ZIMBABWE’S largest short term insurer Nicoz Diamond (Nicoz) at its half year results briefing for the period to June 30 announced a US$4 million Hatfield cluster home scheme, expected for completion by December 2014, joining other insurance players who have turned to housing projects to increase income streams.
Nicoz head of treasury Joseph Mashika (JM) chats with Zimbabwe Independent business reporter Taurai Mangudhla (TM) on the project as well as other new investment plans in the region. Below are excerpts:
TM: During the briefing, you spoke about a number of things but I would like to get more information on your Hatfield cluster home scheme, starting with the capital requirements.
JM: In terms of capital, it depends on the final product that we are going to deliver on the market. Right now, because of recent developments, we have got two options that we are looking at but we just want to deliver a product that should to sell to on the market.
TM: What was your initial plan before things started changing as you have implied?
JM: Initially we wanted to do like a complete unit where u just get the keys and walk in, but now we are looking at doing the shell like what FBC (Holdings) is doing where they build the complete unit but without fittings.
TM: What is the reason behind moving to the incomplete units?
JM: That way we are trying to make it affordable, looking at income thresholds in terms of what people are earning. If you put in fittings then you price out people who would naturally benefitting because we are also looking at mortgage financing so we are looking at affordability and so forth.
TM: Okay I get the idea, but what is the overall capital required for the project?
JM: Just to hazard a figure, we are probably looking at development costs of between US$2, 5 and US$5 million depending on the delivery method that we are going to use. It’s not like we are building 58 units at once and sell them. In fact it would help to ease our cash flows if we can sell off plan because we don’t necessarily need to tie down US$5million.
Just to give an indication, our plans were to deliver in batches of 15. What we have to do is the civil works, that is the pipes, roads and everything, that should cost US$450 000.
We will be building blocks of 15 so we will be working on a float. We must put upfront US$500 000 for your civil works, so you do 15 and offload, another 15 you offload, and you are not tying down much capital. Talking of US$4 million seems like it’s not a lot but the capital for civil works should not exceed US$1million.
TM: US$5 million is not a lot of money. But where is it coming from?
JM: Remember that we are building and selling but there is also an option of partnering a bank which wants to partner us either
through an upfront loan or equity participation. So we are considering that.
TM: How about internal resources, aren’t they sufficient to fund the project?
JM: We do have capacity internally to do this entire project, we’ve got an investments book of anything between one and 90 days of US$5 million, you will see it. These are cash investments so just taking out US$1 million shouldn’t be a problem.
TM: When do you target to complete the housing scheme?
JM: It’s a 12-month project if you look at it, so between now and probably same time next year we should have finished. Civil works we are looking at two months, building 15 units probably about another two months, so we should finish and I can safely say the funding is in place.
TM: What is your budget in terms of return?
JM: I can just say we are looking at healthy returns.
TM: Moving on to the new insurance company you are about to open in Mozambique, what it the status?
JM: Well in Mozambique again the funding is in place, I will not divulge much because we have got other equity partners who include a local bank, so I will not divulge at this stage.
TM: Can you give some general detail without perhaps disclosing the intimate detail?
JM: Tentatively in terms of shareholding we are looking at about 40% and others take the balance. For this to work we have to read this indigenisation thing correctly because we also want local participation. We have an option to pick 40% and the partners will be picking the difference, it’s again highly confidential and I don’t want to divulge much.
TM: Is that all you can say really?
JM: Well we are looking at partnering largely Mozambican investors because as foreign investors it works better for you when you partner a local investor because they know how business is done and they have relationships. We have to be seen as a local insurance company in Mozambique so that we don’t repeat the same mistake we made with Fico (First Insurance Company of Uganda).
TM: I get the feeling the move to partner local investors is largely informed by your experience with Ugandan business, Fico.
JM: It’s actually a response to what we are facing. That is the reason our shareholding in Fico will come down from 65% to about 30 to 35%. It’s because of that realisation and we want the locals to get the bulk of the shareholding so that they are able to drive the business because they are the ones who have relationships. It becomes local, their thing.
This thing of indigenisation is gathering momentum, it’s being done differently in other countries. The moment you have local shareholders driving the business it becomes easier really.
TM: How is your bancassurance going and how is it currently operating?
JM: We have got some sizeable arrangements with some key banks including some of the largest banks like Stanbic Bank. You walk into the bank, they sell you insurance products, they collect the premium and get their commission. It’s becoming a very key distribution channel for us even from a cost management point of view because you then don’t have to set up branches all over, so it’s leveraging on the existing branch networks and that is a good development.
They give loans to their clients, so we give insurance for the loans and you don’t access loans until you have paid that insurance. So the relationships with banks have been very good.
TM: Lastly, can I just to tap your views on industry’s commitment towards creating micro insurance products?
JM: Speaking for Nicoz, our marketing team is looking at that and it’s really about tailor-making products for your typical small to medium enterprise sort of client or the informal trader.
There are efforts, but what I can say is we are in the sort of research phase in terms of tailor-making appropriate products but defiantly we are looking at micro insurance as a market.