Mozambique has one of the smallest banking sectors for a country of its size on the African continent. Yet the growing number of banks operating in the country, steady increases in the size of retail networks and the focus on grassroots banking all suggest that the market is set for substantial growth over the next few years.
It may be a long time before Mozambican financial institution feature in the upper echelons of African Business’s survey of the Top 250 banks in Africa but they will surely play an important role in ensuring that the benefits of the country’s burgeoning export industries help to drive wider economic development.
THE MOZAMBICAN BANKING SECTOR AS A whole remains undercapitalised. Although Moza Banco announced a capital increase of 283.25m meticals ($10.1m) in June to fund expansion and staff training, this still left its total capital at just $40m. Nevertheless, the move is a step in the right direction for a bank that is currently celebrating its fourth birthday.
The bank is majority owned by Moçambique Capitais SA (50.1%), alongside partners Geocapital of Macau (24.5%) and BES África (21.1%), all of which plan a further capital increase of $5m in September.
According to the Bank of Mozambique, about 1m Mozambicans currently possess bank accounts out of a total population of 23m, one of the lowest rates in Africa. Mobile banking has yet to take off in Mozambique to the same extent as other parts of the continent, so there is plenty of scope for growth. Moreover, strong and steady economic growth of 7.5% is already helping to create the conditions for a larger and more vibrant banking sector.
However, it is vital that the government ensures that the benefits of natural resources projects benefit the bulk of the population. Huge coal mining projects in Tete Province’s Moatize Basin should turn Mozambique into one of the world’s biggest coal exporters within a decade, while massive natural gas discoveries in the Rovuma Basin are expected to supply the first liquefied natural gas (LNG) project in East Africa. Such ventures directly employ a relatively small number of people but the rail and port infrastructure being developed to serve them will benefit the agricultural sector, which has the ability to create hundreds of thousands of jobs in the medium term.
New measures are being taken to encourage both domestic growth and foreign confidence in the banking industry. In March, the government approved the revision of its 2002 legislation on combating money laundering and terrorism finance, which was introduced following a UN Security Council resolution on the issue. It is hoped that introducing tighter regulations and tougher punishments for miscreants will provide foreign investors with greater confidence in the Mozambican banking system. A government spokesperson said that banking customers must be able to account for the provenance of any money that they deposit.
Then, in June, the Bank of Mozambique and the Confederation of Economic Associations of Mozambique (CTA) announced plans to set up a Credit Risk Centre to share information on customer credit. Improved intelligence on credit risk is hoped to help banks and other financial institutions to offer lower interest rates to suitable customers. The minister for industry and trade, Armando Inroga, said: “We believe that reducing interest rates will drive commercial credit which, at the moment, is being driven by a policy to create and encourage micro-finance institutions for rural areas.”
Growing bank networks
By February this year, there were 461 bank branches operating in the country, the highest number in its history.
However, the Bank of Mozambique revealed that authorisation for a further 51 branches, including 27 in Maputo had expired. A range of banks had failed to open the retail banking outlets in question within the allocated time, suggesting that some are making applications without putting concrete plans in place to open the new offices.
Mozambique still has a long way to go to gel as a nation state. Links between different provinces during the long colonial period were few and far between. Economic development was limited and was concentrated in the southeast. The civil war destroyed much of the infrastructure that did exist and the government has therefore had a difficult task in developing a truly national economy. This is reflected in the banking sector as much as anywhere else.
Speaking at a meeting in May, the governor of the Bank of Mozambique, Ernesto Gove, said that the number of districts with banks had increased from just 28 in 2007 to 58 this year but this still leaves 70 districts without access to banking services, although some had micro-credit services.
The Bank insists that increasing the geographical spread of the banking sector will remain one of its main priorities. The government has provided funding for the expansion of retail bank networks and micro-finance institutions via the Fund for Support for Economic Rehabilitation (FARE).
Gove said: “In 2011, we continued to assist in the expansion of financial services as part of the strategic aim of ‘bancarisation’ of the economy, having increased the number of financial and credit institutions operating in the country and that progress was seen alongside the consolidation of the main indicators of solidity of the financial system, which remained satisfactory and above the levels outlined in the Basil I criteria.”
Bank of Mozambique research has unsurprisingly found that Maputo is the most attractive destination for banking investment in the country. However, it also concluded that Nampula Province in the northeast was the second most attractive, suggesting that other parts of the country away from the southeast are now beginning to take off.
The province now has 47 bank branches, as the local economy becomes centred on the growing port of Nacala. António Pinto de Abreu, deputy governor of the Bank of Mozambique, said: “The projects in the rail, port and airport sectors in Nacala, and also in the Special Economic Zone, are unequivocal examples of this specialisation of Nampula Province.”
The long-term success of the Mozambican banking sector relies heavily upon continued domestic economic development. After growth of 7.2% in 2011, the African Development Bank (AfDB) expects GDP to grow by 7.5% this year and 7.9% in 2013. Perhaps more importantly, the AfDB ranks Mozambique as one of the top five African countries in terms of improving human development levels in 2011. Bringing more people into the formal economy should ensure that the pool of potential bank customers continues to grow.
The IMF has praised the Central Bank of Mozambique’s prudent fiscal policy over many years: it has created a stable investment environment and kept inflation relatively low for such a rapidly growing economy. Mozambique coped well during renewed global economic uncertainty in 2011. Gove explained: “The macro-economic results achieved in 2011 certainly reflect the corrective measures we adopted in August 2010, which were based on a more prudent monetary policy, carried out via increasing our interest rates on the Interbanking Monetary Market.”
As fellow Lusophone state Cape Verde has found, economic success can have a downside in terms of managing reduced donor support. Although Mozambique has far lower GDP per capita than Cape Verde, external financial support is expected to steadily decrease.
In its most recent African Economic Outlook, the AfDB warned: “Mozambique’s main medium-term challenge is the broadening of its fiscal base as aid flows decrease. Poverty levels seem to be stagnant with 54.7% of the population living below the national poverty line.”
Given the government’s focus on rural development, this figure should fall in the near future, as more people secure paid employment, begin to pay taxes and use banking services. Reduced dependence on donor support should be seen as a sign for Mozambican entrepreneurs to take up the slack, not least in the banking sector.