South Africa’s financial services giant, Sanlam, has over the years been propelled by a brave foray into the developing markets. This foray occurred not only via foreign ventures but also at home and has been complemented by the Patrice Motsepe pillared black economic empowerment (BEE) factor.
The remarkable foray which includes captive markets like the Zion Christian Church (ZCC) business stood to be ruffled in the past 12 months or so. The financial results for the six months ended June 2014 do bear traces of strain. This is a period which delivered the peaking of financial turbulence for the low income segment in South Africa. The near collapse of African Bank Limited (Abil), a micro financing specialist, tells the story.
Sanlam is reported to have made steady steps into the South African developing markets business in the 1990’s. The coup de grace was the link with the ZCC, the largest religious community in South Africa if not Africa. The ZCC partnership represented a realisation by mainstream South African financial players that the market will change after the 1994 political transitions. Growth will come from the base of the pyramid (BOP).
The pillar of the Sanlam/ZCC partnership has been funeral policy with an eye to grow with the market into richer personal financial products. The ZCC base is reported to have grown steadily to boast about 700000 collections. The partnership is styled as a 50/50 joint venture with the church administering the scheme.
Sanlam strengthened its hunt in the developing market via a bumper black economic empowerment (BEE) deal with a consortium led by the most prolific post 1994 Randlord, Patrice Motsepe. The deal which has created a R15bn BEE nest brought to the table further links into the BOP.
Explaining the Sanlam BEE deal recently, Motsepe told the Financial Mail that “We had to get Sanlam into businesses it has never been in before or that it can’t get into or does not understand”
“We took them to all the black sectors – the middle class, the teachers, Sadtu (SA Democratic Teachers Union), Nehawu (National Education, Health & Allied Workers Union), government employees, traditional leaders, youth and the ZCC (Zion Christian Church) are all shareholders and this opened doors for Sanlam.”
The foray of South Africa’s first tier financial services into the emerging markets has always been a bitter sweet affair. Evidence did suggest that the foray was half hearted at best, a perception which necessitated state intervention via the financial sector charter (FSC). Created in 2003 the FSC came as some force to push the financial services firms into the unbanked markets. When the dive into the BOP market took place in the mid 2000s, it came with an uncomfortable emphasis of unsecured lending. Even Sanlam, which is not a bank, could not ignore the unsecured lending market. This is explained by the growth of Sanlam Personal Loans partly via Direct Axis.
Sanlam and other first tier financial services firms saw trouble coming and scaled back operations like Sanlam Personal Loans about two years ago. However the latest Sanlam financial results did show traces of strain in the low income segment.
Reporting the results for six months ended June 2014, Sanlam noted “The weak economic environment in South Africa persisted during the first half of 2014, aggravated by prolonged periods of industrial action.”
The economic growth outlook for 2014 has been reduced to below 2%, limiting any potential improvement in employment in the short term. Consumers’ disposable income also remained under pressure from a combination of high exposure to debt and inflationary strain. These conditions proved exceptionally challenging for writing new recurring premium business.”
The prevailing conditions also “necessitated a further strengthening of the Group’s risk criteria for unsecured lending, with a deliberate slowdown in the growth of the Sanlam Personal Loans book.”
Sanlam also noted that “Credit life new business also declined due to the deliberate curtailment of unsecured lending in Sanlam Personal Loans.”
Overall the group registered growth of 8% in new business volumes during the six months ended June.
“Life insurance new business volumes increased by 17%, augmented by 12% and 8% growth in new investment and short-term insurance business respectively. All businesses contributed to the solid performance, apart from Sanlam Sky and Sanlam Employee Benefits (SEB).”
Sanlam Sky is the unit which houses most of the group’s hopes to capture developing markets in South Africa. The group noted that “Sanlam Sky was impacted by lower group risk business in 2014 as well as the industrial action in the platinum sector…” This refers to the strike in the Rustenburg based platinum operations which lasted for five months.
Sanlam said “Rustenburg in the heart of the platinum belt is Sanlam Sky’s largest branch, which experienced a very poor first half.”
The group further noted that Sanlam Personal Finance (SPF) achieved disappointing growth of only 4% on a comparable basis. “This is attributable to the decline in Sanlam Sky new business, as well as a change in mix to lower margin single premium savings products.”
Nevertheless Sanlam Sky’s gross earnings were up 44%. The group said this was primarily due to higher profits released from the increasing in-force book, good mortality experience and flat new business strain from the lower new business volumes.
Vula Mthimkhulu is a freelance writer