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BVM’s Transformation into a Company Will Lead to Its Modernisation and Greater Involvement in the Mozambican Economy

BVM’s Transformation into a Company Will Lead to Its Modernisation and Greater Involvement in the Mozambican Economy

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

Stock exchanges play an important role in the performance of any economy, as they mobilise savings for investment. It is assumed that when people save and invest in shares, it leads to an increase in the rational allocation of resources, as funds that could have been consumed or kept in unused deposits with banks are mobilised and redirected to promote a variety of economic activities.

Economic literature argues that there is a positive relationship between the development of the stock market and the positive performance of the economy, well expressed in the fact that in developed countries there are dynamic and liquid stock markets. Mozambique has endeavoured to exploit the opportunities that exist in the capital market, initiate economic reforms that result in increased access to finance, deepen economic and financial engagement with the rest of the world, develop robust capital markets to reduce the cost of money and dependence on bank finance, and improve access to finance for companies, particularly small and medium-sized enterprises (SMEs).

In April 2023, the government took the decision to set up BVM, Sociedade Anónima (SA), through Decree 18/2023, of 28 April, after having operated for around 24 years under the legal framework of the Public Institute (IP). This act will go down in the history of the capital market in Mozambique, and more particularly of the BVM, as a profound transformation aimed at providing the BVM with operating conditions that allow it to respond more effectively and efficiently to new market demands, expand the process of capitalising companies, providing liquidity to listed securities, and keep up with the dynamics and best practices of regional and international markets.

In recent years, the world’s stock exchanges, almost without exception, have entered a period of constant evolution and adaptation to the challenges of an increasingly uncertain and volatile context, where dynamism and flexibility prevail over the stability and rigidity of organisations that have become immutable over time. Nowadays, they have become a striking symbol of globalisation and flourishing market economies, operating on a highly electronic basis and with the freedom to act in an integrated and constantly changing market.

The world economy is still in the process of adjusting to the huge shocks it has suffered in recent years, most notably the covid-19 pandemic and the conflict in Eastern Europe, and all the implications they have had on global production and distribution chains. In fact, these events have caused a series of knock-on effects worldwide, particularly with regard to the economic downturn and slowdown, high inflation and high interest rates.

During the first half of 2023, the global economy continued to face uncertainties and risks, particularly affecting low-income economies like Mozambique. In this vein, the World Bank, in its “Global Economic Prospects” Report of June 2023, stated that global growth is expected to slow down in 2023 to 2.1 per cent, stressing that tighter financial conditions around the world, including more moderate external demand, will weigh on the growth of emerging markets and developing economies.

Emerging markets and developing economies have struggled to maintain jobs and essential services for their citizens, and the optimism that arose with the end of covid-19 in China at the beginning of the year has proved fleeting. In several of these countries, there has been high inflation, high levels of indebtedness and an increase in poverty and social inequalities.

For the sub-Saharan African region, the contraction in financing has worsened with a prolonged trend, something that has been going on for several years. The interest burden on public debt is increasing due to greater reliance on domestic market-based financing, coupled with a long-term reduction in development budgets (IMF, 2023).

The main US stock market indices have lost more than 20% since their last peak on 11 March 2020, with investors describing the Wall Street market as a “bear market”, i.e. a market with a strong downward trend that will potentially discourage many investors and buyers.

Financial analysts have estimated that the earnings per share of S&P 500 companies will fall by 6.8%, making it the biggest drop since the second quarter of 2020, when the World Health Organisation (WHO) declared Covid-19 a global state of emergency.

Over the course of the first half of the year, it was clear that the American stock markets were showing a good recovery, so that at the close of 15 June, the S&P 500 index was up 15.27%, the Dow Jones Industrial was up a more subtle 3.80% and the NASDAQ was up an incredible 38.81%. This position for the NASDAQ index has not been seen since its creation in 1985, and is explained by the fact that the American market is “carrying on its back” technology companies that have been growing consistently with the development of artificial intelligence solutions and other technological innovations.

Domestically, the main indicator of the national economy’s performance, real Gross Domestic Product (GDP) grew by 4.42 per cent in the first half of 2023, driven essentially by the primary sector, with the mining industry standing out with a variation of 38.02 per cent, followed by accommodation, restaurants and similar with 8.74 per cent, transport, storage, information and communication with 7.18 per cent, agriculture, livestock, hunting, forestry and logging with around 3.41 per cent, despite the occurrence of extreme weather events.

In the first half of 2023, the equity and bond market segments performed well. The stock market added another company, Mozambique Weiyue International Holding, S.A., through a direct listing of 750,000 shares on the Third Market, bringing the number of listed companies to 13.

The stock market had a turnover of 13.9 billion meticais, an increase of 112.93% compared to the same period in 2022, which had a turnover of 6.5 billion meticais.

