Meridian32 Group: Diversification in Real Estate, Technology and Knowledge

Interview with Manuel Vieira, Chairman of Meridian32

What are the different activities you cover, as a group?

Primarily, we are one company and everybody here works in any of its sub-companies. Although they belong to just one company for payroll purposes, everybody works across all business lines, but we really only cover three primary areas: real estate and infrastructure, which is one aspect of our activity, then we have technology and thirdly we have what we call ‘knowledge’.

If we deal with the first one, which is real estate, that’s where we started out back in 2000, initially as JHI, which later became REC. This is what really gives me a lot of joy: to build something, drive past it and see something that has been built and standing 15 years on. This is where we began and real estate is still our core business.

We want to be recognised as Mozambique’s top independent group. We want to be recognised as a player with the knowledge and the expertise of being resident in the country.

From there, we developed into infrastructure, because we had the architecture and engineering capability. We had the project management, which ensured it was simple to deal with the bigger things we had aimed for: ports, rail, bridges and other such projects, along with major industrial projects.

Then IT became a need in itself, because nowadays buildings are intelligent. You need to have all the necessary infrastructure in place in these buildings and need to move from traditional copper wiring to new technologies, which we have delved into. The country is also developing, so we wanted to move into value-added products. Everybody else was competing with us at the lower end, so we decided to move away from the low-end spectrum and start providing value-added services. Today, we are looking at creating green buildings and applying new technologies in those buildings, so we are always evolving and trying to get away from the competition.

Lastly, on the knowledge front, we undertake some consulting, where training has become a new area we are looking at. Mozambique is going to need a good deal of capacity-building; particularly in training people for the challenges that lie ahead in oil and gas, and mining activities more broadly, so we have identified an opportunity there, by making inroads into training.

Could you give us a general overview of where Mozambique is at in terms of these three sectors?

If we look at real estate, the returns that have been achieved over the past six to eight years are in excess of 50-60%, which is fairly difficult to attain in other places, outside developing geographies. This has been very good for developers. Obviously, there is always an associated risk, but many developers have been successful in mitigating that risk. We have been involved in developments either technically or on the consulting side, by providing advice on business structure, on the market demand/supply side, as well as information and conducting feasibility studies.

The real estate market has cooled down a bit at the moment. One of the segments that still needs to be significantly explored is retail. We are talking about mass retail, rather than catering to the upper end. The high-end are able to travel and tend to do their shopping outside Mozambique, across the border; and they travel significantly, so they are not really an item, but retail for the masses remains grossly ignored at the moment, which I believe is a very attractive opportunity. We are seeing some people come in and starting to look into that now, exploring the possibility of 20-30 shopping centres. This is one of the most promising areas when it comes to real estate.

What kind of people or companies do you want to attract?

We want to attract developers, people who have a vision of the country and understand that the target market is the low end of the market. Mozambique is made up of 26 million people. If we are all concentrating on the top 1-2 million people, there are 24 million other people who equally have needs. These are more basic needs – not at the high quality, expensive end – but a whole set of daily needs, and they experience many challenges, in that they are not able to keep products over a long period of time, because of limited access to electricity, along with other constraints, such as transport constraints. This means they need to visit outlets very often, so these shopping centres need to be in the community, close to where they live or where they can access them at least twice a week, in order to meet their needs. As such, we are looking for developers who are specifically aiming at that lower end of the market. Basically, I’m referring to developers who are prepared to consider centres with a surface area between 4,000 and 8,000 square metres, including an anchor market of perhaps around 1,500 square metres, along with other basic shops to cover clothing, footwear, a pharmacy and the like, making for a simple strip mall; not a high-end construction, but something that’s robust and able to handle a significant traffic of people.

In the technology sector, could you briefly tell us what you consider to be the best opportunity for an investor?

Mozambique has come from being somewhat backward technologically to making a significant effort over the last few years to catch up on its technology gap. It has invested significantly to this effect.

Companies are looking to automation, they are looking to cut costs by converting to new technologies and introducing internet protocol. They are also looking to travel less, so they want to avail of videoconferencing facilities, along with audio and digital document management, access controls, alarms, and generally anything that automates functions that are currently carried out on a monotonous and routine basis, through human factor intervention, and where these can be substituted with technology.

That’s where we come in: we offer solutions, we are a Cisco partner, we are Alcatel-certified, and we work with HP, Axis, VMware, Microsoft, APC, EMC, Milestone, Ganetec, Kenwood and Bosch. We have been very careful as a group to invest in the certifications of our companies. You will see we are Mozambican-certified as ‘made in Mozambique’, we are currently embarking upon ISO-9000 certification. All of our technicians are required to have some kind of certification. If they are in real estate, we require them to be RICS (Royal Institute of Chartered Surveyors) certified, or if they are on the IT side, they have to be Cisco-certified, HP-certified or Alcatel-certified, so we invest quite a lot of money in certifying our people, on the technology side, as well as other platforms.

Is there a niche I can take advantage of, given that Mozambique is risky?

I think that would be on the IT side. There is plenty of need for new technology, so whether it’s in digitalisation and deconstructing material such as your archives, for example, and your document flow; whether it has to do with access control or converting to internet protocol, in order to reduce costs, I would say most companies here need this kind of service at the moment.

