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From recession to growth – restructure, reprioritize, reposition

From recession to growth – restructure, reprioritize, reposition

Thought Leadership article by Standard Bank Economist Naufiku Hamunime

With Gross Domestic Product (GDP) growth averaging 4% over the last decade, Namibia like many other sub-Sahara African countries, appears to be proof that a country can grow in the absence of deep structural transformation. However, with high unemployment and poverty rates, not only does this growth face significant limitations, but as 2016 proved, it is also extremely vulnerable to global and regional headwinds.

Following six years of high growth rates, 2016 effectively ushered the Namibian economy into a period of slow growth and recession. And while external factors such as commodity prices and drought played a considerable role in initiating this process, a number of fiscal trends worked in conjunction with these external factors, not only to deteriorate our state finances but also weaken the position of our economy and result in the sluggish growth of 1.1%.

In most markets, periods of slow growth and recession are usually viewed as an opportunity for organizations to review and restructure their operating models and this too applies at the level of the state. Now, the end goal of any restructuring exercise is to increase the organization’s productive efficiency and ensure the entity is getting the highest utility out of its scare resources. Ideally, this is achieved by reducing non-essential spending and improving allocative efficiency by ensuring that all of the organization’s resources are allocated optimally.

Now while the government’s fiscal consolidation programme and cuts to the 2016 budget have shown that this exercise is one that the state has not only identified but also already initiated, the point should be made that apart from just focusing on reducing expenditure, serious attention also needs to be given to using our resources efficiently.

With the wage bill accounting for more than 40% of total expenditure and nearly 16% of Namibia’s workforce employed by the state, coupled with the development budget previously having been used to fund the construction of non-productive assets such as buildings and the high allocations to state owned enterprises, more needs to be done in the way of improving allocative efficiency. And where we have failed to use our resources efficiently in the past we should instead divert them to more productive ends that will increase our long-term productive capacity. For that reason, one could argue that more serious attention needs to be placed on actively prioritizing Namibia’s industrial development.

Vision 2030 states that Namibia aims to be an industrialised knowledge-based country where manufactured goods and services contribute 80% of GDP by 2030. However, over the past decade Namibia’s manufacturing sector has remained largely underdeveloped with its contribution to GDP steadily declining from 14.4% to 9.9% between 2006 and 2016. And while manufacturing has been on the decline; within recent years, mining has come to constitute a higher percentage of GDP relative to the manufacturing sector.

This indicates that the country has not only regressed in terms of achieving the priorities set out in Vision 2030, but that the structure of the economy has actually become less sophisticated as value added goods have come to form an even smaller base of the economy than in previous years.

Historically manufacturing, rather than agriculture or mining, is the sector that has played a pivotal role in driving advanced industrialisation. Initiating the process of industrialisation in Namibia will not be dependent on achieving high growth rates, but rather, will be contingent on shifting resources from low to high productivity uses within which increasing the size of manufacturing as a share of output and employment is prioritized.

The budget allocations for the Ministry of Industrialisation, Trade and SME Development, which is mandated to spearhead trade and industry and increase the country’s global competitiveness, indicate that over the last decade historically low levels of investment have been present to support Namibia’s manufacturing sector. This is evident in that the Ministry of Industrialisation’s budget allocation has gradually decreased from a high of 1.8% in 2012 to 1% in 2017 whereas allocations to ministries’, such as the Ministry of Safety & Security, have increased from 5.8% of total expenditure to 8% over the same time frame.

In a recent publication by the McKinsey Global Institute, Namibia was identified as having significant growth potential in the automotive, chemicals and machinery sectors – all industries that possess significant export potential. Similarly, in the ‘Growth at Home’ Industrialisation policy, the automotive, chemicals and agro-processing industries are all singled out as priority sectors.

