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CONTENTS 08 Dear reader

04 The African immigration circus: making it through the hoops

Could a black swan event still derail Africa’s rising? Ebola and pandemic risk could be the unforeseen threat with this power, speakers at the recent Frontier Advisory Africa Risk and Investment Forum suggested.

08 The China opportunity 12 Pandemic: managing your

business risk

16 Aviation risk in Africa 20 Kidnapping in Africa 24 Stalker Hutchison Admiral:

here to stay

26 Borrowed time 30 Continental Re opens Southern

Africa office

32 Africa’s middle class numbers exaggerated, but growing

42 News

The World Health Organisation stresses the need to avoid unnecessary panic, but suggests that as many as 20 000 people may become infected with the virus by early next year. Already, closed borders have multiple ramifications for businesses around the world. Even for those organisations not at immediate risk, the situation stands as a critical reminder of the need for pandemic continuity and risk management planning – particularly in the context of Africa’s poorly equipped health care systems. We canvassed the experts for insight on what you need to know. On the topic of country borders, the recent – and sudden – revamp of South Africa’s immigration laws has seen dramatic changes in the structure and requirements of work visa options, and have caused widespread confusion and controversy. This issue, RISKAFRICA unpacks these changes and takes a look at the immigration trends for the continent more broadly. Also under the magnifying glass this issue is the size of Africa’s middle class, with a new report from Standard Bank providing new and nuanced insights; the state of the continent’s aviation sector; and what rising debt levels may mean for credit risk. Enjoy the read,

46 Risk manager: director or cynical uncle? Publisher Andy Mark Editor Sarah Bassett Production Nicky Mark Copy editor Gemma Redelinghuys Feature writers Christy van der Merwe; Luka Vracar Design and layout Herman Dorfling; Mariska Le Roux

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Ground floor, Manhattan Tower, Esplanade Road Century City, 7441, Cape Town, South Africa Copyright THE RISKAFRICA MAGAZINE PUBLISHER CC 2014. All rights reserved. Opinions expressed in this publication are those of the authors and do not necessarily reflect those of the Publisher, Cosa Communications (Pty) Ltd, COSA Media, and or THE RISKAFRICA MAGAZINE PUBLISHER CC. The mention of specific products in articles or advertisements does not imply that they are endorsed or recommended by this journal or its publishers in preference to others of a similar nature, which are not mentioned or advertised. While every effort is made to ensure accuracy of editorial content, the publishers do not accept responsibility for omissions, errors or any consequences that may arise therefrom. Reliance on any information contained in this publication is at your own risk. The publishers make no representations or warranties, express or implied, as to the correctness or suitability of the information contained and/or the products advertised in this publication. The publishers shall not be liable for any damages or loss, howsoever arising, incurred by readers of this publication or any other person/s. The publishers disclaim all responsibility and liability for any damages, including pure economic loss and any consequential damages, resulting from the use of any service or product advertised in this publication. Readers of this publication indemnify and hold harmless the publishers of this magazine, its officers, employees and servants for any demand, action, application or other proceedings made by any third party and arising out of or in connection with the use of any services and/or pro-ducts or the reliance of any information contained in this publication. Cover image: Shutterstock.com

The

China opportunity By Sarah Basset

China has been Africaâ&#x20AC;&#x2122;s biggest trade partner since 2009, with Chinese investment into African countries having risen by some 30-fold in the past 10 years. Foreign direct investment went from $500 million in 2003 to almost $15 billion by 2012. Last year, China pledged $20 billion in loans for infrastructure development.

hile the resource sectors of oil and mining remain a key focus of these inflows, Chinese investment interests are increasingly diverse. “Beyond resources, we see a lot of activity from China in the infrastructure development, manufacturing and agriculture sectors in particular,” says Yike Shen, manager for Hollard’s Southern African China desk. Hollard highlights the agriculture sector as a key area for development in Africa in the next years, with China, along with multiple foreign investors, making significant investments into the sector. “To give a sense of the scale of investments, consider construction giant Gezhouba. The company is around 30 times as big as Murray and Roberts, and even that may be an underestimation,” says Hollard International managing director, Frans Prinsloo. “Its focus is power and hydropower development, with a massive hydro project in Ethiopia that will provide power across East Africa, a number of projects in Nigeria and plans for Malawi – these guys are very active.” Other Chinese-Africa investment giants include the likes of the China Petroleum and Chemical Corporation (Sinopec), the world’s fifth largest company by revenue, as well as large state-owned enterprises, such as the China Railway Construction Corporation, which bring a major competitive advantage: access to subsidised credit from their home government, often enabling them to outcompete for African procurement contracts. There is a major opportunity in servicing the insurance and risk management needs of Chinese companies working in Southern Africa – an opportunity Hollard is well positioned to make the most of. Combining its knowledge of the Chinese market, gained through seven years of operation in the market, with its Southern African footprint and local expertise, the Hollard Africa-based China desk was launched in May of this year, with an initial

2361 SSP Risk AFRICA 1.pdf

Prinsloo suggests there may be some shift towards hubs such as Kenya and Nigeria. But it will likely not be the downgrade alone that drives the shift. “I think what is a bigger issue than the downgrade is the socio-economic instability, the economic instability and various legal compliance issues in the country. These will be more important factors for Chinese investors, who have underestimated such risks in the past,” Shen suggests. “From time to time there is a bit of a shock on entering these markets,” Prinsloo agrees. “As a consequence of the Forum for China-Africa Cooperation (FOCAC) intergovernmental initiative, a lot of Chinese companies get charged with an investment commitment that was made at a government level, and companies have entered African markets still underestimating the social and political risks involved. But they are getting better at this, without a doubt.” “The Chinese Government together with the African Development Bank is putting a lot of effort into the education of Chinese investors entering these markets, regarding aspects such as environment issues, socio-economic issues and labour concerns,” adds Shen. “In this regard, we can provide thorough risk management and understanding of the local conditions. We’ve seen risks that have been rated by local Chinese companies without fully understanding the local environment,” says Prinsloo. “In Zambia, for instance, a road contract going through a wetland was awarded to a Chinese contractor. A wetland environment has a major impact on the risk and requires that the work is done outside of the rainy season, which the contractors had entirely underestimated. So, it’s instances like this where the local knowledge adds a lot of value.”

2012/10/12

challenge in the current landscape. “There is a strong focus from governments on supporting local business, and localisation rules are increasingly coming into effect,” says Prinsloo. “Markets like Nigeria, for instance, closely monitor all goods and business leaving the country, as well as contractors and operators coming in. Those without strong local content, or local market participation, are frowned upon, and we’re seeing more fines being issued in these markets. Understanding is growing that you can’t just bring people in to create infrastructure to extract resources without supporting local markets, and investors are more aware that their businesses have to offer beneficiation to the local market at a broad scale beyond one specific project. Similarly, skills transfer is a key focus area, and a range of regulatory change is coming in around both,” he continues. The recent shift in South African immigration law is a stark example of this trend. “This will certainly make things tougher in South Africa. Chinese companies used to bring in their own labour force, but are now limited in terms of how many people they are allowed to bring in,” says Prinsloo. While skilled labour will be less affected, this will significantly limit the import of general labour. C

“This is a growing global trend in response M to rising unemployment rates,” notes Shen. Y “South Africa is now in the spotlight, but many countries worldwide will look to tighten their CM immigration laws to limit the import of labour, MY and other African countries will follow suit CY in time.” CMY

Shifting regulatory sands

“Localisation is playing out in the insurance K market, too, with many markets focusing on local retention,” she continues. “Previously, many Chinese businesses brought the risk back to China, but now local markets are tightening on this. Companies must first exhaust local capacity and only then make use of capacity outside the country.”

Regulatory change, complexity and challenge is no stranger for any multinational operation – and it’s no different for Chinese businesses operating in Africa. As African policymakers seek to protect local interests, an incremental trend towards localisation is a notable

Both Prinsloo and Shen emphasise the positive implications of this shift. “This will add to local regulatory certainty, will build stronger local companies and enable further skills transfer, ensuring that the right skills are developed in each country,” says Prinsloo.

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2361 TheCheeseHasMoved

g the servicin of in y it n ds rtu .” ent nee r oppo a majo isk managem uthern Africa is e r e o r S d “Th n in a ce king insuran mpanies wor o c e s e Chin

PAND Managing your business risk

According to data and software consultants ECA International, 50 per cent of multinational companies currently have no policy in place for dealing with a pandemic. As the Ebola virus continues to spread across West Africa, and trade and travel routes are closed in response, companies are urged not to panic. But the need for a plan to mitigate both employee and business interruption risks is abundantly clear. By Sarah Bassett

EMIC T

hough first discovered in 1976, the recent outbreak of the Ebola virus is the largest to date. With more than 2 615 suspected cases of infection and 1 350 deaths (at the time of writing) the virus is disrupting communities and economies in Guinea, Liberia, Sierra Leone, Nigeria, and most recently the Democratic Republic of Congo. On 8 August, the World Health Organisation (WHO) declared an international public health emergency, formalising the severity of the situation. The outbreak has dominated headlines and raised global fear, but the first step for business continuity professionals is to assess the facts and risk, without panicking, emphasises Charlie Maclean-Bristol, director of training at Business Continuity Training. “Our role should always be to provide calm and unemotional advice, without adding to the spread of unnecessary fear.” Critical to

maintaining calm is to understand that Ebola is not airborne, and therefore not as easily spread as viruses such as flu. Transmission between people occurs as a result of direct contact with blood or other bodily fluids from infected humans. Though it does have a high mortality rate, often quoted at 90 per cent, Maclean-Bristol emphasises that this improves greatly with early treatment, which can reduce mortality to 30 per cent.

“While panic is not necessary, if your organisation has operations, employees or supply links with countries included in the outbreak area, specific actions do need to be taken, and scenarios planned for,” he notes. Tracey Linnell, general manager of advisory services at ContinuitySA, comments that the outbreak should serve as a wake-up call to companies to get pandemic strategies in place as part of their business continuity

management plans. “Companies need to look at the current Ebola outbreak and what risks it poses to business and employees, and put protocols in place now. At the same time, they should make sure their overall approach to pandemics is in place.” “The first step is to have clear guidance for staff travelling to the region or for staff based there. In-line with WHO guidelines, it is not necessary to restrict all travel to these regions, as the method of transmission means the risk for travelers is very low,” David Hutcheson, managing director of business continuity consultancy, Glen Abbot. Companies with people who travel into the region or that have business relationships in West Africa need to be sure they are educating staff about symptoms and are monitoring the health of at-risk employees. Companies also need to have a plan for getting employees out of countries they

Army researcher fighting Ebola on front lines

Ebola virus virion

10 steps for corporate pandemic preparation (Steps by Stephan Engel, managing director of crisis management consultancy, Regester Larkin Middle East)

Review and fine-tune internal processes and corporate infrastructure to manage a potential outbreak which may require significant numbers of employees to stay at home with no physical access to office facilities.

might be visiting if borders are closed, Linnell adds.

should think through whether staff need any additional precautions.”