On the real estate side, we are seeing something of an adjustment, which I’m guessing may last for two or three years. However, during this period, we expect that the oil and gas will start flowing, given a change in commodity prices; and you need to invest today, by looking into feasibility, acquiring your land, and obtaining your licenses, so that in 2-3 years’ time, when the demand is ready, the product is also ready.

Times are difficult today when it comes to some of the real estate, particularly regarding the demand side of the equation. But you need to start investing today if you want to be ready in two or three years’ time.

Let’s talk about REC. This is where you have been from the beginning and it’s your core business. You lead the market on this front. Tell me what exactly you could offer a company coming from outside?

REC is the market leader in Mozambique in three specific areas: valuations, market studies and feasibility.

In terms of valuations, as a RICS-certified company, in addition to two RICS technicians, we have highly-qualified personnel in the various academic disciplines we call upon for undertaking valuations, namely architecture and engineering.

The fact that we have been doing this for a long time means that we have a significant database of buildings, building costs and a set of transactions that have taken place, which allows us to have a pretty good idea of what the market value is.

In addition to that, we carry out feasibility studies, so when companies turn up and want to develop a real estate or an infrastructure project, we study the budget and what they intend to achieve, and we are able to advise them as to the best solution for the project in question.

Apart from looking into feasibility and valuations, we keep an eye on the market, by undertaking many of the market surveys, in order to understand where the demand and the supply are at, and we assist the investor in making the final decision on whether to push the button or hold on for a further period of time.

What is the market like for that?

This market is good in bad times and good in good times. During the good times, everybody is developing, whereas in bad times developers and lenders particularly want to know whether there is a market for the project that they are building. Therefore, in both cases, our consultancy is required; some times more by developers, because they want to go ahead with a project, and at other times there are more requests from financiers and lending institutions, who want to be certain that the project will be a success. As such, this is an industry that seems to withstand market fluctuations.

Do you have any special schemes for attracting investors, such as getting them to join you in joint ventures, or put money into any specific areas?

We are primarily a group that offers services, within Meridian. But outside Meridian, partners are allowed to include risk, so what we do outside Meridian is to form consortiums: we find a promoter, a financier, investors, and we may ourselves invest in a project individually. But we never put the companies at risk. Their status is that of service providers and these have to receive their fees, but partners individually may incur risk.

Consortium-building is something that hasn’t been very successful or widely used, but if we look to South Africa, you find a lot of this happening, where people form consortiums and they take small stakes of around 5-10%; in such a way as to mitigate their risk, while being involved in various projects and various consortiums. This is something that hasn’t been very successful here.

Our company is appointed to undertake the studies, where one of the partners agrees to assume that cost, and then I go and talk to a developer and I enter that as my contribution; but never as the company, rather as individuals.

There is another aspect which is the knowledge or training aspect. Could you give us some insight on that and why people should come to you for this purpose?

We are very careful to adhere to a brand that is well known in the region. We signed a 25-year deal at the end of last year with NOSA, who are very well-known in South Africa and probably that country’s second largest learning institution, behind Unisa.

They have developed all the products, including an electronic platform that we wish to bring to Mozambique and would allow us to reach out into the remotest parts of the country, so that any student can sit and access the database – as long as he has internet service – and enjoy access to all the courses that somebody in Maputo would be doing. This is very important and has always been our strategy, i.e. to bring a strategic partner on board who has knowledge of the business, so that we don’t start and make all the mistakes that someone else has already learned. We took the time to understand the market, and we understood that the market in Mozambique is going to be primarily focused on the quality of the safety environment, because of the major projects underway; so we went to the market, and found someone who was a key player in this field and we signed a joint venture with them. We are set to roll this out this year and we are busy finalising things. We have just been certified as a learning institution and as a training centre here, so we have all the building blocks in place, and we plan to go to market starting on April 1st.

And what is the outlook?

We think it’s very good. We are currently seeing many Mozambicans going to South Africa and doing their training with NOSA, so that training will start to be done here. To begin with, we will be importing their trainers, but the aim is to create a pool of trainers in Mozambique, who will be able to undertake and deliver all their training material. Just from the numbers, i.e. the people who are currently going across the border, we believe this is a sustainable and feasible business, but we also believe that given the prospects of the oil and gas, as well as infrastructure projects that are due to come online, there will be significant need for these courses.

I would like you to project yourself two years from now, in the medium term, thinking of the group as a whole. What do you hope to have achieved by that time?

We want to be recognised as Mozambique’s top independent group. We are majority Mozambican-owned in all of the businesses that we operate with our strategic partners; we want to be recognised as a player with the knowledge and the expertise of being resident in the country. We don’t have a back office somewhere else, where all the work is done and then have targets transferred here.

We are an equal opportunities employer, we do significant work on the social side, with Casa do Gaiato, which is an orphanage where we offer significant assistance.

But we would like to primarily be recognised as a group that is open for joint ventures, and that brings value to a joint venture. We are not just a Mozambican post box. We would like to be recognised as technically very competent and as a partner who brings value to the relationship.