In the book launched recently in Maputo, the academic and PCA of BVM, Salim Valá, addresses the impact of covid-19 on the economy and particularly on the Stock Exchanges.
The author states in his book that the world is facing an economic crisis caused by the advancing pandemic of covid-19 and reputable international institutions such as the IMF, World Bank, OECD, WTO, UNCTAD, among others, have been projecting significant slowdown in world growth, in the best case scenario, or global recession in 2020, in the less optimistic scenario.
The isolation and/or quarantine measures to stop the virus from advancing have disrupted the normal activities of people, companies, and institutions, and this has negatively impacted production, distribution, current consumption, and investments. The severity of the economic effects of covid-19 was due to its ability to generate, at the same time, negative shocks to global supply and aggregate demand.
The coronavirus pandemic has been affecting global production and supply chains, seeing the closing of borders, reduced economic activity, has been shaking stock markets, caused the cancellation of events around the world, and raised fears of a global recession. In addition to the impacts on markets and global trade, with the interruption of industrial production, paralysis of the travel sector, and a major drop in tourism, the pandemic has led governments to order the closure or partial operation of stores and services, the suspension of classes, calling on the population to stay home, which has drastically reduced consumption, production, and company revenues.
“The pandemic caused historic losses in the stock markets, but also recorded the appreciation of some companies linked to information and communication technologies and the production of health-related equipment and goods. Despite significant declines in some businesses, the stock markets have seen technology companies and digital content producers such as Netflix, Apple, Amazon, Alibaba, and Facebook appreciate because the covid-19 pandemic is forcing millions of people to stay home and watch television and use the Internet.
By their nature and function, stock exchanges are the “effective barometers of the economies,” a driving force for the companies themselves, a promoter of good corporate governance and a stimulus for entrepreneurship
Like several other governments worldwide, the government of Mozambique and the Central Bank are adopting measures to: i) stop the spread of the pandemic and strengthen the capacity of the health sector to assist the infected; ii) ensure that there is no shortage of basic goods and inputs by monitoring the distribution chains, and; iii) contain the effects on economic activity and stimulate the economy through monetary, fiscal and credit policies. It is still too early to assess the overall impact of the measures adopted on the real economy, taking into account the effective economic capacity that the state possesses, the predisposition of the cooperation partners to collaborate in this endeavor, and the negative effect of the pandemic in postponing already planned investments, such as those of Exxon Mobil and Total in the Rovuma Basin.
There is no way of not predicting that the economic and financial consequences of covid-19 will cause budget deficits and public debt ratios to increase, but it is vital that governments temporarily ignore the prevailing precepts about public indebtedness and use “everything possible” to deal with the crisis, including using fiscal rules flexibly to create the necessary room for expanding public spending, adopting policies of credit expansion and debt extension, and expanding cash transfer programs for vulnerable families.
Salim Valá points out that for a long time, stock markets have had a mysterious nature, with a sense of adventure in which “only the big financial tycoons, specialist individuals, and speculators with few scruples participated in the game.
This negative and elitist view of Stock Exchanges, which prevailed for a long time, has not prevented them from regaining a prominent place in the economic context, as a place where capital is managed, formatting financial operations and assuming their dual function as channelers of savings and as instruments for corporate financing.
In fact, due to their nature and function, Stock Exchanges assume themselves as the “effective barometers of economies”, a dynamic element of the companies themselves, a promoter of good corporate governance and a factor that stimulates entrepreneurship.
Widespread ownership leads more people to understand the role of savings and investment, to acquire a better understanding of the private enterprise system, the economic and social motto of profit, and thus reinforces the moral foundations of a flourishing market economy
With the advent of globalization, the economies became more interconnected, considerably reducing their customs barriers, forming economic blocks and exposing themselves more to economic agents. Driven by globalization, associated to the unstoppable technological advance, the Stock Exchanges are going through a period of great transformations, a clear paradigmatic transition, not only dictated by the movement of demutualizations, mergers, acquisitions and integration of some Exchanges, but also by the recognition that it is increasingly important that each country and economic system uses the Stock Exchange more as a financing, savings promotion and safe, credible and profitable investment tool for companies and investors.
Economic globalization is expanding wealth in some regions, countries and social groups around the world, but it is vital that open markets can share the benefits of that prosperity more fairly, equitably and sustainably. Free trade, the increasing flow of investment, and a focus on exports has been the cornerstone of economic growth in many nations, but we will not be able to maintain that pace if it favors only a few and not many citizens. A dynamic, inclusive, and vibrant secondary market, as well as expanded measures aimed at financial inclusion, can be part of the solution to empowering low- and middle-income citizens and families, making them active players in economic development.
Salim Valá recognizes that the debate on popular capitalism and democratization of capital is old, deep, and very noisy, even in the “Old and Consecrated Liberal Democracies of the West,” where it was intended to improve the democracy of property ownership and create a People’s capital market, i.e. to make the “quiet citizen” have economic assets and be able to own Small and Medium Enterprises (SMEs) to generate wealth through his work, energy, and talent. Extended ownership leads to more people understanding the role of savings and investments, gaining a better understanding of the private enterprise system, the economic and social motto of profit, and thus reinforcing the moral foundations of a flourishing market economy.
At this moment BVM has 11 listed companies, market capitalization represents 17.82 % of GDP, has 191 securities and 23,420 holders registered in the Central Securities Depository and has already financed the economy in more than 192,600 million MT (corresponding to 3,017 million USD), indicators characteristic of Stock Exchanges of emerging countries, with small size and low liquidity, but with high potential to be a catalyst of the economic empowerment of companies, promoting their internationalization and affirming itself as a dynamic center of ethical business.
BVM’s PCA concludes by stating that a robust financial system, a dynamic capital market is determinant for any vibrant economy, and is one of the vital pillars for Mozambique to better exploit the opportunities that economic globalization presents.