“As risk and continuity professionals, we should be monitoring the spread of the illness on a daily basis. The WHO website provides excellent, in-depth updates and information on Ebola and its spread.

“Corporations should absolutely provide critical information on the situation, what to do and especially what not to do, such as approaching areas of contamination, patients, potential affected persons, etc.,” says Nick Wildgoose, global supply chain product leader at Zurich Insurance.

We should know if we have operations in an affected country and we should monitor staff travel,” says Maclean-Bristol. “If we have operations or staff travelling there, we should carry out a risk assessment, and

Marsh Risk Consulting, the global risk division of Marsh, has provided organisations with a check-list for prevention

Address business continuity impacts, sudden changes to the market environment as well as potential supply chain problems.

Ensure plans address how to support and service clients’ needs when travel to their sites may be restricted.

Confirm that crisis management, business continuity and emergency response plans include detailed pandemic protocols, including travel policies, hygiene and medical screening guidelines, as well as procedures to access to health support.

Identify ways to minimise employees’ exposure to a potential health threat by providing them with the tools and technologies to work from home, at safe sites, or from another country. Couple this with a clear policy stipulating the circumstances when staff should stay at home to avoid confusion and any unnecessary exposure.

3. 4.

Verify and update contact lists of key internal and external stakeholders.

and mitigation of Ebola risk for employees travelling or working in affected countries: • Monitor developments via the websites of the WHO, Centre for Disease Control, your national health authority, and local health authorities. • Educate yourself and employees about Ebola’s transmission and infectioncontrol measures. • Unless it is business-critical, consider curtailing travel to affected countries or locations. • Employees considering travel to affected areas may want to reconsider their itinerary or plans, especially if they are ill immediately prior to travel dates. • Employees in an affected area must avoid high-risk activities such as contact with ill people or the bodies of people who have died from Ebola, with sick or dead wildlife, or with bushmeat. • Pay strict attention to hygiene. Employees in affected regions should frequently wash their hands or use hand sanitizer, avoid touching their face, and avoid close contact with an obviously sick person. • Be aware that screening and isolation measures are already or may be put into place, particularly following the WHO’s recommendation that countries affected by Ebola conduct exit screenings at international airports, seaports, and land crossings. Any travelers suspected of being sick or in contact with an infected person could be quarantined. • If an employee becomes sick in any affected country and has symptoms similar to Ebola (i.e., malaria), it may prove more difficult than usual to travel regionally or internationally for medical treatment. If an employee does happen to fall ill while traveling, avoid medical facilities treating Ebola cases. • Authorities could close down borders to combat the disease, thereby stranding employees in that country. • If an employee does travel to a suspect area or come in contact with a suspect person or contaminated object, they should monitor their health and seek medical attention if they feel sick (fever, headache,

7. Ensure that important corporate

information can still be effectively and securely distributed across the company in the event of a pandemic. This includes health updates, but also information that relates to business operations. The unrestricted flow of information will enable management to still make informed decisions about business strategy and dayto-day operations even during a pandemic.

8. Continuously monitor the advisories of

achiness, sore throat, diarrhoea, vomiting, stomach pain, rash or red eyes).

Business, interrupted “Although the first priority for many companies is to protect the well-being of their employees, many companies are also concerned about how this outbreak will affect their operations and revenues. Companies with operations in the affected areas include oil and gas operators, mining companies, and humanitarian aid organisations as well as those who rely on the raw materials or commodities in the area,” writes Logan Payne, senior account manager for brokerage Lockton Global’s international practice, and author of the recent report, Ebola Outbreak: Risk Management and Insurance Considerations. “The possible impact on employees is inevitably the first thing people think about, but businesses also need to pay strict attention to their supply chain dependencies,” says Linnell. “The interconnected nature of many companies means that even if they are not directly affected, they may suffer through affected supply chains,” adds Wildgoose. “The outbreak has seen curfews enforced in some countries, as well as voluntary evacuation of employees by many companies, causing work sites and retail locations to halt operation. Global supply chains have been disrupted as ports and borders are partially or completely closed, and companies across Western Africa have closed their doors,” writes Payne.

Activate contingency plans According to Payne’s report, alternative production sites and supply chain partners should be used to reduce the impact on revenues. For those organisations where operating revenue is donor-driven, perception and public relations of how a company handles this crisis may impact future operations.

A note on insurance If organisations are forced to temporarily close their operations due to pandemicrelated issues, many will seek business interruption coverage from their insurer. “Most policies trigger coverage for business interruption only after the policyholder has experienced a direct physical loss to the premises in question caused by a covered peril,” notes Payne. Companies should contact their insurer to confirm whether their interruption policy will cover pandemic-related interruption, and if not, companies should investigate alternative options. Payne emphasises that directors’ and officers’ cover, as well as general liability policies, should also be checked and updated to ensure the company is covered in the case of alleged negligence. Business travel accident and personnel health insurance policies are critical, and should also be checked and updated where required.

“In general, many companies have seen an abrupt halt in productivity coupled with a rise in prices for many critical services in countries like Liberia, Sierra Leone, and Guinea. The unprecedented size and scope of this outbreak has caused many companies to question what their response should be and whether insurance products are available to them that may assist.” “Companies that haven’t implemented a business continuity management plan should consider doing so as a matter of urgency,” concludes Linnell. “This means that they will have an integrated response and mitigation strategy to this and other risks in place.”

the World Health Organisation (www.who. int) for the latest developments in affected areas, as well as any information provided by local government sources.

Companies should ensure they run internal awareness campaigns to alert staff to the risks of a virus, such as Ebola and Mers (Middle East respiratory syndrome coronavirus) but also to inform them of the kind of precaution that the company has in place to deal with an outbreak. Not only does this ensure a higher level

Kenema Hospital Sierra Leone

of preparedness across the company, but knowing that plans are in place will also provide comfort and assurance to the workforce.

10. Regular drills and exercises

are additional key components of effective preparation for a pandemic threat. They should be conducted on-site at least once a year to ensure employees have the necessary skills to respond effectively in such an event.

1515

Wreckage of the Malaysia Airlines MH17 flight near Rossipne, Donetsk region.

Aviation risk in Africa Aviation has had a disastrous 2014. Several high profile incidents have pushed aviation safety to the forefront of transportation and business concerns. As Africa reportedly has the highest aviation accident rates in the world, it is important to understand the risks involved in the growing industry. By Luka Vracar

Investigation of the crash site of flight MH-17 by Dutch and Australian police officers.

separatists. The downing of the plane killed all 283 passengers and 15 crew on board. The incident sparked urgent investigation and an outcry over aviation safety, particularly as MH17 was a commercial airliner flying from Amsterdam to Kuala Lumpur with no association to the conflict. The world was still in shock at the downing of flight MH17 when, seven days later, Africa experienced its own tragedy. Commercial airliner Air Algerie Flight 5017 crashed in northern Mali after going missing amid reports of heavy storms approximately 50 minutes after take-off killing all 116 on board. The cause of the crash is unknown. For Chris Zweigenthal, chief executive officer at Airlines Association of Southern Africa, the two Malaysian Airways incidents are not aviation issues, not in so far as aircraft situations. The casualty of flight MH17 is purely a political/war situation. The disappearance of MH370 is an incredibly rare mystery.

ne of the biggest news stories of the year remains the disappearance of Malaysia Airlines Flight 370 (MH370). The plane lost contact with air traffic control less than an hour after take-off from Kuala Lumpur and subsequent investigation revealed the plane veered off its course towards Beijing. What followed was the most expansive search effort in history, and yet the plane, which was carrying 12 crew and 227 passengers, has still not been found. Theories range from a cockpit fire, to hijacking, to a cyberattack. Governments and analysts have concluded that MH370 ended up somewhere in the southern Indian Ocean. Only 131 days after the disappearance of MH370, Malaysian Airlines Flight 17 (MH17) was shot down over Ukraine, amidst on-going conflict between Ukraine and pro-Russian

“I would hope that it does not impact on people’s propensity to fly, and I don’t think that it should. Flying is a part of life, and we had a very good year last year with regards to the aviation safety record worldwide, and certainly Africa’s record, which was the best ever. I am not sure why this year has been terrible, taking these incidents in account,” says Zweigenthal. While the recent incidents have turned the public’s attention to safety of air-travel, flying remains relatively safe. According to the International Air Transport Association (IATA), of the 36.4 million flights last year, there were only 81 accidents, and only 16 of those included fatalities. And while the number of flights per year is increasing at a rate of about one million flights over the last five years, the number of incidents during the same period is at an average of 86, including 19 fatal ones. However, Africa has a significantly higher accident rate than the rest of the world. For 2013, the average was 7.45 accidents per million sectors (flights, including take-off and landing), while the global result was 2.23 accidents per million sectors. It was the safest year in modern commercial aviation history.

Last year’s results also show that Africa’s safety has improved significantly compared to its 13.53 accidents per million sectors five-year average from 2009 to 2013. However, this is still nowhere near the worldwide level, which had an average over the past five years of just 2.51. “It is safe to fly in Africa. It is less busy, and therefore easier to manage. The safety statistics indicate that it is less safe to fly, because the statistics indicate on a number of incidents per million departures are higher in Africa than it is in the rest of the world. But one must realise that the number of flights in Africa compared to the rest of the world is significantly lower, so one incident in Africa already gives you a higher rate than one incident in Asia, for example,” argues Zweigenthal.

