Mozambique is entering a new phase of its local content policy with the creation of a Development Bank designed to finance strategic projects and address the persistent lack of credit available to small and medium-sized enterprises. E&M spoke with two experts on the subject.
The promulgation of the law establishing the Banco de Desenvolvimento de Moçambique (BDM) opens a new chapter in the country's local content policy. While the new Local Content Law establishes a framework to increase the participation of national companies in large projects, the future bank is expected to address what remains one of the private sector's most significant constraints: the absence of adequate financing to convert opportunities into businesses, investments, and jobs.
Signed into law by President Daniel Chapo on 15 June, the legislation creating the BDM fulfils one of the government's stated commitments. The institution is established with a share capital of 32 billion meticais, fully subscribed by the state, although multilateral banks and development finance institutions may eventually hold up to 49% of the equity.
According to the government, the bank's mission will be to structure, finance, and advance strategic projects, contributing to industrialisation, productive diversification, and the reduction of regional economic disparities. Its creation also reflects the recognition that commercial banks tend to favour short-term, lower-risk operations, leaving structural projects in industry, energy, agriculture, and infrastructure without adequate financing.
Local content needs financing to move off the page
For several years, the local content debate in Mozambique centred predominantly on the percentages of national company participation in major projects. However, a critical dimension remained unresolved: thousands of small and medium-sized enterprises continued to lack access to credit to invest in equipment, certifications, technology, and productive capacity.
For João Macaringue, the technical coordinator of the BDM's creation process, 'economic growth happens when there are mechanisms capable of transforming potential into investment, investment into production, production into employment, and employment into prosperity.' Mozambique possesses abundant natural resources, a strategic geographic location, and structural projects capable of driving economic growth — but the challenge lies in the inability to convert that potential into productive investment.
Macaringue was speaking at a debate organised by Moza Banco and the Dom Cabral Foundation under the theme 'How to Finance Mozambique's Growth: The Role of the Development Bank and Commercial Banking.' He explained that following a nationwide consultation process conducted across all of the country's provinces — involving private sector representatives, public institutions, economic organisations, and development partners — the conclusion was nearly unanimous. 'Everything we have in terms of resources and structural projects often dies on paper because there is no mechanism to finance it.' The BDM is intended to close that gap.
He noted that this reality does not stem from a failure of commercial banking, but from the inherent nature of the financial system. 'Commercial banks fulfil exactly the purpose for which they were created,' he observed, arguing that the country needs a specialised instrument to finance long-term, higher-risk investments that are typically excluded from traditional credit models.
The BDM will complement, not replace, commercial banks
Contrary to the expectations of many business operators, the BDM does not intend to compete directly with commercial banks. Macaringue insisted that such an outcome would, in fact, represent a failure for the institution. 'The Development Bank exists to complement the activity carried out by commercial banks. If it is competing with them, it is probably failing in its mission,' he argued.
Macaringue believes the bank's success should not be measured by the volume of credit extended, but by 'the range of investment instruments it is able to mobilise for the economy.' The bank's role is 'to broaden the market, create new financing possibilities, develop instruments that do not yet exist, and build bridges between domestic capital, international capital, and productive projects.'
This approach carries particular significance when applied to local content. Rather than financing individual companies in isolation, the bank intends to stimulate complete value chains, enabling small supplier firms to integrate into the large-scale investments under way across the country. 'When we finance a strategic piece of infrastructure, when we support an agro-industrial chain, or when we make an export-oriented project viable, we are also creating opportunities for thousands of small businesses, suppliers, workers, and young entrepreneurs,' he added.
Focus is essential to avoid the mistakes of the past
Carlos Braga, a former director of Economic Policy and Debt at the World Bank, argued that the BDM must resist the temptation to finance every sector of the economy simultaneously. That discipline, he said, will be the primary condition for its success. 'It is very important to maintain focus. If someone tries to do everything, they will not succeed.'
Braga recalled that several development banks have lost effectiveness by dispersing resources too broadly. In the Mozambican context, he argued that clear priorities must be established, favouring sectors capable of raising economic productivity, supporting small and medium-sized enterprises, and strengthening the value chains linked to local content.
'When someone asks me how to evaluate a development bank, my answer is: try to assess the institution's impact on the productivity of the economy,' he stated. The specialist considered that SME financing should 'occupy a central place' in the bank's strategy, but cautioned that this requires sustainable mechanisms and rigorous assessment of outcomes.
Braga also warned of the risks associated with extending credit without robust oversight mechanisms. In a number of developing countries, development banks have accumulated high levels of non-performing loans, ultimately undermining their own sustainability. 'It is a serious problem,' he said.
He noted that there is no universal model applicable to all countries. 'There is no magic solution. It is necessary to structure the characteristics of the economy and the possible responses.' This warning carries particular relevance in the national context, where the challenge is not simply to finance more, but to finance better — ensuring that resources reach viable projects with genuine impact on economic development.
Source: Diário Económico
Original article: https://www.diarioeconomico.co.mz/?p=529462
