Mr. Lawrence Sikutwa
Chairman of LSA
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Expansion strategies for African Insurers
Presented by: Lawrence S Sikutwa, FCII, MBA
Group Chairman, LSA Group of Companies, Zambia.
Africa used to be a place of war, disease, ignorance and total backwardness and used to be called the Dark Continent. Not any more.
Evidence now shows that Africa is on the move particularly that unlike in the 1990s, conflicts on the continent have declined and economic performance in some countries has continued to improve.
According to the 2006 World Bank’s Africa Development Indicators, areas of transformation in Africa include: -
(a) improvement in macroeconomic indicators with inflation coming down drastically in many countries, exchange rate distortions have been eliminated in many countries, interest rates are coming down and fiscal deficits are dropping; and
(b) many governments are now aware of the need to be fully accountable to their people and democratic values are taking hold.
Economic progress is also evidenced by the amount of foreign direct investment (FDI) which is now flowing into Africa.
According to the 2008 World Investment Report, FDI to Africa was about US$53 billion in 2007 up from US$46 billion in 2006, an increase of about 13%.
FDI flows in the sub-saharan region was as follows:
(a) 42.5% into North Africa led by Egypt (US$11 578 million) accounting for almost 50% of the flow into the sub-region. The Sudan had a strong showing of US$2 436 million;
(b) 29% into West Africa led by Nigeria (US$12 454 million), followed by Ghana (US$855 million), Burkina Faso(US$600 million) and Cote D’Ivoire(US$427 million);
(c) 13.5% into Southern Africa led by South Africa (US$5 692 million), followed by Zambia (US$984 million), Namibia (US$697 million), Botswana (US$495 million) and Mozambique (US$427 million).
(d) 7.6% into Central Africa led by Equatorial Guinea (US$726 million), followed by Congo DRC (US$720 million) and Chad(US$603 million).
(e) 74.% into East Africa led by Madagascar (US$997 million) followed by Kenya (US$728 million) and Tanzania(US$600 million).
Stock markets have been established in many African countries indicating that capital markets are deepening.
However, poor infrastructure, a lack of access to finance and corruption remain the major obstacles to higher levels of growth in most African countries. The destabilizing effect associated with the extractive industries still looms in Africa (e.g. Congo DRC still faces the potential of conflict because of diamonds and Nigeria has conflict in the Niger Delta because of oil).
Meanwhile, according to Sigma No. 3/2008 published by Swiss Re, life insurance continued to expand in 2007 fuelled by strong economic performance in the emerging markets.
According to this report, the amount of insurance premiums spent per capita rose to US$72 (of which US$38 was spent on life assurance) in 2007 from US$60 in 2006 but Africa’s share of the world life insurance market was still negligible at 1.6% with a growth of about 3.4% in 2007 compared to 21.60% in 2006. The strongest growth was in Morocco and Egypt with 39.5% and 25.4% respectively in 2007. In South Africa growth was 2.6% down from 21.9% in 2006. Growth in South Africa was driven by single premium unit-linked business.
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Overall, life premiums continued to outpace GDP growth with life insurance penetration averaging 1.5% in emerging markets.
Sigma No. 3/2008 further states that insurance density and penetration in Africa were accounted for mainly in South Africa, which accounted for 92% of aggregate life insurance premiums. Namibia and Botswana together with South Africa were above the emerging markets’ average of 1.5% whilst Morocco, Tunisia, Angola, Algeria, Kenya, Egypt and Nigeria though below the emerging market average, were worthy of mention. Insurance density and penetration in other African countries remained insignificant.
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