Friday, March 29, 2024

Driving Factor of the Mozambican Capital Market

Salim Cripton Valá, Chairman of the Board of Directors of the Mozambique Stock Exchange
 

Stock Exchanges are seen as the barometers of economies, following trends in economies, positively influencing the business environment and the competitiveness of economies. Mozambique is not, and could not be, an exception to this and that is why we are fully committed to extend the scope of the capital market and to increase its contribution to the country’s financial system and economy.

In the last four years (2017-2020), the Mozambican economy has been affected by the effects of the international economic crisis, the freezing of aid and assistance provided by cooperation partners, the huge losses caused by extreme weather events, the outbreaks of instability in the central part of the country and the terrorist actions in the Cabo Delgado region, as well as a reduction in foreign direct investment and exports, reduction in the price of commodities in the international market and, in 2020, the effects of the COVID-19 pandemic on both the economy and society.

Despite these troubled times, many analysts had high hopes as regards 2020 as a result of the large foreign investments to be made in natural gas projects in the Rovuma Basin, where some of these investments were postponed, inflated expectations based on the expected “economic boom in Oil &Gas” and the need for diversification of the economy.

The difficulties and setbacks that occurred during this period did not prevent this institution from performing the relevant actions contained in the Mozambique Stock Exchange Strategic Plan for the 2017-2021 period, with particular emphasis on the following: i) revitalisation of the secondary market, with the listing of 7 more companies; ii) introduction of new products, services and financial instruments; iii) launching of the Mozambique Stock Exchange Index (IBVM); iv) creation of a new stock market, the Third Market; v) promotion of financial education and literacy; vi) technological redesign and improvement of the regulatory framework, and; vii) the implementation of partnerships with other Stock Exchanges and with a number of institutions in the national economic and financial field.

As a corollary of the work carried out in the four-year period the main stock market indicators increased, e.g.: a) the market capitalization grew by 84.0%; b) the market capitalization ratio increased by 25.6%; c) the trading volume increased by 99.2%; d) market liquidity grew 8.3%; e) the number of securities listed on the MSM rose 55.0%; f) companies listed on the stock market rose 175%; g) the level of economy funding via the MSE increased by 491.6%, and; h) the number of securities and registered holders with the Securities Central increased by 348.8% and 258.7%, respectively. There was also a significant evolution in the bond market (Treasury Bonds, Corporate Bonds and Commercial Paper), with a 41.7% increase in the number of issues and 100.5% in the value of issues. The main highlights in the domestic financing market are Treasury Bonds considering that the number of issues between 2017 and 2020 witnessed a growth rate of 66.7%, and a huge increase in the amount of the relevant issues, which during this period witnessed a growth rate of 349.5%.

During the year 2019, two major operations took place in this stock exchange, in particular the Open Bid for 4% of the Shares of Hidroeléctrica de Cahora Bassa (HCB), in July 2019, marked by the success in terms of financial inclusion as more than 19 thousand investors representing more than 16 thousand new shareholders subscribed 1,099 million shares, worth MT 3,300 million (US $ 55 million) in all provinces of the country and in more than 90% of the districts. Mozambican citizens bought 35% of these shares, using new share subscription channels – mobile phones and digital apps – and 36% of the orders were sent to the MSE using these channels. Given its innovative nature, the use of remote channels, the availability to citizens not holding specific bank accounts and thanks to the important contribution for the inclusion and economic and financial empowerment of Mozambicans this operation was twice awarded internationally e.g. in March 2020 by “DealMakers Africa” (“Special Recognition Award”) and in May 2020 by “The Banker” Magazine (“Deal of the Year 2020 – Equity Winner Africa”).

Another stock market operation of acknowledged impact was the Public Subscription Bid for new shares representing 30.19% of Cervejas de Moçambique (CDM), exclusively for CDM shareholders, the largest financing operation by a company via stock market, in the amount of MT 7,793 million (US $ 124.5 million). It is worth highlighting that CDM had already resorted to financing via stock market in 2012, in the amount of MT 1,100 million (US $ 37.1 million) and was the first company to be listed on the MSE in 2001, through an public bid for 28% of its share capital in the amount of MT 280 million (US $ 23.4 million), and until recently this was the company with the largest contribution to this country’s stock market capitalization.

Even taking into account the adverse economic environment, Mozambican companies and investors are getting to know MSE better and increasingly using its services and financial instruments. This represents a paradigm shift in the financial system whereby economic agents understand that the Stock Exchange is an alternative savings, financing and investment tool and within reach of all. We will continue to make efforts so that more large companies (operating Law nº 15/2011), those within the State business sector and SMEs may be listed on the Stock Exchange, not only to finance themselves, but also to increase their visibility and convey the message to the market that they intend to promote democratisation of capital and good corporate governance.

We have adopted a “proximity strategy” so that companies located in different geographies in the country, with different sizes, operating in different economic sectors and with different stages of development can be listed. During the year 2020, MSE had to reinvent itself to counter the negative impact of COVID-19, betting as never before on digital channels for contact, interaction, dialogue, training and awareness to reach its priority target groups and starting new strategies to attract Sports Limited Companies and companies in the mining sector to the Stock Exchange, opening new windows of opportunities for the funding of infrastructure projects and enabling the use of the Deposit Certificates issued by the Mozambican Stock Exchange as a tool to fund agricultural production and marketing. These were some of the new initiatives launched during the year 2020, which will be enhanced and continued in the coming years.

In light of the results achieved, in a markedly unfavourable period and given its clear impact, I dare say that “the MSE is becoming an effective driving force in the capital market and an active driver of the Mozambican financial system”; a role that is poised to grow in the future.

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