What is your opinion, taking into account your politics and banking experience, on the path Mozambique should follow, given the recent discoveries of natural resources (gas, oil, coal), and what is the role of the financial sector in this new development framework?
The role of the financial sector is important in all economies – you cannot have an economy without the financial system – in that it plays its part as financial intermediary and mobilises savings. The growth we are experiencing at present is based on external savings; this search for external savings is good as a first stage to allow the construction of infrastructure, so that changes can be made available for development by Mozambicans.
That is why it is important that the financial sector has the role of mobilising internal savings, to cope with the economic demands of the Mozambican businessmen and to finance foreign investment. The largest parts of these investments come with economic packages already designed. Seen from outside, the participation of the national financial sector is tiny. The financial sector will play a more important role when domestic savings are sufficiently mobilised for economic development.
It is necessary to empower people, who before the mid-1990s were not experimenting with full access to financial services. What were the challenges that a bank of the size of Millennium bim had to overcome to establish itself as a pioneer in the national market?
For this bank to have been a pioneer and played a very important role in financial inclusion, there was a visionary target of the shareholders that created Millennium bim. They wanted to create a modern bank that had nothing to do with the traditional way of banking, in order to reach the whole range of the population and all the segments of financial services.
Millennium bim grew with good IT infrastructure, with a segmentation of clients and utilising information technology to expand banking activities to remote areas of the country. Starting from three branches, we managed to expand to the rest of the country and today we are, without a doubt, the largest bank in many aspects.
We continue to reassert the fact that without serving areas that have no access to financial services, it is not possible to think of dealing with the mobilisation of financial savings, simply because we cannot conceive a situation where people do not save. Savings are of major interest to the country because they allow the circulation of money, which at the same time allows the mobilisation of financial resources and directs them to be more profitable and helps sponsor the real development that Mozambique needs.
The bank started from scratch and today it is the largest bank in Mozambique, with more than 2,500 employees, more than 150 branches in the country, 33% of its credits and deposits, and 40% of the POSs and ATMs. Millennium bim dominates the quality of its assets: more than $2 billion in assets makes us the largest bank in Mozambique. It is also the largest taxpayer.
The bank can play a very important role in the discovery of natural resources, mainly of gas, especially on the feasibility of businesses that will be associated with the gas sector. There are clusters which need to be properly designed and models must be provided to be able to create businesses linked to one another that are complementary and serve an efficient logistic framework. For the development of this sector we believe the bank could play an important role.
The country is not merely about mineral resources; it also has agriculture, fishing and tourism. It is necessary to develop infrastructure further so the country can provide a more holistic way to materialise its development plans.
Large international companies already have a financial structure in place. However, there are small and medium-sized enterprises (SMEs) in the downstream sector that come to add value and form clusters. Those companies do not have a planned financial structure. What are the tools that Millennium bim provides them with?
Big companies are anchors of intensive capital and intensive labour. It is necessary to develop activities that also involve intensive labour since we need to be able to create jobs and employment opportunities throughout the country. Our bank is prepared for that and has a structure that is able to respond to the development of clusters and of SMEs. These companies are extremely important for our strategy. The growth of these companies in Mozambique will not be spontaneous; it is necessary to create an institutional framework that motivates them to grow. In parallel, foreign SMEs must partner with the already existing SMEs for the creation of new business clusters.
A private SME that desires to work on its own may have the technology and know-how, but the knowledge of the internal market, culture and traditions are acquired locally and without it, the SME will not work. The exact same thing happened with the creation of this bank: the partners gave up 50% of their share so that we could create (us, Mozambicans) a bank tailored to Mozambicans, a bank that would answer to the needs of this market. We also sought out other national institutions for us to create and grow national partnerships.
The same happens with SMEs: if they want to work on their own, they will not make it; it is necessary to create partnerships with Mozambicans. This is possible and they should count on national banks, on national institutions, for the formation of several types of models for this type of industry and to create these types of solutions. Mozambicans are very hardworking, adventurous; they like to discover things, but it is necessary to properly frame all that energy.
Due to the sprouting of economic opportunities, Mozambique is developing in different sectors. The most important gain was the beginning of the creation of an entrepreneurial mentality. However, there is an important exchange-rate factor that worries investors. The appreciation of the Mozambican currency, due to the export of natural resources, is imminent and inevitable. What message should reach out to international investors regarding the strategies to face the challenge of the inevitable appreciation?
This depends on the macroeconomic policies adopted by the Government, and not just on investors (national as well as foreign). The Dutch Disease could take place in the case there aren’t policies able to create the space for the development of simple SMEs, whose production can be harmed by the appreciation of the metical given that their price competitiveness to export becomes smaller.
This question must be analysed at the regional level, because the policies that exist today of total openness toward international trade are welcome and enhanced, but it is necessary to have segmentation: we need to verify in which sectors we are competitive, which need a protection phase to build up to be our comparative advantage for tomorrow when they will go into international markets.
And how do you see that preparation evolving?
