Old Mutual: Tapping into growth markets in Africa and beyond
With a passion for emerging markets and believing that the business can make a difference in transforming societies in emerging markets, CEO of Old Mutual Emerging Markets Ralph Mupita is heading the group’s strategy for tapping into growth markets in Afr
Ol d Mutual Emerging Markets is one of the Old Mut ua l gr o up’s c or e operations. It is comprised of life assurance, property and casualty, asset management and banking.
Since taking over the reins as CEO of Emerging Markets three years ago, Mupita, who joined Old Mutual in 2000, has seen its customer base grow to just under 10m, an increase of about 1m customers a year since his appointment.
“We have been able to expand across in new markets while maintaining a healthy return on equity,” says Mupita, referring to its prof it growth. “We haven’t been expanding in a way that dilutes our equity. Our return on equity has been well within the range of 20% to 25%, which has been the target we have set for ourselves.”
He says sales growth in most of the Old Mutual Emerging Markets division has been very strong and it has been able to maintain market share. “But I think the big matrix is growth of our customers and in managing our return on equity, while expanding into new markets.”
Since he took over, Emerging Markets expanded to eight new African countries. The portfolio is comprised of South Africa, Africa, Latin America and Asia with businesses in Zimbabwe, Kenya, Ghana, Namibia, Swaziland, Malawi, Nigeria, Mexico, Colombia, Uruguay, China and India.
“We continue to f i nd emerging markets at t ractive f rom a growth prospect with a significant demand for our products,” Mupita says.
“A company like Old Mutual can make a difference in transforming societies in the way that we gather people’s savings and deploy them to capital markets. And ultimately give customers back their money in better shape,” he adds.
ADAPTING TO THE NEEDS OF THE STRAINED SOUTH AFRICAN CUSTOMER
I n a t ough e c onomy where t he consumer is under f inancial pressure and where the savings rate is already very low, a financial services company can easily f ind itself not reaching its target customer base. That is why the group is constantly being innovative in creating products that will suit the pocket of consumers currently feeling the pinch of the weakening rand.
Old Mutual Emerging Markets has adapted its range to ensure the South African customer can cope with the f inancial challenges. “In South Africa, we continue to bring new and innovative products to market. An example is our two-in-one savings product for the mass market, which allows the customer to access some of their savings while also building longterm value.”
The unit has also enhanced its f uneral policy offering. “We sell a lot of f uneral policies and we have enhanced our funeral range by reducing premiums, so, for some customers, reduction in premiums are as high as 20%. We’re increasing the benefits while maintaining a return [on investment] for shareholders.”
In other emerging markets, t he group is developing products with a similar philosophy and approach.
Despite penetrating new emerging markets, SA remains the business’s core and it continues to leverage the resources and capabilities it has locally to support its businesses on the rest of the continent.
“We run, for example, call centres and some of our IT f unctionalit y is driven from South Africa. So we leverage the South African capabilities for the rest of Africa, but knowing full well that we need to make sure that our South African business remains strong. Over 85% of our profits still come out of South Africa.”
While Old Mutual’s current BEE deal comes to an end in May, the group is not looking to enter into another empowerment t ransaction, opting instead to invest in initiatives that will boost black business in the country.
“If we use today’s share price, the BEE deal has created over R8bn of value for all the beneficiaries, from staff, BEE partners, the education trust and all the various elements that are part of our BEE deal. It expires in May of this year,” says Mupita.
Emerging Markets, together with Nedbank, will be pledging R300m in initiatives with their black business partners to boost black business in the country.
This wil l be broken down a s follows: R100m will be invested in t he partnership with Wiphold i n commercialising r ural agricultural land. Another R100m will be injected in a partnership with Brimstone to supporting black entrepreneurs. And an additional R100m will be invested in a partnership with BEE investment company Izing we Capital towards building the township economy.
INCREASING ACQUISITIONS IN EMERGING MARKETS
Since Mupita started heading Old Mutual Emerging Markets, the business unit has spent just under R3.6bn on acquisitions in emerging markets. The deals include AIVA Business Platforms, a familyowned business platform and distribution business in Uruguay in 2012. In February 2013, it bought Oceanic Life in Nigeria, followed by a majority stake in Provident Life Assurance in Ghana in September that year.
Last Ju l y, t he group completed buying its controlling stake in Kenya’s Faulu Microfinance Bank, a deposittaking micro-finance organisation. This January, it acquired a 60.7% stake in East and Central African f inancial services company UAP Holdings Limited for a total purchase consideration of R3bn. The t ransaction is expected to be finalised in the first half of this year.
Mupita says the group has no desire to acquire 100% of companies that it has majority stakes in because it prefers being in partnership with local partners within those markets.
Old Mutual will continue searching for opportunities to increase its product offering in countries where it already has a footprint, Mupita says.
“We wil l continue to l ook for capabilities that we would like to add to our business models. For example, in Nigeria we have a l i fe business and a general insurance business. We would l i ke to have a pension f und administration business, given the pension fund reforms in Nigeria. That’s a capability we don’t have that we would like to fill. In Ghana we don’t have a short-term insurance business; over time we would certainly want to have life and short-term [insurance],” he says.
CHALLENGES IN EXPANDING TO NEW MARKETS
The challenges in expanding into the rest of Africa include finding employees with the right technical skills, such as actuaries. In a bid to find a solution to this problem the unit looks to source talent from other parts of the continent and the African diaspora.
In key Asian markets ( India and China) where Old Mutual Emerging Markets would like to expand to, there are foreign direct investment restrictions that limit ownership levels, says Mupita. For instance, in India, the company is restricted to being a 26% shareholder, while in China it can be a 50/50 shareholder in a venture with other financial services partners.
In Latin America, l anguage is a barrier. So it hires executives who speak both English and Spanish. “But these challenges are easily overwhelmed by the opportunities that we see, that’s why we are so enthusiastic about emerging markets.
ONE SIZE DOES NOT FIT ALL
While penetrating new markets i n emerging markets is exciting, Mupita agrees that the one-size-fits-all approach does not work for all countries. Each market has subtle characteristics that differentiate it from others.
“First of all, you have to understand the people and the culture of those markets. In understanding the nuances of the country you learn what the issues are that are important to different people, and different societies in different markets,” he says.
“Markets are different − you need to be closely attuned to the culture and nuances of those markets and then build solutions. The core constructs of many of those solutions are the same as the underlying building blocks, but it’s how you package and price them that may end up being different.”
1. Includes retail and corporate customers. 2. Excludes customers in India.
NOTE: Figures do not include Nedbank.
OLD MUTUAL EMERGING MARKETS
REST OF AFRICA FOOTPRINT TODAY 1. Market share based on life APE sales, gross written premiums, banking deposits and retail FUM
for asset management 2. Based on deposit-taking microfinance institutions composite index rather than full banking sector
*Property & Casualty