Best wishes for 2017.
As the new year is starting I as the Chief Financial Officer am assuming that farmers are anxious on what the new year brings while hoping it’s going to be a year of opportunities and great things to look forward to where challenges remain few or at least of manageable proportion.
We at Meatco believe that Namibia’s small, open economy is highly exposed to events on the world stage and any material development are expected have an impact on how our economy performs and inter alia how Meatco performs. Key items to watch for are ongoing uncertainties in respect of the performance of world economy especially low growth prospects in our key offtake markets. If the situation deteriorates more than we anticipate, it would affect Namibia’s overall growth but also the prices we receive for our product.
More recently global news of Donald Trump becoming the US president, has had mixed reactions in the world and most importantly in the markets followed by some real action such as the termination of a major US trade agreements. With America being the largest market in the world this could mean further changes to other bilateral agreements and could actually have a direct effect on Meatco and its ability to export there. While too early to assess an impact, it does seem that Mr Trump will create a bit of uncertainty but not all is gloom and doom with the NYSE (stock exchange) still seeming to like the appointment of president Trump with stock at record highs and the FEB actually raising interest rate on the promise of improved economic growth. As with the stock exchange these changes could also have a positive impact and with the USA being one of the biggest beef suppliers to the world (ca 12% of total world beef exports in 2016) and under retaliatory policies and difficult trade relations the world could be looking to Meatco and Namibia for beef supplies.
The European Union (EU) is a major export market for Namibian red meat, fish, and grapes, receiving 40-70% of Namibia’s agricultural exports. Preferential access to the EU market for premium beef cuts has made it possible for the Namibian red meat industry to upgrade its production facilities to meet international standards.
At the moment Europe is still being overshadowed by BREXIT post financial crisis woe’s with the BREXIT recently adding another spin on things including triggering a significant devaluation of the pound which in turn influences Meatco’s revenue. In general Meatco remains susceptible to exchange rates as the highest value comes from our international markets, including Norway and the European Union (EU) – more specifically the United Kingdom (UK), Germany, Denmark and Italy. Meatco exports the bulk of its prime cuts (mostly from the hindquarters) to these countries as their markets provide the highest value for these particular products.
Major currencies have seen a weakening against the Rand
Graph / Rand vs USD vs GDP vs Euro ( 12 months ): http://www.reuters.com/finance/currencies/quote?srcAmt=1.00&srcCurr=USD&destAmt=&destCurr=ZAR
Coming to the Southern African region, the festive period was relatively quiet as far the markets go but there is quite a bit of talk regarding possible cabinet reshuffles which from past experiences has had an effect on the exchange rates. Despite not necessarily being resolved, the issues surrounding the South African president, finance minister and the Gupta’s no longer seems to have such material effect on the rand making a possible short term devaluation of the rand less likely including the risk of possibly moving back to a scenario of “Search for yield” which does not bode well for Meatco. Predicting the future remains difficult and lot of risk regarding short terms changes remains.
On the local front, Meatco is concerned about the funding position of Government, despite the fact that large outstanding VAT claim against the Receiver of Revenue have been settled with Meatco having received a material payment over year end effectively bringing them back to a normal working capital cycle in terms of our outstanding VAT. Overall the current negative economic outlook is expected to have a further negative impact on consumer spend and this scenarios seems to vindicate the approach taken by Meatco to export beef to markets not directly affected and in turn earning Namibia much need foreign currency.
Meatco’s financial position can be considered healthy at present, with the only concerns being the available limited cattle numbers coming out of consecutive droughts. The impact being that despite Meatco offering record prices to lure farmers to deliver cattle the committed supply has been limited with the fear of little slaughter cattle remaining as farmers are beginning to restock the national herd. The expectation is that slaughter volumes for the first two quarters of the year will be low and Meatco will have to greatly rely on the backward integration models to maintain slaughter operations
The limited inflow into dams till date remains a major concern, meaning that until there is a lesser risk of water supply; Meatco will continue to operate under the current set constraints.
Due to the above mentioned, low slaughter volumes, limited water as well as concerns about affluent treatment in Okahandja, Meatco will be forced to keep Okahandja closed which will have a short term impact on the financial situation. We are committed to accommodating staff elsewhere, with additional plans on how to best to utilise the Okahandja factory.
In these trying times, Meatco is confident that we are well funded and have sufficient reserves to meet our commitment while supporting farmers and Namibia in large during difficult times, just as we have done in the past.