OVER the years, a number of companies have been eyeing Zimbabwe for investments. However, there has been little movement, with a number of investors on the Zimbabwe stock market trapped in the country, as they fail to repatriate their funds. This has been caused by the capital control statutes currently in place that make it difficult for foreign investors to send money out of the country. On the other hand, the economic situation has done little to attract new investments. Recently, business reporter (Melody Chikono (MC) spoke to the director of agricultural insurance at Mozambican firm Hollard Companhia de Seguros, Israel Muchena (IM), who said their two-decade-long dream to invest in Zimbabwe has been obstructed by laws that make it difficult to repatriate profits and dividends. Below are the excerpts of the interview:
MC: In your presentation you said Hollard has been eyeing investments in Zimbabwe. Can you tell us more?
IM: Hollard has always been interested in Zimbabwe right from the days that I joined in 2001. Part of the interest is to do with the fact that most of our skills in Hollard Mozambique, South Africa and outside South Africa, the skills are originally from Zimbabwe. That has been a key driver, the curiosity, the interest and linkages. Secondly, our review of the African markets has shown that Zimbabwe is one of the key leading markets in terms of skills innovation, product development, experience and knowledge, thus we see Zimbabwe as a good landing stage for us to penetrate the whole of Africa. These are the key drivers at the moment.
As we all know, the reinsurance market has been very strong in Zimbabwe for many years. Many of these insurers in Zimbabwe have been involved in doing business on the African continent starting from 1980 following the Zimbabwe Reinsurance Corporation and with quite many of them now locally established, as well as reinsurance brokers that are also operating from Zimbabwe.
MC: What are your focus areas?
IM: Hollard, as a group, underwrites different types of business. At the moment, in Mozambique, the bulk of our income comes from traditional, commercial and corporate insurance, as well the life insurance business.
We then looked and realised that only 7,7% of the adult population is insured. Then we asked ourselves where the 96,3% adult population is. Where are the people without insurance? We then realised that in traditional insurance, we do not do agriculture in Mozambique and we are not seeing business in that area. So agriculture is an area of focus but we have not stopped doing other lines of business. There are other very important lines for us, for example I spoke about liquefied gas. It is an absolute priority area for Hollard.
One thing I like about Hollard is we have identified an individual which we have said 24/7 focus on agriculture, tell us what we need to do in order to start seeing development in insurance in agriculture. Within that area of agricultural insurance, our group has also set up social impact goals. In the scheme of social impact goals, the group is saying by 2024 we want to be insuring 100 000 low-income co nsumers regardless of making huge profits or not.
Why do we want to do this? It is because we have realised that agriculture employs the majority of Mozambicans. We are looking at gaining some benefits in the medium and long term. For us agriculture is not the only thing we do. It is an area of focus for me in particular and we are also trying to implement the same strategies in different subsidiaries in Hollard in addition to other traditional types of insurance that we are undertaking.
MC: So what is the size of investment you are planning for Zimbabwe?
IM: Well, it depends with the offer on the table, but so far we have been investing in sharing knowledge and knowledge partnerships as well as development relationships. So even if there are no investments today from Hollard we are not afraid to share knowledge and to support any company that may be willing to collaborate with us even though we may not make the investment now but in the near future.
Right now, the biggest challenge we have is that any company which is willing to invest in Zimbabwe is asking: if I invest, what guarantee do I have that I can repatriate my profit? For some of us who are in the business of developing these business cases, we cannot demonstrate how Hollard in Zimbabwe will repatriate its money, say, we have a problem in South Africa and we want to have to use that money.
We understand that some issues around capital controls are to protect balance of payments and retain hard currency but it discourages one from coming in the first place.
Freedom in the capital flow is paramount. We are not trying to invest in one year and then take out the money in the next year. For example, I can tell you that Hollard shareholders haven't taken a single cent since 2001 as it keeps being ploughed back into business. I have worked with Hollard since 2001.
We want to invest in a market where we are sure we can repatriate our money if need be.
MC: You spoke also about liquidity and credit risk in Zimbabwe. What is your comment on that?
IM: I was giving an example of Mozambique. Essentially what I quickly realised is that when insurers try to combine their products with service of the institutions, they do not spend time trying to understand the breakdown of the costs of that service provider. For example, if he says my interest on loans is 50%. Insurers in Zimbabwe would say if you want to protect your loans in the event that persons you gave the loan pass away and are no longer able to pay you back, we will add a life policy and our life policy is 2%.