Risk There are many factors that can contribute to an aviation occurrence. However, factors such as human error, mechanical malfunction, and weather are common worldwide. Yet, aviation insurance in Africa is more expensive than abroad. “I think the risk that is aggravated in Africa, from an underwriter’s point of view, is the cost associated with trying to get the aircraft recovered. If you look at the map, I think you will find that infrastructure, roads in particular, are few and far, and usually to recover an aircraft means having to make use of roads,” says Dave Rijntjes of Airspace Africa Underwriters. Aviation insurance typically includes provisions for the hull, which includes physical damage as a result of an accident (All Risks) or war, and aviation liabilities, which includes passenger, cargo, and third-party liability. However, the high cost of infrastructure in Africa would significantly affect insurance due to the unique risks. For example, while the aviation insurance provisions are the same anywhere in the world, because of the possible costs involved in recovering a damaged aircraft from an inaccessible location, the excess is significantly increased. The way planes are flown, as well as the types of plane used in Africa is different. Planes tend

A dry cargo and ammunition ship, conducts a replenishment at sea, in support of the international effort to locate the missing Malaysia Airlines Flight 370.

to be older, not just in commercial aviation, which uses mostly Western built hulls, but in general aviation as well. Here, older Russian aircraft that would have been scrapped in other parts of the world are common. Cargo and small charter aircraft sometimes have to land on damaged, unmaintained runways, and many of the smaller airfields might have limited or even no air control. This increases the chances of hull damage and would also increase premiums. “To a degree that is true for South Africa as well. If you look at the smaller municipalities that still have runways from years gone past there is just not really money available to keep those runways and taxiways in very good condition in many instances,” says Rijntjes. Rijntjes also laments that there is often a lack of radar coverage, which does not help matters. The availability of Avgas, the fuel used in aviation, is sometimes sporadic and the quality questionable. The cost of Avgas is between 20 and 30 per cent higher than anywhere else in the world, mainly because of fuel charges and fuel tax. “The risks are related to complete oversight capability, therefore ensuring that aircraft are well maintained. The other thing is the safety of the skies, in terms of managing the airspace through the air traffic services. There are so many safety regulations in place and it is important that the airline industry, together with the civil aviation authority, ensure that their staff training is up to scratch,” says Zweigenthal. It is important to understand the risks on a subjective basis. For individuals, knowing the different conditions and circumstances that aircrafts have to operate under in Africa is critical in ensuring the correct and complete insurance cover. African initiative In 2012, The Abuja Declaration endorsed the Africa Strategic Improvement Action Plan set out by IATA, International Civil Aviation Organization (ICAO), and other aviation stakeholders to address safety oversight

U.S.naval aviator performs preflight checks in Perth, Australia, before going on a mission in support of the international effort to locate Malaysia Airlines Flight 370.

capabilities. The Declaration aims to reduce Africa’s aviation accident rate to world levels by 2015. Zweigenthal adds that there is a goal to have all African airlines IATA Operational Safety Audit (IOSA) certified by 2015.

have in Africa is that we are still operating in a regulated environment. Many states jealously guard their route rights, and it does constrain the growth of airline travel and air traffic in Africa,” says Zweigenthal.

“The world is 2.23 accidents per million sectors, whereas IATA members are 1.57 accidents per million sectors. So there is a much better record for IATA members, and it probably has to do with IOSA certification,” says Zweigenthal.

In 1999, the Yamoussoukro Decision proposed the liberalisation of Africa, permitting airlines to fly between states in Africa. However, this did not materialise. There were a number of regulatory issues, but there was also a concern from several of the states that believed (because they wanted to support their own airlines) if they allowed liberalisation, some of the state airlines would disappear. Africa never reached the point of liberalisation, and some of the larger markets are still constrained by bilateral route rights.

According to the Abuja Declaration, risks can be reduced by the adoption and implementation of an effective and transparent regulatory oversight system that includes mandating the implementation of the IOSA to all airlines. Furthermore, stakeholders need to commit to the following: runways need to be considered and the appropriate safety measures implemented; the quality of training for pilots and all aviation operators needs to be increased and flight data analysis and safety management systems need to be implemented. Zweigenthal indicates that IATA is establishing regional safety oversight organisations. This should significantly increase safety and reduce risk if there are states that do not have the finances to have their own civil aviation authorities. There is one in West Africa at the moment and IATA is looking to set up a second one in Southern Africa.

Growth IATA’s report Aviation Benefits Beyond Borders 2014 states that aviation provides 6.9 million jobs in Africa, and contributes $80.9 million in GDP in Africa. In 2012, Africa saw 69 million passengers on 1,584 million flights. There are 371 commercial airports on the continent, and 245 airlines. Africa is currently in its 50th year of aviation and is growing faster than any region on earth. Yet, possibility of growth is larger still, if operations can be improved and risks reduced. “There is a huge ability for growth in Africa. One of the biggest concerns and problems that we

“That is one of the things that needs to change. We have spoken about it for 15 years and we are still not getting there. I think there is a realisation for countries in Africa that they will only prosper if they start to liberalise better. Some of the airlines, such as Kenya Airways, have started to benefit from the fact that they managed to open up. They are also getting more involved in taking equity stakes in smaller airlines, forming alliances with other airlines, and are aware that it is a way to open up the market to get more feeder traffic into their hub areas,” says Zweigenthal. Africa is currently growing at approximately one per cent more per annum more than the rest of the global numbers. IATA is projecting, and recording growth of roughly five per cent per annum, in terms of passenger numbers, which means that Africa is moving slightly faster than the rest of the world, but nowhere near enough to close the gap on the market share. “We have 15 per cent of the world’s population but only three per cent of the global air traffic in Africa. We definitely need double-digit growth in Africa to be able to compete more, and provide the level of service and network that the people of Africa actually need,” concludes Zweigenthal.

KIDNAP in Africa By Luka Vracar

n 12 February this year, a British teacher who taught English in the Yemeni capital of Sana’a was kidnapped on his way home from work. Mike Harvey was held captive for more than five months until his release on 27 July after a reported £140 000 ransom deal. It was the second high-profile kidnapping of a teacher in Yemen in as many years. In May of last year, South African teacher Pierre Korkie and his wife, Yolande, were kidnapped by al-Qaeda in the city of Taiz, Yemen. While Yolande was released after a negotiation between the disaster relief organisation, Gift of the Givers, and their captors in January 2014, Pierre Korkie

remains a captive. Speculation on his whereabouts and the negotiations with his captors continue. Both incidents demonstrate the threat of kidnapping to foreign nationals in Africa. Data from crisis prevention and response group, NYA International, shows that foreign nationals are targeted for their perceived high value. As long as there are environments of widespread poverty, corruption, ineffective policing, and active terrorist groups, kidnapping will continue to flourish as a for-profit practise and remain largely opportunistic. NYA International states that accurate global statistics about kidnap do not exist as many

incidents go unreported and the figures that national authorities do hold are generally not widely publicised. However, NYA is in agreement that tens of thousands of incidents occurs worldwide each year, and the threat of kidnap is increasing. “Kidnapping is a risk that some companies, who have operated in high-risk locations for some time, are very familiar with, and they have the experience and resources to manage it effectively. Not so for some smaller companies and those operating in high-risk environments for the first time,” says Alex Kemp, managing director of NYA International. Businesses and investors moving into Africa for the first time, as well

PING There are regions in Africa where the threat of kidnap for ransom is an established, continuous and rising risk. Companies and investors need to establish preventative and mitigation protocols before sending employees to areas where this risk is considered high or excluded from their insurance cover.

consulting on the situation and negotiate with the kidnappers for the release of the individual. The role of these consultants is essential as they can provide contingency planning and have a better record for the safe release of victims than instances when a crisis management consultancy was not involved.

Sub-Saharan Africa According to NYA International, Nigeria is ranked amongst the top three countries for kidnap and ransom in the world. It is also Africa’s largest economy. In May 2014, three foreign nationals were kidnapped along with two Nigerian nationals in the Niger Delta, a volatile region run by low-level criminal gangs who kidnap solely for financial gain. The incident emphasises the deliberate targeting of foreign nationals as the two Nigerian nationals were released shortly after the kidnapping. The Nigerian Islamist militant group Boko Haram made headlines in April of this year with the kidnapping of 276 schoolgirls from Chibok in northern Nigeria. The group has been ravaging the country by raiding villages and kidnapping or murdering its occupants. In May, Boko Haram kidnapped 10 Chinese nationals in an attack in northern Cameroon. Kenya has faced constant terrorist attacks from Somalia-based extremist group Al-Shabaab, particularly in northern coastal areas. The group is responsible for kidnappings of foreign and domestic nationals in the poorer areas around Nairobi and Mombasa, as well as areas close to the Somali border. NYA indicates that since 2010, a number of foreign aid workers have been kidnapped from remote areas, as well as the Dadaab refugee camp in the North East Province, with some victims held hostage for prolonged periods of time. NYA adds that 14 foreign nationals and 36 domestic nationals have been kidnapped in Kenya since 2011. Al-Shabaab is also responsible for kidnappings throughout its native Somalia. Foreign nationals are particularly exposed to the threat due to Al-Shabaab’s opposition to western interests in the region.

as companies already present throughout the continent, need to be aware of the dangers of the region they are associating with, and established companies within Africa need to adhere to the responsibility they have for their employee’s safety. Corporate travel and/or Kidnap and ransom (K&R) insurance forms part of that responsibility.

Insurance Kidnap and ransom insurance is essential for companies who are travelling or doing business in areas that are considered at risk. The cover will provide indemnifications for the financial aspect of a kidnap and ransom situation.

Roxanne Moodley, senior underwriter at AIG, describes the company’s kidnap and ransom insurance as crisis solution insurance cover. It covers a range of threats against company employees, families and clients. Traditional perils of kidnap, piracy, extortion, hijack and detention, are often supplemented with a broad range of endorsements including business interruption insurance, cyber extortion, hostage, assault, disappearance, express kidnap, and political evacuation. One of the most vital aspects of any insurance is the access to crisis management consultancies such as NYA and Red 24. In this case, the consultancies do the definitive

For this reason, the whole of Somalia is considered high risk, and because of the infighting between the domestic army against Al-Shabaab, the NYA warns that the central and southern regions that include the capital of Mogadishu and port city Kismayo are considered extremely high risk. There is also an increasing risk of kidnap in Mozambique. In the first half of 2014, there have been 10 reported incidents of kidnapping. The NYA indicates that foreign nationals, domestic nationals of Portuguese desent, and the urban middle class are at risk, particularly in the capital of Maputo. Ethnic-Asian Mozambican businessmen have been targeted since 2011, reportedly

in order to drive them out of the country in a bid to capture their substantial share of the trading economy. According to official announcements, there were 64 cases of kidnap for ransom between July 2011 and December 2013. The threat of kidnap extends offshore, particularly in Nigeria and Somalia. Even though piracy in the Gulf of Aden off the coast of northern Somalia has subsided in recent years, organised crime and militias continue to attack unprotected vessels. However, there is a constant threat of piracy in the Gulf of Guinea. NYA reports that there has been a spike of piracy attacks off the West African coast, in particular cases of crew being removed from vessels and held for ransom on land. In the first six months of this year, of the nine reported hijackings in Nigerian territorial waters, eight resulted in crew kidnappings, with clear targeting of key crewmembers, such as the chief engineer and captain.

North Africa After the ousting of Gadhafi in 2011, there has been a failure of installing political stability in Libya, and the subsequent lack of security has led to countrywide conflict wherein kidnapping for ransom has proven to be a lucrative operation. In 2014, NYA data indicates that more than 100 kidnappings have already taken place. Victims have included Libyan nationals, but trends show

that those targeted are high-net-worth individuals, as well as foreign diplomats, particularly in the capital of Tripoli. Algeria has had its own political instability, with the militant group Al-Qaeda in the Islamic Maghreb (AQIM) trying to overthrow the Algerian government. According to NYA, the group is relying on kidnap for ransom of foreign nationals to fund its operations and has carried out attacks across the Sahel region.

