” says Matthew.

Fortunately, if and when a claim does arise, the business has Santam’s balance sheet to rely on, which is of immeasurable value in a market where third parties need utmost confidence in the guarantor’s ability to pay a performance-related claim. “In this business, you can have no losses and then be hit with a single large claim pushing the lost into triple digists,” explains Matthew. With a Standard & Poor’s rating, Santam’s guarantee is more than worth the paper it is written on.

It has nonetheless elected to take a cautious approach to this risk, consolidating its core product (performance contracts for construction companies) before diversifying its offering.

“There are companies that have successfully implemented product diversification in the surety sector, but they have been in the market for a long time. We are still new and it’s about being around for the next 96 years,” he smiles.

Building from the ground up

Before 2010, much of Santam’s guarantee business was written on an accommodation basis. Entering the guarantee business was a key strategic decision with a special focus

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34SOUTH

While multinational companies are willing to take risks, it does not mean that they would be reckless in their actions.

Instead it means planning, understanding the issues and evaluating the options before undertaking any steps. One such issue that these multinational companies cannot escape from is the vagaries of the insurance and tax challenges in Africa. This can be awfully frustrating.

Multinational companies operating in African countries need to ensure that they adhere to the respective insurance regulations of the country if they intend to transfer the insurable risks to the insurance companies. If this is not done in a manner that achieves a balance between ‘cost, coverage and compliance’ issues, the multinational company could face unacceptable levels of unbudgeted expense and inconvenience.

For example, a South African resident multinational organisation insures its business and assets located in Zambia as part of a global arrangement through a South African resident insurer. There is no local policy procured in Zambia. The South African global policy premiums are paid in Rands by the parent company.

The portion of the global premium relating to the Zambian entity cannot be internally recharged, and more significantly, a loss suffered by the Zambian entity will be paid by the insurer to the South African parent company. These sorts of technical aspects of insurance are often not dealt with during or before placement, says Praveen

Insuring in Africa-

Whether one is a small time entrepreneur, or a large multinational, all accept that you need to take risks to make profits.

Sharma, global leader of Marsh’s Insurance Regulatory & Tax Consulting practice. “There are regulatory restrictions in place, which can complicate the ability of a group to recharge premiums or receive the payment of claim in the country in which the loss occurred.

Further complications can arise when the parent company, being the recipient of the funds from the insurer in South Africa, then needs to transfer the amount to its Zambian operations – this issue is often not a simple matter for multinational groups,” he says. “Tax and foreign exchange issues can complicate the matter as the claim is likely to be subject to income tax in South Africa and then again in Zambia when the funds are transferred across the border.”

From an accounting and finance perspective, the group may encounter further complications. “Generally, a parent company faced with the issue of the subsidiary requiring substantial funds makes a capital contribution.

The capital injection will be reflected in the balance sheet of the subsidiary entity, whilst the loss suffered will be in the profit & loss account. This creates a mismatch and could impact the key performance indicators and

ratios such as return on capital employed.” says Sharma.

It is imperative that companies considering entering into a global insurance programme implement a disciplined and structured process to ensure that they understand the issues and have evaluated the options to implement the optimal solution to mitigate or minimise the potential regulatory and tax risks. “If you have a particular exposure in a country, it is best to purchase a policy in that country with a local insurer,” says Sharma. “This ensures that the claim will be paid in that country, in the same currency, thus mitigating any adverse income tax costs associated with the claim.”

Companies expanding geographically need to educate themselves thoroughly on the local legislation. “Many of our clients do not have a footprint in those regions, so they request our advisory services to ensure that they become familiar with the potential regulatory and tax issues such that there are no surprises later on,” Sharma concludes.

tax implicationsacross borders

MARSH AFRICAAfrica’s pre-eminent Insurance Broker and Risk Advisor

www.africa.marsh.com | +27 11 060 7100

An authorised financial services provider | FSB/FSP: 8414

Success does not come from eliminating risk.

We help you balance your strengths againstthe risks that come with growth.

SUCCESS COMES FROMMANAGING RISKFOR .GROWTH

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26 June 2014 09:24:49 AM

By Sarah Bassett

This is inline with a recent study in the Lancet medical journal which placed South Africa as the country with the highest overweight and obesity rate in sub-Saharan Africa, with rates across the

continent on the rise as urbanisation increases.