It is necessary to have a long-term perspective, in which there is segmentation of the sectors. It is necessary to design these sectors and have the belief that in 10 years we will be ready.
As it happened before in the country, we had a glass and crockery industry that was developing rapidly. The theorists of economic liberalisation came with their ideals of ending taxes on foreign trade. National businessmen said they needed a period of maturation in which certain fiscal advantages are kept. The authorities did not understand that situation. The industry shut down and since it manufactured the containers to national drinks factories, we had to import containers to refill our beverages and we lost the market share.
We have to protect our nascent industry. For example, there are several agro-products we can, from a given point, liberalise taxes because productivity increased. The agro-processing industry increased its competitiveness in the market. It makes no sense for Mozambique to consume South African fresh agricultural products that we can easily and competitively produce domestically.
It is not possible to adopt pure liberal policies without making a critical analysis on up to what point we can aggregate another policy so that we can have the capacity to be in the global market with a certain magnitude.
And what other sectors do you see in need of protection or, shall we say, an incubation time until they are ready to compete?
There needs to be a study on our real capacities to grow and produce with protection, and the possibility to turn competitive. Like it happened with the glass industry, the textile and confection industries also died. We are a cotton producer, which is the raw material; the labour is also ours. It is necessary to do something at the level of custom duties to protect our industry because it makes no sense that we are net importers of textile products.
The countries in the region need Mozambique to sell their products; Mozambique is the gateway of those countries in terms of logistics and access. With transport and communications infrastructure, Mozambique already has the capacity to develop its economy; the vessels that come to do sales work not only sell products abroad, but also back to other countries. If we had the proper economic structure in place to assist these vessels, they could stop at our ports, perform the necessary maintenance and continue with the loading and unloading of products.
At the Nacala port, due to its deep waters, a cargo vessel docks there and can make use of smaller ships to do the regional distribution. That way, we can create two hubs – one of the South Atlantic for the area of the southern part and another for the area of the Indian Ocean. This initiative is not new; it was done for example by Singapore and Panama who turned strategically located cities into worldwide hubs. Mozambique has 2500km of coastline – we can very well do that.
We have the capacity to produce 12000MGh of hydroelectric energy. This clean energy potential is very large and Mozambique can profit more from it and reach the scale and technology to make it more reliable and much cheaper. It is a matter of finding regional schemes for interconnectivity. If we merely think of South Africa, the energy transportation cost is very expensive, but if we think of us linking to Malawi, Zimbabwe and Zambia, by creating a grid, it becomes cheaper for everybody. It is necessary to think nationally but also regionally, in an integrated way and in the interest of everybody. We will only be competitive if we are united. It is necessary to think of long-term prospects at the regional level.
In relation to the Mozambican demographic shift over the last decade, there is a big opportunity for new financial products. Firstly, because of the amount of young people joining the labour market and then demanding access to mortgages to finance their housing. Secondly, because of the improvement in health: more people live longer and like that, banks have more possibilities to offer pension services. Thirdly, Millennium bim is a pioneer in establishing insurance services for the emerging middle class. What is your opinion on these new opportunities?
Much is being talked about housing loans, but these young individuals need to have jobs – they cannot have a house without a job. It is necessary to create the conditions for these loans: create jobs for the people, so that these can have access to housing and to the loans to buy it. Banks only offer housing loans to a middle-class segment that is able to secure the payment. The development of this middle class is of extreme importance for us.
With regards to insurance, there still isn’t an insurance culture in Mozambique – this happens more in urban areas. We are pioneers with regards to insurance and have created the “bank assurance” – a service which sells a little of everything. This one-stop shop we created turns the bank into a “financial boutique” and we discovered it was very easy to make people understand the importance of housing insurance and health insurance.
We analysed the worries of the population, of the average Mozambican, which could be alleviated by the insurance industry, and we introduced funeral insurance. For African society, and especially Mozambican, the funeral is important. It is extremely important to bury loved ones properly and that they have a good funeral. It happened that a new client, after two days of contracting funeral insurance, passed away. Neighbours asked about the nice funeral the client had had, and that is how they learned about the importance of insurance – everybody went to contract it. It was impressive for us. But it is more important to say that it is necessary to know the market and its people very well to develop a business; it is worthless to offer car insurance in a rural area, and housing insurance makes no sense in an area of huts.
This case of funeral insurance is a social matter; it affects the community and not merely the diseased. We found social factors that already involved a sort of community concern to protect and so we introduced new insurance elements to these factors. Market adaptation: we have to find mechanisms concerning which types of insurance we are going to develop in a certain community/zone that are both useful and profitable.
What is your perspective on the contribution of the financial sector, and Millennium more specifically, towards a Mozambique that can now write its own history?
A person has dignity when it has self-confidence. For us, in order to develop self-confidence and dignity, Mozambicans have to dominate knowledge. It is necessary to educate Mozambicans in a way to reach the same level as others and get to interact in the world without feeling humiliated. Without knowledge, there is no self-esteem. The technical education for Mozambicans is the pillar of the economic development of the country and it is our task to contribute towards the consolidation of the people’s confidence.