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Mozambique 2014 | FINANCE | VIP INTERVIEW

TBY talks to Mario da Graça Machungo, Chairman of Millennium bim, on the impact the bank has had on the Mozambican market, by supporting SMEs and e-banking initiatives.

Currently, there are 18 mainstream banks, eight microfinance banks, and seven credit cooperatives in the market, but when Millennium bim started there were none. How has your approach changed since the market began to open up?

We have always had the same approach to the market. Millennium bim was established in 1995 as a business model that was based on a differentiation strategy by focusing on the mass and corporate segments, coupled with the introduction of IT platforms, modern branch layout, as well as a new organizational structure that emulated the mother company's business model in Portugal. The formula proved to be successful as our competitors remained at a standstill at a time when the economy was going through a transformational phase from a planned to a market-based economy. In effect, the leading banks were being privatized with outmoded business models. Our motto from the beginning was “innovation and modernization." We have always kept the transformation of the market as a central part of our business strategy in Mozambique. As the economy changes, you can verify from the data and the numbers that we are at the forefront of the market. We are always leading the market among financial institutions because our strategy is to be in line with the state of the market, the needs of our clients, and with the future needs of the Mozambican economy.

What is Millennium bim doing to support the lower income and SME segments of the market?

This economy, with the development that it has, needs greater financial inclusion. This financial inclusion requires that the bank creates innovative products that meet the needs of our clients in areas that have low penetration by the Mozambican financial system. This is our approach and we will keep on leading the bank in this way. There are many microfinance institutions in Mozambique, but we started the sector here. The International Bank of Mozambique got into contact with institutions that had experience in microfinance, and we created a microfinance bank called Novo Banco, in which we were one of the stakeholders. We are now opening new branches in different areas of the country where business is growing.

What role do technology and e-banking play in your business?

We recently launched an innovative product in the Mozambican market called Millennium IZI. Millennium bim was the first bank to give its clients the chance to access electronic banking channels. It was the first bank to have online and mobile banking—Millennium Izi is a new and user-friendly version of mobile banking that includes a customer support service line that is also a transactional line. This means that through the line a client can make transactions by using the appropriate codes. They have the internet, but they can access this secondary channel to make their transactions.

How has the increased influx of international corporates changed Millennium bim's business?

We approach both the mass market and the corporate segments differently. Obviously, the oil and gas and mineral resources projects are a major part of the Mozambican economy. This will bring in major investments from multinationals, and a lot of them import their own financial packages already completely designed abroad. Our home institution Millennium BCP in Portugal has a developed investment banking model, and considerable professional experience. We previously had an investment banking practice in Mozambique, which we are now rebuilding in collaboration with Millennium BCP so that we are not left out of infrastructure finance opportunities in Mozambique. Crucially, we need to be prepared to respond to the appeals for financial resources from SME companies in every domain, whether they be in the electricity, tourism, agriculture, food, or transport sectors.

“The expansion of the oil and gas sector will precipitate major investments from abroad."

Why should international investors work with Millennium bim in Mozambique?

We have 18 banks, but three of these represent over half of the market. However, we are the bank with the highest number of awards, and are recognized nationally and known abroad. Millennium bim is the only Mozambican bank to be included in the ranking of the 100 largest African financial institutions.

What forthcoming trends do you see in Mozambique's banking sector?

The expansion of the oil and gas sector will precipitate major investments from abroad. These investments will be too big for the banking sector's capabilities, and the big-ticket transactions will be funded by global banks. Such banks are seeking to have a permanent footing in Mozambique, whilst others use regional offices located in Johannesburg or other neighboring countries. The development of huge investment projects requires a concomitant development of clusters of local SMEs to cater to the different services and goods that multinational companies (MNCs) require along their value chain to accomplish their production plans. This is where local content comes in, regardless of whether it is imposed by legislation or not. The underlying business model for SMEs involves a stable stream of revenues that translate into contractual arrangements pertaining to the supply of goods and services. This is where we can come on board and support companies to enhance their capabilities. The situation is so critical that Millennium bim has rolled out specific products for the linkage-related SMEs, as is the case of the discount of invoices aimed at smoothing the cash-flow cycle, forex transactions, and wage payments. In addition, by its nature as a retail bank, the mass market is encompassed by providing household loans that are pay-related.

What are your plans and goals for 2014 and beyond?

In the forthcoming years, and as part of our ongoing commitment to the social and economic development of Mozambique, Millennium bim plans to continue to fund both individual and SME/corporate loans and advances, while also maintaining its leadership in customer deposits. Once more, the bank's approach to innovation in new products, services, and functionalities will be a key driver for our business, aiming for the further penetration of services and customer enrolment to different banking business lines. Furthermore, Millennium bim will remain focused on its branch expansion efforts, including in rural areas, therefore contributing to a greater and better accessibility of financial services in Mozambique, as a way to promote the financial inclusion of the population, as we have done, historically, since the bank's inception.

Where do you see the greatest opportunities for foreign investors in Mozambique in 2014?

Massive investments in infrastructure are required in regions that are extremely underdeveloped and where skilled manpower is scarce. Developed countries' resources and experience can be replicated in Mozambique through adequate adaptation to local conditions. Opportunities abound in logistics, such as ports, railways, roads, warehouses, and transportation. Accommodation is non-existent in regions like Palma, or is faced with huge supply constraints in some cities, like Tete. State-sponsored training centers for specialized skills have lagged behind, and increasing urbanization calls for real estate development in the main cities. It is like the country is starting anew, with all the other components that are enablers for an environment conducive to investment.

What is your outlook for the Mozambican economy over 2014?

Investments in gas, mineral and infrastructures should tilt growth to the upside to post a growth rate of 8.0% in 2014 after a moderate deceleration in 2013 (7.0%) due to the impact of floods that caused damage to infrastructure and disrupted agricultural production in early 2013. The country's growth follows a typical path experienced by countries with resource booms entailing huge imports of equipment and a concomitant current account deficit. The current account deficit was 36% of GDP in 2012 and could hike to 40% in 2014. Nevertheless, it is necessary to underscore that the deficit is funded by FDI flows that are based on the economy's fundamentals with a long-term perspective, unlike the short-term carry-trade based flows in search of high-yield currency profits, which could pose a risk of reversal. On the fiscal front, government revenues have been on the rise, at the same time that developments in infrastructure could put more pressure on government expenditures, raising the need for more non-concessional debt (the current cap of $1.5 billion by the IMF may have to be raised, as massive investments are in the pipeline). In a nutshell, and apart from some political noise, I see the country continuing with a steady growth path at an average of 8% over the 2014-2016 period, with an inflation rate tamed to below double digits, a fiscal deficit below 7.0% of GDP, a steady FDI flow to finance the current account deficit, increasing urbanization, the surge of a new middle-class, and the subsequent diversification of the economic base.

© The Business Year - December 2013