According to the Lancet study, seven out of 10 women and four out of 10 men in South Africa have significantly more body fat than is considered healthy. Neighbouring countries such as Namibia (19.8 per cent), Lesotho (24.1 per cent) and Zimbabwe (33.5 per cent) have significantly smaller proportions of obese women than South Africa.

on the rise across urbanising Africa

According to researchers from Nigeria’s University of Warwick Medical School, one in five women in Nigeria are reported to be overweight or obese, with this statistic increasing among demographics with improved social and economic indicators.

diseasesLifestyle

overweight

obese

Lifestyle

36SOUTH

The study found that men in developed countries had higher overweight and obesity rates, while in developing countries women exhibited the higher rates.

Rates are on the rise among children and adolescents in the developing world, where nearly 13 per cent of boys and more than 13 per cent of girls were found to be overweight or obese. In South Africa, these rates are significantly higher: a fifth of boys and a quarter of girls have unhealthy amounts of fat in their bodies.

Researchers suggest that increasingly Westernised and urbanised lifestyles in South Africa is a key reason underpinning these statistics, with people leading less active lifestyles and consuming more processed and fast food , which has extremely high salt, sugar and fat content.

According to the Warwick researchers, this is borne out in Nigeria, where women with a higher socio-economic status were 3.5 times more likely to be overweight or obese when compared to those in the lowest status bracket. Access to higher levels of education also increased risk, as did urbanisation; 36.4 per cent of women in urban areas were overweight compared with 18.8 per cent in more rural districts.

“Obesity is now not just a Western problem, but an African one as well” comments study co-authour, Dr Ngianga-Bakwin Kandala. “Better educated and urbanised regions of Nigeria are gaining the attributes we would more commonly associate with Western societies. This has brought both a change in lifestyle and diet that is reflected, with wealthy women more likely to be obese than those living in more rural, traditional areas”.

“Urbanisation, and the shift towards what we would consider to be more Western habits, appears to come hand in hand with a more sedentary lifestyle and change in diet. More people have cars and drive where they might have walked in the past. The rise in internet usage within the cities sees more people sitting for prolonged periods, both at home

and at work,” adds University of Warwick professor, Saverio Stranges.

In 1995, just 35 per cent of the African population resided in urban areas, a figure projected to rise to 54 per cent by 2030. “The worry is that Nigeria, and many sub-Saharan African countries, is facing a major public health challenge with a rising number of overweight adults, whilst large segments of the population face problems associated with under nutrition. This dual burden will mean combating both malnutrition and the risks associated with obesity, such as cardiovascular disease,” Professor Stranges continues.

A shift in focus

Previous epidemiological research in sub-Saharan Africa, outside of South Africa, has focused predominantly on under nutrition, particularly within women and children who are considered to be a more vulnerable demographic. This new study reflects a rising trend towards the investigation of other nutrition problems, and is the first of its kind to do so down to a state level.

The study used data from the 2008 Nigerian Demographic and Health Survey. Around 28 000 women aged between 15 and 49 years old were sampled, of which 20.9 per cent were found to be overweight or obese.

“Using such a vast representative population sample, we are for the first time able to paint a more accurate picture of variances between individual states. Lagos State, home to one of the fastest growing cities in the world, reported that over 50 per cent of women were overweight or obese, whereas in the more rural Yobe State in the North East, figures were closer to just 10 per cent,” Dr Ngianga-Bakwin Kandala explains. “Seeing this data broken down across the states will help us understand both the social and economic burden of obesity, and the future demand upon public health in each state.”

Risk factor for disease and claims

Research has shown that the risk for developing cardiovascular disease, cancer, diabetes, osteaoarthritis and chronic kidney disease increase when a person’s weight-to-height ratio, also called a body mass index, exceeds 23.

The World Health Organisation predicts that in the next 20 years, obesity-driven diabetes across sub-Saharan Africa will double.

Stephen van Niekerk, head of Momentum Myriad, states that there is a strong connection between BMI and life expectancy and therefore insurance companies often charge an extra premium for clients with a BMI level that is above a certain limit.

“Generally, BMI is perceived as the most appropriate measure to determine if an individual is at a healthy weight. The application of BMI is popular since it is simple, quick, objective and applies to adult men and women as well as children.

Even though BMI is not a preventative measure of illness, it does provide guidelines that could ensure a balanced lifestyle. Furthermore, one does not have to be of the exact weight or measurement to be considered ‘normal’. There is a range within each classification that allows for different body types and shapes,” he explains.

