The rise and rise: Sanlam shares insight into Africa’s middle class
Sanlam shares insight into Africa’s middle class
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 rising 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 African presence that already spans 11 countries, 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.
1 Above average GDP growth prospects
First 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 projects and a boom in cross- border air travel throughout Africa.
2 Mobile phone penetration
More people 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.
Members of 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.
3 Political and regulatory stability
A third important trend is the shift towards 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/ proconsumer 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 that 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.
4 Rising trust in insurance products
Another 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 remains 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.