Mauritius’ financial markets much more developed than rest of Africa: report
Retail banking in sub-Saharan Africa is anticipated to grow at a compound annual rate of 15% between now and 2020, bringing the sector’s contribution to the continent’s collective GDP to 19% from an estimated 11% in 2009. (Image: KPMG)
Africa’s financial services sector is one of the continent’s leading prospects for growth, according to a report recently released by consulting major KPMG.
The KPMG report titled ‘Financial Services in Africa’ gives valuable insights into the banking sector, insurance industry and private equity investment landscape in the African continent.
Retail banking in sub-Saharan Africa is anticipated to grow at a compound annual rate of 15% between now and 2020, bringing the sector’s contribution to the continent’s collective GDP to 19% from an estimated 11% in 2009.
However, apart from a handful of countries, the insurance sector is still to take-off in the emerging continent.
With the exception of Mauritius, South Africa, and Namibia, other countries in the African insurance market are considered under-developed because the continent is afflicted by poverty, hence a majority of Africans cannot afford insurance.
Reminiscent of South Africa, Mauritius’ financial markets are much more developed than that of other African countries as it has a well-developed insurance sector and according to the World Bank, the island’s large-and medium-sized insurance companies are “efficient and strong”.
With an insurance penetration ratio of 4.5%, life insurance is also well-developed, accounting for 61% of total insurance premiums.
To encourage the development of the life insurance industry, the government has provided generous tax incentives.
It is to be noted that Mauritius boasts of as many as 22 insurance companies in all, though the top three have a market share of 76% and other players are much smaller.
With a penetration ratio of 0.6%, Nigeria is among the under-developed countries in the insurance space. The reason given by the OBG is that there is a lack of trust in insurers due to past failures, while there are also structural obstructions that restrict the activities of insurers.
Additionally, Nigeria’s insurance companies are too small to manage large risks; as such, oil companies, for instance, tend to use foreign insurers.
However, growth prospects are important and will be further boosted by government efforts to expand the sector’s through compulsory insurance.
The report highlights that growth prospects of the insurance sector in Nigeria are likely to be boosted by rising incomes, increased participation by foreign companies, and more innovative insurance products.
Additionally, new regulations are also aimed at increasing the capacity of domestic insurance companies in the West African frontier economy so that they can handle large risks.
Furthermore, a number of agreements have been signed between banks and telecom operators in Nigeria, which are set to improve mobile banking services in the country.
Outstripped only by South Africa and Morocco, Mauritius is ranked third on the African continent as an active market for Private Equity (PE) investments with a size of $106million, according to Bureau Van Dijk’s Zephyr database.
On the other hand, South Africa was the most active market for PE investment on the continent in the first half of 2012, with South African targets attracting $547million over the period followed by Morocco with deals to the tune of $243million.
“We consider that many of these investments in South and North Africa or Mauritius do not constitute typically African deals, and think that the most exciting opportunities are in the primary sectors and in consumer goods,” the report outlines.
Nigeria, which was a very active PE market in 2010, was significantly less animated in the first six months of 2012, attracting only one major deal with a value of $5million.
A greater number of financial institutions have woken up to the massive potential that lies within Africa’s growing consumer base due to the opportunities that Africa’s growing middle class presents.
The report stated that institutions will continually need to embrace innovative strategies so as to shape banking products to fit consumers’ rising financial sophistication needs as well as to tap into Africa’s massive ‘unbanked’ population.
The fact that there is a decline in the perceived risks of investing in Africa and global liquidities seek advantageous opportunities elsewhere than in depressed developed markets, the report stated that private equity is experiencing explosive growth.
The African economy relies on agriculture, mining and energy sectors, thus the importance of food production especially is increasing on the back of global population growth.
The results of Africa’s own demographic changes, which are stimulating urbanisation, employment and growth in disposable income, make consumer-focussed businesses attractive.
And, international private equity investors are certainly sitting up and taking notice of the rising continent.