MMI learns the tough realities of Africa
The company is exiting its operations in Mauritius, Mozambique, Tanzania, Zambia and Swaziland
A number of SA companies are learning the hard way that the so-called untapped African markets aren’t always ripe for exploitation.
Earlier this month, as the woes of Standard Bank and MTN in Nigeria deepened, SA’s third-biggest insurer, MMI, said it would complete its exit in seven African countries over the next 12 months.
The reality in markets that include Zambia, Mozambique and Tanzania turned out to be worlds apart from what MMI had envisaged. "Earnings have been volatile, we’ve had internal control problems and the leadership needs to be strengthened," CEO Hillie Meyer said when the company presented its financial results earlier this month.
MMI’s experience in Africa is in stark contrast with those of rivals Sanlam and Old Mutual. The two insurers have a presence in 34 and 13 African countries respectively through greenfield investments, partnerships or acquisitions. They are also looking to expand to more markets in future.
"It’s hard to do business [elsewhere] in Africa," said Meyer.
It was Meyer’s maiden financial results presentation, and he delivered what Fairtree Capital portfolio manager Jean Pierre Verster calls an "honest and brutal" assessment of where the dead wood needs to be trimmed.
"It is certainly better for MMI to concentrate its resources where they can make a difference rather than to spread them thinly in many markets where they haven’t yielded the required returns and will not do so," says Verster. "So far [operations in these markets] have only increased costs."
Meyer said MMI is in the process of exiting its operations in Mauritius, Mozambique, Zambia, Tanzania and Swaziland. It will retain a presence in three Sadc countries outside SA, namely Namibia, Botswana and Lesotho.
Outside Sadc, Meyer said, the company has completed a review that showed there are still strategic merits for a continued presence in Kenya, Nigeria and Ghana.
"The consensus is that we need to exit businesses that are not linked to our core insurance operations," Meyer tells the FM.
"But we will remain in markets where there’s potential for delivering and enhancing shareholder value."
He says the group may consider going back to these markets once it has finalised its operating model for Africa and found partners who understand the country dynamics better. Ghana will serve as a prototype for how African expansion will be carried out in future.
The group underestimated the cost of distributing its products and also faced "partner complications", Meyer says.
"It is advantageous to have a partner when entering a new market, but it needs to be the right partner."
In 2017, MMI and MTN launched aYo, a micro-insurance joint venture. It began its roll-out in Uganda in January 2017 and now has more than 1-million customers. It has been deployed in Ghana, and Meyer says it is likely to be launched in other African countries where either MTN or MMI has a presence.
"Each market is assessed on its own merits and [to judge its fit] with the aYo strategy. Where such fit is found, the solution will be implemented. This may mean having a capital-light, mobile distribution presence in some markets where we are exiting the traditional business."
Warwick Bam, equity analyst at Avior, says the MTN partnership may just be what MMI needs to get a better grip on African markets.
"It needs a partner that understands the environment well," Bam says, adding that aYo has a small but very strong team.
MMI has also canned its UK operations after incorporating the last remaining unit into the SA wealth management business. But the insurer is keeping the loss-making Indian business, saying it is on track to break even in the next five years, as initially projected.
It now insures more than 1-million lives, and MMI will be injecting more capital in it over the next three years.
Bam says the sales growth recorded in India might even make the business profitable ahead of its projected break-even period.
"Hopefully by letting go of the other businesses MMI can apply more time and effort to the Indian venture. It can be a great success, just like Discovery’s Ping An partnership in China."