By Almot Maqolo.
HARARE, Zimbabwe (News of The South) –The greatest fear of the insurance and pensions industry is that the informal market, which is growing at incredible speed, will completely dollarize, while the financial institutions essential for economic revival are formally de-dollarized and completely taken out of the financial system, an expert has said.
The industry has been grappling with confidence challenges since the adoption of multi-currency regime nearly a decade ago, which came after the erosion of pension fund values from a period of hyperinflation.
Chairperson of the Zimbabwe Insurance and Pensions Apex Council Tassius Chigariro told a breakfast meeting that the industry is a joint partner in attracting Foreign Direct Investment and the government should not watch it dying.
Following a honeymoon of 10 years, the US Dollar is still imprinted in the mind of a Zimbabwean. Most of the people think in dollar terms even if they are to transact in RTGS.
“No Statutory Instrument, no Directive will ever rub that mindset, only time and confidence will,” he said.
Insurance Act, which was established many years ago before this country even tested the US Dollar. Under section 81 of this Act, the industry can enter into Foreign Currency denominated contracts even with locals. Industry’s interpretation of statutory instrument 142 was that the act still allowed it to contract in USD, but the SI required us to only transact in RTGS.
At some point the industry was confused, when a further Directive banned it from contracting in USD as contracting and transacting are different.
“Insurance industry can only exist when it delivers on its role, which is, to indemnify a customer in the event of a loss. Even though we all want our local currency, we understand the benefits of our own local currency, we must support it until it stabilizes, we are committed to supporting it, but we are also not oblivious to the fact that, even a 90 year old in Guruve, still thinks in USD terms. We do not believe we must fight the thinking with directives.”
The commission of inquiry which is still a matter under discussion, he said, it has deteriorated into a political matter rather than a technical matter.
“The commission of inquiry discussions focus only on private occupational pension schemes, which is a small group of pensioners compared to the from Government and Government related pension funds. Commission of inquiry will not solve our pensioner problems, every single pensioner has investments in this economy, if together we doubled the size of our economy and we will double the lifestyle of our elders,” he said.
The industry invests in two thirds of the Zimbabwe Stock Exchange and funds more than 50% of banks liquidity.
Finance and Economic Development Minister Mthuli Ncube said the government will create liquidity for the property portion of the portfolio through Real Estate Investment Trusts (REITS).
“The industry at least those invested in pension funds life assurance and everyone you are heavily weighted now in equities and property. Actually that is the right thing to do, I can confirm that you have got very good fund managers. So that is right thing to do, that is how you protect assets in an inflationary environment and currency volatility,” he said.
The ZSE says the Exchange Traded Funds (ETFs) will be listed next month while works around launching of the REITS remains underpinned by the complicated tax structure.
“But we need to do something for you as between IPEC and government. I also think that your exposure to the property sector, some of you it is very on the high side and I can understand why you are doing it but we need to create liquidity in that side.”
The government want to push the envelope in terms of innovation and products into the industry as it is not just domestic investors that are playing in the market but also foreign investors that will come through another window.
Also the ministry is still seized with legal reforms targeted at the legislation governing insurance and pensions. The Bills which includes IPEC Act, Insurance Bill and Pension and providence Fund Act took long at drafting stage.
“But, I wish to give you assurance that all the three Bills will be introduced in Parliament during the first half of this year,” he said.
IPEC Chairman Albert Nduna noted that the board of trustees needs to wake up.
“They are the custodians of the pension funds and when they are discussing where to put the money how has the allocation happened they should wake up, they shouldn’t live it to the employer but it should be a balanced discussion,” he said.
“The Insurance companies and Pensions Funds have been saying we have assets and now you said you are broke but buildings are there what happened board of trustees should wake up and address those issues. We can help as IPEC but at the end of it you prefer self-regulation and it must start from the board of trustees.”
The industry has the capacity to mobilize billions of dollars that can be directed towards national development goals. There are 1 200 pension funds in the industry.
In 2018, the industry recorded a surplus of $620 million, representing a decline of 39.24% from the surplus of $1.02 billion in 2017 on account of lower fair value gains. The income for the year under review was mainly driven by fair value gains on equities, dividends from investments, rental income and interest from investments which amounted to $572.43 million, accounting for 54.84% of the total income.
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