21st Apr 2016 12:55
LONDON (Alliance News) - Agriterra Ltd on Thursday said the political situation in Mozambique has continued to deteriorate in 2016, and while its operations have not been affected so far, there is a possibility the problems will have an impact in the future.
In Mozambique, the country has been plunged into chaos amid ongoing clashes between the government led by the Mozambique Liberation Front, or Frelimo, and the Mozambique National Resistance, or Renamo, a guerilla group.
This situation has continued to deteriorate in 2016 and local Renamo militias have become entrenched in rural areas such as the Tete and Manica provinces, where Agriterra has a number of its operations.
Agriterra runs maize and beef agriculture operations in Mozambique and cocoa operations in Sierra Leone.
The Renamo militia presence in Tete and Manica present a major risk of ongoing attacks on vehicles on the main truck roads in the region, despite efforts by authorities to broker a solution to the problem, it looks possible the conflict will continue, Agriterra said.
To date, Agriterra said it has not suffered any economic loss from the problems, but it is possible its operations will be disrupted in the future, particularly its maize purchasing operations which reach into the Manica, Sofala and Tete provinces. Movements of its beef products also could be affected.
In addition to the conflict, Mozambique is suffering currency devaluation. Since May 2015, the Mozambique metical has depreciated 50% against the dollar and 20% against the South African rand. This has had a major impact on the purchasing power of the local population, Agriterra said, though its grain operations have benefited from lower production costs.
However, the metical is set to fall further as it faces pressure from reports of alleged undisclosed government guaranteed borrowings of over USD1.1 billion, around 10% of the country's gross domestic product.
Due to the undisclosed borrowing, the International Monetary Fund has suspended additional emergency lending amounting to around USD155.0 million for Mozambique and has suspended any policy support programmes.
As a result, local currency markets will suffer further, and the value of the metical is drifting lower, which may hit sales for Agriterra's grain and beef divisions and which will increase the cost of imported supplies, hitting margins.
Agriterra said it has started the new season buying campaign for its grain operations and has agreed a USD5.5 million loan with its lender to support working capital needs for the division.
For the beef arm, sales have fallen due to the struggling natural resources sector in Mozambique, particularly on wholesale contracts.
Agriterra shares were down 6.2% to 0.272 pence.
By Sam Unsted; [email protected]; @SamUAtAlliance
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