Due to its linkages to the agriculture sector, agro-processing in particular possesses significant potential to increase value addition and create jobs. In 2016, agriculture and the manufacturing of food and beverages contributed 8.5% to GDP and was believed to be the country’s largest employer. However, despite the potential the industry has, it is severely constrained by a lack of funding. Of the N$2 billion allocated to the agriculture ministry, on average between 71% and 78% is dedicated to personnel expenditure and construction spending alone leaving much to be desired in the way of investment.

If Namibia is to truly take advantage of this opportunity to restructure, and in doing so pursue an industrialisation strategy which involves shifting the economy away from its reliance on basic primary goods to diversified exports and complex activities, the state will need to actively re-prioritize the manufacturing sector to reverse the current trend of de-industrialisation and thereby increase the nation’s resilience to external shocks.



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Sanlam 2018 Annual Results

7 March 2019


Sanlam’s 2018 annual results provides testimony to its resilience amid challenging operating conditions and negative investment markets

Sanlam today announced its operational results for the 12 months ended 31 December 2018. The Group made significant progress in strategic execution during 2018. This included the acquisition of the remaining 53% stake in SAHAM Finances, the largest transaction concluded in the Group’s 100-year history, and the approval by Sanlam shareholders of a package of Broad-based Black Economic Empowerment (B-BBEE) transactions that will position the Group well for accelerated growth in its South African home market.

Operational results for 2018 included 14% growth in the value of new life insurance business (VNB) on a consistent economic basis and more than R2 billion in positive experience variances, testimony to Sanlam’s resilience in difficult times.

The Group relies on its federal operating model and diversified profile in dealing with the challenging operating environment, negative investment markets and volatile currencies. Management continues to focus on growing existing operations and extracting value from recent corporate transactions to drive enhanced future growth.

The negative investment market returns and higher interest rates in a number of markets where the Group operates had a negative impact on growth in operating earnings and some other key performance indicators. This was aggravated by weak economic growth in South Africa and Namibia and internal currency devaluations in Angola, Nigeria and Zimbabwe.

Substantial growth in Santam’s operating earnings (net result from financial services) and satisfactory growth by Sanlam Emerging Markets (SEM) and Sanlam Corporate offset softer contributions from Sanlam Personal Finance (SPF) and Sanlam Investment Group (SIG).

Key features of the 2018 annual results include:

Net result from financial services increased by 4% compared to the same period in 2017;

Net value of new covered business up 8% to R2 billion (up 14% on a consistent economic basis);

Net fund inflows of R42 billion compared to R37 billion in 2017;

Adjusted Return on Group Equity Value per share of 19.4% exceeded the target of 13.0%; and

Dividend per share of 312 cents, up 8%.

Sanlam Group Chief Executive Officer, Mr Ian Kirk said: “We are satisfied with our performance in a challenging operating environment. We will continue to focus on managing operations prudently and diligently executing on our strategy to deliver sustainable value to all our stakeholders. The integration of SAHAM Finances is progressing well. In addition, Sanlam shareholders approved the package of B-BBEE transactions, including an equity raising, at the extraordinary general meeting held on 12 December 2018. Our plan to implement these transactions this year remains on track.”

Sanlam Personal Finance (SPF) net result from financial services declined by 5%, largely due to the impact of new growth initiatives and dampened market conditions. Excluding the new initiatives, SPF’s contribution was 1% down on 2017 due to the major impact that the weak equity market performance in South Africa had on fund-based fee income.

SPF’s new business sales increased by 4%, an overall satisfactory result under challenging conditions. Sanlam Sky’s new business increased by an exceptional 71%. Strong growth of 13% in the traditional individual life channel was augmented by the Capitec Bank credit life new business recognised in the first half of 2018, and strong demand for the new Capitec Bank funeral product. The Recurring premium and Strategic Business Development business units also achieved strong growth of 20%, supported by the acquisition of BrightRock in 2017. Glacier new business grew marginally by 1%. Primary sales onto the Linked Investment Service Provider (LISP) platform improved by 5%, an acceptable result given the pressure on investor confidence in the mass affluent market. This was however, offset by lower sales of wrap funds and traditional life products.

