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‘Old Mutual has potential for further growth’

ZIMBABWE Independent deputy editor Itayi Masuku (IM) spoke to Old Mutual Zimbabwe outgoing CEO Luke Ngwerume (LN) about his 29 year experience at the financial services conglomerate, the highs and the lows. Below are excerpts:

Report by Itai Masuku

IM:  Long journey —  29 years, what were the highs and lows during your time at the helm?
LN: In fact it is 29 years seven months. I would have done 30 years as I am proceeding on pre-retirement leave until June 30.  I also need to start experiencing the famous Old Mutual (OM) service from the outside. I believe that 30 years is a generation and you cannot work for an organisation for that long and not feel like you are part of the family or the furniture. And family in this instance is not limited to just the staff but also the account holders at CABS and the policy-holders at the Life Assurance.

I have been on a mission for the past 30 years but generally my beliefs on leadership are that  a leader can have an opportunity to deliver something unique and special after five years. One of the tasks on which you must be measured is that you need to leave behind a structure of succession.
In terms of my highs and lows…well, it’s easy to start talking about the things that you see because they are tangible. The real highs for me all revolve around doing things that touch people in a dramatic way. The first thing was demutualisation because it empowered people who did not know about shares. It was an amazing exercise because it touched so many lives. Some did the right things with their money; houses, cars, sent kids to universities etc. There was even a proliferation of cattle named demutualisation in the rural areas. Incredible things!
The other highlight for me was the additional empowerment using the Old Mutual Zimbabwe asset. There are now 20 000 pensioners who now have a grant of shares and own a piece of the asset. A total of 1 000 staff are also going to benefit. We donated 2,5% to a Trust now extending financial assistance to the young people.

IM: OM’s business has traditionally come from life assurance and managing pensions. Unemployment in Zimbabwe now stands at 94%. How has this affected this part of your business?
LN: During the period of hyperinflation a lot of financial services became obsolete as the economy went through a major contraction. When we came out of that period, we started small and had to patiently rebuild the base, responding to companies as they recovered.

In future, they would be more because the recovery of the economy is a process. It will take time for business to be sustainable and for employment to push up. The organisation is well set to play its role in the future growth of business. In fact, we have already started funding projects such as Dimaf and agriculture.

IM: You have diversified into asset management, stockbroking and a host of other financial services, how successful have you been in those areas?
LN: Our diversification is based on what the market wanted. There were clients who wanted short-term products and as such we moved into unit trusts and subsequently asset management. We really see ourselves as diversified and integrated and the areas we have expanded into are logical. The intention has been to create a one-stop-shop for any financial issues. In fact,  this has always been the case pre-independence.

The property portfolio has also been growing rapidly after a deliberate decision was taken to make the savings work and develop the infrastructure of the country. We built a whole generation of high rise buildings in Harare. The second phase was the development of shopping centres. We started out in  Chitungwiza, then Westgate, Entumbane, Dangamvura, Chiredzi and High Glen.

We then moved to factory units and did bigger factory premises for corporates. The last phase involved office parks, Old Mutual Gardens, Tendeseka and lately Borrowdale. We also have an exciting development in Budiriro; the construction of 3 000 high density units. These are logical investments on the back of the core area of insurance and pension funds.

And I should say that we are now able to give a lot of support through diversification.  Although the core business is long-term we have reasoned that since we are in the game of accumulation of savings, it really doesn’t matter whether they are short-term or long-term. In terms of insurance, we are in the game of offering risk protection.

IM: And can you please give an update on the plans by CABS to get a commercial banking licence.
LN: CABS is a building society but there is hardly much that it cannot do that a commercial bank does. If something is working for you, there is no need to rock the boat. In terms of giving loans, CABS is playing that role and we believe that we are able to extend the banking services.

The goal is to provide affordable banking services to the mass market. We have always listened to the cry from policy makers that we must expand financial institutions to the masses but we are a cheap provider of banking services. In fact, the border-line between commercial banking services and building societies has become blurred. When universal banking licences become a reality then we will be obliged to have a commercial bank licence.

IM: There are reports that you are a passive investor on the stock market, can you explain OM’s stance on its investments.
LN: We are not a passive investor at all but people get confused by the way we behave or package our behaviour. We were key in ensuring the changes that took place at RioZim and all over we are strong enough to make our views well known. Its not only RioZim where we have acted in a decisive manner. We prefer to keep a low profile but we will use our shareholding muscle where necessary.

IM: Your new role is that of “Strategic Partner for indigenisation”, what exactly does this entail?
LN: What has happened is that the indigenisation solution that government approved was mainly broad-based from the 25% available to be indigenised. 21,5% went towards broad-based groups while the remaining 3,5% is available to be sold to some strategic partners.  This is just a business idea that companies need partners that they can work with for specific reasons. I am part of the consortium but this is a commercial transaction between the company and us with the objective of assisting Old Mutual in the future.

IM: There are reports that the youth fund is subjected to a vigorous screening process; what are your views concerning that?
LN: We have been careful about helping the young people build business acumen. Part of the funding is used to deal with capacity issues. We train the youths in collaboration with the ministry of youth and other organisations such as Boost. The projects must have a feasible idea and must be viable.

Obviously ,the screening process takes long as we want the youth to succeed and assist in the recovery process of the country. The only collateral that is required is a viable idea. We believe that this is an important exercise and a structured way of empowering the youths.

IM:  During the inflation years, Old Mutual took the decision to “pay-off” policies on behalf of policy holders. Public perception is that Old Mutual adopted what is known in finance as “risk shifting” that is, transferring risk back to its customers while retaining the benefits of the business from which that risk came from. How would you respond to that?
LN: I don’t think we shifted the risk but we minimised the risk that people were facing during the hyperinflationary period.
We just tried to tell people that paying off was the best option available to people. Everything lost value and all we were left with were buildings and equities. But then it was only a limited number of buildings whose values had to be reshared among the clients. Individuals’ portfolios therefore reduced dramatically. But the shareholder made an additional contribution to support a minimum level of pay-outs even to pensioners.  If you are a leader of a large organisation sometimes you take the blame for something that is totally out of your control.

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