Interview with Omar Mitha, Chairman, Banco Nacional de Investimento, Bni, Mozambique

06 Jun Interview with Omar Mitha, Chairman, Banco Nacional de Investimento, Bni, Mozambique

Global Insight: Recently, the World Bank alerted the Mozambican authorities to the difficulties in accessing markets due to the country’s placement on the international “Grey List”. However, the Bank of Mozambique has made its best efforts to overcome the different problems that put the country in this position. Could you summarize the different characteristics of the financial system in Africa and especially in Mozambique? As advisor to the presidency of the republic, what efforts has the government implemented to position Mozambique in a better banking ranking?

There is no doubt that the Hidden Debt Tuna Deal triggered changes in legislation and brought about financial discipline in terms of budget management and public debt funding, which has helped as well in strengthening the governments’ stance in fighting money laundering and corruption underpinned by stronger scrutiny of public insritutions. Specifically, we’ve made significant strides in improving the financial system stability, in enforcinggovernance structures within the financial institutions so as to cope with conflicts of interests between shareholders and managers, coupled with a reporting requirements from the Central Bank supervision intended mainly to ensure that lending practices do not jeopardise the the country’s financial stability.  And this applies to both the private sector and the public sector, as is the case with BNI. That speaks to the fact that the government is doing to the utmost of its ability to comply with governance issues that would attract investors.

Having said that, when it comes to dealing with the financial situation, we’ve also seen some improvement in managing the public debt. But unfortunately, we have also had setbacks, extraordinary events, like the pandemic COVID-19, in addition to the floods and other natural disasters, that have had a negative impact on the course of most of our macroeconomic indicators. We were on a good recovery path from 2017 onwards, but suddenly, this was an interaction of several negative factors that laid bare our system, and impaired significantly fiscal revenues collection amid pressures stemming from a salary expenditure adjustment after the Ukraine-Russia war sent prices soaring, which hugely undermined the ability to undertake public investment, an important factor for economic growth.

Recognition has to be attributed to the IMF/WB role in working jointly with the Government, not inly for the relief package during COVID-19 pandemic, but also in macro-management to control public debt as a necessary condition to restore confidence at the marketplace.

As far as I’m concerned, we have to recognize how difficult it has been to keep the conundrum between macroeconomic stability and the economic growth, at a time when countries are exposed to risks in the world market, like the energy sovereign risks, because of the war between Russia and Ukraine, let alone the disruptive effects of the COVID-19, and also the recurrent tropical storms that have affected huge swathes of our land with floods, which wreaked havoc infrastructures and determined tremendous losses in the agricultural sector. The enduring effects from the 2019 Idai and Kenneth tropical storms are still present and the scars ate visible in certain places as is the case of the city of Beira..

In a nutshell, it has been difficult to keep that equilibrium between two conflicting objectives. But at the same time, last year we were able to post  a reasonable 3.4% economic growth , and that’s commendable in a country where, a priori, without the support of the donor community, your fiscal situation is in deficit. We have seen positives and negatives because the financial sector should not be seen on a standalone basis. It reflects what happened in the economy. We have good prospects in the oil and gas sector, for example. We were impacted negatively by the terrorist attacks in the northern part of Mozambique, and that shunned away the investments for the LNG projects. Those projects will be transformative for the country.

We’re keeping our fingers crossed with good prospects for economic growth, not only because of the natural resources development, but in addition, because we have expanded through a route of economic diversification, where agriculture plays a role, but also tourism, fishing, in addition to the core infrastructure, like roads, bridges ports. As a matter of fact, one of the mainstays of our economy is the service economy that places Mozambiquen as a gateway route for the landlocked countries, which is a steady foreign exchange earner that helps ourt current account. This is mainly etablished by three main corridors: Nacala, Beira and Maputo.

I tend to believe that we have positives and negatives associated with sprecific sectors which speaks to the two-speed economy feature of our country , a view that is strengthened by the prospects of the transformative LNG on-shore undertakings  yet to-be-developed in the Nothern regio of Mozxambique. Now that our defence forces in conjuction with the firendly countries support squashed the terrorists groups, it is our hope that thew rime for development has come.