This means that a bank which was charging 50% will now charge 52% when they include insurance. What people are doing is that, without interrogating the costs of the underlying savings, they are just charging insurance. In a way, they are duplicating some of the costs items. Because that loan of 50%, what the bank is saying is that it is about the cost of money, inflation, but it is also saying it is about the credit risk that the person may not be able to pay back.
If you are providing a product whereby you are saying in the event of death, permanent disability or retrenchment, insurance will pay, please reduce from your 50%, the factors that we were adding for exactly the same risks we as underwriters are now insuring.
Normally, an insurer is able to say we will do it at 2% and that 2% is often less than the 10% that the bank will load for exactly the same type of risks. So I am saying try and understand the breakdown this side and understand that you are not duplicating costs such that if you add your two after removing 10 you will add that same product to 42% instead of 52%.
MC: With all the challenges and opportunities in the insurance industry, how do you see the future of insurance in relation to insuretech?
IM: Well, I believe things will change. But I also believe that some of that talk about big data and insuretech are too far ahead of where people are today. So if a person goes to the office tomorrow they just cannot wake up and say to the managing director I now want that and that. It is not practical. What is the next step? What can you do starting form tomorrow going forward into the future of insuretech?
This is where I think conferences sometimes do not get it. I think that is where it comes to the importance of having the correct consultants and project management because that is the ideal future, that is where you want to go but that transition does not happen overnight .There is a lot of investment that you need to put in place to get there.
MC: You also spoke about index insurance. How important is it in relation to Zimbabwe?
IM: Index insurance is a very useful insurance-related product that can be used to protect, especially, the smallholder producers. In traditional insurance, say you insure your vehicle, the insurer says bring your vehicle to see its value ad condition.
If tomorrow you say my vehicles has been involved in an accident, the insurer will have to assess and evaluate it.
This is the way traditional insurance works. So if you are insurer and you have a contract, say in Gokwe, Vumba or Mberengwa, the moment you think that the farmer has not received enough rainfall, you say to the assessor go and look at the field and assess. It is in this use of the traditional approach that your costs of doing business are very high. In fact, the typical insurer, once he assesses the costs of trying to service that business and the small amounts of premiums that he will generate from each farmer, he is very unlikely to do it because the premiums can be as small as $1. So when we talk about index, what we are doing is not to use the traditional approach of looking, assessing and evaluating.
Instead, we are using technological approaches that allow us to monitor the climate and if we know that there has been a drought and have set up a contract that says we can compensate, we will then be able to, sitting in our offices as we monitor everything that is happening right across the country using that technology.
It helps us to achieve scale with very limited costs. Secondly, it allows us to monitor the specific climate situation in each location as opposed to relying on a weather report.
It also allows the inclusion of the majority of the population that under normal circumstances will not have been insured, especially in the area of agriculture.
Index insurance will help achieve financial inclusion, it is an enabler through which we can be able to insure people that traditionally are not insured. It also allows us to deliver insurance at lower costs.
MC: So what is your general comment on the insurance industry in Zimbabwe compared to other regional companies, especially with regards legislation?
IM: I must say the insurance market in Zimbabwe is well-developed. It is more sophisticated. I spoke about the Insurance Institute of Zimbabwe currently translating material into Portuguese. When I spoke about Certificate of Proficiency (COP), this is the most basic qualification in Zimbabwe to apply for a job in an insurance company. In Mozambique at the very senior level people do not have that qualification.
So in terms of skills, knowledge, especially of traditional insurance, Zimbabwe is far ahead and many of the things we have discussed today, finances permitting, some of the people now will implement them.
But there are challenges in terms of costs of doing of businesses, financial resources to access especially on satellite and remote sensing. You will need to pay people that have the satellite. Zimbabwe doesn't have it.
You have to pay someone to monitor the climate in these GPS coordinates. You will then need foreign currency to do so. This is the big challenge. The market is vibrant and dynamic although there are key impediments relating to the economy, but without doubt, it will be the key leading market even with flight of skills. If only Zimbabwe can find ways to overcome these present challenges, especially those relating to the economy.