Entrepreneurship Zone: 06 June 2023 :: Zimbabwean investment firm allows clients to invest in cows

Tue Jun 6 03:08:15 CAT 2023

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Entrepreneurship Zone: 06 June 2023 ::  Zimbabwean investment firm allows
clients to invest in cows

·          

 <https://www.hyundai.co.zw/> After previously writing off his home country
as one unlikely to recover from economic devastation, Zimbabwean-born and
UK-educated Kelvin Chamunorwa has found himself back in Harare, building a
financial services company serving the country’s vast low-income market. And
he is using a 900-strong herd of cattle located on the outskirts of the city
to do it. Natalie Greve spoke to Chamunorwa to learn more about his
business.

Chamunorwa comes from business-minded stock – parents in middle management
positions in banking, and grandparents who successfully ran their own
business. In his late twenties, as a qualified actuary and with a growing
family in the UK, he saw little reason to permanently return to Zimbabwe.
News from the country was saturated with reports of unprecedented inflation,
crumbling infrastructure, institutional decay, political duplicity and a
terminal economy.

But a family visit to Zimbabwe in 2015, just after Chamunorwa had turned 30
and shortly after the economy had been dollarised, challenged his bearish
view.

“I had resigned myself to the fact that I probably wasn’t ever going to
work in Zimbabwe, because the financial sector had been gutted and actuarial
skills weren’t in demand. But what I found was that the perception of the
economy was far more severe than the reality. It just wasn’t as bad as was
being reported,” he tells How we made it in Africa.

Chamunorwa’s research at the time showed double-digit yearly premium growth
in the pension and insurance markets, admittedly off a low base.

But the opportunity came with a catch: confidence in financial institutions
had been eroded after money had been lost in traditional financial products
due to hyperinflation. Potential customers now sought a store of value for
their critical savings that they could trust.

“I realised they wouldn’t put money in a traditional institution and there
was a need to rebuild this trust with a different approach. The concept of
buying ‘units’ in pension policies was too nebulous a concept. We needed to
create a policy backed by a certain amount of units that would never
deplete, and would hold its value, even if inflation ran away,” he says.

Still somewhat unsure of exactly how this would be done, but buoyed by the
country’s prospects, in 2018 he bought an existing financial services
business in Zimbabwe that had a licence and an operational system in place,
and introduced two fairly traditional products offering funeral and accident
cover for the lower-income economically-productive market, thus establishing
Nhaka Life.

But just two years later, Zimbabwean inflation spiked again, eroding the
business’ balance sheet and renewing Chamunorwa’s resolve to discover an
alternative store of value that could act as an inflation hedge.

“It was frightening for me, because it was the first time that inflation
impacted me personally. As a business, we decided to pursue an alternative
asset that would protect us in future. Conceptually, the focus was on the
preservation of value,” he says.

During this process, Nhaka ultimately identified cattle as an optimal store
of value. As a biological asset that would largely hold its value regardless
of inflation rate swings, Chamunorwa says cows are a unit of value that
Zimbabweans understand, and yield value over the long-term, owing to their
potential reproduction rate of around one calf a year.

“In the same way Nhaka, as an institution, was immunised from inflation
risk, we realised that we could offer to same to clients and retail the
concept. This led to us refining the cattle-denominated investment product
and launching it earlier this year.”

Calling in the cows

Described as a growth investment product, clients invest in Nhaka Life’s
cattle-backed investment plan for a minimum of $5 a month with a return
driven by the number of calves born each year.

Premiums are denominated in either kilograms of cattle (for smaller
investments) or per head of cattle (for larger amounts). The policy is
backed by a live herd of some 900-cattle that are owned and managed by Nhaka
on four farms located about 80 km from Harare.

“We are able to immediately convert our clients’ investments into kilograms
or heads of cattle because we already own the commercial cattle-breeding
operation. As the cattle reproduce, their investment grows. If their animal
dies, they are paid out from livestock insurance, which guarantees that the
head of cattle or kilograms they have invested in never decreases,” he
explains.

Should a client’s assigned heifer produce an offspring, the value of that
calf is then added to their portfolio. If the cow produces a male calf, it
is sold as a bull after two or three years, and proceeds are used to procure
the equivalent value in female calves.

Kelvin Chamunorwa

Cows that are unable to reproduce are sold and replaced with productive
animals, while those that have reached the end of their reproductive years
are sold and replaced with a younger breeding heifer of equivalent value.

Returns are also realised through the sale of high-quality specimens for
genetics and breeding, the profits of which are returned to the investor.

After two years, clients are able to partially withdraw their investment at
the equivalent monetary value and, after five years, are able to fully
withdraw or physically collect the equivalent of their investment in
liveweight cattle, should they prefer. Nhaka applies predetermined charges
which allows it to share in the profit growth of the herd.

“From an operations perspective, we make the decision about the sale of the
cattle, but the client benefits fully from the proceeds,” confirms
Chamunorwa.

Responding to the inevitable risks associated with a live asset, he says
herd health is managed through frequent tick-control dipping, vaccinations,
veterinarian oversight, quarantine measures and livestock insurance.

Describing the model as “a platform, rather than a product”, Chamunorwa
plans to investigate possible further diversification into other natural
commodities, such as crops, goats and fruit trees.

“We want biological assets that are easily understandable for our market –
preferably commodities our market already farm on their own.”

Finding the market

The most challenging aspect of his business, Chamunorwa explains, is in
reaching its targeted end user and growing distribution.

Nhaka Life has found the most effective way of reaching clients is through
established collectives, such as pension funds, community church groups,
farm communities and users of microfinance institutions, which he refers to
collectively as aggregators. Aggregators are paid a small monthly fee to
assist with collections.

“Rather than trying to access individual clients, which is expensive and
not conducive to scale, we access them through the existing groupings.

“Part of the reason that larger insurance customers don’t play in this
market is because the premiums are so low, and from this you need to pay
claims, conduct administration and marketing, pay salaries, and realise a
profit margin. While you may not be able to make a lot on a dollar, if it’s
a dollar from a million people, the sum of those thin margins makes it a
sustainable business,” he notes.

Among Nhaka’s primary aggregators are established pension funds, through
which around 20,000 clients access Nhaka’s products. An additional 50,000
clients are served either directly, or through smaller collectives.

Zimbabwe’s perception arbitrage

Reflecting on the process of establishing a business in modern-day
Zimbabwe, Chamunorwa says an understanding of the slow pace of bureaucracy
and identifying ‘champions’ in the regulatory bodies are critical.

“The beauty of Zimbabwe is that there are still people in the institutions
that still want the best for this country – it’s just about identifying
them. Once they understand what you are trying to do, they then are your
advocates among their colleagues. Institutional integrity still exists,” he
says.

Looking ahead, Chamunorwa hopes in future to capitalise off the early-mover
advantage of Nhaka Life, providing an established platform from which large
insurance, life and pension players can leverage their expansion into the
country.

“The perception arbitrage of Zimbabwe has to correct. Once people are on
the ground, I believe that they’ll realise the opportunity that still
exists, and we hope by that time we would have built enough of a market
share that a Liberty or Discovery will want to enter through Nhaka Life.”

According to the World Bank, the Zimbabwean economy rebounded in 2021 on
the back of industrial and agricultural recovery and relative stabilisation
of prices and exchange rates, growing by 5.8%.

Disinflation policies were meanwhile effective in bringing down inflation,
which slowed from a jarring 838% in July 2020 to 60.7% in December 2021.

Nhaka Life’s herd of cattle.

- howwemadeitinafrica

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