Of course, we’re also aware of the issue of energy transition. Most of the majors are keeping away from fossils. But the Area 1 Project has already been underpinned by project finance supported by aupply and purchase agreements with A+ rated customers for 20/25 years. Everything is ready. The window is still there as an opportunity because new suppliers will still be welcome at a time when Russia will reduce its supply to Europe, and countries are aware of the critical importance to diversify sources of energy supply in the longer-term. Prospective markets would be mostly India and the Far East, China, South Korea, Japan as huge consumers. But I think that diversifying away from the Middle East and even from the US which is far away, Mozambique is well placed in east coast of Africa to be a bigger supplier in the forthcoming 30 years.

We keep our fingers crossed. There are good prospects. The prospects are excellent and the future bides well for Mozambique. It goes without saying that once the inflows of revenues to the state start coming,  the country risk perception will dramatically change and this will undoubtedly increase the country’s economic heft to undertake futher public investment to crowd-in investments in a bid to diversify away from fossil fuels.

GI: Banco Nacional de Investimento is a state-owned bank with 12 years of experience, which aims to provide long-term financing for sustainable ventures that contribute to the social and economic development of Mozambique. In 2010, it was the first investment bank to emerge from a joint venture with Caixa Geral de Depósitos in Portugal. In recent years, it has implemented several government protocols with several countries to facilitate public-private partnerships between foreign and state-owned companies. Can you summarize the evolution of BNI, and the most recent achievements that place the bank among the best in Mozambique? In which countries does BNI have good cooperation relations and what are the potential agreements to be signed with other international markets?

BNI has evolved in the last 10 years. Of course, the initial concept of having CGD Caixa Geral de Depósitos as a partner did collapse because of economic headwinds that affected the fiscal situation in Portugal. They had to downsize and look inward at themselves. Because of that, the State had to buy the stake. It became 100% state-owned by the Mozambican State. Also, when the 2009-2010 financial crisis hit the world, there were headwinds also that were felt strongly in developing countries, and Mozambique was not an exception. To start with, it hit hugely the exports because there was a recession worldwide. There was a dent in the foreign exchange earnings for Mozambique, which undermined the fiscal position as well. Therefore, the roadmap intended to capitalize the bank to enable funding large-scale infrastrutcutre projects stalled. At the same time, most infrastructure projects that were to be developed were simply shelved and the sponsors had to look for funding elsewhere.,. As you can see, the original idea to fund large-scale projects, including the manufacturing sector, was well meaning for a long-term wider socio-economic impact.

Despite that, the State secured the bank. We have good relations with South Africa, with DBSA, we’ve got good relations with Afreximbank, and with TDB Bank; we have deals with them. We have also been to several parts of the world, in the Middle East and other places, making overtures for funding and deals . we have also the investment banking branch with good Chinese walls to ensure transparency, and ethics and professionalism. With the investment banking branch, we provide services. We can be arrangers for investments. We go through the entire spectrum of services, financial modeling, information memorandum and  the road show. We create the data room through the entire due diligence for potential investors. That’s a kind of soft knowledge, soft infrastructure, that Mozambique requires, because if you are knowledgeable about the country, you have the trust of the government, and you are next to your customers, one is in a position to provide those type of services, and also link easily with other development banks, like the Development Bank of Southern Africa, the DPSA, that has partnered with us in several tickets to provide funding in a wide range of activities, including the energy sector.  We’ve also been working with state-owned enterprises, trying to restructure the balance sheet, looking at new ventures, bringing new partners in the energy sector. For example, we were in the Middle East in Dubai 2020. We tried to bring partners to go into the renewable sector. This is something that is still going on with EDM and with other partners.

We look at ourselves as a bank that is very proactive: let’s read the data, see the signs, see what’s coming in the future, and let’s be proactive. We understand that from the point of view of the balance sheet, market share, the bank ranks lower in the sector, partly because we have opted to be in the development spectrum, unlike the the dominant retail banking model, where most banks have a retail network, and he deposit base is the main source of funding to invest in good credit transactions..

