The venue, Mutual Park, Cape Town South Africa; the event, the Old Mutual Emerging Markets showcase.
The occasion, which took place over two days in what may safely be described as South Africa’s tourism capital, gave an insight into what may eventually be the investment pattern in Africa’s emerging markets. The pattern in many ways rekindles colonialist Cecil John Rhodes’ Cape-to-Cairo railway dream, save that it involves much more than a railway line. But the ultimate objective would be the same; to boost growth and integration of economic growth of sub-Saharan economies.
Although the showcase, attended by more than 100 delegates, including journalists from African countries in which the continent’s oldest financial institution has a footprint, looked broadly at emerging markets including those in Latin America and Asia, the prognoses on the mother continent were of much interest.
However, before delving into the intricacies of the presentations made, it may be necessary to examine what constitutes an emerging market and how Zimbabwe fits into the picture. And it’s off to the internet.
One definition is that of a nation with social or business activity in the process of rapid growth and industrialisation. Does Zimbabwe fit this bill? By this definition Zimbabwe is submerging, more like.
Emerging markets are supposed to provide greater potential for profit, but also more risk from various factors. Yes?
Others define an emerging market as “a country where politics matters at least as much as economics to the markets”.
One Dr Kvin is quoted as saying an “emerging market country is a society transitioning from a dictatorship to a free market-oriented economy, with increasing economic freedom, gradual integration with the global marketplace and with other members of the GEM (global emerging market), an expanding middle class, improving standards of living, social stability and tolerance, as well as an increase in co-operation with multilateral institutions”.
Lastly, a more pragmatic definition of “emerging economies”, as distinguished from “emerging markets” is said to have recently been proposed by Julien Vercueil. His approach is heavily influenced by financial criteria.
According to his definition, an emerging economy displays the following characteristics.
Intermediate income: its purchasing power parity per capita income is between 10 and 75% of the average European Union per capita income.
Catching-up growth: during at least the last decade, it has experienced a brisk economic growth that has narrowed the income gap with advanced economies.
Institutional transformations and economic opening: during the same period, it has undertaken profound institutional transformations which contributed to integrate it more deeply into the world economy. Hence, emerging economies appear to be a by-product of the current globalisation.
This is where global institutions such as Old Mutual come into the picture. The London Stock Exchange and Johannesburg Stock Exchange-listed integrated financial services group grossed £19,8 billion last year, a sizeable amount of this from emerging economies, including sub-Saharan Africa.
The group is upbeat about its expansion into sub-Saharan Africa and in spite of its poor showing in many investment criteria, Zimbabwe still is an important cog in the Old Mutual wheel, according to its CEO emerging markets, Ralph Mupita.
“Zimbabwe plays a very crucial role in Old Mutual’s plan to expand its footprint across the African continent,” Mupita said.
And this has nothing to do with the fact that the Johannesburg-based Mupita is a Zimbabwean. It is the relatively successful integrated financial services model that Zimbabwe has that the group intends to roll out into the rest of African emerging markets.
In Zimbabwe, Old Mutual offers all the group’s core products: insurance, investment, savings and banking. In the long-term, this model should be repeated in Nigeria, where Old Mutual acquired a majority stake in major assurance company, Oceanic Life and in Ghana where it has acquired Provident Life.
On the banking side, the group acquired 36,4% stake in Banco Unico of Mozambique, with a long-term view to controlling it, while in terms of its retail operations the group acquired Faulu in Kenya.
In a question-and-answer session, Old Mutual Zimbabwe (Omzim) CEO Jonas Mushosho emphasises the success of the integrated model through the life assurance company, investment and asset management operations, RM Insurance (short-term) and CABS.
He also said Omzim is to invest a further US$100 million towards activities that will help resuscitate Zimbabwe’s economy.
It therefore is apparent that should the country put its house in order, it stands to benefit from the appetite for emerging markets that global companies such as Old Mutual have. This appetite is driven by a number of economic considerations, chief among which is the sheer growth of Africa’s population, which is growing at an average 7%, implying a doubling by 2050. Sub-Saharan Africa’s population has been estimated at just under a billion and its growth means a bigger market for producers of goods and services, as opposed to the shrinking populations of America, Europe and Japan.
Of course, a sheer growth in numbers without accompanying growth in Gross Domestic Product and spending power would make these demographic trends meaningless. Currently estimated at US$2 trillion, of which nearly a sixth is accounted for by South Africa, Africa’s GDP has shown positive growth trends and according to Nedbank’s economist Dennis Dykes, GDP per capita has hovered above an average 6% since 2009.
Nedbank is 52%-owned by Old Mutual. Dykes says per capita incomes on the continent have grown, although they remained below those of Asian and Latin American emerging economies.
Dykes, however, warns against some factors that may stunt this growth, particularly corruption and political patronage, politics and bad policies, in particular lack of a predictable environment.
He adds: “Considerable work on regional integration, improved governance and the removal or reduction of rent-seeking culture needs to be done.”
While Dykes is referring to trends that are seen across the African continent in general, it is important that countries such as Zimbabwe take heed, lest they fail to take advantage of this thirst for expansion by behemoths such as Old Mutual, which is also eyeing opportunities for funding infrastructure development, agriculture and promoting private equity participation on the motherland.