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Coronavirus: Sanlam delays plans to enter Ethiopia and Egypt until pandemic weakens
The COVID-19 pandemic means Sanlam’s plans to expand into Ethiopia and Egypt have been put on the back burner, Heinie Werth, CEO of Sanlam’s emerging markets unit, told The Africa Report.
“Our focus is on the countries we are already in,” said Werth. “We don’t want to stretch too far in current circumstances. We are not in a hurry.”
In September, Werth said that talks with a prospective partner in Ethiopia were at a “very advanced” stage and that the company was studying a possible Egyptian partnership.
Sanlam, which operates in 33 countries, has been seeking to diversify away from slow-growth markets in South Africa. That task has become more urgent with the loss of the country’s last remaining investment-grade rating with Moody’s. Coronavirus has made the strategy harder to execute in the short term.
- Today, Sanlam’s focus is on client retention, and cost and claims management, said Werth.
- Ethiopia and Egypt are still “countries of interest,” he added. “We would still like to go there.”
At the end of March, the company said that economic growth in all its markets will be lower than anticipated, posing risks to growth in new business volumes. The battering that Africa’s economies are taking may lead to consolidation opportunities, said Werth.
- In a few months, he expects mergers and acquisitions to be on the agenda. “We will prepare ourselves for that. We will be ready.”
- The company has the financial strength to do it: Fitch in December said that Sanlam has “very strong capitalisation” with a better business profile than any other South African life insurer.
The differing speeds of reaction to the pandemic by African states have made managing operations more complex.
“All countries did not react the same,” he said.
Botswana is only about a week into a lockdown, and Malawi is still thinking about it, he stated.
“Ideally, everyone would have reacted at the same time.”
Early cases of coronavirus in Morocco, where Sanlam owns Saham, helped the company to react, he continued. “We saw things earlier through their lens.”
Sanlam’s business continuity plans based on working from home have in most cases worked better than expected, he said. Health insurance, classed in many countries as an essential service, has been able to continue. The exception has been sales, largely still conducted face to face or through bank branches. But now the sales force can’t directly engage with clients.
“Everything is better than we thought – except sales.”
- Werth estimates that individual life insurance sales are down by more than 50%.
- The financial impact on Sanlam, he says, is to some extent compensated by lower claims on general insurance policies.
- He expects that April and May will be “very difficult months” and hopes for a gradual recovery thereafter.
An indirect benefit, he says, is that continued social distancing after the worst of the pandemic is over will force greater use of digital channels.
- But that will depend on whether the client has the necessary digital tools.
- Clients with lower incomes won’t have those tools and here will be a “natural shift” towards targeting people who have smartphones, he said.
- For those who can’t afford them, group insurance schemes, such as for employees, will play a bigger role, he added.
Bottom line: Sanlam’s financial strength should leave it well placed to acquire high-growth businesses cheaply once the worst is over.