Of course, with the COVID-19, and the issue of Idai and Kenneth cyclones, we have been selected as the best funding channel to support small and medium enterprises that were heavily affected by these negative factors. That means providing lines of funding with longer maturities, lower interest rates, so that it would enable the company to recover. That would not be possible with the commercial banks. The commercial banks are also under rigorous scrutiny because they are deposit takers, and they must pay for the deposits, especially institutional depositors. They have to look at their financial management. When they fund, they must fund with a positive spread, so the interest rate is in the range of 20%, which is an overkill rate at times of economic stress.

Our intention is to become a large-scale investment bank focused on infrastructure development as well as large-scale manufacturing on a profit-making basis, which call for co-funding with the other financial institutions. At the same time, we’ve been a conduit for the State to support small and medium enterprises amid natural disasters and global pandemic that dashed companies’ financials. The most important thing is that we have got a credit system to analyze the risks. Even though there is this element, it will at least require the minimum of a business plan that will ensure coverage of  the debt servicing during the tenor of the loan.

In other words, BNI does not dole out money into the companies without considering the borrwers’ ability to repay under normal economic conditions. Actually, the support is to shore up cash-flow in the short-term whil the headwinds prevail, but on a longer-term the funding encapsulates the merits of a commercial transaction. Make no mistake: there is all the commercial banks do with a term sheet, with the collaterals associated, and we’re also under the scrutiny of the Central Bank. They come every now and then to do the checks and balances so that we are not perceived as a state-owned company, in a country like Mozambique that is a conduit to dole out money to politicians or to PEPs, political exposed people. That’s not the case: we are as much stringent as the private owned banks are.

From this perspective, I’m confident that our learning curve in funding companies amid an economic debacle will improve and help re-shape our products to better serve customers in every market segments, especially for the weaker positioned SME’s.In this connection, , this experience can be replicated, can be amplified. BNI is becoming solid in terms of knowledge and experience on how to deal with SMEs under stress.

GI: The uncertainties underlying the recent geopolitical conflicts have impacted banking systems around the world, from the rise in inflation to the growing rise in interest rates in various monetary policies. The Central Bank of Mozambique decided to maintain the monetary policy interest rate (MIMO) at 17.25% for the year 2023. What is your opinion regarding this measure, the challenges and the long-term benefits? How did Mozambique’s Monetary Policy improve the relationship between the banks and multinationals?

Geopolitics have had a huge negative impact., The economy was shaked by the Russia-Ukraine war which unleashed an upward spiral in prices, making things worse for a country scrambling to restore the fiscal situation. The same has applied to most African countries that are energy-poor, where large part of the population have eneded worse-off in purchasing power.

As a result, the grim outlook tha stoked fears of inflation prompted tightenng monetary policry measure, inviting a string of successive interest rate hikes to the tune of 20%, coupled with an increase in the reserve ratio.. There you go with that theory so that you can keep prices down by slashing money supply and create an economic stability, even though such measures are oblivious of the fact that economic growth and employment creation is completely squashed.

Monetary tightening is good when you want to get the good macroeconomic indicators to say that you are in a very good stable situation, but at the same time, it stifles economic growth because most of the projects will not be viable as the returns are lower than 20%. Because that 17% policy rates, the commercial banks will pass through with a spread, so we’re talking about 21%-22%, depending on the risk profile and the maturity of the loans. The longer the maturity, the higher maturity risks, the higher the spread, the higher the interest rate. We need these low maturity loans because those are the ones that will be deployed for the acquisition of equipment, and for working capital. Those are the type of investments we need because those will increase employment and development, such as import substitutions and export-oriented, along woth infrastrucutre developent to render such ventures competitive and enhance the supply side to stem the tide of inflation fed through imported orice shocks and currency depreciation.

