Since 2019 the insurance industry – and South Africa at large – has been unable to catch a break. The devastation caused by the KZN floods and the economic turmoil that ensued from the Covid-19 pandemic and the civil unrest we’ve seen have all had disastrous consequences on an already fragile economy. And, just as it felt like the economy was starting to open again, the country is now grappling with record levels of load shedding. If you add to the mix record unemployment and the collapse of public enterprises and state infrastructure, it paints a bleak picture of South Africa’s economic prospects.
No quick fixes
Unfortunately, there are no quick fixes for these issues, and over the short to medium term, we are in for a bumpy ride. We often hear the phrase bandied about that we South Africans are “resilient” or that “’n boer maak a plan”. This is undoubtedly a secret power that all South Africans possess; however, our extraordinary threshold to absorb astonishing levels of dysfunction and adversity should not be abused by our country’s leaders, nor should we accept the status quo.
Bloated cabinets, national working committees, and Davos Summits will not solve South Africa’s challenges. Instead, the real solutions to our problems lie in our own backyard within the SME and entrepreneurial sector. This community has resilience in abundance and never accepts the status quo.
A case for hope
For this reason, I remain hopeful and perhaps even a little optimistic about our long-term prospects as a country. However, my view is not based on blind optimism or as a result of looking at our country’s economic landscape through rose-tinted glasses. Instead, it is based on some critical observations made of late within our own business at Garrun, as well as the broader economy.
It is estimated that the SME sector employs 47% of South Africa’s workforce, contributes more than 20% to the country’s gross domestic product, and pays about 6% of corporate taxes. It’s a sector of the economy that Garrun is fiercely passionate about and has underpinned our existence for over 60 years. Approximately 80% of our group earnings are derived from the risk services we provide to this market. We fundamentally believe that a prosperous South Africa and a thriving SME market are inextricably linked. I am constantly amazed by some of the businesses, and the entrepreneurs who lead them, and who sit within our client base. My engagements with these clients constantly remind me of why there are so many reasons to remain hopeful about the future.
Some years back, a survey commissioned by the Adclick Africa Media Group was conducted with 1 157 South African SME owners. Interestingly, 74% of the respondents said they launched their businesses to impact society positively. This data is consistent with the trends we see among our clients, who are driven by a strong desire to drive constructive change and are actively positioning themselves around the opportunities that will invariably arise from state mismanagement.
Growth sector
Unfortunately, the SME environment continues to be hamstrung by needless red tape and legislative bureaucracy, all driven by a government plagued by an unhealthy obsession to interfere and control its way to economic prosperity as opposed to facilitating it. However, whether the ruling party likes it or not, privatisation is happening. At Garrun, we see numerous clients building commercial propositions to fill the void left by the collapse of public enterprises and basic services. While South Africa continues to be an incredibly tough neighbourhood for entrepreneurs to operate in, those who choose to forge on appear to be growing.
It seems contrary to what one would expect after flicking through the local news headlines, but an evaluation of our Group’s commercial insurance book supports this view – particularly if we examine the Business Interruption component within our current book. Simply put, BI compensates a business for lost income and covers the expenses incurred by a company due to an unforeseen disruption or suspension of its normal operations. Several aspects are considered when pricing BI premiums; however, the underlying policyholder’s revenue and cost base are key components that ultimately comprise the total sum of insured values for this line of cover.
From a sample size of 4 000 odd clients within our book, sums insured increased at a nominal growth rate of 9.39% to R4.6bn for these clients over the past 12 months to January 2023. Admittedly, using the total sums insured as an indicator of growth is not a perfect methodology, however, it does imply that the commercial market is certainly keeping its head above water.
And more growth
Further evidence to support this view is demonstrated by the strong growth posted within our Heavy Commercial Vehicle book, as our clients continue to increase their fleet sizes to meet the rising demand for road transportation given the government’s failure to deliver a safe and reliable rail infrastructure network. In addition, a major client within the food manufacturing sector is building an alternative energy business focused on industrial solar power and water treatment solutions to allow them to exit the grid, continue operations, and ultimately sell these services to the surrounding communities.
More high-profile examples of where green shoots are starting to appear within the arid land of state failure relate to FlySafair’s rapid market share growth after the collapse of airlines Comair and South African Airways-owned budget airline, Mango. Flysafair’s relentless focus on exceptional service delivery has led to its being ranked the most on-time airline in Africa and the Middle East, and second globally, in the Official Aviation Guide of the Airways (OAG’s) 2023 Punctuality League.
Transnet is now looking to outsource the running of its most crucial transport corridor from Johannesburg to Durban to private players as it simply doesn’t possess the funds or skills to make it work. This trend is also playing out in the energy sector, where the government has finally lifted the licensing threshold for private power generation, which means that solar and wind projects of any size can now be built without a license.
The complexity of South Africa’s challenges requires a high level of ingenuity and urgency. Fortunately, we have plenty of these attributes sitting within our private sector. History constantly reminds us that free market principles inevitably prevail, capital always flows towards opportunity, and fortune always follows the brave.
Undoubtedly, it will be our brave entrepreneurs who don’t accept the status quo and who are primed to step into the void left by years of state mismanagement that will move our economy and South Africa’s future forward. This provides good reason to remain optimistic and perhaps even offer some light at the end of a very dark tunnel.