Insurance sector needs to be dusted off
ECONOMIC expert Gift Mugano(pictured) has said Zimbabwe has lost the opportunity to use the insurance sector for long term finance as economic developments have negatively affected the insurance industry and its clients.
is has been due to economic instability, which has resulted in the companies struggling to remain viable.
Mugano told the on the sidelines of the Insurance of Zimbabwe annual conference in Victoria Falls that the sector was in the doldrums.
“If you want to look at the impact, you can’t look at this year alone; you start on 14 November 1997 when the Zimdollar crushed against the US dollar at 75%. It means pension funds and insurance companies have lost value and over the years we witnessed erosion of all savings and of households in 2009. We went to zero so the economic environment is very harsh to the sector. Even if the government can talk about compensation there is not much they can do,” he said.
“Government has no capacity to compensate and it’s a matter of accepting reality. If you look between 2009 and 2013, there was renewed hope, we had a new currency and people began to invest in new products. But in 2018, the environment turned out to be very harsh characterised by very high budget deficits.”
e insurance sector in Zimbabwe, like any sector, suffered massive losses and erosion of capital on the back of macroeconomic instability.
He said a series of economic upheavals continued to cripple the insurance sector.
“All these developments have negatively affected the insurance industry and its clients; in the process we have lost the opportunity to use the insurance sector as a long term finance. Unfortunately, the drama is still unfolding and there is no light at the end of the tunnel,” he said.
According to Mugano the following is a list of events that have contributed to this position:
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14 November 1997, that is, the black Friday
saw the Zimbabwe dollar crushing, the decade long economic decline (1998–2008), which saw the inflation levels of 82,7 sextrillion percent and the death of ZWL.
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e 2009–2013 period of economic stability, which brought in renewed hope as the country embraced hope and several investment were made in USD including various insurance products under the assumption that the USD is here to stay.
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November 2016 the government of Zimbabwe introduced a bond note which was 1:1 with the USD as export incentives.
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Between 2013 and 2018 the government of Zimbabwe ran massive budget deficits, which were financed by RBZ at levels exceeding the statutory limits of 20%. Likewise, the insurance sector was compelled to buy TBs under prescribed asset status under the assumptions that TBs are risk free assets – as documented in the books of finance.
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On 20 February 2019, the government of Zimbabwe disbanded 1:1 which effectively means that all savings in USD were lost.
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On 25 June 2019, the government of Zimbabwe banned USD and introduced ZWL.
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On 31 March 2020 - Present, the government of Zimbabwe reintroduced USD through a circular issued by RBZ compelling businesses to accept USDs.