Position of Salim Cripton Valá, Chief Executive Officer of BVM, speaking at the “Agri-Food Quality and Sustainability Forum
Agriculture and agribusiness is vital to fight poverty and promote inclusive economic growth
This position was defended by Salim Valá, on May 20, 2022, in an event promoted by the Association of Young Portuguese Farmers (AJAP), in Maputo. The much propagated myth that agriculture carries many risks, especially small and medium scale, may be a justification for the little attention and low investment in this sector, which currently absorbs less than 5% of funding to the economy.
In his speech, the leader of BVM deconstructs this vision, referring that more than 66% of the Mozambican population lives in rural areas, and of this figure more than 80% depends on small scale agriculture as a source of income and social reproduction, and the contribution of the agricultural sector to the GDP is around 25%.
Valá emphasized that low productivity and low redundancy in agriculture are some of the main causes of poverty, whose incidence is above 40%, and also of food insecurity and chronic malnutrition. The challenge is to leverage the conditions of the about 3.8 family farmers, whose degree of market integration is very limited and the technological base is so low, that all indicators related to the use of improved seeds, fertilizers, pesticides, irrigation, use of mechanical means are below 5%. How do we want to have the modernization of agriculture, in the extension of the national territory, if the bulk of family producers produce little and without the use of modern inputs, the quality is low, they are poorly connected to the market and obtain little income?
We will have to continue to make massive and strategic investments in agriculture, agribusiness, and the rural economy. It makes no sense that the activity that provides man with one of the most essential goods for his survival, food, can be considered a high-risk activity. Isn’t food insecurity a high economic, social and political risk for society?
In another development, Salim Valá referred to good examples of successful agribusiness projects, mostly implemented with external financing or through cash crop development companies, such as sugar, cotton, macadamia, banana, cashew nut, perâ avocado, tobacco, boer beans, sesame, litchi, mangoes, among others. These enterprises are modern agriculture, they are authentic “islands of prosperity surrounded by a huge sea of micro and small enterprises of low productivity”.
The speaker referred that it is fundamental to change the agricultural paradigm in the country, so that the protagonists of agriculture are not the grandparents, parents, uncles, and other relatives who adopt archaic technologies and become prematurely old due to the difficult conditions of agricultural work, but are replaced by young entrepreneurs, trained in schools, institutes, and universities, who use new technologies, improved inputs, who bet on irrigation, mechanization, and use rural extension services, who are connected to regional and global markets, with access to innovative financial mechanisms, and who lead well-managed and governed companies that bet on doing business with ethics.
In the current development context of the country, it is necessary to continue to rehearse ways of how to better connect projects promoting modern agriculture with family initiatives based on rudimentary technology. There are two distinct agricultural worlds that it is fundamental to link and to induce rapprochements and synergies between them.
Let us have no illusions, this is a job that will take decades, but it should be enlightened and guided by comprehensive, coherent, and consistent policies, strategies, and measures in time and space, a project of shared responsibilities, and should harmoniously involve the private sector, the government, institutes and universities, research centers, the media, banks and other financial institutions, the civil society, and cooperation partners.
This is one of the greatest challenges that the country will have to face and overcome, for the structural transformation of its economy. I agree with the vision of Carlos Lopes, conveyed in his latest book “Africa in Transformation”. The author argues that the promotion of industrialization is a requirement for Africa if it wants to generate more jobs and increase household income, and the gateway to industrialization.
In a book I wrote in 2019, “Mozambican Economy at a Crossroads?” I argued that economic development should be done, inevitably, with recourse to cross-cutting initiatives to promote human capital, have comprehensive policies, strengthen institutions and pave the territory of essential social infrastructure and support for business development, nor neglecting the need to adapt to climate change.
Stock Market Could Be Part of the Solution for Agribusiness Finance
Agriculture is the basis for the development of the country, i.e. most Mozambicans live and work in agriculture and other related activities. The secondary and tertiary sector, in the cities, is somehow connected to agriculture and other related activities, such as certification, storage, transportation, conservation, processing, and other steps in the value chain. Besides the need to intervene at the level of the entire value chain, it is vital to concentrate on focus areas and invest in knowledge management in order to exploit the intrinsic potential in each territory.
Although agriculture is the sector that contributes significantly to the GDP, employment, and household income, it is not, unfortunately, an area that presents a strong business structure, with adequate management and that has an organized, transparent, and consistent financial base.
The BVM, being an innovative financing mechanism, still has little dimension, liquidity and depth. In fact, it has a market capitalization of 19% of GDP, 11 companies are listed on the stock exchange, it has 216 registered securities and 23,695 holders registered with the Central de Valores Mobiliários, and the turnover and market liquidity, although still modest, have been gradually rising. The companies currently listed are from the service, insurance, beverage industry, investment, advertising, energy, hydrocarbon and technology sectors. Seven companies are listed on the Official Listed Market, one on the Second Market and three on the Third Market. Although agriculture is the basis of national development, BVM does not yet have any companies listed in this sector.
