7/21/08

Old Mutual's expansion in Africa is inevitable

By FRANCIS AYIEKO

How extensive are Old Mutual operations in Africa?

As an international financial services company listed on the London Stock Exchange, we are in 49 countries. Our operations span the United States, Europe, Asia Pacific and Africa. In Africa, we are currently operating in six countries: South Africa, Kenya, Zimbabwe, Malawi, Namibia and Swaziland.

Currently, I am in charge of Old Mutual operations in all the African countries where the company has a presence, except South Africa.

Our core services are insurance, asset management, unit trust, property market products and pension fund business.

How come Old Mutual is only in six African countries? What is so unique about these countries?

These countries offer attractive business opportunities. If you look at the microeconomic environment in Africa, the economic growth, how we do business in Africa and at the inflation environment, you realise that the key macroeconomic fundamentals are all of a sudden improving on the continent. Even democracy is improving in Africa.

So we decided that we are going to use the African countries where we have a presence as our launching pad to the rest of the continent. We hope to be in 10 African countries by 2012. We have identified these countries to be in East and West Africa, and in the SADC region.

In East Africa, we are going to use Kenya as a platform to expand into Tanzania and Uganda.

Any plans for Rwanda and Burundi?

We had a visit recently to Rwanda and apparently it is very easy and attractive to do business there. There is a very friendly business environment in Rwanda. It seems to me that Rwanda could be a potential entry point in for Old Mutual in East Africa.

What really makes Old Mutual tick in the financial services sector?

We have a strong brand. It conveys a message of quality investment and integrity.

We also make good our promises. If you invest with us, you are assured we are going to take care of that money, grow it to the level you want and return it to you whenever you require it. Apart from that, we are innovative in our range of products. We monitor changes in the market and provide products as the market demands. We always strive to offer excellent services to our clients.

What is your view on the capital markets in East Africa in particular, and Africa at large?

In terms of development, we have the basic operations in place. But in terms of depth and breadth, a lot still needs to be done. For example, if you look at the bonds market, there are few parastatal or commercial papers on issue. There are very limited hedge funds, for instance.

The missing link here is a broad capital market that goes beyond the basics .

How can this be achieved?

First, one needs to look at the requirements of the local market. In Kenya, for example, there is the Vision 2030 that has a strong focus on infrastructure development. It identifies about 54 projects but you cannot get the government to fund all the 54 projects. Possibilities of listing an infrastructure bond are missing. Yet this is one way of make capital available for some of these projects. This  calls for discussion between industry players, regulators and the government.

Could you comment on the bond market in Africa.

The bond market in Africa is a very attractive one. Unfortunately it is also untapped. In East and West Africa, the bond market is almost underdeveloped.

What has been holding it back?
It has much to do with market development. The market players (parastatals), regulators and governments need to get together and make deliberate efforts to develop the capital market. Market players have to take the initiative and develop the capital markets.

How well has the capital markets in East Africa been regulated?

Currently, there are basic regulations in place. Some of these regulations are however outdated and obsolete and do not respond to the changing market requirements. Just look at how money moves today. Money has no borders anymore. For regulators to keep pace with these changes, they need to update some of these regulations.

What are some of the changes that need to be made to keep pace with the changing market trends?

In the capital markets for instance, parastatals should be allowed to issue bonds, and these should be accepted by the regulators as an asset for people to invest in. There is also need for regulations to allow for hedge funds. These are funds that allow investors to protect themselves against any possible downside whenever there is market volatility. There are few opportunities for hedging.

Further, regulators should also be up to date with the requirements of the new products firms are coming up with. New regulations must be put in place to take care of the changing needs of clients.

Which products for instance call for new regulations of the capital markets in East Africa?

Generally, these are more of investment banking products. For insurance, the basics are already in place. Of particular concern are regulations governing stockbrokers. When a stockbroking firm collapses, the immediate question is, 'Where were the regulators?' If you are in a country where market players are failing, you need to ask yourself, 'Do we have regulations in place to protect our investors?' The same goes for pension funds. If such scenarios happen despite the existence of regulations, it is a clear indication that they probably need to be updated.

East Africa is considered a market with unsophisticated investors yet we are seeing a strong push for new products such as unit trusts. Do you think there is a strong case for unit trusts as an investment tool in the region?

A unit trust is just a nice word for individual small investors pooling their savings. If we have a vision in this region that people need to improve personal savings, then you don't need to have a sophisticated investor to realise that. Personally, I think there is need for unit trusts in the entire East Africa because it helps the government at the end of the day. When you start putting money aside for your retirement, you will not need to depend on the government when you are old.

What would you say is the main hindrance to personal savings?

The major constraint is lack of investment opportunities in affordable sizes. I think the entire East African region probably lacks profitable, bankable investment opportunities in the correct sizes.

If you look at the Safaricom and KenGen initial public offerings, you immediately see that there are people who are prepared to save money for their old age or to create wealth for themselves if the opportunities come in the proper size.

But we also need to do a lot of financial education about the type of investment or financial instruments available.

What is Old Mutual doing to correct this?

We shall be launching an innovative product towards the end of this month. The move is part of Old Mutual's efforts to reduce its unit trusts minimum to affordable levels for Kenyans. We will then roll it out in the whole region. We want to have savings products which are both accessible and affordable to all.

Which category of investors are you targeting with the new product?

The new product will be accessible and affordable to the mass, middle and high-end markets.

Financially, how has Old Mutual been performing in Africa over the years?

We have been doing well. By the end of December 2007, Old Mutual managed £279 billion.

What is your customer base in Africa?

In total, we have about 300 million customers in Africa. We have almost 30,000 in Kenya, 200,000 in Namibia and a million in Zimbabwe.

You don't seem to be doing well in Kenya compared with other African countries. What is the reason for this?

In Kenya, we have been "niche operators." We have been a very elitist company dealing only with the top end of the market. That is why we are repositioning. The real disposable income is in the lower and middle market and the new strategy is targeting the mass market.

Why the change?

According to market research done in Kenya, the fastest growing segments are the lower and middle income markets. So, if you want to be a savings and asset management company, you need to reposition yourself and target these two segments for growth.

When can we expect to see Old Mutual listing on the stock exchanges in East Africa?

It is something we are thinking of doing in the future. But first we want to stabilise our operations in Kenya by making sure we offer solutions for the entire market segment, and expand our operations to the region.

Only then will the  case for an Old Mutual IPO  be strong.






--
Jean-Louis Kayitenkore
Procurement Consultant
Gsm: +250-08470205
Home: +250-55104140
P.O. Box 3867
Kigali-Rwanda
East Africa
Blog: http://www.cepgl.blogspot.com
Skype ID : Kayisa66

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