Sanlam has R5bn kitty for African expansion

Sanlam may spend as much as R5 billion in three to five years to expand its presence in Africa, which means it will take advantage of some of the lowest insurance penetration rates in the world.

Assuming good returns, that would increase the rest of Africa’s contribution to group revenue to about 35% from about 20% at the moment, CEO Ian Kirk told City Press this week.

While India and Malaysia would also receive attention, South Africa would probably maintain its contribution at more than 50% during the period, he said.

Sanlam [JSE:SLM], like other South African companies, is looking to Africa for opportunities amid tepid growth at home, where government is struggling to stimulate an economy suffering from low investment confidence amid political scandals, low prices for key export earners such as gold and platinum, and the effect of the worst regional drought in more than a century.

South Africa dominates the insurance market in Africa with almost three-quarters of all premiums, according to Swiss Re.

In 2013, the insurer estimated the total value of Africa’s insurance premiums at $70 billion (R998 billion), or just 2% of the world total.

Nigeria, the continent’s most populous country and biggest economy, is estimated to have a penetration rate of less than 1%.

Kirk said: “Africa is a top priority for the Sanlam Group to deliver a constant level of products and services to commercial and retail clients.

“We are talking everything – general insurance, life insurance, asset management, retirement products and healthcare.”

The company’s strategy would be to continue to work with partners rather than acquisitions or go-it-alone ventures, Kirk said, obliquely referencing MTN Group’s woes in Nigeria, where the company is paying $1.7 billion in regulatory fines after being found guilty of not disconnecting inactive customers.

In Nigeria, Sanlam was the second-biggest insurer in partnership with First Bank, the country’s biggest bank by assets.

In Morocco, Africa’s second-largest insurance market after South Africa, Sanlam’s partnership with the recently acquired Saham Group had taken the company into 34 countries.

“We are very happy with our partners,” Kirk said. “They protect our interests alongside theirs.”

At a media briefing, Kirk said he thought South Africa had more than an even chance of avoiding a ratings downgrade next month because of the hard work being put in by Finance Minister Pravin Gordhan, government and the business community, which are increasingly beginning to speak with one voice.

“We might be lucky again – we got lucky in June,” he said.

“Gordhan played a few cards in June. He is playing his cards now … It’s more than an even chance.”

He said a downgrade would increase the cost of borrowing and take resources away from government programmes to alleviate poverty and other priority areas.

Big business had to play its role, Kirk said.

While the country was in difficulty, it would probably take between 2 500 and 3 000 people in the right jobs to turn things around as long as investor confidence was restored.

State-owned enterprises in particular required fixing.