Awareness The British Home Office (BHO) issues travel advisories that indicate which areas can be considered high risk and when. Companies and staff need to monitor the travel advisories and not travel to areas with high risk. In most instances, travelling to known high risk areas could result in exclusion

“Certain key decisions should be clarified in advance: when you are dealing with an incident you do not want to be slowed down by trying to establish your company’s policy towards payment of ransom – know this in advance so you can act accordingly. You should also understand the likely logistics of an incident, according to the country you are in, including any legal/legislative issues. You will potentially need a media strategy and decisions will need to be made regarding liaison with the local authorities – there is a lot to think about, and in the throes of an incident, things can unfold at an alarming rate,” says Kemp. Companies and investors need to consider that when people land at a foreign airport, the image they project, as well as their behaviour could lead them to be a target.

from insurance. “Employers are required to make suitable and sufficient risk assessments for employees who travel on business, particularly when asking them to travel overseas,” adds Moodley.

Examples of this are the hotel the traveller is staying at, if it is a high-end hotel it could portray the traveller as a high-net-worth individual, likewise the traveller’s clothes and entourage. Business travellers need to limit the awareness of their activity in the country.

A significant portion of this risk assessment is awareness. Travel insurance and K&R insurance is vital and needs to be adequate. Personal awareness and security training is also a must. Kemp suggests that all company employees, such as travellers, expatriates and local staff, should undergo security training.

“Unfortunately many people think that kidnapping will never happen to them, and many of the companies we provide response services to been caught unprepared. It is critical that companies take responsibility for the risks faced by their staff and their dependents. Be prepared for the unexpected,” says Kemp.

Partner with Aon Best Global Insurance Broker in Africa for 2013* Anton Roux, CEO: Aon South Africa, explains: “This award follows a number of innovative risk management and insurance solutions, empowering human and economic possibilities for our clients to help them achieve sustainable growth, continuity and profitability. Aon has the largest majority-owned network in Africa, servicing clients in 45 out of 54 countries.”

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Here to stay Taking over one of South Africa’s oldest, and certainly its largest, underwriting management agencies in February last year, Gary Corke is filling the shoes of his predecessors with quiet confidence, clarity of focus and determination to deliver the value proposition for which Stalker Hutchison Admiral (SHA) has become known. Gary Corke CEO at Stalker Hutchison Admiral

ony Stalker and Angus Hutchison formed Stalker Hutchison & Associates 29 years ago, when they saw an opportunity to offer the South African market an alternative to Lloyd’s, especially with regard to Broad Form Liability insurance. Starting off with a small balance sheet and limited capacity, Stalker and Hutchison grew the business into what is today a 150-strong company writing a large share of liability insurance premium in the South African market and beyond. It also writes motor business, accident and health insurance, professional indemnity cover and financial lines products.

By Hanna Barry and Sarah Bassett

“Being part of certain selected global insurer networks, the company has local partners in virtually every country on the African continent. This enables us to follow our clients and to have local policies issued, where required. We have been actively operating in Namibia for a number of years and have, to a lesser extent, also been operating as a capacity provider in other African countries, where there is a need for our underwriting expertise and technical support,” Corke explains. Stalker Hutchison & Associates was initially backed by Italian insurer Generali’s local arm,

Stangen. Stangen was bought by Guardian National, which was later bought by Santam. In 2008, a merger with the Admiral Underwriting Group gave birth to the current entity, Stalker Hutchison Admiral (SHA), making it the largest niche underwriting manager in Southern Africa.

Shifting focus, broadening horizons For Corke, the offer to lead SHA was a massive opportunity and challenge. Having moved to South Africa from England in 1992, he co-founded what was then known as Emerald Underwriting Managers in 1999, together with

litigious as what we are experiencing locally. In the rest of Africa, as is the case in South Africa, it remains a challenge to write profitable Commercial Crime business,” adds Horne. A recent eight-figure court award for a thirdparty liability claim starkly illustrates this shifting landscape. Corke notes that this award will fundamentally change one of SHA’s products and the way it is rated. “There has been far more interest in South Africa around insurance claims over the last few years and whatever you may have perceived as being the correct award a few years ago is radically different now. This will continue and is in keeping with the way legal environments in the rest of the world have developed, coupled with a society that has become more aware of the opportunity to take on insurance companies and a legal fraternity that has done a good job of advertising that they have the right to do so.” Along this line of thinking, Corke has ploughed fresh focus into developing new products, as well as expanding distribution channels and territorial limits. The last year has seen SHA bring out a cyber-liability offering, as well as a gradual-pollution policy. In addition to product innovation, SHA is focusing on providing African clients with global solutions as they grow business operations beyond the confines of the continent. Sanlam and Santam’s interests in southeast Asia present fresh opportunity to distribute products there, too. In conjunction with a shift in focus, Corke has implemented more management reporting at SHA while driving the use of new technology, developing a revamped website and a launch into the social media environment.

Going above and beyond While this may be true, keeping head above water in a market fraught with legal and regulatory challenges, coupled with downward pressure on rates, remains a challenge. “We have walked away from renewals where the rates were not sustainable,” acknowledges Horne. “Ours is not an off-the-shelf product. Too often, there is little understanding among consumers about the differences between insurers’ offerings. Clients and brokers need to appreciate the fact that liability is long tail business, and they need to be sure that their insurers are around when claims mature. If the only thing for which a client is looking is to save on premium, we will often lose their insurances.” Dave Manuel, out of a belief that the corporate property market needed alternative insurance solutions. “In order for a UMA to survive and remain relevant, it has to have a value proposition that takes it beyond what large corporate animals can offer,” Corke professes to this day. “It takes a degree of imagination to start a UMA.” Indeed, in an increasingly challenging business and legal environment, a great deal of imagination is required. “We have to adapt to a rapidly changing environment, otherwise we will stagnate. Those who can adapt and

are strong enough will likely survive and flourish,” Corke maintains. In 2014, for SHA’s business in Africa, this has meant taking a proactive approach, built on cementing local partnerships says Corke. “Going forward, we will be focusing on growing the local businesses acquired by Sanlam Emerging Markets (SEM) and have selected some strategic local partners in other countries, through whom we will be offering our products.” Hendre Horne, chief underwriting officer, explains. “The trends in Namibia are very similar to those in South Africa, however it is not quite as

Backed by Santam’s balance sheet and a willingness to treat each case on its merits, rather than run away from paying claims, Corke says SHA tries very hard to differentiate its offering. “Our shareholders will always demand returns and our customers will always demand value. We will remain relevant for as long as we continue to exceed the expectations of our shareholders and customers. I have a clear strategy about how to keep doing that and feel very privileged to have this role. There are great challenges ahead, but that is what makes it so exciting.”

The future of

Borrowed

time By Luka Vracar

What are Africaâ&#x20AC;&#x2122;s debt levels? According to analysts, no one really knows the true figures. While sub-Saharan sovereigns are lining up to become Eurobond issuers, the threat of uncontrolled spending could lead fiscal ratios to spiral out of control. Foreign investors need to do their homework.

ne of the world’s largest rating agencies has indicated that sub-Saharan Africa’s real gross domestic product (GDP) is expected to grow more than six per cent on average this year. According to Standard & Poor’s (S&P) this is owing to improved prospects in sectors such as telecommunications and financial services, increased commodity demand, and improving political stability.

Foreign investors, however, should not be wooed by the growth just yet. Africa’s stability is not yet certain. S&P warns that strong economic growth has not led to stronger credit quality, because of high fiscal and current account deficits. Fiscal ratios are widening, and faster growth consequently increases demand for both consumer and capital goods imports. This is then supported by the need for new infrastructure projects and increased social spending. Sub-Saharan sovereigns have increased funding requirements for two reasons. Firstly, low-income sovereigns do not qualify for grant aid as they are attaining

middle-income status and are seeing less donor support and concessional loans as a percentage of their GDP. Secondly, donor countries have cut back on aid as a consequence of recession. As a result, S&P indicates that non-concessional borrowing is estimated to increase by 49 per cent to $61 billion this year. “Using the IMF forecasts for net financing requirements, African fixed income markets will have to raise the majority of $500 billion within the next five years. This is equivalent to about four per cent of GDP per country per year. It will take Africa’s stock of debt to over a trillion US Dollars, which is no small task. Are African fixed income markets up for it?” asks Antoon de Klerk, portfolio manager for Investec.

Eurobonds African Eurobond issuance has become the trend as sovereigns look to diversify their sources of finances away from traditional and bilateral loans. Since Ghana became the first African country to benefit from debt relief through a $750 million 10-year Eurobond, other

SSA sovereigns have lined up. Angola, Gabon, Ghana, Kenya, Nigeria, Rwanda, Senegal, South Africa and Zambia, have all raised funds through international debt markets. Ghana and Senegal are expected to issue new Eurobonds this year, worth $500 million and $1 billion respectively. Despite the US Federal Reserve tapering its asset purchases over the past year, and global investors generally moving away from emerging markets, demand for African Eurobonds has stayed fairly robust. There is a risk of over-borrowing warns Frontier Advisory chief executive Martyn Davies. A risk that is could see a country spiral into debt. Even though no subSaharan countries are in immediate danger of default, and only two, Ghana and Kenya, have their government debt rated as a burden by S&P, countries that overextend themselves without reinforcing policymaking could follow. “When you look at a country like Ghana, for example, it’s probably in the worst position. With the IMF lifting the lending

cap, within a short space of a year and a half later, it left Ghana with serious macroeconomic problem as a result. They have overextended themselves. The countries that are most at risk would be Ghana and Zambia,” says Davies. After Ghana issued its first Eurobond in 2007, it became the darling of investors. Economic growth reached 15.5 per cent in 2011. However, the state was unable to stop its growing fiscal deficits, and now its government debt represents 59.9 per cent of its GDP, an increase from 32.8 per cent in 2008. At this rate, S&P expects Ghana’s debt number to reach 61 per cent of GDP next year. Zambia issued a $1 billion Eurobond in April of this year, its second international issue after a $750 million debut in 2012. Most recently, Kenya issued its first Eurobond worth $2 billion in June. The bond attracted strong investor demand, and at $8 billion worth of bids, it was four times subscribed. It was the largest debut for an African country in the sovereign bond market. While Zambia’s debt is still low, at 34.1 per cent, it is projected to increase. S&P assess the country’s economic structure and growth, institutional and governance effectiveness, and fiscal flexibility and performance as weak. The rating agency has a negative outlook for the country, owing to its deteriorating

fiscal position and low demand from key export partners. The current overall African debt levels are not near to recording the levels that lead to the World Bank’s Highly Indebted Poor Countries initiative (HIPC) and the Multilateral Debt Relief initiative (MDRI), which cleared an estimated $100 billion of debt last decade from up to 30 subSaharan African countries. However, data from S&P shows that, aside from Ghana and Zambia, debt levels are also slowly increasing in Benin, Malawi, Niger, Príncipe, Senegal, São Tomé, Mozambique and Uganda. If the debt ratios of these countries continue to grow at the current rate, their debt could reach the levels prior to HIPC and MDRI relief. Sovereigns are also accumulating private debt. Zambia’s Ministry of Finance permanent secretary, Felix Nkulukusa told Reuters earlier this year that Zambia has turned to private creditors as funding received from the IMF and World Bank was not enough for the country’s necessary infrastructure. “Nobody really knows the debt levels, because a lot of the Chinese lending, for example, is lending which is very hard to track. If you were to ask the OECD Development Centre in Paris what the overall OECD lending is for, they have no clue. Nobody actually knows.

