NBFI INSIGHTS | 15 February 2024

Business in Africa:
A calculated risk


Maneesha Vanmali | Jumba Mafuno

Non-Bank Financial Institutions -
Head of Insurance Sector, Absa CIB
| Relationship Manager, Non-Bank
Financial Institutions, Absa Bank Kenya CIB


"A ship in a harbour is safe but that is not what ships are built for"

This quote from US author and businessman John Shedd is often used in business circles to discuss taking calculated risks. It is particularly apt when considering the challenges and opportunities presented by businesses on the African continent.

Our portfolio specifically looks at the operations of insurance businesses, presenting unique insight into the concept of “risk” and how organisations are responding to a variety of challenges. These include political risk, climate change, and cyber-security-related issues among other risks.

In short, our role at Absa Corporate and Investment Banking (CIB) is to ensure that our clients in the insurance sector operate with maximum efficiency. They should be able to collect premiums, pay out claims, and ultimately generate an investment return on their capital. While this may sound straightforward in principle, in the real world, it is not that simple.

Insurance and re-insurance as concepts have been around for ages. According to historical records, informal insurance dates back as far as 3000 years but in sticking with our opening quote, we will reference the first recorded insurance contract which was developed in Genoa in 1347 to insure maritime cargo.

While insurance is often perceived as a 'grudge' purchase, we are regularly reminded of how quickly the operating environment can change.

In South Africa, for example, business and property owners would not have imagined that they would wake up on the 9th of July 2021 to witness damages worth reportedly over R50bn as two weeks of rioting wreaked havoc on their local economy.

Cast your mind back to the 15th of March 2020 when COVID lockdowns were announced in Kenya. Would you have imagined that many sectors would not have returned to pre-COVID levels in terms of jobs and economic activity at the tail-end of 2023?

Back to South Africa, in late September 2023, over R1.4bn in damages were incurred by agricultural and residential operations in the Western Cape as the province was ravaged by flooding.

According to INTERPOL’s 2022 Africa Cyberthreat Assessment report, South Africa leads the continent in the number of cyber-security threats, with over 230 million recorded in 2022, growing by nearly 18% per annum. In July 2021, for instance, Transnet was forced to declare Force Majeure as many of its ports were taken offline due to a cyber-attack. In the same year, the South Africa Postbank was targeted with over 100,000 fraudulent transactions leading to reported massive financial losses. In 2022, credit bureau TransUnion saw its operations in South Africa disrupted with hackers demanding over R200m after gaining unauthorised access to their client data.

This is the operating environment that many African businesses are operating under and the cost of insuring yourself against these kinds of events is being passed onto businesses and consumers at a pace that is far outstripping inflation.

Fortunately, for South Africa, Kenya and many other African countries, the regulatory environment for banks and insurers is robust and this serves as a blueprint for the rest of the countries in the continent who are still struggling. The political riots experienced in South Africa, Kenya and other countries in Africa have also provided a unique test-case for regulators and insurance players in those countries to explore ways the sector would be supported in the event of political unrest.

Further to this, the insurance sector is also one which is not being left behind in terms of innovation as local players are increasingly adopting digital transformation, Artificial Intelligence and Behavioural Finance elements into their offerings.

The entrance of digitisation in Africa has been driven mainly by the increased mobile phone penetration. It is also through this channel that most of the digital insurance offers are distributed, generally under micro-insurance schemes. Therefore, the emergence of the internet, mobile phones and mobile money solutions have supported and accelerated the development of the Insurance sector in Africa.

Like the merchants before them, the majority of the entrepreneurs on the continent are open to elements of risk. If we can maintain a healthy insurance ecosystem, we can provide them with an environment in which they can confidently take these new ventures to market and allow them to flourish.

Maneesha Vanmali | Jumba Mafuno

Non-Bank Financial Institutions - Head of Insurance Sector, Absa CIB
Jumba Mafuno – Relationship Manager, Non-Bank Financial Institutions, Absa Bank Kenya CIB

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