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

Finweek English Edition - - INSIDE - BY BUHLE ND­WENI

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.”

BEE DEAL

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

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