You can look at the individual country level, but nobody knows what the debt levels are specifically, and where the money is coming from and where it is going. So it is very vague,” says Davies.

Investor duties Africa’s capital resources need to be employed to fund the continent’s investment needs. De Klerk says that a single investment vehicle will not cover the financing needs of the sovereigns. It can, at this stage of development in several of the African markets, play a critical role as a catalyst. What sovereigns do with the new windfall of funding plays a crucial role in alleviating the rate of borrowing. Zambia, for example, needs to spend on road construction and maintenance, as well as increasing energy production. Kenya has indicated that more than half of its $2 billion Eurobond will go to infrastructure. However, economists warn of a deterioration of policymaking as money pours in. “Infrastructure is one thing, but if you have not got a private sector moving into that space that the infrastructure creates then I don’t think that it is all that exciting. An example is: there is no point in building roads if they are not going to be tolled effectively. I think in our case the assumption is that the market is going to step in, and often the market does not step in, despite robust growth rates,” says Davies. “I do not see the rise of this private sector benefitting from this infrastructure, new infrastructure especially. I think when it comes to improvements in court management and more direct things in key cities then yes, but it’s not a capital issue, it is a policy, bureaucratic, efficiency issue” adds Davies. The challenge for governments will be to ensure that borrowed funds are invested wisely and not mismanaged. Investors and businesses in SSA sovereigns need to be sure where their money is going. Risk management in the long term and knowledge of the state’s fundamentals, is crucial. Whether or not governments can pay back their debts with returns generated from infrastructure developments will be a good sign of their stability. “African fixed income markets, along with the economies that they (in part) finance, have developed materially over the past ten years. In addition, other aspects of African economic development, such as infrastructure development, per capita GDP and regional integration have also experienced substantial developments over the same time period. Although, it is probably fair to say what we are not yet where we want to be,” says de Klerk.

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Continental Re

opens Southern Africa office By Sarah Bassett

Announcing the opening of its Southern Africa office, Continental Re group managing director and CEO, Dr Femi Oyetunji, chats to RISKAFRICA about the companyâ&#x20AC;&#x2122;s future and what global players can learn from successful African financial services companies.

ontinuing its plan for continental expansion, Africa’s largest pan-African reinsurer outside South Africa, Continental Re, has opened a Southern Africa office, located in Botswana. The office will service all Southern African markets excluding South Africa. This follows the opening of its North African office in Tunis earlier this year. “This has been a long time in the planning and is part of our five-year strategic plan to be the premier reinsurance company in Africa,” Oyetunji comments. The five-year plan will see the reinsurer become a strong group of companies with a presence across every region of the continent by 2017, at which stage the company will consider entry into the South African market. “Currently, 60 per cent of our premium income is derived from the Nigerian market and 40 per cent from the rest of our African operations. By 2017, we plan to invert this,” he explains.

Selection and strategy Botswana was selected both for its excellent economic climate, credit and investment ratings and central location, Oyetunji explains. “Botswana is the only A-rated country in Africa, a reflection of its investment climate, corporate governance and the ease of doing business in the country. It is also centrally located for the southern region and is itself an economy in rapid growth, with multiple opportunities.” According to Oyetunji, opportunities in the southern region abound across all classes, with engineering and construction the most exciting sector at present. “With this in mind, we were careful to employ engineers when building the team for Botswana, to ensure we can provide the right services to our clients.” The Southern African strategy includes a key focus on the Angolan and Mozambican markets, and the Botswana team also includes a number of Portuguese speakers. “Angola is the fourth largest market in Africa, with oil and gas as well as infrastructure all booming, so our engineering and construction offering for this market will be a strong focus,” he adds.

Expanding from the north With so many South Africa-based companies expanding north, it is refreshing and exciting to see a successful Nigerian firm expanding south, bringing fresh perspective and insight. “We come from a position of understanding the rest of Africa, excluding South Africa. There is nothing any African country is going through that we have not been through in Nigeria. We’ve been operating in Nigeria for 25 years, and have gained experience we believe is relevant to other markets. We’ve been there and we’ve seen it. That said, when we go into a new market, we don’t try and transplant what we have in Nigeria, we have always found a local partner from that region that understands and shares our vision and passion to drive our entry into these markets.” For Botswana and Southern Africa, that partner is Zimbabwe-listed TA Holdings, the majority shareholder in Botswana’s largest insurance company. “As partners, they bring substantial local knowledge of the business and markets in the region,” Oyetunji concludes. “Africa is a huge continent, so looking at it in a monolithic way is not beneficial,” he emphasises. “The different regions are critical to understand. For instance, tourism is big in Southern Africa, oil and gas in West Africa and agriculture is key in East Africa. You need to know what is most important in each region and provide what each region actually needs and requires. For Continental Re, we don’t look at Africa as a country, which I believe many people around the world still tend to do.”

Learning from the locals “Africa has become more attractive to global players and we’re seeing enormous economic growth and rapid increase in middle-class numbers. We’re seeing better corporate governance across most countries, with the rate of growth outstripping the rest of the world. All this is certainly drawing international interest.” This interest, says Oyetunji, is beneficial for the continent, given the influx of skills and investment. However, global players also have plenty to learn from their local counterparts, he suggests.

For instance, at the recent African Insurance Organisation (AIO) in Kigali, Lloyd’s of London CEO, Inga Beale, was excited to learn of the extent of cellphone usage in the insurance business in Kenya and East Africa, where insurers are selling products, tracking claims and moving money all through mobile phones. “She was excited that this was something to learn from Africa. There are lots of things happening in Africa that nonAfricans can benefit from. We have unique products, unique ways of doing things and these can also work in developed markets,” says Oyetunji. “In many developed markets there remains an enormous opportunity to provide more insurance. Underinsurance and low insurance penetration is not just an African issue, it is a concern worldwide, so developed markets could borrow some of the things we are using to access people and deepen their own markets.”

Culture shaping business In essence, the business of insurance is international, and the fundamentals remain the same everywhere. In practice, there are some differences required. “In situations, for instance, where you have a dominant Muslim population, this might affect compliance in the region. That is why we have a takaful offering in Tunis. In many parts of Africa, we don’t have sophisticated financial systems, so premium collection and product distribution models are slightly different. Insurers need more people on the road, relative to their developed market counterparts, to reach clients and collect premiums. Companies need to talk a lot more and educate people in order to sell their products. These are the things that differ from developed markets, and you do need to understand these aspects and find ways to work around them.” Information communication technology is, for many in Africa, providing some of the solutions needed in this regard. In addition, says Oyetunji, the increasingly embedded role of technology in African insurance will make access to data and analysis of this data easier in the future. With its strategic plan firmly underway, there is little doubt that the Continental Re is a panAfrican player to watch with great interest into the future.

Africa’s middle class numbers exaggerated, By Sarah Bassett

but growing

n recent years, reports have placed the size of Africa’s middle class at 300 million people. A new report from Standard Bank, focused on 11 of Africa’s top sub-Saharan economies (South Africa excluded), suggests that this number is dramatically smaller, at 15 million households, but that growth is indeed rapid and accelerating. The report, Understanding Africa’s middle class, explains that the previous measurements attached middle class status to individuals earning between $4 and $20 a day, and even a ‘floating class’ of individuals earning $2 to $4 a day, thereby categorising one-third of Africa’s people, over 300 million, as ‘middle class’. This was the measure used in the influential African Development Bank (AfDB) study, The Middle of the Pyramid, which claimed that by 2010, 350 million people, or 34 per cent, were middle class. This figure is misleading for investors who may make assumptions based on a faulty perception of market size. “Such individuals would still be exceptionally vulnerable to various economic shocks, and prone to lose their middleincome status,” explains Standard Bank senior political economist Simon Freemantle, author of the report. “Any view concerning the undoubted ongoing improvement in Africa’s economic performance has to be tempered with the reality that the level of this growth and the nominal size of the continent’s middle class had not, until now, been adequately measured,” he adds.

A new measure The Standard Bank report bases its figures on the Living Standards Measure (LSM) methodology, which uses lifestyle indicators beyond only income. The methodology identified LSM 5 and above as middle class and categorises household income into four distinct income bands: low income; lower middle class; middle class and upper middle class. The 15 million middle income households finding does reflect substantial growth, having increased from 4.6 million households in 2000, representing a 230 per cent increase over the last 14 years. Currently, however, the report finds that 86 per cent of the population in its 11 focus markets is still in the low income bracket, with the majority living below the $2 a day poverty line. The 11 focus economies are: Angola, Ethiopia, Ghana, Kenya, Mozambique, Nigeria, South Sudan, Sudan, Tanzania, Uganda and Zambia. Combined, these countries contribute 75 per cent of Africa’s gross domestic product (exSouth Africa) and half of its population.

Rapid growth still a reality “Standard Bank has attempted to fill the knowledge gap by using comprehensive household income data and adopting our

own measure of the middle class using South Africa’s LSMs as a framework in order to provide cross-quantifiable reference points for peer African economies,” says Freemantle. This methodology found there was an undeniable swelling of Africa’s middle class irrespective of which methodology was used. “Looking ahead, an even greater elevation in income growth is anticipated in the next 15 years; between 2014 and 2030, we expect an additional 14 million middle-class households will be added across the 11 focal countries,” the report states. While figures for 1990, 2000 and 2014 all contain more lower-middle class than middle class households, by 2030 it is expected that there will be notably more middle-class households than those in the lower-middleclass bracket (19.2 million versus 22 million). The number of households classified as low income is expected to drop to 75 per cent of the total population over the same period. Nigeria in particular stands out as a market of staggering growth, accounting for almost half of the around eight million middle-class households in the 11 countries. “On a relative basis, Nigeria’s growth has been impressive, too: today, 11 per cent (roughly one in 10) of Nigerian households is middle class, compared to four per cent in Kenya, and two per cent in

Mozambique. That said, though the scale of nominal middle-class households is somewhat dwarfed by Nigeria, today an impressive 21 per cent of households in Angola, 14 per cent in Sudan, and 10 per cent in Zambia are middle-class,” notes the report “The swifter pace of middle-class growth is critical in its suggestion of a more marked income ascent in the next decade and a half, compared to the period since 2000,” says Freemantle. “While the scale of Africa’s middle class ascent has, we believe, been somewhat exaggerated in line with the, at times, breathless Africa rising narrative, there is still plenty of scope for measured optimism regarding the size of the middle class in several key SSA economies. Reliable and proven data should, if anything, spur more interest in the continent’s consumer potential by adding depth to what was previously conjecture,” Freemantle concludes. The key message presented in the by Standard Bank is that in key African countries people are gaining purchasing power, but not necessarily the sort that will see them buying household appliances and cars, though this will increase too. It is a rise that is taking citizens from nothing to something, and that the continent’s growth is more complex and disparate than often reported.

