Banks are competing with Mozambican Stock Exchange, claims study – AIM

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Banks are competing with Mozambican Stock Exchange, claims study – AIM

7:35 CAT | 06 Jul 2017

Domingo (File photo) / Banks, argued Mozambican economist Hipolito Hamela, one of the consultants who wrote the study, have no interest in suggesting that people with cash to spare should buy shares on the BVM – instead, they urge such people to put their money in deposit accounts.

A study ordered by the Mozambican Stock Exchange (BVM), unveiled at a meeting in Maputo on Wednesday, claims that only a handful of companies are quoted on the BVM because of competition from the commercial banks.

The study, requested by the BVM from the US Agency for International Development (USAID), noted that, although the Stock Exchange was founded 18 years ago, only six companies have put their shares up for sale on the BVM.

One of the consultants who wrote the study, Mozambican economist Hipolito Hamela, stressed that, although the banks are the sole intermediaries in the capital market, they are also competing with the BVM.

Banks, he argued, have no interest in suggesting that people with cash to spare should buy shares on the BVM – instead, they urge such people to put their money in deposit accounts. The banks tell potential clients that there is no certainty about the dividends that may be paid by CDM (Beers of Mozambique, the country’s main brewer), or by CMH (Mozambique Hydrocarbon Company), two of the companies quoted on the BVM, but they can offer an annual interest rate of 22 per cent on a deposit account.

Hamela argued that the banks also obstruct companies who are thinking of raising capital through selling shares on the BVM. They suggest that, instead of raising money on the capital market, they should simply take out a bank loan.

But other obstacles to the expansion of the BVM include the fact that many companies still do not have their accounts properly organised, and the sheer unfamiliarity of the concept of a capital market. Hamela recalled a businessman asking him: “If my company is profitable, why should I put 20 per cent of the shares on the BVM, to divide the profits with other people?”.

Nonetheless, Hamela felt that the Bank of Mozambique and the Ministry of Economy and Finance are open to discussing expansion of the capital market.

The chairperson of the BVM, Salim Vala, said he hoped the study undertaken by USAID would become “an instrument of reference” that would help improve the overall indicators of economic stability in Mozambique, focusing on expanding the instruments to finance the economic activity of companies, particularly small and medium enterprises.

The chairperson of the Confederation of Mozambican Business Associations (CTA), Agostinho Vuma, said the CTA is willing to mobilise companies to seek capital through the BVM. He hoped that ideas from the USAID study would eliminate obstacles to the expansion of the BVM.