The View from the Shallows

Close to 90% of Mozambique’s citizens may be unbanked, but the southern African nation is quietly confident in the future of its financial markets. Indeed, according to Maputo Stock Exchange, or Bolsa de Valores de Mozambique (BVM) data, financial services rank among those sectors of consequence to the broader economy of Africa, for which double-digit growth is forecast for the 2013-15 period (13%). Mining headed that particular list on 26% anticipated growth. The extractive sector has underpinned economic advancement in the post-civil war era since the 1992 peace deal was penned, contributing 33% of growth. In short, the economy has augmented to the extent that within just five years extractive and energy related revenues are predicted to exceed donor assistance. Naturally enough, then, the government is keen to shore up the financial sector both as a vehicle for burgeoning commerce and to attract domestic and foreign investment. It also sought to foster a culture of saving and investment by presenting citizen and corporation alike with a wider range of financial instruments.

ENTER THE CAPITAL MARKETS

BVM rang its first bell in October of 1999, operating under the auspices of the Ministry of Finance. It was assisted in its launch by the Lisbon Stock Exchange and World Bank. The bourse is regulated by the Capital Markets Authority, an entity created by the Central Bank of Mozambique. The more notable signposts since then—hot on each other’s heels—were the 1999 listing of government bonds followed a year later by their corporate counterparts. The first equity listing came in 2001 following the IPO of CDM Brewing Company. The 2006 creation of the bourse’s Central Depository of Securities was followed in 2009 by new securities market regulation and the launch of the SME market.
Entities wishing to trade on the BVM require a market capitalization (MCap) in excess of roughly $900,000. And meanwhile, foreign investment activity is incentivized through the availability of repatriation of up to $500,000.

IN THE NUMBERS

There are 32 marketable securities listed on the BVM, 20 of which are bonds (11 corporate and nine treasury), while of the remaining securities, eight are commercial papers and three are stocks. In 2012 the BVM had another telling moment when MCap broke the psychological 1 billion mark; the year had seen the listing of construction firm CETA – Construção e Serviços. The BVM reportedly anticipates see a further five new listings by 2018 in the form of gas exploration companies raising project funding.

For 2013 total value registered at $8,424,064.1, with total volume traded of $766,275. Official data indicates that MCap by June 2014 had scaled to around $1.106 billion in an upward trajectory virtually unbroken since inception. BVM also reveals that in 2013, sub-Sahara Africa accounted for 6% of overall emerging market MCap, the smallest contributor, and foil to the 50% claimed by Asia. In turn, the EMs accounted for 215 of global MCap. Mozambique’s MCap as a percentage of GDP in 2013 stood at just 8%; this may be contrasted with the US figure of 327% and global average of 207%. Yet in light of the major industrial schemes being realized and the government’s fiscal policy—in 2002 inflation troughed to a historic low of 2.2%—Mozambique’s low score speaks of considerable potential for the capital markets as broader international interest in the stable nation manifests. BVM investor breakdown data for that year reveals a 33-67% foreign/domestic split.

In 2011 the PPP Law provided the BVM with a shot in the arm by stipulating that Mozambique’s megaprojects be listed on the bourse to a minimum of between 5% and 20%. The law also stated that their shares would be reserved for local investors, once again, to stimulate a spirit of investment and financial participation. Mozambique had anticipated the listing of Brazilian mining giant Vale Moçambique by the end of 2014. Yet dampened demand from Asia has dulled any excitement that might have arisen. This being said, Vale revealed plans in mid-August 2014 to double minerals exports to China over the next five years, which will pique interest as intentions convert to sales.

SME’s

Mozambique’s SMEs contribute around 70% of GDP and therefore have huge potential for future local listing once the commercial world warms to IPOs. Most businesses today are hungry for capital in order to expand, but with bank loans not always an option—hefty interest rates on bank loans range between 17% and 22% per annum. SMEs did receive positive attention in 2010 when the bourse launched its dedicated SME market. To date there have been no takers, but these are early days for Mozambique in terms of financial inclusion, much less alternative sourcing of capital.

BOND, DEBUT BOND

In September of 2013, Mozambique stepped into the international bond markets when EMATUM fisheries agency issued notes against a seven-year, $500 million loan. Oversubscribed, it subsequently rose to an $850 million offering an average interest rate of 8.5%. For 2013 total value traded stood at $65,164,155.34, down YoY from $74,450,571.55. Value traded on government bonds was at $58,702,266.07 for the year, while business transacted on corporate bonds printed at $6,461,889.28.

THE ASSOCIATES

The BVM is among the 17 members nations of the African Securities Exchanges Association (ASEA). Among the Association’s goals is the lobbying on behalf of member bourses in the international financial markets. At the 17th ASEA Annual Conference early in 2014 ASEA President Sunil Benimadhu called for African Exchanges to become an, “integral part of Africa’s transformation“ in terms of “the four S’s; Synergies, Support, Scope, and Substance.“

BIG BLIP ON THE RADAR SCREEN

According to an article of December 30, 2014 appearing on African Capital Markets News, for several key reasons Africa was identified as the second most-attractive investment behind the US. According to the World Bank the seven countries of Mozambique, Ethiopia, Tanzania, Rwanda, Chad, South Sudan, and Sierra Leone have forecast growth rates of above 7% per annum for the 2014-16 period. These countries, of course, have vast natural resources, and moreover, many economies not only rank among the fastest growing in the world, but also have better debt to GDP ratios than most developed countries. In light of these truths, the BVM will see interesting years ahead, a barometer of wider socioeconomic advances.