Political risk:

the key constraint to SSA power projects?

Despite the size, variety and largely untapped potential for power generation in sub-Saharan Africa, households and industry in the region remain significantly undersupplied. According to Aon, political risk could be the key factor limiting the sector’s development.

his is the suggestion of the recently released whitepaper from Aon Risk Solutions, Political Risks in Sub-Saharan Africa – a view from the Power Sector. “The power sector in SSA is attracting massive domestic and foreign investment from countries such as China and the USA, among others. Huge untapped potential abounds, with many companies and African governments investing in solar energy, wind power and coal power in SSA, with others also entering discussions around nuclear power generation,” notes Sammy Muthui, chief operating officer at Aon Kenya. “The potential for hydroelectricity generation alone is enough to power the entire African continent. Natural gas and petroleum discoveries are taking place every other day in addition to the great potential for geothermal capabilities along the East African Rift (EAR) Valley,” he adds. “However, the risks inherent in the power sector are complex, exacerbated by the political environment in many African countries,” says Muthui. “It is crucial for investors to effectively navigate all these aspects in their risk assessments.”

Risky realities Projects in the region face various political risks, underpinned by tensions fuelled by poverty, ideology or ethics, the paper states. “These may be driven by elections, civil unrest in border regions, hostilities between different religious or ethical groups or fights regarding commodities and resources.” “[Political risk] used to be an ancillary cover,

but it is now often the ‘make or break’ cover for a power project in the region,” comments Gemma Avey, strategic development manager for the Aon Global Power Specialty. “Interviews with key decision-makers in the market revealed that political risk cover is still complex depending on the type of project, the region and crucially, the ownership structure of these projects.”

Tenor trouble Werner Richter, regional head of credit, surety and special risk of Kiln Europe S.A. (KILN), explains in the paper that there is a discrepancy between the long-term investments needed for power projects versus the short time frames in which the political landscapes can change. “There are many ambitious projects envisaged for the region, but while there is political volatility here investments are not secure without the appropriate political risk cover. Political situations can escalate rapidly as we have seen in countries such as Ukraine that were deemed stable,” explains Silja-Leena Stawikowski, head of political and special risks at Aon Credit International in Germany. Underwriters are cautious to give long tenors for political risk cover under these

circumstances. “A lot of analysis and careful consideration goes into the length of political regimes but you cannot predict if these might be forcibly changed. During election times this becomes challenging, so we try to tailor the tenor of the insurance policy to a manageable period. There would be a maximum tenor of 10 years, but we have taken an active decision to moderate the tenor to three to five years in most cases.” “What we do lack on the reef are proper risk management solutions that are growing and adapting in tandem with the growth in the sector,” says Muthui. The majority of underwriters interviewed for the paper stated that while some major multinational companies have the means to monitor political risk – smaller and maybe less experienced companies do not. This makes it all the more vital for small and mid-sized companies to engage experts to understand the exposure to political risks and how negligence can have critical impacts on any size of project.

Property development:

theft and regulatory risks increasing

South African property development boom is driving increased theft, compliance and regulatory risk for the sector and calls for an increase in risk awareness and strategy, reports Marsh Africa’s Realty division. The brokerage reports an increase in cable theft worth millions of rand, in addition to other steels used in construction of buildings off various sites across metropolitan and residential centres. “The risks on project developments have not declined but have rather changed from natural hazard to those brought about by the human element and areas with a high level of unemployment,” says Rodney Osborne, associate director and divisional

executive for Marsh Realty. Marsh alone has received three claims in recent months – each averaging R300 000. Osborne advises that developers have to ensure they have cover for the entire spectrum of risk, from contractors all risk, public liability, labour disruption, SASRIA perils, project delay, professional indemnity, and especially health and safety risks. According to Osborne, soft insurance rates mean that currently, developers can get cover at well below 0.10 per cent, compared to the more usual rate of 0.12 per cent. This means that insurers are more likely to scrutinise claims carefully. This, combined with the increased risk, means that savings on premium should not be

banked as a saving but rather invested in risk management, he says. Furthermore, with growing compliance and regulation of building standards and environmental impact studies, these risks are rising too. Risk strategies require constant retooling as the nature of risk evolves. Osborne points out that over the past two years insurance claims resulting from man-made risks have increased as a large proportion of new developments are in non-traditional areas. However, premiums are at a 15-year low, and vary little from area to area. “A boom in construction occurring in the middle of such a soft market heightens the risk of claims being rejected – so companies taking advantage of lower premiums need to use that saving to further improve security and risk measures,” he emphasises.

IRMSA -Cruywagen Risk Lab The Institute of Risk Management South Africa welcomed delegates to the scenic Vineyard Hotel for the Cape Town leg of its annual Cruywagen-IRMSA Risk Foundation Risk Lab. The jam-packed programme featured top speakers on economic, infrastructure, political and cyber risk in South Africa and Africa more broadly.

edbank senior economist, Nicola Weimar, gave an in-depth analysis of global and local economic risks. She stressed that in South Africa, there is a crucial need to put down the basic infrastructure required to unlock private sector growth and grow the tax base. She listed constraints in power production as a key economic risk in South Africa, along with inequality issues including strikes and inequality protests which undermine production and exports even further, hurting the economy and increasing the probability of job losses. “If we want to grow faster, we need to lift the constraints on producers and exporters and eliminate power and other economic infrastructure constraints to reduce the cost of production,” Weimar summed up.

Skills and regulation crippling infrastructure Insufficient engineering and artisanal skills, coupled with comparatively excessive

legislation for a developing market context, are among the key risks to South Africa’s planned infrastructure project pipeline, according to director Rob Childs from infrastructure consultancy, i@Consulting. “According to the most recent World Economic Forum Global Competitiveness Report, South Africa falls roughly halfway – rated 63 of 148 countries for infrastructure competitiveness. This rating has been steadily declining over recent years,” said Childs. He added that the country’s National Development Plan (NDP) provides hope in this area, but will require that the country borrow significantly if the goals of the plan are to be met. “At full implementation of the NDP with regards to infrastructure spending, gross general government debt as a percentage of GDP will rise from 42.3 per cent to roughly 56 per cent,” he explained. “It is critical that the capital is invested in the right projects.”

Skills deficit A critical risk to accelerated infrastructure development is the significant skills and competency deficit in the country, said Childs.

“South Africa is producing an average of 2 440 graduating engineers every year. In the United Kingdom, the number is 10 765, and in India, it is 763 635.” With the percentage of school-leavers passing mathematics and science subjects appalling low, there is an urgent need for an investment in the education of these skills, and this requires long-term thinking and investment, he emphasised.

Long-term measures required: • An ongoing long-term programme to improve maths proficiency and subscription in both maths and physical sciences at school level. • Coupled with an increase in bursaries to universities and universities of technology. • A move away from medium-term contracts for engineering professionals, towards a model of continuity where permanent positions are the norm. • Smooth infrastructure spending and communication of long-term commitments to the construction industry. • Increase graduate recruitment and training.

Solutions for the medium to short-term: • Extend retirement ages for engineering professionals. • Only hire engineering professionals on the basis of competence – given the scarce supply, there is no need for affirmative appointments. • Greater innovation in project team resourcing, allocation and mobility – coupled with government supply chain reforms.

Regulation: stifling innovation A further critical risk is the comparatively complex regulatory environment in South Africa, when compared with developing economies such as Malaysia and China, said Childs. “By way of example: the Department of Water Affairs and Forestry must comply with some 16 Acts. In addition, it must comply with a multitude of other standards, such as those for construction, accounting, compliance and water quality and several others. On top of this, procurement (inclusive of construction), must also be packaged to meet multiple other government policy objectives, such as labour creation, black economic empowerment and others.” This, he said, is the same across multiple infrastructure development sectors. The result, says Childs, is that professionals in the industry become more concerned with compliance than with getting things

done. “Regulation in South Africa is stifling innovation. You think you’re doing well because you’re complying. We need to reward those that are taking risks and getting things done.”

The need for renewal The country is continually faced with difficult decisions and torn priorities between spending on social support infrastructure, such as poverty alleviation grants, and investment in productive economic infrastructure. This, suggested Childs, requires the development of clearer decision-making philosophies and techniques. “Fortunately, we also have emerging experience and are increasingly demonstrating innovation in the practice of infrastructure asset management. Government is also increasingly focused on the need for economic infrastructure, reshaping cities for accelerated economic growth, and care of infrastructure,” he added, emphasising that much work was needed to deal with infrastructure renewal in particular. “Infrastructure lasts a long time, but not forever. You do have to replace it. And if you don’t maintain it, you have to replace it sooner,” he noted, reiterating the need for adequate capital renewal and maintenance budgeting to ensure that assets last and can be replaced when required. The country is facing a renewals bow wave, he warned.

Renewal measures required • Valuation of all public infrastructure on the depreciated replacement cost basis; • Quantifying asset lifecycle needs; • Establishing infrastructure risk profiles; • Incorporating risk-based optimised decision-making into planning within public sector organisations, and in national funding allocations; • Developing a national infrastructure risk monitoring system; • Learning how to sell infrastructure lifecycle needs and benefits of appropriately balanced lifecycle needs; and • Investing in infrastructure asset management practices and management capabilities. Additional speakers included Institute for Future Research director, Andre Roux, who shared insights on possible future risks, noting shifting role of the US economy as China’s power grows, Africa’s ability to correct its governance and education deficits, and the voting behaviour of South African ‘born frees’ as key uncertainties of the future. Well-known political analyst Justice Malala gave an insightful and humorous overview of SA politics for the next five years. IRMSA president, Sheralee Morland, emphasised the critical need for risk managers to bring all these conversations into their own organisations and strategies.

