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Africa investment opportunities hard to find: Ralph Mupita – Old Mutual

Old Mutual expects faster growth in East, Central and West Africa than in South Africa.

SIKI MGABADELI: Old Mutual has set aside R5bn for investment in sub-Saharan Africa. It spent R700m of hat in the last two years in Nigeria, Ghana and Kenya, and now in one month it spent nearly R3bn acquiring a majority stake in UAP Holdings. That’s a lot to spend in a couple of weeks. We are speaking to Ralph Mupita, who is CEO of Old Mutual Emerging markets. Hanna Barry asked him why this is a good investment.

ralph mupita: We’re very pleased with this proposed transaction and obviously it’s subject to regulatory approval. We’ve said over the last couple of years that we were looking to expand into the rest of Africa. We’ve seen growth potential there and we also see the ability for us to diversify earnings and risk over time. So this transaction is, for us, key in building out our East Africa business. It gives us a general insurance capability which we didn’t have in East and Central Africa. But it also gives us geographical diversity across a couple of key markets that we want to grow in. And that’s the rationale. It is a sizeable and significant business and that’s why it has the pricing that you’ve spoken to.

hanna barry: UAP has a strong position in East and Central Africa, as you mentioned, with large insurance businesses in Kenya, Uganda and Rwanda. Insurance businesses in those countries are not the largest, though, in terms of market share. Is Old Mutual hoping to change that, become the biggest insurer in that region – and by when?

ralph mupita: Yes. We’re not all about size, so market share is only one of the important things that we concern ourselves with. But we’ve said all along that we wanted to have significant and scale businesses and this does bulk up our presence in the region. On the combination of our business and our existing businesses in Kenya and this acquisition, I think we will have a sizeable platform for us to grow. The combined businesses for example of our life businesses, our market shares between our life business and the UAP life business moves us to No 4 in Kenya. So it gives us a sizeable platform and by 2020 we certainly see ourselves clearly as being clearly the No 1 and No 2 business in the East African region.

hanna BARRY: How does the size of this business in terms of the customer numbers, operating profit, compare to Old Mutual’s South Africa business?

ralph mupita: The insurance market in Kenya or East Africa is actually much smaller than in South Africa as we currently stand. But we expect that to change over time. The growth prospects and growth trajectory in East Africa are much faster than what we have here in South Africa. South Africa is a relatively mature insurance market and so we’re still seeing good growth here. But I think in the medium to longer term you’re going to see much faster growth prospects in markets such as East and Central Africa and West Africa as these markets develop. So the numbers from the customer point of view and profits are all obviously smaller. But it’s the growth trajectory that we’re looking at. This investment for us is certainly not a one-, two- or three-year story. We’re certainly looking at five to seven years as the horizon that we look at to deliver the requisite returns in terms of equity.

hanna barry: You mentioned the South African market and, aside from having a relatively mature insurance market, the South African economy is under significant pressure at the moment. Are there still growth opportunities here?

ralph mupita: Yes we still see a lot of growth opportunities, particularly in the mass market, where we see the entry level market has good growth prospects, certainly in the current environment where we have cheap oil flowing through. Our own inflation expectations are that this year we’ll see inflation probably come down from an expected 6% to probably 4.4%, 4.5% by year-end. And that augurs very well for disposable incomes and our ability for our customers to pay the premiums. That said, there obviously are some headwinds but on balance we still see good growth prospects in the year ahead, notwithstanding potential volatility in the markets.

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