In response, Momentum launched Momentum Interactive, an approach to underwriting that rewards clients if they follow a healthy lifestyle based on factors such as BMI, cholesterol and blood pressure. He states that “the rewards include guaranteed discounts for life.”

“Although BMI is not an exact science, our past experience has shown that it does influence our clients’ claims experiences significantly. For us it is not about life insurance; it is rather about insuring our clients’ financial wellness,” van Niekerk concludes.

Men weight categories

Women weight categories

SOUTH37

SOUTHERN AFRICA NEWS

Regulator’s CFO resigns after corruption allegationsSouth Africa’s financial services regulator, the Financial Services Board’s (FSB) chief financial officer, Dawood Seedat tendered his resignation in June, following corruption allegations.

The FSB says that the corruption allegations were levelled against Seedat in his personal capacity. Seedat has denied the allegations.

“As an institution with a zero tolerance approach towards corruption, the FSB is

looking into these allegations to assess whether or not they have had any impact on his employment relationship,” said the regulator in a statement.

An investigation by The Star newspaper alleges that Africa Cash and Carry chief executive, Edrees Ahmed Hathurani, paid Seedat R12 million, after Seedat threatened to close down the business through a South African Revenue Service audit. The article contains screen shots from alleged video footage of money drop offs at a Midrand mosque, taken by Hathurani.

A new or acting CFO has yet to be appointed, and the FSB has said that this process is underway.

Hollard, MTN partner to launch new Zambian productHollard Life Zambia has partnered with MTN Zambia to bring a new insurance product to the Zambian market, called MTN EduSure.

The product provides cover for children’s education, at a reasonable premium, and MTN provides the transactional platform and the distribution capability.

The MTN EduSure policy requires no

medical examination and is purchased using a cellphone. Premiums are deducted from an MTN Mobile Money account. The policy pays out an amount on the death of a main insured person or that person’s spouse. That amount may then be used for the current or future educational costs of the insured person’s children.

Hollard acts as the underwriter for the insurance product, provides policy administration support and handles the claims administration.

The roll-out of other life insurance products is expected over the medium-term.

Alexander Forbes to list on JSEFinancial services firm Alexander Forbes has outlined plans to list on the main board of the Johannesburg Stock Exchange, which the firm says will enhance its profile, add benefit for existing shareholders, allow access to capital markets and help to attract and retain key staff.

The listing will make the company the second financial services firm in recent months to list on the JSE main board, after PSG Konsult made its debut on the bourse earlier in June.

Alexander Forbes group chief executive, Edward Kieswetter, says the company is progressing well with the planned listing which follows an evaluation of a number of strategic options for the group.

“Mercer’s strategic investment in the group is a resounding vote of confidence in our country, our region and our world class company. Mercer will provide additional benefits for our clients in Africa, while our employees will have access to the latest global skills,” Kieswetter adds.

The company initially listed on the JSE in 1996, but delisted in 2007 after a leveraged buyout of Alexander Forbes by a group of private equity investors, black economic empowerment investors and management.

38SOUTH

WEST AFRICA

40WEST

By Neesa Moodley-Isaacs

By Neesa Moodley-Isaacs

41 WEST

West African countries including Nigeria and Ghana are fast emerging as growth powerhouses. RISKAFRICA looks at the growth and potential for mobile banking in these areas.

Howard Moodycliffe, the head of marketing and international at wiGroup, a platform developer that allows for mobile transactions at

point-of-sale, says rapid and game-changing innovation in the mobile payments space is long overdue in the African space.

In the latest MasterCard Mobile Payments Readiness Index, only one African country (Kenya at number four) ranks among the top 20 countries in terms of readiness for mobile payment adoption. South Africa is just behind Egypt and Vietnam on the overall list at number 26, while Nigeria comes in at number 22.

However, Moodycliffe says this ranking is slightly misleading. “Despite Africa losing some of its lead in terms of

banking industry among African customers has experienced a significant increase, mostly notably in Kenya and Nigeria. Nigerian customers have the highest levels of trust for their primary financial services provider in Africa, second only to India on the global survey.

“Banks in Nigeria have to step up their efforts in terms of educating their customers on the various changes regarding their products, policies and even the use of technology in order to be able to meet up with new developments. Continuous and deliberately planned customer education should be embraced by all banks in the overall interest of the bank,” says Segun Aina, former president of the Chartered Institute of Bankers of Nigeria.