In the longer term, it is always good to stem inflation, because that is something bad. We hope that, with the stability and if there are no movers from the geopolitics, things might be improving. If there is any relationship with multinationals in that, most of the multinational companies get their funding also because of their large scale, with syndicated banks coming from abroad. If it is  an infrastructure development project financed, we have got development banks and multilateral banks involved. They provide longer maturities with interest rates that are commensurate with the risk., We have seen interest rate hikes across the world, so that the situation has become systemic,affecting all sectors at the same time. Because the interest hike means that you must pay more to the banks for every dollar that you get as a loan. That will reduce your operating margin. If your operating margin is reduced, what is left for the shareholders is very small, and that might not compensate the type of rate of return that you are always looking for. If Mozambique is competing with Mauritius, with South Africa, Zambia, Malawi, the investors will certainly look elsewhere to see where they can reduce the risk and get higher returns, even the similarities between these African countries of the region.

 The geopolitics have had an impact. But now let me look at that on a positive manner. The positive manner would be to say if Mozambique is to be the next LNG exporter for the world, and if the geopolitics is that Europe is looking for alternatives, even the hardliners in Germany, for example, are going into coal because the want to support the economy. It means that Mozambique will stand a chance of increasing its capacity to supply to the world as having LNG as a transition energy. In terms of positives, that would accelerate the onshore development in Mozambique, both by Total and ExxonMobil, to see if they can go and catch up with this window of opportunity.  Of course, now we know that the US is the largest LNG producer and is going to become the largest LNG exporter. But we still have a chance here to see how we can match this.

Another positive for example would be the following: we have seen that the wheat price has increased, fertilizer price has increased, and we have people in the Ministry of Agriculture accelerating the pace of research to see how we can have our own production of wheat. That leads to food sovereignty. We have seen a country like Zimbabwe that is able to produce wheat on their own. Wisdom comes from difficulties. If you face difficulties, you will think of solutions. That would be good for Mozambique to be a wheat producer to substitute inputs. The other one is fertilizer because the Ukraine-Russia war has affected fertilizer supply. But we’ve got gas for example, and you can monetize the gas with petrochemicals, ammonia, fertilizer, even gas to liquids projects.

We stand a chance there as a positive to say if the world stands in this situation, and given the fact that we’ve got huge resources that have been commercially proved with credible players like Total, Exxon, ENI, CNPC, PTT, on board, Mozambique could leapfrog also by having beneficiation of those resources, so that we develop the petrochemical industry, which would include amongst other objectivesd the substitution of imoorted fertilizers. We are a fertilizer supplier, not only in Africa, but also worldwide. You can’t imagine the volumes of fertilizer that goes through the port of Beira into Zimbabwe and Malawi. That would be produced in Mozambique because we’ve got the inputs, and a fertilizer industry is something that depends on the margin between input costs and output price. If you’ve got an input available – I’m not saying it would be subsidized, it could be market-based, price is cost plus margin for example – but because the resource is there, and the market scale is guaranteed through exports,.

As far as I am concerned, cost-wise, it would be much more advantageous to have a fertilizer plant in Mozambique. Regarding the scale, of course, you’d have a big scale, but Mozambique has got ports and railways and we’re very well located to supply to other countries, not only in Africa, but also in Asia, through the Indian Ocean, even into other countries. There could be a positive in geopolitics, if we can accelerate pace of development for LNG to be the net exporter, and also as input substitution for wheat and fertilizer.

GI: What are your priorities for the digital transformation of BNI’s operations and what new technologies have you developed to facilitate electronic payments in Mozambique? Are you looking for new partnerships to develop more innovative forms of digital payment? Do you consider that Japan can be an advantageous collaboration for the implementation of new technologies in Mozambique’s banking sector?

We have opted for digitalization in BNI. We have opted also for in-house capabilities that have done a lot. We have implemented also IT systems that can connect with all the functions of the bank like any other commercial bank today. We’re not a commercial bank that gives you visa cards but we do everything. We are connected with the international banks for the swift payments, for the transfer of payments. We are connected with other banks when it comes to export and import transactions, providing letters of credits, guarantees and other types of instruments that are required. These relationships and our correspondents abroad speak to the fact that we are also at par with other banks in terms of digitalization of our bank.

