Zimbabwe’s insurance and pensions industry: The sleeping giant of economic growth

PHILLIMON MHLANGA

The insurance and pensions industry in Zimbabwe stands as a critical yet underutilised pillar of economic development.

While the sector holds substantial financial assets and has a potential to play a crucial role in providing security, mobilising savings, and investing in critical infrastructure, its true potential remains largely untapped.

The industry’s contribution to the nation’s economy could be far greater with strategic interventions and reforms.

Finance , Economic development and Investment Promotion Minister, Professor Mthuli Ncube, Insurance and Pensions Commission (IPEC) Commissioner, Dr. Grace Muradzikwa, IPEC director Cuthbert Munjoma offer insights into the challenges and opportunities facing the sector.

Insurance and pension funds serve as essential sources of capital, pooling long-term savings that can be reinvested into Zimbabwe’s economy. These funds are critical in financing national infrastructure projects, such as roads, energy, and housing, which drive broader economic growth. Professor Ncube underscored the importance of leveraging these funds to enhance the livelihoods of citizens while stimulating economic activity. He stated, “There is a need to use resources of the pensions industry to uplift the livelihoods of pension scheme members and also unlock wider economic opportunities.”

The assets held by the insurance and pensions industry in Zimbabwe amount to significant sums, with the latest reports showing them reaching ZW$36.51 trillion by March 2024, according to IPEC.

These assets, if properly mobilised, could contribute immensely to development by supporting the funding of infrastructure and economic growth. However, the challenge lies in the underutilisation of pension funds for prescribed assets—investments that the government mandates for national development.

Over time, compliance with these mandates has been weak, leading to missed opportunities for expanding infrastructure and driving economic expansion.

The insurance industry plays a vital role in risk management, providing financial protection against unforeseen events for businesses and individuals. This function helps create economic stability, enabling businesses to operate with confidence, knowing they are shielded from catastrophic risks. Dr. Grace Muradzikwa, IPEC Commissioner, highlighted the role of insurance as a cornerstone of financial security for both individuals and businesses.

“The sector is a cornerstone of financial security for individuals and businesses alike,” she said, emphasizing the broad impact of insurance in ensuring economic resilience.

However, despite this potential, Zimbabwe’s insurance penetration remains critically low. The insurance sector contributes only 0.4% of the country’s GDP, a stark contrast to developed nations where the figure often exceeds 5%. The low penetration rate can be attributed to various factors, including limited public awareness, affordability issues, and a general mistrust of the sector due to historical financial instability.

To address these challenges, the insurance industry must innovate to create products that are more accessible and relevant to Zimbabwe’s population, particularly the informal sector, which constitutes a significant part of the economy.

Mobile insurance, microinsurance, and products tailored for small businesses could significantly improve coverage and participation.

One of the most significant contributions of the pensions industry to economic development is its role in financing long-term infrastructure projects.

Pension funds provide stable, long-term capital that is ideally suited for projects such as housing, roads, and energy infrastructure.

However, the ability of pension funds to invest in such projects has been severely hindered by hyperinflation, which makes fixed-income investments unattractive and erodes the value of savings.

Cuthbert Munjoma, director at IPEC, discussed the implications of Zimbabwe’s economic instability on the pensions industry, noting that inflation undermines the ability of pension funds to invest in long-term infrastructure. “Hyperinflation makes fixed-income instruments unattractive, thereby hindering investment in long-term projects essential for economic growth,” Munjoma explained.

This challenge limits the capacity of pension funds to contribute to the development of much-needed infrastructure projects in the country.

Despite these obstacles, pension funds have been involved in financing real estate developments and housing projects, contributing to the growth of urban infrastructure. However, there is still vast untapped potential for greater involvement in large-scale infrastructure projects.

Experts argue that Zimbabwe must create more inflation-linked investment options for pension funds to stabilize returns and enable them to participate in essential national development initiatives.

A persistent problem facing the pensions sector in Zimbabwe is the issue of unremitted pension contributions. Many employers fail to remit pension contributions, resulting in a significant shortfall in the funds available for retirees.

According to reports, outstanding pension contributions reached ZW$4.3 billion, severely undermining the financial well-being of retirees.

“This has become a perennial problem, which involves some employers making paper deductions on pay slips but not remitting the actual contributions to the respective pension funds,” Munjoma said, highlighting the widespread non-compliance among employers. This issue not only undermines the integrity of the pensions system but also leaves retirees without the financial security they are entitled to.

To address this, the government must enforce stricter penalties for non-compliant employers and strengthen regulatory mechanisms to ensure that contributions are accurately deducted and remitted.

The IPEC continues to monitor these issues, but more robust measures are needed to protect the interests of pensioners and ensure the long-term sustainability of the system.

Despite the challenges, Zimbabwe’s insurance and pensions industry holds significant potential to drive economic growth.

To unlock this potential, several strategic actions must be taken. First, there is a need for product innovation, particularly for the informal sector, which represents a large portion of the population.

Developing mobile insurance and micro-pension products could increase participation and expand coverage.

Second, regulatory reforms are essential to ensure that pension contributions are properly remitted, and prescribed asset mandates are adhered to, facilitating the development of national infrastructure. Third, there is an urgent need to diversify investments in inflation-resistant assets to provide more stable returns for pension funds while supporting national projects.

Finally, financial literacy campaigns must be ramped up to increase public understanding of insurance and pension products. This would encourage greater participation in the sector and improve the long-term financial security of Zimbabweans.

If these reforms are implemented, Zimbabwe’s insurance and pensions sector could transform from a largely dormant player into a dynamic force for economic development.

As Dr. Muradzikwa put it, “A well-functioning insurance and pensions industry is not just a financial necessity—it is a foundation for a prosperous and stable economy.”

With focused attention, the sector can become a cornerstone of Zimbabwe’s economic future, creating new opportunities for growth, job creation, and financial security for millions of Zimbabweans.