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

San­lam shares in­sight into Africa’s mid­dle class

RISKSA Magazine - - CONTENTS - 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 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.

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