The strong growth in new business volumes at Sanlam Sky had a major positive effect on SPF’s VNB growth, which increased by 7% (14% on a comparable basis).

Sanlam Emerging Markets (SEM) grew its net result from financial services by 14%. Excluding the impact of corporate activity, earnings were marginally up on 2017 (up 8% excluding the increased new business strain).

New business volumes at SEM increased by 20%. Namibia performed well, increasing new business volumes by 22% despite weak economic conditions. Both life and investment new business grew strongly. Botswana underperformed with the main detractor from new business growth being the investment line of business, which declined by 24%. This line of business is historically more volatile in nature.

The new business growth in the Rest of Africa portfolio was 68% largely due to corporate activity relating to SAHAM Finances, with the East Africa portfolio underperforming.

The Indian insurance businesses continued to perform well, achieving double-digit growth in both life and general insurance in local currency. The Malaysian businesses are finding some traction after a period of underperformance, increasing their overall new business contribution by 3%. New business production is not yet meeting expectations, but the mix of business improved at both businesses.

SEM’s VNB declined by 3% (up 6% on a consistent economic basis and excluding corporate activity). The relatively low growth on a comparable basis is largely attributable to the new business underperformance in East Africa.

Sanlam Investment Group’s (SIG) overall net result from financial services declined by 6%, attributable to lower performance fees at the third party asset manager in South Africa, administration costs incurred for system upgrades in the wealth management business and lower earnings from equity-backed financing transactions at Sanlam Specialised Finance. The other businesses did well to grow earnings, despite the pressure on funds under management due to lower investment markets.

New business volumes declined by 13% mainly due to market volatility and low investor confidence in South Africa. Institutional new inflows remained weak for the full year, while retail inflows also slowed down significantly after a more positive start to the year. The international businesses, UK, attracted strong new inflows (up 57%).

Sanlam Corporate’s net result from financial services increased by 4%, with the muted growth caused by a continuation of high group risk claims experience. Mortality and disability claims experience weakened further in the second half of the year, which is likely to require more rerating of premiums in 2019. The administration units turned profitable in 2018, a major achievement. The healthcare businesses reported satisfactory double-digit growth in earnings, while the Absa Consultants and Actuaries business made a pleasing contribution of R39 million.

New business volumes in life insurance more than doubled, reflecting an exceptional performance. Single premiums grew by 109%, while recurring premiums increased by a particularly satisfactory 56%.

The good growth in recurring and single premium business, combined with modelling improvements, supported a 64% (71% on a comparable economic basis) increase in the cluster’s VNB contribution.

Following a year of major catastrophe events in 2017, Santam experienced a relatively benign claims environment in 2018. Combined with acceptable growth in net earned premiums, it contributed to a 37% increase in gross result from financial services (41% after tax and non-controlling interest). The conventional insurance book achieved an underwriting margin of 9% in 2018 (6% in 2017).

As at 31 December 2018, discretionary capital amounted to a negative R3.7 billion before allowance for the planned B-BBEE share issuance. A number of capital management actions during 2018 affected the balance of available discretionary capital, including the US$1 billion (R13 billion) SAHAM Finances transaction. Cash proceeds from the B-BBEE share issuance will restore the discretionary capital portfolio to between R1 billion and R1.5 billion depending on the final issue price within the R74 to R86 price range approved by shareholders.

Looking forward, the Group said economic growth in South Africa would likely remain weak in the short to medium term future, and would continue to impact efforts to accelerate organic growth. The outlook for economic growth in other regions where the Group operates is more promising. Recent acquisitions such as the SAHAM transaction should also support operational performance going forward.

“We remain focused on executing our strategy. We are confident that we have the calibre of management and staff to prudently navigate the anticipated challenges going forward,” Mr Kirk concluded.

Details of the results for the 12 months ended 31 December 2018 are available at