We are also embarked in implementing new technology with biometric functions that would recognize the face, the digital impression of the finger. It’s not a wide-spread practice yet. We are also implementing a security operations center to prevent cyberattacks into our system. We have strengthened our IT with new people, new technologies. We think that partnering with Japan is still a possibility. We are open to acquire technology via consultancy, training, because there is no way we can survive as of today without this digital transformation, this digital revolutioin. We want everybody to talk to everyone, digital-wise. Today, if the employees of the bank want to go on holidays, they don’t have to write or print anything, they just go into the system.

All this is something that is common in most developed countries but for us, it is an innovation path that we have to catch up and implement. We are not an innovation economy. We are still playing the catch-up game. But it is still very hard to play that game because it requires investment and time. Also you need to be at par, because if you are a bank but you deal with the government and ministries, and they are not at par with you, then you have to lower your game, the pressure reduces and you play the other game going around with papers. And that’s because with all the new regulations, transparency is important. We want everything to be clean, to be recorded there so that if there are checks and balances, either internally within our auditingdepartment or from the Central Bank, everything is available and can be seen transparently for information purposes and for the best interest of the country as well. We are embarking on digitalization process looking forward. There is no other way to survive in this world without that.

Talking about Japan, it is a country with high technologies. We grew up knowing that Japan was an electronic country. We will see, as we go into artificial intelligence, with all the regulations that have been imposed, to what extent we can appropriate that knowledge as well  to improve our transactions and our performances.

GI: Let’s explain to the readers of the Japan Times why BNI is the perfect partner for investors that are interested in coming and investing in Mozambique.

We are a bank that is tailored to bring specific solution to the country but at the same time we bring the commercial aspect of it. It is not only looking at Mozambique as such. It is also on a transactional relationship where investors can gain. We are also the door and the gate for the government – and the State plays a big role in this country. In this connection, we are priviledged with the State when it comes to deal with finance of the state-owned companies,…. What’s interesting about BNI is that it is along all the entire spectrum of the corporate segment, including SMEs, big-sized and large scale companies all over the country.

These assets could be valuable to those investors coming to this country, that would need to be next to the market, next to the people, next to the potential private partners. And also the connection we have with the government. I’m not talking about red tape, looking for authorization.  The state-owned enteprises and the State as such, is a big market here. If you go into railways, ports, power, you will always need concessions and those are awarded by the government, especially in public-private partnerships. Having BNI on board, that is development focused, would be a big asset for any partner.

As we’re looking into the future, in BNI, there is still a decision to be made: how do we leapfrog from this stage to another stage in the financial sector. Maybe we could think of or conceive of partnering with other financial institutions so that we are able to go into bigger tickets and perform perfectly our role. As a matter of fact, regardless of how much stake one holds in a company, whether it is 2% or 20%, partnering is a solution as long as you get a commensurate return. If a partner has a bigger stake in BNI for example and we are focused to developing there, it is a win-win proposition.. The alignment between the objective of BNI and the development objectives and priorities of the government, will be good for the country. There is no development unless whatever we do brings benefits, translated into profits, and dividends.

GI: You have extensive experience in banking, you are the former leader of the National Hydrocarbons Company in Mozambique and the current economic adviser to the President of the Republic. How has your seasoned career positioned you as an economic leader in Mozambique? As CEO of BNI, what are the priorities you have set for the state bank over the next 5 to 10 years?

We have a number here which is a growth of 30% in the next 10 years. We want to grow by assets. But we have also set some strategy that we are still discussing with our shareholder, so that we can perform better our role, because if we are the privileged financial institution for the government, it would only be logical to have this institution as the institution that aggregates most of the funds that are dispatched in several sectors with the same objectives. We have the capabilities to sclae up our role. Otherwise, you have a project for 5 years, we have millions sitting in one ministry, that project is over, the money is gone, and this is not sustainable. If it comes to BNI, with the money coming back, we can deploy those resources into future ventures as well. It becomes sustainable in that manner, it amplifies, and the ripple effects go through the whole society and along the entire country.

