Cross-border trading insurance critical in unlocking investment

CROSS-BORDER trading in Zimbabwe has grown significantly since an estimated US$1,15 million was reported in transactions in 2016, sparking discussions around insurance for traders. At the recent Southern Africa Insurance Indaba, cross-border trading insurance was highlighted as a key tool for unlocking trade, investment, and economic resilience across Africa. Our chief reporter, Melody Chikono (MC), spoke with Old Mutual Life Assurance general manager, Linda Mariwande (LM, pictured), who discussed regulatory challenges and the need for tailored insurance products.

MC: Your panel discussion was centred on cross-border insurance. What is this about?

LM: Cross-border insurance is a catalyst for economic integration. When you have integration and you have good trade happening, there is obviously mobility.

When you talk about cross-border trade, it means that goods will move across borders. It also means that people will move across borders.

There lies the opportunity in terms of business, in terms of trading between countries. But then there also arises some risks.

And those risks are what insurers do. We are saying that when the African Continental Free Trade Area, (AfCTA) came up with this idea of trade across Africa amongst the participating countries, what does that mean then for insurance?

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We are at the back of that development. And we provide insurance for the risk that we manage. So, for instance, when goods are moving inter-country, there could be an accident, there could be cargo theft, and there could be cargo damage, all sorts of risks can arise, so insurers then come in and cover those risks so that there is no total loss.

MC: So, how have you been in addressing these risks?

LM: So far, if a trader is coming from Zimbabwe, we can cover that trader. But when they cross the borders, they have to think of another plan, which is very difficult because each territory right now, as we say, has got their own regulation.

They have got their own rules and their own products. So, in some instances, we cannot cover them from point to point. Which means that they have to look for another level of cover, which is not very helpful.

If there was a situation where we can cover the whole spectrum, it would make it a lot less complicated for our traders. The other one is the nature of cover we are providing is largely for the bigger players. But the smaller players are also quite active in Africa. Remember, Africa is largely micro-businesses.

MC: What can you say are some of the challenges in terms of integration, in terms of cover across borders?

LM: The largest problem right now is the fact that we do not have seamless regulation so because of that, you also cannot have seamless cover.

People must understand what is expected in Zimbabwe. We have got some regional components. So, there are some rules that will happen in the Southern African Development Community (Sadc) but when you go to the Economic Community of West African States (Ecowas), it is different.

When someone is trying to move things from Kenya to Zimbabwe, or Zimbabwe to Uganda, or to Nigeria, then the rules are automatically changed. So, regulation is quite important because when the regulation is standardised across, then that makes life a whole lot easier for customers.

MC: Besides the regulation, what are some of the other challenges?

LM: It is the infrastructure. We also do not have proper infrastructure or continuity across the borders, so infrastructure is also quite key.

We do provide the sophisticated structure in terms of financing, but we also need the hard infrastructure, which is the road, the rail, and all that. When that happens, it also helps the movement of goods between countries.

MC: In the face of these challenges, what can you say have been the implications?

LM:  Probably we can talk about our own side. So, we are here talking about integration across Africa, but we actually do not have integration within the country. I think the biggest thing is also as an industry, to start seeing what economies of scale we can enjoy by collaborating and working together. We must also find spaces where we do not necessarily compete, where competition is not necessary. One of the biggest cost drivers that I have seen is usually in terms of systems.

If we could have also common systems or common platforms, because those are very expensive, particularly for smaller players, for someone trying to come in, you then find out that it is very important and crucial for us to find where we can have common platforms, where we can find things that can be shared, where certain skills can also be shared.

If we do not even share the resources, it could be okay but let us compete on what needs to compete, let us also share what can be shared.

MC: Any indications in terms of potential revenues that could be lost by not integrating?

LM: Off the top of my head, I do not exactly have a number on the potential revenue, but what I can just say is when you are in a country where insurance penetration is at 1% of GDP (gross domestic product) it means there is a whole lot that is left for you.

It is because it just means we are collecting only 1% of GDP in a country that needs infrastructure. And yet, we have the capacity to generate and to mobilise savings and investments that can actually spare the country.

So, I think that the growth of insurance, even as a sector, never mind going across borders, is very important.

We must then look for opportunities to get as many people insured, as many people saving, and as many people also participating so that we can generate enough revenue or enough resources to develop our own infrastructure in general.

MC: As Old Mutual, what are you doing in terms of working towards this?

LM: We are participating. We are a big financial services business. We are into banking, we are into insurance, life insurance, we are into general insurance, and we are into broking. So, we do cover, we do collect.

Our participation in this environment really is, as we pull resources, also investing back into the country. We are playing in power, Hydro Power. We have one in Nyabira, we did the Great Zimbabwe Hydro, so we are playing into spaces where we know that there are needs. We also do housing developments, developing neighbourhoods, the Westgate development, and so on.

We are also going there to just make sure that we spare the economy… When you can harness savings and investments, you have got the capacity at least to provide whatever it is that the economy may require to spare industry development. We also invest in so many companies. We trade with most of those companies listed on the Zimbabwe Stock Exchange.

We are participating, and that is our contribution as a business, as we try to spare industrial development and commercial activity in the country.

MC: There was a discussion on derisking Africa. What is your take on that?

LM: I think that de-risking Africa, is a very broad term, but I would say let us not look at the challenges in Africa as trouble.

Let us look at the challenges in Africa as opportunities because whenever there is a problem, then something needs to be solved.

Whenever you are solving something, then clearly that is an opportunity; you now turn that risk into an opportunity, so we actually need to do that. And I think the other thing also on de-risking is the fact that when someone looks at Africa, they think about our wars, they think of hunger, they think of floods, they think of all those difficult and impossible things, but we know our space.

I think anyone can always have confidence in your space if you have confidence in your space.

So, the extent to which we can show the confidence in our market and do the needful, even attracting investors becomes easy. But typically, they will be like, why are you not doing it yourself?

So, we also need to show leadership. We also need to show the confidence we have in our country by doing certain things and so, by de-risking, I think we must do well.

Thus, concerning structures, governance, proper processes, proper covers, let us have the kind of infrastructure and the kind of systems that will make investors be confident to come into Africa.

We also have the power to negotiate with investors because we have got nothing to trade, our resources. If we are at the back foot, we cannot bargain properly. We need to bargain as equals with our investors. It can only happen if we have got the muscle to do so. We can only get that muscle if we show up and put systems and processes in place.