Agriterra Ltd Mozambique Political & Economic Update (9436V)
21 April 2016 - 1:30PM
UK Regulatory
TIDMAGTA
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 NiƱo 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: +44 (0)
20 7408 9200
David Foreman Cantor Fitzgerald Tel: +44 (0) 20
Europe 7894 7000
Michael Reynolds Cantor Fitzgerald Tel: +44 (0)
Europe 20 7894 7000
Charlotte St Brides Partners Tel: +44 (0)
Heap Ltd 20 7236 1177
Hugo de Salis St Brides Partners Tel: +44 (0)
Ltd 20 7236 1177
This information is provided by RNS
The company news service from the London Stock Exchange
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