2014 set to be another good year for Sanlam’s emerging markets division

09 January 2014 Heinie Werth, SEM

Heinie Werth, CEO of Sanlam Emerging Markets (SEM)

The leadership of Sanlam Emerging Markets (SEM) – the division of the JSE-listed Sanlam group with a presence in 12 emerging market countries on three continents – holds a positive view for 2014, believing that emerging market nations in which SEM has a presence still have the potential to grow at multiples of their developed market peers. SEM has identified Angola, Mozambique, Zimbabwe and other countries in East Africa as possible expansion prospects in the new year. In addition, SEM will also explore opportunities to deepen its presence in existing markets.

Heinie Werth, CEO of Sanlam Emerging Markets (SEM), says there are more than enough positives to counteract concerns over interest rates and inflation in 2014. "We have optimistic projections for 2014 and are quietly confident that our developing market investments will report good growth.

"The biggest potential contributions to our business, purely due to scale, will be from India during 2014 and Nigeria over time – but we are also very comfortable with the forecast contributions from the smaller economies that make up our Africa portfolio.”

SEM, which contributes roughly 20% to the Sanlam group’s gross profit, has business interests in ten African countries (predominantly in the Anglophone countries), Malaysia and India and is well positioned to comment on growth prospects in these emerging markets.

Werth predicts the business environment will remain volatile as global markets come to terms with the tapering off of quantitative easing through 2014 but expects the resultant exchange rate volatility to have a far greater impact on larger economies than the relatively insulated African countries in the SEM portfolio.

"A country like India will experience a great deal of upward pressure on interest rates and inflation, which will in turn put a damper on economic growth in that region, while an economy such as Malaysia, which is closer than most in our portfolio to ‘first world’ status, should be less affected. Among African countries (excluding South Africa) SEM expects Namibia to be impacted by exchange rate fluctuations due to its close ties to the South African rand.

Turning to expansion prospects for SEM in the new year, Werth says there are many opportunities in emerging markets, including the addition of a life insurer in Malaysia and increasing the SEM footprint by investing in Angola, Mozambique, Zimbabwe and other countries in East Africa.

One of the key factors supporting growth in Africa and South East Asia is that insurance penetration in both the short term and life categories in these regions is low. Africa’s insurance penetration is approximately 1.6% compared to India (3.4%) and a global average of around 7%. South Africa, meanwhile, boasts among the highest insurance penetrations anywhere in the world, at 14%.

"Financial services businesses in these markets will therefore benefit from both the above-average economic growth potential and a catch-up in insurance penetration over time. Add to this the desire of governments and international investors to develop the burgeoning middle class in Africa and India and you have a winning growth formula,” says Werth.

Mobile phone penetration and the return of international banking brands to Africa are also growth drivers specific to the continent. A recent report by GSMA reveals there are 253 million unique mobile phone subscribers in Sub-Saharan Africa. In their report titled Sub-Saharan Africa – Mobile Economy 2013 the organisation predicts this number to grow to 346 million subscribers by 2017.

"This is great news for diversified financial services companies with investments in Africa,” says Werth. "Mobile phones make it easier for insurance businesses to communicate with their clients, while mobile banking solutions make it possible to collect premiums.” He believes that the success of mobile banking across the region is due to the lack of ‘bricks and mortar’ infrastructure in many African countries.

"Our growth in Africa and other emerging markets will come from achieving a balance between our existing businesses and new opportunities. We have found that the secret for success in the emerging market arena is to be flexible and patient and to approach each country with due consideration for its unique culture and consumer needs,” Werth concludes.