The objectives would be to position BNI as a credible institution in the banking sector with a focus on development, so that we can go into large tickets in infrastructure development, usually on a PPP basis. This would as well pave the way to position BNI as a reference bank in advisory, making those arrangements, structuring deals, restructuring the balance sheets, and going into privatization for example by different acquisitions.,. At a first stage of course, we can also go in syndication with other financial institutions so that we can appropriate ourselves of that type of knowledge, because every sector is a complex sector, it is not only a kind of blue-print that you have everything: those that have done this before are much more experienced and would have no qualm in going after those to partner with us, to gain that experience in advisory for example, so that the fee-based income is enhanced as part of our income.

Also, as time goes on, when I say credible I mean to say so that people can perceive BNI as a bank that is transparent and well managed. People and financial institutions are aware and confident thatresources channeld through BNI would be deployed according to rules that most financial institutions would like to see. We have seen financial crises in most countries, even in those parts of the world where we think that the system is quite credible.

BNI is a necessity because it brings tio the fore the trade off between the pure metric of profit and economic development. We need this type of financial institution here in our country, in order to fulfil with a role of developing and enhancing small and medium enterprises to go into the next stage. That’s not to say that we are going into venture capital or into equity investment. We are going into debt investment, but a debt investment that is much more tolerant  with longer maturities, and lower interest charges as benchmarked off normal market conditions. As compared to other commercial banks, that are in the first three or four positions in terms of ranking in Mozambique, we are well-positioned to perform that role, a role that we bring the equilibrium between having a sustainable bank and financial institution with good profits and return on equity but at the same time performing development goals that this country needs.

GI: What would be your final message to the readers of the Japan Times on why now Mozambique should be the place of choice for their investments?

We would like to invite the Japanese community and enterprises to come and see the opportunities that we have in our country. There are so many opportunities for the Japanese business people, to start with the mining sector. We know that we had Mitsui in the mining sector but it pulled out because of issues in the coal sector. There are other type of minerals that would be of interest to Japan.

We have also agriculture; we are an excellent food producer and we are well-positioned to link Mozambique with Japan in terms of food production. We have also a coast-line of 2800 km with a big ocean, the Mozambican Channel. This would also be good to enhance. Japan is very much advanced in the extraction of fish, they could come, invest, and diversify their sources; we are very well positioned in the fishing industry.

Other industries are the timber industry or tourism, IT and technology, needless to say the automotive industry. Toyota is number one in terms of market share in Africa as the sole brand that you can see in every street, everywhere, at any time. Today and tomorrow, Toyota is there, and that’s Japan. A good way of thinking about this is to say is it possible to rellocate a Toyota plant in Mozambique, to take advantage of the SADC community where we’re 300+ million people as a market with free trade, because Mozambique is a logistic platform, then you gain in that. Mozambique would be a place to rellocate some plants to shrink the distance between Japan and other market segments. We are better positioned for the Middle East, and even for Europe. That would be an opportunity.

There is renewable energy. Japan is a good market. After the Fukushima disaster, they’ve been diversifying sources of energy. Then energy security is extremely important. That’s why we’ve got Japanese companies in energy, to make money, but also to ensure that there is any security for themselves, to support the country and diversify. Today, if we’ve got good relations with countries A, B or C, as of tomorrow such relations coud reverse, with na immediate effect on value-chain. The more suppliers you have, the better. Our reserves are secure for the next 40 years. This is good. And we are well-positioned because we look into the Indian Ocean, and into the Far East.

Come to Mozambique for market resources, for food, for power generation like LNG. Japanese companies are already doing it, including the infrastructure development that is required. They are developing ports and roads, developing the railways all the way from Tete to Nacala, the ProSavana agro project.

We would like to see a bigger Japanese community, because when you invest in a country like in LNG and agro, you bring families, you bring schools, and you bring the culture as well. We want this thing to happen so that there is also a stronger, long-term relationship with Mozambique, not just a kind of transaction where one says: “I come, I pay, I take, and I go”. No, I come and I stay. Then, we see the next generation of Japanese-Mozambicans born here as we see in other countries. That’s what we would like to see also in Mozambique.