According to Chai Chang, manager of payments, policy and oversight at the Central Bank of Nigeria, there are 5.7 million mobile-money users in Nigeria, making around 6.85 million transactions worth an aggregate N74.26 billion since inception. Around 15 per cent of the population in Nigeria has bank accounts, a figure that excludes poorer Nigerians, especially those living in rural areas. However, Nigerians have evolved their own method for transporting money quickly around the country: people in cities buy credit for mobile phones on a card and then reveal the pin number, which they text to family members in the country. The country family members then sell the phone credit locally, at a discount. “There are no official statistics for this trend, but I would guess a third of money transfers among the unbanked population in Nigeria are made this way,” says Charles Weller, Nigeria country head at Deutsche Bank.

This simple and secure system, outside banking but inside the telecom’s network, has prepared Nigerians for the concept of mobile banking. While it remains expensive to make mobile payments in Nigeria, people have proven themselves willing to pay for it. “It seems the hidden costs associated with the hassle of alternative forms of payment outweigh the convenience and very transparent cost of simple mobile payments particularly to the target market that previously may not have held bank accounts,” says Sachin Shah, head of cash management at Standard Bank Group. Nigeria is a country that loves gadgets. Weller points out that when the latest phones, pads and gadgets are released in the West on Wednesday, they will be in Nigeria by Friday. For middle- and upper-class Nigerians, that means the latest and newest iPads and smart phones. Even those on $1 a day have a phone and find sufficient funding for credit and to keep it charged, he says.

Rolling out a single mobile money system across the country will take time, given the country’s sprawling geography, diversity and infrastructure deficit. The

pure innovation, the continent is still untouchable for its ability to localise mobile payment services to suit its specific population,” he says. As an example, Moodycliffe says North American and Scandinavian countries are constantly producing futuristic payment tech, such as the Nymi wristband which uses your heart rate as a password and Quixter, which scans the veins in your hand. “However, these technologies are impractical in the African context. We need solutions that take our population’s unique and disparate needs into account, and here we are streets ahead of the rest of the world.”

Nigeria

According to a 2014 global consumer banking survey by EY, confidence in the

42WEST

Cash withdrawal pointsLicensed Orange Money distributors will supplement the network of BNP Paribas bank branches, offering a maximum number of cash withdrawal points to all customers, particularly in more remote areas. ‘The synergies of our businesses will make it easier for customers to manage their money, wherever they are in the country and at any time of the day”, says Thierry Millet, director of the payments and contactless programme at Orange.

“This agreement gives Orange Money customers access to new banking services (savings account, international bank card, etc.) and gives BNP Paribas customers access to an extensive withdrawal/deposit network and the possibility of paying bills or buying telephone credit from their mobile phones,” adds François Benaroya, retail director in the International Retail Banking branch of BNP Paribas.

Orange Money is available in Botswana, Cameroon, Cote d’Ivoire, Guinea, Jordan, Kenya, Madagascar, Mali, Mauritius, Niger, Senegal and Uganda.

biggest challenge is security. All countries developing online or mobile payments face this hurdle, but it is particularly daunting in Nigeria, a country widely regarded as one of the most corrupt in the world.

“Security is being driven primarily by the telecom companies and banks, and it is very much at the front of people’s minds,” says Shah. “The levels of comfort are high, but technology is constantly evolving. The challenge is for security systems to keep pace – not just in Nigeria, but everywhere.” Compared with many other African countries, “Nigeria has really taken the bull by the horns,” says Shah. “Where cash is still dominant, the central bank identified the change it wanted to make to a more cashless economy and has pushed harder than many of its peers elsewhere.”

GhanaGhana should be a ripe market for mobile money. It is one of the world’s fastest growing economies, and a handful of providers have been aggressively competing and investing in mobile money for several years now. However, despite these promising factors, the market has been slow to take off.

The Bank of Ghana (BoG) was early to recognise the potential for branchless banking and issued guidelines in 2008 to support its development. The guidelines called for branchless banking services to be led by banks with one distinctive feature – there must be at least three banks involved in every service and no exclusive partnerships are allowed.

The BoG’s primary goal was to create a system that was open in order to increase accessibility for consumers. Part of the reason for this was Ghana’s previous experience with proprietary ATM networks, which were not interoperable, resulting in customer inconvenience and limiting financial inclusion.

