Mozambique Political & Economic Update

RNS Number : 9436V

Agriterra Ltd

21 April 2016

 

Agriterra Ltd ('Agriterra' or 'the Group')

Update on the political and economic situation in Mozambique

and

Agreement of terms for new lending facilities

Agriterra, the AIM listed Africa focussed agricultural company, with maize and beef operations in Mozambique and cocoa operations in Sierra Leone provides an update on the political and economic situation in Mozambique and its current operations.

As shareholders may be aware, the political situation in Mozambique is currently under considerable strain.  A recent IMF report on Mozambique published in January 2016 identified "political tension" and the "failure to find a permanent solution to the growing tension" between Frelimo and Renamo as the most significant risks in Mozambique.  At that stage there was limited impact of these risks on our operations.

Since January 2016 the situation has deteriorated.  Local Renamo militias are now entrenched in some rural areas in the Tete and Manica provinces, where the Group has a number of its operations; ongoing attacks on vehicles on the main trunk roads also present a real risk for the movement of people and goods in the country.

Despite efforts by the authorities to broker a diplomatic solution, it now seems possible that further conflict will follow, in particular in the rural areas of the traditional Renamo strongholds such as Zambezia, Manica and Tete.

To date, the Group has not suffered any economic loss but it is possible that the Group's operations may be disrupted in the future.  Of particular note is the potential restriction on its maize purchasing operations which reach deep into the rural areas of the Manica, Sofala and Tete provinces; movements of the Group's beef products may also be affected.

In addition to the political tensions in Mozambique, the economy is suffering from a weakening in the local currency, the Metical; since May 2015, the Metical has depreciated by around 50% against the US$, and by 20% against the South African Rand.  The resulting increase in the cost of imported goods is having a real effect on the purchasing power of the local population.  To date this has benefited our grain operations, where we have continued to produce our staple food products at competitive prices.

There are now additional pressures on the Metical arising from alleged undisclosed government guaranteed borrowings amounting to over US$1.1 billion, being approximately 10% of Mozambique's GDP.  As a result of the undisclosed borrowings, the IMF has suspended additional emergency lending of approximately $155 million and any policy support programmes.  The local currency markets are now therefore expecting a significant decrease in the supply of foreign currency and accordingly, the value of the Metical is drifting downwards again.  A further weakening in the Metical may have a negative impact on sales in both the grain and beef divisions and will increase the cost of imported supplies, depressing margins.

Separately, the Mozambique economy continues to suffer from the general global slowdown in the natural resources sector.  Various operations have reduced in scale, such as the active coal mines in Tete, or significant investment decisions have been postponed / delayed, such as those relating to the LNG projects in Cabo Delegado.  This has not only affected the resource sector, but also the support businesses and the general economy.

Despite the challenges noted above, our businesses are presently operating under relatively normal conditions.

Within the grain division we have commenced the new season's buying campaign and, subject to contract, we have agreed terms with our bankers for the provision of a 300 million Metical (approximately $5.5 million) lending facility to support our working capital needs in that division. While the risks arising to the supply of maize due to the El Niño drought conditions in Sub-Saharan Africa cannot be ignored, we are optimistic that our local buying network and strong local relationships will deliver positive results.

Within the beef division we have noted a decrease in sales as a result of the slowdown in the natural resources sector, in particular on our wholesale contracts.  We are continuing to pursue our national retail outlet expansion programme and we have opened two new retail / satellite units in Sussundenga and Nampula, taking our total outlets to eight.  We are also in discussions regarding potential export opportunities to the Middle East and Russia; in respect of these potential exports, we hope that the weakening of the Metical will make our products more competitive.  Further details will be provided in due course.

**ENDS**

For further information please visit www.agriterra-ltd.com or contact:

Daniel Cassiano-Silva	Agriterra Ltd	Tel: [phone]
David Foreman	Cantor Fitzgerald Europe	Tel: [phone]
Michael Reynolds	Cantor Fitzgerald Europe	Tel: [phone]
Charlotte Heap	St Brides Partners Ltd	Tel: [phone]
Hugo de Salis	St Brides Partners Ltd	Tel: [phone]

 

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