We are not satisfied that so far, and after 23 years of BVM’s operation, we do not have a company linked to agriculture and agribusiness listed on the stock exchange.
In the medium term, BVM intends to segment the stock markets, and this calls for the existence of specific market segments for agriculture and agribusiness, manufacturing, tourism, fisheries, trade, infrastructure, the financial sector and fintech, the mineral-energy complex (including “Oil and Gas”), companies in the State Business Sector, SMEs, mobile phone companies, Sports Corporations (SAD’s), Public Private Partnerships and Business Concessions, among others. We are not satisfied that so far, and after 23 years of BVM’s operation, we do not have a company linked to agriculture and agribusiness listed on the stock exchange.
The PCA of BVM emphasized that BVM has always been concerned with the listing on the stock exchange of companies of different sizes, belonging to different sectors of economic activity and located in different regions of the country. Our partnership with AJAP, CTA, IPEME, APME, OCAM, IGEPE, ISCAM, among other institutions, aims to ensure that Mozambican companies use the capital market and BVM more.
In the specific case of the area of agriculture, agribusiness, and rural development, we prioritize taking economic and social measures that make it possible for people to settle in the rural areas, living and working in dignified and pleasant conditions. In other words, attracting people to live in the countryside is part of the effort to stem the rural exodus, because people do not leave the countryside in search of facilities in the cities, but because in rural areas life has been marked by many and multiple difficulties, in particular the lack of job opportunities and access to essential services.
By creating the Second Market for SMEs in 2009, and later the Third Market in 2019, BVM sought to respond to the concrete situation of the Mozambican economy in each context of its development process. Taking into account the legal, economic-financial and market requirements, the institution did not want to “stay in its comfort zone”. Rather, it worked with the various institutions in the capital market constellation, in particular the CTA, to create the institutional basis of support so that the bulk of Mozambican companies could have the potential to use the Stock Exchange platform, but maintaining the integrity, transparency, equity, and liquidity of the market.
Salim Valá emphasized that BVM has been running a robust, creative, and comprehensive financial literacy and education program to show entrepreneurs and investors that using BVM is not a “seven-headed monster” nor does it resemble “climbing an inaccessible and dangerous mountain. On the contrary, there are a number of requirements to be met, such as the legal conformity of the company and the shares to be listed, good economic and financial health, predictable market capitalization and equity, the need to have organized accounting and audited accounts, shareholder dispersion, and the free transferability of shares.
Valá stressed that it is necessary for companies to have the legal format of a Public Limited Company, be willing to provide the market with relevant financial information periodically, submit themselves to public scrutiny, and adopt transparent governance practices and business ethics.
BVM As An Innovative Financing and Risk Dispersal Mechanism
Using the Stock Exchange platform is to follow a little known path, little used by entrepreneurs, and therefore still regarded with some hesitation, mistrust, reluctance, and even doubt, some even believing that it is a “game of luck or chance”.
It is normal that this should be so. New ideas and approaches almost always arouse fear, misunderstanding, and even disdain. The important thing is to understand the logic, to have relevant information, to understand how the capital market works, to know how to access the products and services, the advantages and risks. In fact, any investment carries risks, and that is why it is vital to have relevant information before making any decision.
Accessing funding via the Stock Exchange is a possibility to obtain resources at a cheaper cost, allows risk dispersal, tax benefits, more visibility for the company, and to be inserted in a platform that enables business partnerships. On the other hand, one must be prepared to embrace transparent management, submit to the obligation of presenting financial information to investors and the market, and have scrutinized governance rules.
Young Mozambican agricultural entrepreneurs must be umbilically linked to education, science, technology, and innovation. They have to be prepared to learn from agribusiness projects that use modern technology base, good management and governance systems, have linkages to national, regional, and global markets, care about quality and certification requirements, and market the products and the business.
Mozambique can learn a lot and continue to share experiences with Portugal and AJAP, as rightly stressed Firmino Cordeiro, General Director of AJAP, when highlighting the “networking”, sharing knowledge and “best practices” between the two countries, generating an appropriate context for young Mozambican farmers to open new fronts in agribusiness, betting unequivocally on competitiveness, innovation, promotion of market linkages and modernization of agriculture. “Knowledge, innovative financing, and markets are critical success factors,” highlighted Firmino Cordeiro.
In closing, the PCA of BVM concluded that Mozambican agriculture and agribusiness companies need to understand that the Stock Exchange can be a differentiating factor in their business, allowing them to obtain funding at affordable costs, make a difference, add value, attract investors, and contribute to making agriculture an activity perceived as lower risk.