Market capitalisation reached 175.3 billion meticais, representing growth of 34.51% when compared to the same period last year, which was 130.3 billion meticais.

The market liquidity indicator (“turnover”) also showed an upward trend, reaching 7.95 per cent, i.e. an increase of 2.9 percentage points compared to the same period in 2022, which was 5.2 per cent. The Central Securities Depository (CVM) registered 12 securities, representing 60% of a total of 20 planned for 2023.

The Yield Curve, also known as the interest rate curve, was used to further analyse the market and is frequently used in finance and investment. It reflects not only interest rate expectations, but investors’ attitude to risk and their need to invest in different bond maturities. The yield curve helps economists, market analysts and others interested in financial matters assess the economic situation and can predict market risks.

The concept selected for this report was “Green Bonds”, which are financial instruments representing debt intended to finance climate and environmental projects or other resilience and sustainable development initiatives, which BVM has been preparing for their introduction onto the market.

During the six-month period in question, the third edition of the “Business Cycle” was held, with the aim of harmonising methods, addressing work procedures, legal and operational aspects of the Trading Systems and the Central Securities Depository, in which the different players in the Capital Market took part, in particular Stockbrokers and Specialised Treasury Bond Operators (OEOT).

Journalists from the economics area were trained in capital market and stock market issues, with the aim of equipping them with the tools to better approach and inform the public on issues related to the stock and bond markets, reinforcing their background on topics such as savings, financing and investment.

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BVM has taken part in business sector events such as CASP, Economic Briefings, ACIS conferences and university lectures, with the aim of introducing entrepreneurs and investors to the financial instruments available on the capital market and how to access them, as well as training and sensitising academics on the nature, importance, advantages and how to use the capital market and BVM.

Today, more than ever, entrepreneurs and investors understand that stock exchanges operate within the framework of the economic system and within the financial sector, and are neither isolated nor immune to the influences of the surrounding environment. Factors such as macroeconomic stability, robust economic growth, specialised stockbrokers, a well-developed banking sector, savings and productive investment habits, an adequate business environment, good financial literacy among the population and quality economic institutions are important elements that influence the good performance of the stock market and the vitality of a stock exchange.

Nevertheless, the effort made by BVM and all the players in the capital market ecosystem to be an “effective barometer of the Mozambican economy” does not just depend on goodwill, but on improving the environment and the economic revival that is projected for the coming years, in which the Stock Exchange will become an instrument for the economic empowerment of companies and citizens and a positive catalyst for popularising capital in Mozambique.

I mentioned at the beginning that the transformation of the BVM from an IP to an SA was a far-reaching reform for the Mozambican capital market, establishing the institutional benchmark for the sustainable growth of the market in Mozambique and providing greater interconnection with other financial centres. In practice, it is the result of a worldwide trend to open up the capital of stock, derivatives and commodities exchanges, in line with institutional strengthening and repositioning and confidence in market solutions, integrity and transparency.

Demutualisation means that a mutually-owned stock exchange is converted into a shareholder-owned company, i.e. it is a legal process whereby companies’ equity securities are converted into shares, involving the transformation of a non-profit institution into a profit-driven company. Ownership, management and trading are separate and in different hands, i.e. management of the exchange is separate from shareholders and brokers.

Member-owned stock exchanges tend to work only in the interests of members, which can sometimes be detrimental to the rights of other stakeholders. The separation of functions between shareholders, managers and brokers can lead to a balanced approach, eliminate conflicts of interest, create greater management accountability and take into account the interest of other stakeholders.

There is a general trend towards transforming stock exchanges into publicly traded companies, helping to bring them closer to companies and investors, adopting a strong commercial perspective, promoting better governance, greater openness to the world and favouring their profitability. This is the perspective that BVM SA is committed to pursuing.

From the point of view of the outlook for the second half of 2023, Mozambique’s economic recovery could continue to be supported by liquefied natural gas (LNG) projects, agriculture, tourism, transport and communications, energy and construction, and although the outlook remains positive, risks and uncertainties remain, mainly due to inflation projections, pressure on public finances and the effects of extreme weather events, as well as the prolongation of the conflict in Eastern Europe, volatility in the financial markets and the price of raw materials on the international market.

More recently, since 7 October, the outbreak of the geopolitical crisis in the Middle East could contribute to negatively influencing the outlook for economic growth and inflation, and its prolongation could contribute to worsening fuel and food prices, challenging the country to put public debt on a sustainable path, as well as finding innovative solutions to reduce the cost of money for companies, particularly SMEs.

The next two years will not be “fabulous times” nor will they be “easy, obstacle-free economic times”. On the contrary, there will be many challenges, but within them lies a sea of opportunities. A stronger and more entrepreneurial BVM, with modern technologies, new and innovative financial instruments, better governance and management, will be able to more easily circumvent the constraints on its path, better serve entrepreneurs and investors and be more ethical and profitable.

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