In the four years since the guidelines were issued, three significant mobile money services emerged – Airtel Money, MTN Mobile Money and Tigo Cash. Each mobile money service has partnered with between three to 10 banks. However, the guidelines have unintentionally distorted incentives for providers and do not match conditions on the ground. Banks have, for the most part, declined to play almost any of the roles that the regulations envisaged.

The banks hold the float in a pooled account, are legally responsible for agents and customers, and their branches provide passive support to agents in liquidity management.

However, there is little incentive for banks to make any significant investments due to free rider concerns. In some ways, the guidelines had the opposite effect as intended – the more banks there are in

Other West African countriesOrange and BNP Paribas recently opened new retail mobile banking services in Africa with Orange Money. Customers can now transfer money to their Orange Money account directly from their BNP Paribas account, or vice versa. This new service is available in Côte d’Ivoire and will be extended to other countries in which BNP Paribas and Orange Money are present, such as Senegal.

The service allows customers of the BNP Paribas group (BICICI in Côte d’Ivoire) to carry out real-time banking operations without going to their banks, simply by using their Orange Money account. This flexibility in transferring money between bank accounts and mobile accounts is expected to make it easier to use services already offered by Orange Money, such as payment for goods and services (water, electricity and television bills) and purchases of airtime credit.

each partnership, the lower the motivation to invest is and, ultimately, service to customers suffers.

Instead, mobile network operators have been leading the mobile money services. They are developing the technology platform and front-end product, building agent networks and investing in marketing. They face several major challenges. First, they are shouldering the vast majority of investment yet legally the service is bank-led and banks own the customer and the agents. In the words of one senior manager, “We’re building the industry but they’ll own it.”

More importantly, the mobile network operators have no direct reporting relationship to the Bank of Ghana and need to approach the Bank through partner banks for every decision – which slows the process considerably. To address this issue, the Bank of Ghana has re-engaged the entire range of market players, including mobile network operators, in a dialogue around the regulatory framework.

NEWSWEST AFRICA

GhanaInsurers push for marine cargo insurance law reviewGhanaian Insurance companies are urging the government to review the law on compulsory insurance for marine cargo to include penalties for people and institutions who fail to comply.

The law is currently without accompanying sanctions for non-compliance, something the Ghana Insurers Association (GIA) said needed to be addressed for the benefit of the industry and the marine public in particular.

Guinea Insurance set to take on oil and gas businessLagos-based life and non-life insurer, Guinea Insurance, has passed a Nigerian Petroleum Exchange (NIPEX) pre-qualification audit, and been given approval to take on mega oil and gas business in Nigeria.

“We have finally received our certificate from NIPEX to bid on large ticket energy deals, with this approval, we are now set to participate in energy-related deals in

Nigeria, which is a very serious achievement for our company,” says Guinea Insurance MD, Polycarp Didam.

The NIPEX certificate confirms the insurers’ viability and capacity. Guinea Insurance’s membership of the African Insurance Organisation (AIO) was also reinstated at the 41st Conference and General Assembly held in Kigali, Rwanda.

The re-admission allows the company to subscribe to the African oil, gas and aviation pools. It will also enable the company to place part of its energy and aviation acceptances/risks businesses with the mega pools in Africa.

Ebola outbreak is the worst in historyScientists have suggested that the current outbreak of the deadly virus in West Africa, in which 467 people have died according to the latest World Health Organisation figures, is unprecedented.

“This is the first time in West Africa that we have had such an outbreak,” says Dr. Peter Piot of Doctors without Borders. “Secondly, it is the first time that three countries are involved. And it is the first time that we have seen outbreaks in capital cities.”

Doctors Without Borders warns that the outbreak in Guinea, Sierra Leone, and Liberia is now “out of control.” The number of cases is still spiking since it was first observed around the beginning of this year.

“With this strain of Ebola, you’ve got a 90 per cent chance of dying. That’s spectacular by any standard – one of the most lethal viruses that exist.” The virus starts with something that looks like the flu – headache, fever, maybe diarrhoea. However, sufferers can develop very fast bleeding that is uncontrollable and lethal.

Simple hygienic measures like washing with soap and water, not re-using syringes, and avoiding contact with infected corpses are sufficient to stop the spread of the disease,” Piot says. “This is an epidemic of dysfunctional health systems.”

“The legal people will tell you that if a law says that [you must conduct a specific action] then it must also tell you the punishments or sanctions you will receive if you do not do so. But as we speak, the law on marine insurance does not do that, and I think that does not make it a good law,” the new president of the GIA, Mr Ivan Abubakar Avereyireh, told journalists.

