With trading partners such as the UK and China facing possible recession, SA should brace itself for some short-term pain while looking to effectively roll out structural economic reforms to ignite growth, says Discovery CEO Adrian Gore.
“On the bright side, the reforms, if we can get them in place, will stimulate the economy (over the longer term) and we need to work harder at getting this right,” said Gore in an interview after the release of the health, insurance and financial services group’s results for the year ended June.
However, he said this could not be “done overnight” as the energy crisis plan announced in July by President Cyril Ramaphosa to liberalise SA's energy system and increase capacity would take a year to 18 months before “you start seeing real investment in renewable energy”. But, he said, “when you do, it will be substantial.”
The president’s plan includes scrapping the threshold for private power-generation projects that feed into the grid and doubling the size of Bid Window 6 of the state’s renewable energy independent power-producer procurement plan to 5,200MW.
Gore also believes if government and business work together they can turn the economy around.
“I think there are clear-use cases. One is the vaccine (rollout), where when business and the government worked together, we got tremendously good results.”
He said the energy plan is another project that could be a success.
Interventions where business can work with government to mobilise resources to unlock bottlenecks include ensuring an effective and sustainable supply of water; fixing logistics, including rail and ports; investing in key infrastructural projects; and combating crime and corruption
— Adrian Gore, Discovery CEO
Other priority interventions where business can work with the government to mobilise resources to unlock bottlenecks include ensuring an effective and sustainable supply of water; fixing logistics, including rail and port; investing in key infrastructural projects; and combating crime and corruption.
“These are national priorities. If we get traction in these areas we can turn the flywheel and increase economic growth for all,” Gore said.
As for the Competition Commission’s raid last month of eight major life insurance groups, including Discovery, due to allegations, among others, of fee price fixing, Gore said the group supported the regulator's investigation.
“Our position has been unequivocally that we do not collude — we compete on innovation and we will co-operate fully with their investigation.”
Other companies raided were Old Mutual Insure, Hollard, Sanlam, Bidvest Life, the Professional Provident Society (PPS), Momentum Metropolitan and BrightRock.
Gore said there were no further details on the allegations, but that according to information released by the Competition Commission, “they had a few areas of concern”.
The raid at Discovery’s offices in Sandton came as a surprise, he said, with officials arriving with a warrant and wanting access to data and laptops. Staff co-operated.
Discovery posted record normalised headline earnings of R5.816bn, a 71% increase on the previous year, while full-year profit increased by 70% to R5.479bn. This was due to healthy performance across its three main business areas in SA and the UK, as well as Global Vitality.
Discovery exited the UK investment market, closing its VitalityInvest business there because of “structural change in market conditions, mainly driven by significant margin compression”.
Warwick Bam, head of research at Avior Capital Markets, said Discovery reported a “very good set results”, but it was “disappointing” to see the company “backtracking on their investment in the investment platform” in the UK.
“It always comes as a bit of a surprise to see a sudden change of strategy when it seemed like they were doing well,” said Bam.
Gore said Discovery previously experienced “good traction” with VitalityInvest, with about R15bn in assets under management.
“But with margin compression in the UK, with fees going down, it was hard to make any real return and you needed massive scale to make it profitable. Our anticipation was that we needed another £15m (about R302m) in additional capital to get this business to profit. It just didn’t make sense, so we took a hard decision and we are exiting the business.”
It made more sense to use capital carefully for the expansion of other businesses, such as Discovery Bank, “in a way that is going to generate returns for shareholders”.
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