Policies fail to curb commodity dependency

Policies fail to curb commodity dependency

Malawi is yet to transition  from overdependence on unprocessed goods for the export market, a development which increases its vulnerability to negative price shocks.

Meanwhile, United Nations data shows that 95 percent of goods are exported raw.

Consumers in one of the outlets in Blantyre

This development is obtaining despite the Malawi Government formulating a number of  strategies to encourage export diversification and promote manufacturing of ‘Made in Malawi’ products for the export market.

The strategies, among others, include the Malawi National Export Strategy (2021/26) which seeks to consolidate, expand and diversify exports from Malawi in terms of product and market outreach  as well as the Buy Malawi Strategy which seeks to encourage production of locally manufactered goods.

In its Commodities and Development Report 2023, United Nations Conference on Trade and Development (Unctad)has called for the redoubling of efforts towards export diversification in countries such as Malawi where 60 percent of merchandise export revenues come from primary commodities.

“With such reliance comes vulnerability,” reads the report, citing economic and political shocks to global commodity markets following the Covid-19 pandemic and the war in Ukraine.

Speaking in an interview on Monday, Malawi Confederation of Chambers of Commerce and Industry president Lekani Katandula said there is progress translating the diversification talk into appropriate incentives through laws and appropriate enabling investments.

He said: “Sooner or later, we should see the International Monetary Fund programme alongside a more market-driven exchange rate regime. If we sustain this we will see growth in exports.

“Our previous policies which favoured a strong kwacha favoured imports at the expense of exports and industry responded accordingly.”

National Working Group on Trade and Policy chairperson Frederick Changaya said the major setback to reducing over-dependence on commodities is errant policy and inconsistency, which have favoured traders over manufactures.

He said while the Reserve Bank of Malawi (RBM) targets inflation to achieve price stabilisation, the central bank should be seeking stimulation approaches that encourage efficiency and competitive industries to bring down prices or induce economic efficiency.

Changaya, who is also managing director of Applecore Grain and Milling Limited, said: “Oftentimes RBM tightens the policy stance to mop out excess liquidity. Which liquidity when people are poor? The only major player that would have that liquidity is the government which does not stop procuring when interest rates go up.

“Policy inconsistency comes, for example, where the government doesn’t remove the import restriction. This has a danger of wiping out those local producers of agro produce in favour of imported maize flour.”

The Unctad data shows that industrial production, derived from the production volumes data for industries in the manufacturing, electricity and water supply, shows that on average, industrial production levels in Malawi in 2021 went down by about 11 percentage points below the 2020 levels, according to Ministry of Finance and Economic Affairs data.

On the other hand, output in the manufacturing industry for 2021 was 18.4 percent lower than in 2020.

Meanwhile, the value of exports in the economy decreased by 4.5 percent from $1.01 billion in 2021 to $956.9 million in 2022 due to low productivity within the agricultural sector, a great contributor towards national exports.

Adverse weather conditions experienced in the 2021/22 season affected the harvest of traditional export commodities such as tobacco and sugar.

Volumes of exports for tobacco and sugar declined in 2022 by 21.06 percent and 73.43 percent, respectively.

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