Insurance Conference 2014 The 2014 Insurance Conference at Sun City had been built up so much, first-timers could not believe that it would live up to expectations. But it did, and so much more.

he event truly highlighted the camaraderie and competitiveness of the industry, and emphasised that people, and relationships, are at the heart of the insurance business. While there are many challenges, in the form of regulation, soft markets, and skills shortages, the event certainly left delegates inspired and positive about the work they do. Lloyd’s deputy chairman, Paul Jardine, told RISKAFRICA that he was astounded by the size of the conference and the friendliness of the people. There was much discussion about technology, mobility, connectivity, analytics and telematics, and the impact of big data on the insurance industry, but simultaneously, the constant reminder to stay focused on the basics of insurance. “This is a people business. It’s about longterm relationships and trust. We need to get back to the basics of insurance. Understand our clients businesses; have products that

suit their needs and transfer the risk to us; and partner with them for long-term relationships,” said Jardine. He emphasised that the insurance industry needs to sell the value of its product, and that this value is demonstrated through service. “It’s all about claims. It’s about how we pay claims, and how fast we pay them. If we do that, then people will believe that the promises we make are actually real.” Jardine noted that the world is becoming more complex and more uncertain, and the insurance industry must innovate, and provide true risk transfer. “Fair policies at fair prices, and when bad things happen to our clients, we have got to be there for them.” It was also often reiterated that technology does not replace the need for solid advice. Stephen Cross from Aon Global told conference goers that there is a need for personal advice to complement and supplement the data and analytics available,

and this is equally important. “The speed factor, the availability of information, the distribution of information, and the ability to analyse it, is changing the way we are doing things.” The risk of being disintermediated exists if someone finds a better way to do insurance broking, and if brokers are not able to see what their customers want, and how they want it delivered, they perhaps deserve to be disintermediated, suggested Cross. “We cannot live with legacy computer systems, and be continuously patching to the past, as opposed to building to the future. So you might say that legacy technology is a risk, but it is also an opportunity for someone – hopefully us,” he said. As an industry with its roots dating back over 326 years, in a London coffee shop, the need to keep up with, and ahead of the times is apparent. As Cross remarked: “We have got to start smelling the coffee as opposed to just drinking it.”

Day one

Guests were dazzled at the AIG welcome cocktail party, after a great day on the golf course, courtesy of Hollard.

Delegates made their way to Sun City on Sunday 27 July, and while exhibitors began setting up their stands, the Hollard golf day got under way. Well done to the team from SHA who won the top spot. The Centriq Tour de Conference also took place on the Sunday, and the riders arrived just after 14:00, making the 164 kilometre cycle look like it was all in a day’s work. Congratulations to all on your fantastic achievement. Delegates were officially welcomed by Insurance Institute CEO David Harpur at the AIG welcome cocktail party, where everyone had a chance to interact with all the exhibitors, and get started with the serious business of networking.

Day two Conference-goers rose bright and early for a full day of presentations and heard from the following speakers: Paul Jardine from Lloyd’s of London; Stephen Cross from Aon Ireland; Giles Ward from Ace UK; Adrian Gore from Discovery; Ismail Momoniat from National Treasury; Jonathan Dixon from the FSB; Bonang Mohale from Shell and the Black Management Forum; Hugo van Zyl from the SAICB; and finally a panel discussion including Peter Todd from the IISA; Themba Gamedze from SAIA, and Jay Ramsunder from the FIA. The highlight was undoubtedly the Tracker theme party – ‘Secret rendezvous at the haunted house in Transylvania.’ The frightening outfits on display were extraordinary and it was fantastic to see the effort put in by everyone. Guests were treated to a snippet from the Rocky Horror Picture Show theatre production, and then took to the dance floor for the Time Warp. There are sure to be many interesting stories from the evening that will be told for some time!

Day three It was another full day of deliberations including presentations from: Mike Pritula from McKinsey US; Anton Ossip from Discovery Insure; David Davidson the assistant FAIS Ombudsman; a panel discussion featuring Caroline da Silva from the FSB, Justus van Pletzen from the FIA, Peter Dempsey from ASISA, and Michael Blain; Corneille Karekezi from Africa Re; Sheralee Morland from IRMSA; and a true show stopper of a presentation from Vusi Thembekwayo from Black Sheep. IISA CEO David Harpur concluded the conference, and competition winners were announced, including the lucky folk who won incredible prizes such as a trip to Lloyd’s in London, a trip to Italy, a trip to Abu Dhabi, and numerous iPads and cash prizes. The final event on the schedule was the Allianz gala dinner and Cover Excellence Awards, and delegates showed up in their finest attire, and enjoyed an evening of fine wine and dining and elegant entertainment. Winners of the Cover Excellence Awards in various categories included: Rene Otto; Suzette Olivier; Adrian Gore; Peter Atkinson; Louis Fivas; Mitch Marescia; Willem Theron; Gavin Came and Junior Ngulube.

The winners of the most innovative exhibitor, Europ Assist.

And the winners are... As for the incredible exhibition, conference organisers recognised the efforts of everyone who entertained and informed delegates, and bestowed the following accolades: Most interactive exhibitor: Mutual & Federal Most innovative exhibitor: Europ Assist Best new exhibitor: Business Connexion RISKAFRICA is already looking forward to the next Insurance Conference! Save the date for Sun City from 26 to 29 July 2015.

Security risk and

Africa’s growth trajectory

ince the end of the Cold War in the 80s, the African continent has seen a steady and significant decrease in violence, driven in particular by a decline in inter-state conflict. This decreasing trend, however, has levelled off since 2008, raising serious questions for what the future may hold for the continent.

This was the context for the keynote address at the Frontier Advisory annual Africa Risk and Investment Forum, which drew delegates to the Industrial Development Corporation auditorium in Johannesburg. The address, delivered by Dr Jakkie Cilliers, executive director of the Institute for Security Studies, focused on how risk concerns will impact Africa’s growth trajectory. “As the poorest and least developed continent, Africa suffers a large conflict burden and the future of terrorism on the continent is a potential wild card,” he said. “Violence will remain a feature of Africa’s future trajectory and that risk will have to be measured.” On balance, he believed that violence would likely continue to decline, though some countries would remain trapped in long-term instability. “In the complex story of Africa rising, some countries will remain fragile. But for the majority, the situation is improving quickly,” he said.

Poverty and inequality Inclusive economic growth along with greater governance capacity is the critical areas of change required to combat security risks.

Despite considerable tax base growth, extreme levels of inequality on the continent mean that poverty is reducing only slowly. “Global inequality is the leading threat going forward. We cannot continue with the levels of corporate excess we see globally,” Cilliers emphasised, saying that urban riots and protests in response to inequality would characterise the future of instability.

Governance critical Africa’s challenges are essentially governance challenges, said Cilliers. “The Cold War served to constrain improvements in governance and consolidation of government authority. There is now a resumption of the process of state formation in Africa, and quality and capacity of governance has improved year on year.” “Building government capacity is the most critical task in combating security risk in Africa,” he continued, suggesting that despite these improvements, the rate of democratisation has outstripped the development of governance capacity, leaving the continent with a democratic surplus, but governance deficit. “I hope we will get through, but no one truly knows where this wave of terror is going. Continued investment in capacity and regional integration will be critical for a secure African future.” Kenyan Ambassador,

Patrick Wamoto, echoed this late in the day, adding that he believes the worst has passed in the current Kenyan terror situation. The jam-packed programme offered presentations and panel discussions from high-calibre local and international speakers, all focused on security risk. Former Standard Bank CEO, Jacko Maree, provided insight into building a sustainable business in Africa, while Munich Re Africa CEO, Junior Ngulube, looked at the role of reinsurance in project finance and risk management. Additional panelists included Nedbank chief economist, Dennis Dykes and Yvonne Mhango, Africa economist at Renaissance Capital, and was emceed by Frontier Advisory CEO, Martyn Davies. Across all discussions, the message on the continent was bullish, with analysts seeing corruption decreasing and growth continuing into the future, though turbulence will remain an ongoing feature. Risks notwithstanding, asked where he would put his money now, Cilliers responded emphatically: “Certainly it would be Africa. It is the last great frontier. It will be turbulent and violent, but it will offer the best returns.” And how to manage this turbulence? Thorough due diligence, was the resounding answer from well-known trade commentator, Peter Draper, director of Tutwa Consulting.

Africa is open for business By Sarah Bassett

The global ‘Africa narrative’ is quickly shifting from the historical ‘deepest darkest’ trope to one of growth, potential and captivating opportunity. This is the vibrant story explored in a new book by well-known South African television and radio commentator and business speaker, Victor Kgomoeswana: Africa is Open for Business – Ten Years of Game-Changing Headlines. “I didn’t want to write a text book, but wanted to distil the key themes shaping the continent’s development over the last decade. When you have three to five minutes on radio to talk about Africa every week, you are forced to pick up the megatrends and your mind automatically develops a sense of what those trends are. I listed the 50 major headlines of the decade – and these became the chapters of the book.”

Victor Kgomoeswana

he book is a collection of 50 thoroughly-researched essays on Africa, reflecting its socioeconomic diversity, potential and development. Written from an unashamedly Afro-optimistic stance, the key departure point for each essay is Africa’s potential as a competitive and exciting global business and investment centre, poised to fulfil its potential.

“I’ve made Africa my business as a geographer and made it my business to understand what forces are shaping its growth and what factors are making it an attractive investment destination,” Kgomoeswana explains. From 2009 to 2011, he did this as the ‘Africa guy’ at Ernst & Young, and then briefly at PPC Cement. He is now continuing in a freelance consulting capacity, assisting businesses in shaping their Africa strategy.

From the successful diversification of the Nigerian economy, the agricultural revolution and the phenomenon of uranium mining in Malawi, to the construction boom in Angola and the global coffee revolution’s impact on redefining coffee-producing economies, each country has its unique story. And there’s the rise of cellphones and related brands, the current fibre-optic revolution providing connectivity between African marketplaces and the rest of the world, growing tourism, the interest from the world’s big hotel and leisure companies and niche local hotel and leisure brands all making their mark. “Some chapters are about countries that have done exceptionally; improving their business environment, growing their economy, changing the world’s preconceptions. Some are about organisations and companies that have excelled at what they do, such as Ethiopian Airlines or Equity Bank. Other chapters are about personalities – business leaders, innovators and brave entrepreneurs – that have excelled, inspiring confidence and respect for the continent.”

“It is the story of Ethiopian Airlines commercial success as a trailblazing airline, but also, the broader story of aviation in Africa, because here is a market that is growing and expanding as airlines worldwide struggle, and it is also my take on some of the risks of aviation.” Indeed, Kgomoeswana avoids the temptation of ignoring the challenges and risks associated with doing business in Africa’s emerging and developing economies, “In Africa, everyone in business is a risk manager,” he says. Instead, it reminds the reader that the potential outweighs the risk. “For businesses today, perhaps the greatest risk of all is not being in Africa,” he smiles.

This is a must-read for anyone interested in the African business story. Subscribe to RISKAFRICA print and stand a chance to win a copy.

NEWS Africa’s top cities of the future

By 2040, Africa is expected to have the biggest labour force in the world along with the fastest economic growth rates, according to the latest Global Economy Watch released by PricewaterhouseCoopers (PwC). While most major corporations are already active in the four largest cities in sub-Saharan Africa – Lagos, Kinshasa, Nairobi and Johannesburg – PwC economists believe it’s the ‘next 10’ biggest cities in Africa that could be most exciting to foreign investors. The population of these cities is projected to almost double by 2030, growing by around 32 million people. The latest United Nations projections show that by 2030, two of the ‘next 10’ – Dar es Salaam and Luanda – could have bigger populations than London has now. “The report projects that economic activity in the ‘next 10’ cities could grow around $140 billion by 2030. This is roughly equivalent to the current annual output of Hungary,”

$8.3 billion during the first six months of 2014. The most targeted country was South Africa with 52 per cent of the overall M&A activity. This is according to data from the quarterly investment banking analysis from global information services firm, Thomson Reuters. “Equity Capital Markets issuance in subSaharan Africa totalled $2.9 billion during the first half of 2014. Around 75 per cent of deals involved a South African issuer. Sub-Saharan African debt capital issuance recorded $5.2 billion during the first half of 2014, marking the highest first half since 2011,” says Keith Nichols, managing director for Africa at Thomson Reuters.

