Tuesday, September 16, 2008

Swaziland behind in ending monopoly of insurance industry

GOVERNMENT has conceded that the country is lagging behind in dismantling monopolistic behaviour in industry, as well as the liberalization of certain entities in some sectors.

Principal Secretary in the Ministry of Finance Dumsani Masilela on Friday categorically stated that the Swaziland is currently not at par with international reforms whose major bias is tilted towards dismantling monopolies, what with the realization that monopolies are characterized by overpricing and worse still, sloppiness.

Speaking during the Federation of Swaziland Employers and Chamber of Commerce (FSE&CC) annual general meeting held at the convention centre where he presented a paper on government’s perspective of the changes in the insurance and retirement funds industry, Masilela alluded to the fact that liberalized markets are often efficient as they operate in a competitive realm

Making his presentation, Masilela assured that the recent liberalization of the insurance industry in the country would to a large extent increase efficiencies and moreover ensure that consumers do not bear the brunt of overpriced products, which is a common practice in monopolized markets.

The finance PS however quickly added that his presentation was no personal attack on the Swaziland Royal Insurance Corporation (SRIC), which over the years has exclusively enjoyed the rights of being the country’s sole insurance services provider.

Masilela said the insurance and retirement funds acts would also eliminate SRIC’s dual role of being both a services provider as well as being a regulator of insurance markets.

“The insurance and retirement fund regulatory framework will promote the growth of the insurance market, and I am certain that the face of the country’s insurance industry will never be the same again with the introduction of other insurance giants into the country’s economy,” said Masilela, in his usual eloquent manner.

Adding, he said the penetration of giants like Old Mutual, Metropolitan Life and Liberty insurance into local shores also means that the number of individuals and entities who leave the country to look for foreign insurers in anticipation of higher returns would be reduced, adding that an opportunity for growth had been opened for the economy because local funds would no longer be invested in foreign countries.

“The previous restrictions and monopoly of our insurance industry meant that there were no new investments, no new markets and no new jobs created,” he said.

In another matter, Masilela said government had also put in place mechanisms aimed at safeguarding investor returns, with insurance local statutes stating that all insurers have a 30% local asset investment obligation.

……….But IMF skeptical of insurance market liberalization

In the same presentation, PS Dumsani Masilela said the International Monetary Fund (IMF) had already indicated its dissatisfaction with the liberalization of the local insurance market.

Masilela said in a report, the IMF argues that the opening up of the local insurance market compromises returns and further weakens fund sustainability. In this regard, he said IMF’s stance on this matter was a bit ironical for now.

“In that same document, the IMF says Swaziland needs to mobilize savings, and now that we have improved the legislation for insurance savings to remain in the country, the same institution states that the liberalization of the markets is not good,” he said.

Jokingly, Masilela said the IMF was good at highlighting problems, without necessarily providing the relevant solutions.

Meanwhile, the PS said government was closely monitoring the IMF’s concern though, further imploring insurance players to also remain intent and to raise any issues affecting them with government.