An insurance executive says Zimbabwe has to first grow its savings before looking for foreign direct investment (FDI), which should come as “cherry on the top”.
BY BUSINESS REPORTER
ZimSelector CEO Luke Ngwerume said last week that there was need to grow internal savings through buying insurance products to help develop the economy.
“You need your own internal savings. My problem with FDI is that there is no guarantee that it will stay in an economy. For any FDI investor, it’s safer to invest in an environment where there are local savings. It gives the confidence,” Ngwerume said. ZimSelector is an online financial services shopping mall and comparison site. “To forget about local capital formation and look at FDI as sole saviour, it doesn’t work. FDI is the cherry on the top.”
His remarks come at a time when there is an aggressive drive to lure FDI. Foreign investment to Zimbabwe declined by 23% in 2015 to $421 million, signalling weak investment sentiment over the country’s policies. In 2014, FDI peaked at $545m, the highest since the country adopted a multicurrency regime in 2009.
Analysts say the empowerment legislation, which compels companies with a net asset value of at least
$500 000 to sell at least 51% shareholding to locals, was a hindrance to attracting FDI.
Ngwerume said insurance was a successful tried and tested way for a country to generate capital to be channelled into investment in infrastructure.
“This country was never developed to the extent that it is by FDI. It was developed by the Old Mutuals and insurance companies. These are the funds that, when they were invested, created employment opportunities,” he said at the launch of a six months insurance reporting mentorship programme for journalists last week.
The mentorship programme is meant to build journalists’ capacity on how the insurance industry operates.
Ngwerume said insurance has funded a number of local projects, such as office buildings, shopping malls, housing developments, roads, dams, power stations, transmission lines and ‘in agriculture, adding that Zimbabwe’s insurance penetration is in decline since its peak of 5,7% in 2004 to 1,5% in 2015.
He said insurance demand promotes growth.
“We recommend that, given the relatively low-insurance culture and penetration regression experienced in Zimbabwe, efforts and policies should be geared towards the awareness and education on the benefits of insurance demand,” Ngwerume said.
The push for an uptake of insurance products comes at a time there has been low confidence after policies were hit by the hyperinflationary environment requiring policyholders to start all over again.
“Many people’s insurance and pensions were eroded resulting in confidence erosion and a new generation of Zimbabweans at home and abroad that either don’t trust insurance or don’t know enough about it. Against the backdrop of a shrinking economy, this is not good news for a market that forms the backbone of the financial services sector of the economy. We believe that an increase in insurance penetration will have a direct and positive impact on economic growth,” Ngwerume said.