A successful review of the law to include punishments would help deter people and institutions from failing to insure their marine properties, increasing uptake in the market. Marine insurance, although popular and very lucrative for the insurance community, is one of the least explored in the country.

43 WEST

NEWSINTERNATIONAL

Global

Negative outlook for global reinsurers

Ratings agency, Moody’s, downgraded its global reinsurance outlook over the next 12 to 18 months, from stable to negative, owing to increased pressure on reinsurers.

Tighter regulatory oversight and the need for better internal governance have pushed insurers to get more mileage out of their capital. Simultaneously, reinsurers face more competition, particularly in the catastrophe reinsurance product line, where alternative insurance vehicles are taking up an increasing market share, says Moody’s.

The strain that has been placed on catastrophe reinsurance in the developed economies will have an increasingly detrimental effect on the whole reinsurance market. However, it is unlikely that the industry will see reinsurers going under in the coming year.Price declines have been

accelerating over the last year, and another 15 to 20 per cent drop over the next 12 months is viewed as a distinct possibility, resulting in pricing below 2001 levels. “Some reinsurers may need to revamp their capital structures if they want to continue earning their cost of capital,” Moody’s adds.

Terrorism reinsurance market softens for less risky areas

Marsh & McLennan Companies (MMC) and Guy Carpenter released the Global Terrorism report in June, highlighting that although there has been a significant increase in the number of terrorist attacks and fatalities around the world over the past five years, evolving capacity and the absence of a major terrorism loss for reinsurers have resulted in a softening terrorism reinsurance market in areas with less perceived risk.

However, a recent Guy Carpenter study concludes that the (re)insurance sector does not have the capital necessary to withstand certain high loss scenarios that involve

nuclear, biological, chemical or radiological (NBCR) weapons. For example, a nuclear bomb detonated in midtown New York City produces a modelled loss of about $900 billion (assuming a 100 percent take-up rate for NBCR terrorism cover).

The US market is challenged by the uncertainty over the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), which could potentially expire on 31 December 2014. Should TRIPRA expire without a replacement or be materially changed, further capacity shortfalls would likely occur in large US urban areas that have the greatest need for coverage. Increased pricing would inevitably follow.

Global compliance tool for risk managers

UK-based risk association Airmic has developed a tool to assist risk managers to establish whether their insurance programmes are compliant globally.

The database, called Insight Risk Manager, covers

regulations in thirty countries that represent 93 per cent of the world’s property and casualty insurance premiums. The aim is to phase in the remaining countries over time.

The main focus of Insight Risk Manager will be to provide guidance on admitted and non-admitted insurances by jurisdiction. “Compliance for global insurance programmes will probably never be easy, but the new database will provide risk managers with access to a single, authoritative source they can consult whenever they want,” says Airmic chairperson Helen Pope.

It will provide intelligence on local compliance and regulatory insurance requirements, policy conditions and premium payment terms. Although individual insurers and brokers have their own databases, it was felt that the size of the task would be best handled on a market-wide basis.

The database is the result of a cross-market project involving brokers, insurers and insurance trade associations.

44

China

China insurance market to grow 15 per cent in 2014/5

The Chinese insurance market is expected to grow at around 15 per cent in 2014-2015 with health and non-life businesses expanding faster than the life business says credit rating company Dagong Europe.

In a recent report entitled China’s insurance market overview: characteristics, trends, challenges and opportunities for foreign insurers, Dagong Europe highlights that the market is still highly complex and protective of domestic insurance players. However, the Chinese Government and the China Insurance Regulatory Commission (CIRC) are willing and committed to modernising and developing the local insurance market through market reforms and the help of foreign players.

Industry regulation and government incentives have been both the biggest driver for growth and the main

source of challenges for local and foreign insurers. Several significant milestones have promoted the opening of China’s insurance market, including the liberalisation of merger and acquisition rules, the opening of the motor third party liability line, and the setting up of the China pilot free-trade zone with fewer restrictions for foreign players.

Australia

Proposal to increase Australia retirement age to 70

The Australian Treasury has put forward a proposal to increase the retirement age from 65 to 70, which would make it the highest in the world. This is in an attempt to equalise the impact of an increasingly ageing population, and a dwindling taxpayer pool.