Energy and power most active M&A sector The value of announced merger and acquisition (M&A) transactions involving sub-Saharan African targets reached

“The most targeted nation by value so far this year was South Africa, accounting for 52 per cent of activity, followed by Angola (11 per cent) and Ivory Coast (eight per cent). The United Kingdom was the most active foreign buyer in the region,” says Nichols. Debt issuance during the first half of 2014 marked the highest first half total in the region since 2011.

Sanlam Emerging Markets concludes acquisitions Sanlam Emerging Markets (SEM) has announced that all the conditions have been met to complete its acquisition of a stake in NICO Holdings’ general insurance businesses in Malawi, Tanzania, Uganda and Zambia. The transaction was agreed to in June 2014. Following the completion of the transaction, SEM, the cluster within the Sanlam Group tasked with expansion into international emerging markets, now holds 49 per cent in NICO’s general insurance operations in Malawi, 32.7 per cent in Tanzania, 48.4 per cent in Uganda and 49 per cent in Zambia. SEM already held a 49 per cent stake in NICO Life insurance in Malawi and SEM holds a 25.1 per cent stake in NICO Holdings. Says SEM’s chief executive officer, Heinie Werth: “We are pleased with the conclusion

Continental Re sees 28 per cent income growth Continental Reinsurance Plc has reported an increase of 28 per cent in gross premium income to NGN15.86 billion in 2013, compared to NGN12.40 billion recorded in 2012. The non-life and life businesses grew by 32 per cent and 11 per cent respectively. Total comprehensive income grew by 19 per cent from NGN1.75 billion in 2012 to NGN2.09 billion in 2013. Underwriting profit increased by 25 per cent from NGN1.35 billion in 2012 to NGN1.68 billion in 2013, mainly due to a higher growth in premium than the increase in combined costs. The 2013 underwriting profit ratio as a percentage of gross premium income at 11 per cent, remaining the same as the previous year. The reinsurer’s loss ratio remained unchanged for both years at 47 per cent. “The success of Continental Re’s geographical expansion strategy, as confirmed by our performance in 2013, has helped to further deepen penetration in our markets as well as spreading risks,” says says Dr Femi Oyetunji, Continental Re group CEO and managing director. “I am confident that the group is positioned to continue to deliver strong profit and dividend growth for many years to come.”

of this transaction which further entrenches our relationship with NICO and strengthens our position in the region. We look forward to working with our partners in growing a sustainable business. We believe our industry experience and expertise will continue to add value to both our business partners and customers.”

EY argues in the report, Consumers on board: how to co-pilot the multichannel journey, that the vast majority of people are now digital consumers, which means they spend more time researching and using technology to filter information before making purchasing decisions. The challenge to insurers and all other companies, is to create a competitive advantage in the long term.

The report also found that it is the emerging markets that are leading the way for digital purchasing. Some 64 per cent of South Africa’s internet users have bought, or are buying, goods or services online. This figure falls to 63 per cent and 50 per cent in the UK and the US respectively, with purchasing in-store more prevalent in mature markets.

Customer trust in online platforms grows The number of people buying insurance products online is steadily increasing. A new survey of 30 000 consumers in 34 countries by Ernst & Young (EY) indicates that in the past 12 months, 24 per cent of respondents purchased their household insurance online. This is an increase of six per cent since 2012. Consumers are also buying long-term insurance online to a similar extent. In 2014, 24 per cent of people chose their health insurance through traditional portals, whereas 19 per cent bought their health insurance online.

INTERNATIONAL

NEWS United States Credit Suisse abandons commodities due to fine Credit Suisse Group has been told to abandon commodities trading due to a US tax investigation which resulted in the Swiss bank being slammed with a $2.6 billion fine to settle the tax investigation. The fine has caused the Swiss bank to suffer its biggest quarterly loss since 2008. The bank’s net loss in the second quarter was 700 million Swiss Francs (eight billion rand), compared with a profit of 1.05 billion Swiss Francs a year earlier. Warning of rising public debt in the US US public debt continues to remain on an unsustainable path and could lead to another financial crisis in the long term.

Tougher human rights

rules for corporates The United Nations Human Rights Council (UNHRC) has voted in favour of two resolutions that could bring about international, legally binding rules to regulate the activities of ‘transnational corporations’ with respect to human rights. Whether the initiative will succeed is in doubt, but the direction of travel is clear: businesses face growing scrutiny and regulation when it comes to their impact on human rights. The first resolution, drafted by Ecuador and South Africa, establishes an intergovernmental working group to develop an international, legally binding treaty on transnational corporations relating to human rights. The second resolution, drafted by Norway, calls for a report on the benefits and limitations of a treaty on business and human rights. The proposal from Ecuador and South Africa faced considerable opposition from Western countries but was passed with the support of developing economies, drawing yes votes from China, Russia and India. Norway’s resolution was adopted by consensus.

This is according to the Congressional Budget Office, which predicts that US public debt may reach 106 per cent of economic output in 25 years as compared to 74 per cent currently. Federal Reserve chairwoman, Janet Yellen, says early signs of a pick-up in inflation are not enough for the Fed to accelerate its plans for raising interest rates, but this could change if data showed labour markets improving faster than expected.

China Economic growth increases in China China’s economic growth rose by 7.5 per cent in the second quarter as a burst of government stimulus paid dividend. However, the Asian country will need more support from its capital province Beijing to meet the estimated annual growth target of 7.4 per cent. The capital received will help address concerns of slowing growth, including tax breaks for small enterprises, targeted infrastructure spending and the encouragement of lending to small companies.

Global Capacity drives further fall in global insurance rates

Southeast Asia Piracy down globally, hijack trend in Southeast Asia The Piracy Reporting Centre (PRC) of the International Chamber of Commerce (ICC) International Maritime Bureau (IMB) has raised concerns over a worrying trend of small tanker hijacks in Southeast Asian waters. In its 2014 half year report the PRC reveals that there have been 116 global incidents of piracy and armed robbery so far this year, down on the 138 incidents during the same period last year. In 2014, 10 vessels were hijacked, seven fired upon, 78 boarded and 21 reported attempted attacks. Two hundred crewmembers were taken hostage, five kidnapped from their vessels and there were two fatalities, the report says. In Southeast Asia, at least six known cases of coastal tankers being hijacked for their cargoes of diesel or gas oil have been reported since April. This has sparked fears of a new trend in pirate attacks in the area. Previously, the majority of attacks in the region had been on vessels, mainly at anchor, boarded for petty theft.

Global insurance rates fell for the fifth consecutive quarter with property rates down by an average of 4.6 per cent in Q2 2014, casualty and financial lines down by 0.6 per cent and professional lines down by 2.3 per cent, according to figures from Marsh. Rates in continental Europe dropped approximately six per cent on average with both property and casualty rates falling faster than at any time since the third quarter of 2011, Marsh’ Global Insurance Quarterly Briefing reports. Marsh said that the global and European declines were driven by continued strong capacity – particularly for property risks – and an absence of significant losses during the second quarter of 2014. AM Best downgrades reinsurance sector AM Best has downgraded its ratings outlook on the global reinsurance sector to negative from stable citing ‘ongoing market challenges’. The rating agency said that these challenges will ‘hinder the potential for positive rating outlooks and upgrades and over time may result in negative rating pressure’. In a briefing entitled, Weakening Operating Fundamentals Tip Reinsurance Sector Outlook to Negative, AM Best said that it is increasingly apparent that as compression continues to bear down on investment yields and underwriting margins, the strain on reinsurers’ profitability will ultimately place a drag on their financial strength. Its negative outlook is based on a longerterm view than its typical 12-18 month forecast, and the rating agency does not anticipate a significant number of individual company negative outlooks or downgrades over the very near term.

Risk manager:

director or cynical uncle?

Alicia Swart head of risk services for Africa, Turner & Townsend

When I used to think of Africa, I thought of bright colours, great music, collaborative rhythms, good food, stunning views, wildlife and friendly people. Maybe a small part of these rose-tintedviewing glasses was informed by growing up in The Lion King era.

t has only been in the last couple of years that I have been forced to reframe this view and look at Africa through my business-risk glasses. It was a depressing shift to say the least. It felt like I was stuck in the elephant graveyard scene of The Lion King. I started

to think about corruption; unstable political climates; safety and security concerns; and inherent complexity. Essentially, dark and dangerous. The complete opposite of my original associations.

understanding of the colours and contrasts, from the bright to the dark parts of the story line. To do this, we need to make sure we are able to reframe and embrace both the opportunity and threat side of risk.

Last year, as I was sitting in an ‘African Strategy’ workshop, it struck me how cynical I was about doing business in Africa. I was embracing and focusing on a single scene of the African movie. The scene of ‘why not’ to do business in Africa. Being an optimist, I immediately realised that as a risk manager, I should reframe to remain relevant.

Historically, most risk managers have been in the business of identifying threats where we always ask: what will stop us from achieving our objective?. This is not an irrelevant question in the African context, however we can start asking different risk questions to create a full view. Additionally we can ask, ‘how do we get to African objectives smarter and more effectively?

Most organisations I deal with from an enterprise and project risk perspective have an Africa expansion strategy. They are all looking to diversify their strategy to new markets, service offerings and product lines; and Africa is open for business. There are strong indicators of sustained economic growth, increased efforts in governance, untapped resources, new markets, variety of clients and geographical space to grow into. For CEOs, these are the building blocks of success. Taking this into account, as risk managers we don’t have a choice but to move away from the ‘why not’ Africa, and embrace the ‘how and where to’ in Africa. The challenge is to be able to adapt, guide and work with organisations to make their full African movie a blockbuster. We essentially have the opportunity to become the movie director and support the producer/CEO in making the movie. As risk managers, we can take the producer’s vision and create a platform to visualise and add dimension to it. We can provide an

The ISO 31000 code embraces both opportunities and threats as part of the definition of risk, which implies that asking both questions remains within the scope for every risk manager. We can help organisations understand the African operating conditions and challenges, but also guide them to form a resilient solution that will help them navigate to unlock the opportunities effectively. The question I have for all risk managers is, are we ready to take up our role as the movie director and help to create a blockbuster movie, or are we happy to be an actor in the movie playing the cynical uncle? Personally, I have embraced the director role and started focusing on understanding the full African movie. I realised that it is the combination of the good and the bad that tells the full story. Like The Lion King, perfecting this balance can enable your organisation to make one of the best African movies of all time.

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