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As always, a joy to take the city’s business to the people on the ground

A presentation for the members of the Summerdown Farmers Association again brought the stark realities of the agricultural sector to the fore.

And while all the farmers may not fully understand the technicalities and the terminology, they certainly know what credit is, and what it means to their farming operations when there is a shortage of this vital component.

I always enjoy my presentations to farmers associations. Farming is an activity that operates 100% in the primary sector, but without the backing of big capital like the mining industry. Farming is essentially a one-man operation and although a farm and its owner or owners often may not technically comply with the legal definition of sole proprietor, where the farmers deals with the elements on the operational side, or the bank manager on the financing side, it definitely conforms to the definition of sole proprietor.

Farmers do not have the luxury of the capital market, nor can they issue debt letters to prospective investors. Each farmer is for all intents and purposes on his or her own. To survive in an environment like this requires a very special type of entrepreneur. This inherent uniqueness is also illustrated by the type of questions they usually ask after the presentation.

All the farmers in the Summerdown meeting understood the concept Private Sector Credit Extension. They may not know how the index is compiled or what the constituent subcategories are, or even what these often obscure values tell the analysts, but the fact that I use it as one of the most important leading indicators, was clear to everybody why I do so. It is my own personal economic thermometer. They also understood that private sector credit is a proxy for bank liquidity, despite not seeing the direct relationship between the bank’s deposit rate, and the availability of new credit.

The way they experience it is the eagerness or the reluctance with which their bank considers their application for credit. And they all confirmed that right now, it is a rather difficult waltz to persuade the bank to change the tune.

But farmers are used to hardship, and with their signatory resignation, I gathered the general feeling was that in spite of how the financing mechanics work, it is a temporary drought, and eventually, just like nature does, there will again come a time of plenty, or at least less restrictiveness.

Based on this sentiment, the one big question several of them posed, was when will the economy turn. It would have been easy to highlight all the negative features but with these they are familiar. It was somewhat more difficult to come up with arguments why I say the worst is behind us.

I took them through my usual repertoire of relevant and not-so-relevant facts, showing them that the first step to revival was taken last year in May when it was first publicly acknowledged that we have a problem. Then I advanced them to the budget mid-year review whereafter it became common knowledge, not only was there a problem, but it was a mighty one.

From this point, we went through a painful summer period when both the banks’ and the government’s liquidity was severely impaired and we entered the second phase of a technical recession. Making matters worse was a budget deficit approaching N$10 billion, half of which we could service through a series of so-called private placements, and the other half which we simply had to save by curbing expenditure. This had the biggest knock-on effect, effectively draining the local market of whatever available liquidity there still was. I also told my rural audience that these were not mere notions, or another form of hot-air propaganda, it was real, it was tangible and it had an enormous effect on liquidity in the broader economy.

But I assured them that the Ministry of Finance had not been sitting on their hands in the interim period between the mid-year review and the new budget. It was also easy to demonstrate, using published figures, that last year’s “revised” budget and this year’s new budget, are practically the same. The differences are cosmetic except for the five billion dollars more we expect from the SACU revenue pool, and about which the finance ministry is very confident. I even flashed the minister’s statement he made a day earlier, in front of their eyes, and quoted certain paragraphs which, to my mind, had a direct bearing on confidence. They were, of course, duly impressed.

Then I explained to them the practicalities: – if we get five billion more, and the minister is not going to force us at the end of the year, to urgently save another five billion, the net effect is a ten billion contribution to improve the government’s cashflow. This part they understood very well.

If, on top of that, another N$3 billion becomes available somewhere during July from bridging finance arranged with the African Development Bank, it adds to net positive cashflow, and what’s more, it is available immediately meaning its effect will very quickly be seen. Possibly within 90 days, in the rest of the economy as the government brings its creditors up to date, and as the normal expenditure, as budgetted, is resumed.

It can’t go much worse than 2016, that much is clearly shown by the macro-economic side, and if we add all the other elements that has an impact on liquidity, it should in fact be a substantially better year, although I went to some pains to impress upon them that I am not propagating a gospel of fireworks. We are in a consolidation phase that will probably continue for most of this year, I told them but consoled them with the empirical fact that at least and at last, our growth curve’s tangent has turned positive again.

Whether the farmers believe me is a different matter. But for a clear signal, we will all have to wait until the latter part of the second semester. In the meantime, the farmers will continue to plant and to breed, all the while hoping for a better tomorrow.


A big Thank You to Novel Ford for giving me a Ranger 2.2 XLS bakkie to tavel to Summerdown and back. It was an excellent ride.

The Economist has a standing arrangement with Novel Motor Company to provide the editor with a sponsored ride whenever he does presentations to farming communities.


 

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