Australian Treasurer Joe Hockey warned of a “looming fiscal crisis” which has been anticipated after an audit of the Australian economy. A number of broad structural changes were also recommended.Australia fared well through the

global financial crisis and still boasts a triple A credit rating. The continent’s banks and insurers also remained among the world’s most profitable, according to figures from the Bank for International Settlements (BIS).

BIS also reported that Australia’s insurance sector had the biggest increase in premiums in both life and non-life products. Premiums in Australia grew 7.1 per cent for non-life products in 2013, and the next highest increase was across US insurers at 4.4 per cent.

Life insurance premiums among Australian firms increased 12.1 per cent, well ahead of second-placed US firms at 4.3 per cent.

Eastern Europe

Acquisition targets rare in Eastern Europe

Eastern Europe’s largest insurer, Vienna Insurance Group (VIG) said that it would not pursue acquisition

45

opportunities in Russia, despite dwindling prospects for growth elsewhere in Eastern Europe.

The company pulled out of the Russian market, describing it as too large and complex in 2012, about two years before the Ukrainian crisis prompted limited sanctions against Russia.

VIG does however remain bullish on prospects in the Ukrainian insurance industry, despite the prospect of a looming recession in the country.

The European Bank for Reconstruction and Development expects the Ukrainian economy to shrink by about seven per cent in 2014 and stagnate in 2015 as the country works on reducing fiscal deficits and implements structural reforms.

VIG said it is moving from a period of growth driven by more than 50 acquisitions since 2002, to tapping new business through existing operations.

46SOUTH

您在非洲的金融服务平台

2014 第13期 I S S N 1 8 1 2 - 5 9 6 4

与安联集团

讨论能源和

基础设施

2014年更新

的统一保费

调整

增长和机

会：行业

指标

非洲消

费是增

长还是

消退？

监管不力导

致金融犯罪

的增长

让南部非

洲跨越式

发展

针对东非

共同体小

型农场主

的微型保

险项目

双子峰

的传说

RISKAFRICA

Issue 15 | 2014 I S S N 1 8 1 2 - 5 9 6 4

RISKAFRICA

THE FUTURE OF TERROR

AFRICA’S HOTSPOTS OF OPPORTUNITY

MOBILE MONEY IN WEST AFRICA

HOT

The new content focus will, for the first time, address issues of interest to risk managers outside of the financial services industry as well as

the insurers that mitigate those risks.

RISKAFRICA is headed up by Sarah Bassett, who explains the strategy as follows; “According to the IMF, seven of the world’s 10 fastest economies are in Africa, the middle class is growing at rapid pace, political stability is increasing, whole new resource reserves are opening up, and beyond resources, Africa’s markets are successfully diversifying and innovating in every direction.

Clearly, this is a new era for the continent and the opportunities for business are abundant. But the risks are real. We’ve just seen a near six-month long labour strike in South Africa, an ongoing onslaught of terror attacks in Nigeria and Kenya, contested elections in Malawi, an Ebola outbreak in West Africa – and the list

a new focus

RISKAFRICA magazine has expanded its focus to include risk managers amongst its broker and insurance industry readers.

goes on. And the socio-economic and political risks are all exacerbated by lack of information and infrastructure, as well as skills and personnel deficits. As African business analyst, Victor Kgomoeswana, told me in a recent interview, in these markets, every businessperson is fundamentally in risk management – and so companies switched on to this trend have a critical competitive advantage.

Our role is to be the leading source of information for risk managers and professionals on the continent, providing insight on emerging challenges and how industry innovators are responding to prevent, mitigate and insure against these risks, to drive that competitive advantage.”

Bassett has just returned from Kenya where she spent time meeting with key decision makers in the insurance and risk management sectors. “Many East African insurance professionals are reaping the

benefits of making risk managers central to their offering,” she says. “It is a sector that is growing in importance in today’s rapidly changing business environment. In South Africa, ACSA (The Airports Company of South Africa) for example, has just formed an entire risk management department, the duties of which were carried out by a single person previously.” RISKAFRICA magazine is published in Africa and is thus perfectly positioned to continue the Afro-positive narrative while promoting greater understanding of the risks involved in doing business on the continent. “Doing business in Africa is risky,” concedes Bassett, “but we’re entering an age where perhaps the biggest risk for companies is in their not doing business on the continent.”

With RISKAFRICA soon to launch its Chinese edition in September, the title will undoubtedly find equal favour with Chinese corporates as well as African-based risk managers and insurance professionals.

By Andy Mark

Untitled-1 1 2014/02/18 9:40 PM

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