Long-term savings key to drive economy, says Old Mutual

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Old Mutual Zimbabwe (OMZIL) says consented efforts are required to improve confidence in long-term savings, which are key to supporting sustainable economic growth and development.

Zimbabwe’s largest financial services group said long-term savings provided the sources of finance for critical infrastructure such as roads, dams and housing.

Group chief executive Mr Samuel Matsekete said this was a task that OMZIL had been occupied with as a player in the industry, but one that the group was also acutely aware it needed to involve everyone including regulators, policymakers and financial services sector players.

“We need to continue to improve confidence in long-term savings for the role these savings play in supporting sustainable economic development and the sort of initiatives that we have to deploy aggregated pools of savings into investments such as infrastructure,” he said during an analyst briefing on Wednesday for the group’s financials for the year ended December 31, 2023.

Zimbabwe’s financial services sector has continued to battle low confidence, as evidenced by the nature of largely transitory bank deposits.

Mr Matsekete said financial education was one of the group’s key pillars and that it was working to ensure financial literacy levels were lifted in the wider economy.

“In 2015, the United Nations, at their convention, acknowledged that financial literacy was one of the pieces of evidence, strong ones for that matter, or detractors, to the attainment of the Sustainable Development Goals (SDGs) by 2030.

“The Reserve Bank of Zimbabwe (RBZ) identifies financial literacy as one of the areas that must be focused on,” he said.

Mr Matsekete pointed out that with a literacy of about 90 percent, the country’s similar level of financial literacy should be considered “very low”.

Mr Matsekete said an effective and sustainable economic development agenda required financial literacy levels to be enhanced, hence the group would spend time, effort and resources on financial literacy.

“Over the year under review, we reached just under 20 000 in face-to-face interventions to support that agenda, but about 2,9 billion are on that agenda,” he said.

He noted that interventions such as the On Demand Programme, the Kids Boot Camp, which adults also attend, and the piggy bank were some of the initiatives.

“We have interventions for SMEs and operators of businesses and we would like to continue that agenda indirectly and a better-enlightened society matters financially for better business in the financial services industry,” said Mr Matsekete.

He said the group was also supporting startups, innovations, and small enterprises through the Eight2 Five Innovation Hub.

Mr Matsekete said preserving value in an inflationary environment is a difficult one, but also one that demands businesses continue to be innovative in terms of how they deploy assets used in their investments.

He said the rise in US dollar transactions was a double-edged sword, giving opportunities for easier predictability in terms of revenues and costs and helping businesses have better control.

“However, when it happens and has the effect of disintermediating formal transactions and people prefer to use more cash, it then affects the role that financial services providers are supposed to fulfil.

“Again, that means we have to work at it, innovating the ways to follow the money and be relevant to those economic agents but also the markets where cash transactions are being relied on,” he said.

Mr Matsekete said the group moved to strengthen its core businesses, such as banking, general insurance and microfinance.

He said that through the O MARI mobile money service, the group established partnerships that enabled it to deploy its core products to segments it would not have previously addressed effectively.

“We also set out to ensure that we realigned our portfolios in our investment space to follow sectors where we are seeing superior growth, recognising that sometimes some of those sectors are not accessible through the traditional capital markets, which has meant that we have invested a higher weight in alternative assets and direct projects.

“The objective here is to ensure that we can access sustainable returns and competitive returns through the asset allocation and asset or security selection approaches that we have adopted,” said Mr Matsekete.

He added that the group will continue to diversify its investment portfolio accordingly and will increasingly carry perhaps higher weights in real estate and within it, realigning exposures in the subsectors of the real estate portfolio.

“In banking and lending, you also see the asset distribution preferring sectors such as exports, agro-exports and value chains that can generate foreign currency,” he said.

In the life insurance business, Mr Matsekete said there was significant growth in pension contributions, and it could have been better if people were contributing at the right level.

He said the group continued to declare bonuses, such as on the guarantee fund so that whatever returns generated are transferred into the hands of group clients more frequently.

For the year under review, the group’s profit before tax in inflation-adjusted terms was higher by 140 percent, based on both the capital returns and the increase in the mix of the business towards US dollar contributions.

Similar to policy orders, funds grew 98 percent to $5,2 trillion in inflation-adjusted terms again, supported by the performance of underlying assets as well as premium earnings.

Net client cash flows were up 170 percent, with US dollar inflows within that being at a higher rate than the prior year and the annual premium equivalents growing strongly with 142 percent.

On banking and lending, CABS, and the micro-finance unit, Mr Matsekete said the group managed to sustain the lines of credit that we established historically and added a few more.

“About US$110 million in capacity was available to the Bank during the year, and this has been earmarked for the real sector and within that export sector and the value chains around it.

“You will see the portfolio skewing towards agriculture, 34 percent, energy and mining growing compared to last year, almost doubling at 10 percent of the weight of the portfolio that we carry there, but at 16,5 percent, and then 10 percent for the mining sector,” he said.

He noted that the US dollar contribution grew to 75 percent of deposits, up from 60 percent in the prior year, reflecting the dollarisation of the economy.

He added that US dollar dollarisation has also increased as the group’s total assets grew 91 percent, up from 80 percent in US dollar terms.

“The quality of the loan book remains strong at a non-performing loss ratio that is well within our targets of 2,1 percent.

“We strengthened correspondence banking and other partnerships that we have, and we will continue to do that this year,” said Mr Matsekete.

He added that the group has also been investing in alternative assets and has, over the past year, deployed US$26 million mainly in renewable energy initiatives.

“During the year we completed a new project, an additional 1 megawatt to be just under 10 megawatts in renewable energy, and efforts in this space are continuing,” he said.

He indicated that the group expanded the retail distribution to include US dollar retail products, and the property boutique registered strong occupancy rates at 82 percent.

“We commissioned, amongst some of the projects, a factory in Ngezi, which is a significant one in that it is a new space for us but also significant in that it is demonstrating how we are following developments and changes in the landscape and claiming value chains we believe will support sustainable growth into the future, and in this case, the mining value chain,” said Mr Matsekete.

Source: Herald