At the end of February, Norton Rose South Africa (soon to be Norton Rose Fulbright) invited Junior John Ngulube, lauded CEO of Munich Reinsurance Company of Africa to spearhead a forum aimed at outlining some of the opportunities and challenges facing insurers and reinsurers in Africa.
Ngulube immediately piqued the interest of the many high profile insurance experts and lawyers who attended the event by stating that there is no such thing as “doing business with Africa.”
Elaborating on his somewhat puzzling introduction, Ngulube explained that Africa comprises 55 completely different countries which are sometimes simply lumped together under the same banner by those seeking to do business on the continent. This is different to unitary states like China, Brazil and India.
“It is a mistake to view Africa in this manner,” noted Ngulube. “Each and every country in Africa is unique and presents its own set of politics, social issues and cultural dynamics. If a company fails to understand and respect these individual characteristics from the grass roots up, it’s setting itself up for failure.”
Donald Dinnie, Norton Rose South Africa’s Head of Litigation and Dispute Resolution concurred with his point of view, adding that equally important to success is not only an understanding of and respect for the law of each country but its practical application too.
Crucial to Ngulube’s premise is a thorough understanding of the economics at play. Focusing on Sub-Saharan Africa, Ngulube explained that this region (plays host to 11.8% of the world’s population but only generates 1.6% of the global gross domestic product (nearly €800bn). Of this, more than one third (approx. €300bn) stems from South Africa.
Ngulube explained that Africa’s overall contribution to global GDP is expected to continue increasing steadily which is in line with the continent’s new growth path.
“Increasing political stability, a growing middle class and urbanisation are driving demand for formalised retail, telecommunications, banking and supporting construction, all of which is good news for the continent as a whole and insurers in particular as increased demand for goods and property ultimately translates into demand for insurance.”
This view dovetails with a report issued by Norton Rose South Africa towards the end of 2011 which highlighted the role emerging economies will continue to play on the global stage. In short, the report stated that growth economies such as Africa are no longer being viewed merely as investment destinations but as sources of business and capital in their own right.
Debt-wise, Ngulube said gross government debt across all of Africa’s countries is fairly moderate and declining, with the exception of South Africa and Namibia where these levels are low but increasing slightly.
This runs contrary to many developed countries where high levels of government debt now prevail, and is one of the key reasons African economies are growing. Notably, Ngulube remarked that while foreign trade is increasing, a distinct and healthy shift towards more intra-Africa trade is also taking place.
Shifting focus to the matter of insurance growth prospects in Africa, Ngulube explained that at present, approximately 1.3% of the world’s primary insurance premiums (about €42bn) arise from Sub-Saharan Africa. Of this, South Africa contributes approximately 87.2% with the majority of the business stemming from life cover. This is due largely to the historical prevalence of funeral insurance and private provision for retirement in South Africa.
According to Ngulube, an uptake in insurance equating to €2.2tn is expected to occur globally through to 2020. Of this, Sub-Saharan Africa should contribute approximately €35bn, in new business.
“As Africa’s purchasing power increases, so too does the potential for insurance penetration. In the case of Sub-Saharan Africa in particular there is huge ‘catch- up’ potential in the offing. However, insurers must keep in mind that although matters are improving in Africa, insurance is still a luxury many simply cannot afford.”
Linking back to his opening comments, Ngulube highlighted some of the country-specific differences currently at play in Africa. In Angola for example, insurance entities should note that this country’s operating environment is highly complex and that the life insurance market is fairly small and determined by a couple of major players, but growing.
In Nigeria, a large number of insurance companies are vying for the country’s relatively small insurance market. He explained that one of the reasons insurance penetration is comparatively low in Nigeria is because historically, the market has had a poor claims-settling record, resulting in poor customer satisfaction. Inroads into rectifying this situation are now being made.
Things couldn’t be more different in Ghana which Ngulube referred to as “the darling of West Africa”. In that country, the discovery of oil and a stable political climate is galvanising steady demand for life and funeral insurance.
Ngulube pointed out that given the cultural makeup of many African countries, funeral insurance will take precedence over property and casualty (P&C) insurance for years to come.
In regard to country-specific characteristics, Ngulube explained that insurers also need to consider the nature of each country’s existing insurers and reinsurers. While some countries may be serviced by locally owned insurers, others may be serviced by state owned entities, multilateral reinsurers or international networks.
Challenges at the transactional level also need to be taken into account. These include understanding insurance regulations, multiple currencies, language barriers, exchange controls, Forex shortages, credit controls, broker dominance, national identification systems and traceability and limited business model portability. Ngulube also indicated that a trend towards protectionism is manifesting in some African countries.
In closing, Ngulube referred to Africa as “the last frontier for investment and economic development.” He believes Africa offers good insurance and reinsurance potential but made it clear that Africa is not for the faint- hearted. Interested parties need to spread their risks and be realistic in their short-term expectations.
A brisk Q&A session followed Ngulube’s presentation. Overall it was agreed that his points provided interesting insights for potential investors into Africa and that Norton Rose is fast earning a reputation for providing informative and much-needed discussion platforms for the insurance industry.