The World Bank has said Malawi is unlikely to benefit from barter arrangements with private firms and other countries.
The caution by the World Bank follows recent revelations that, on May 18 2023, Malawi signed a fertiliser deal with Romanian firm East Bridge Estate SRL, which could see the country shipping out produce worth nearly K500 billion.
It also follows reports that Malawi is working on a similar arrangement with the government of Egypt.
Recently, the Public Procurement and Disposal of Assets Authority said Malawi does not have a legal framework for barter.
And, in its 17th Malawi Economic Monitor (Mem) released on Wednesday, the bank says barter arrangements are unlikely to address the fact that Malawi’s exports are of little value, such that they cannot support its imports.
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The Mem says, typically, countries resort to bartering when they are restricted from the international financial system or when they are highly indebted and commodities have superior credit enforcement properties.
According to the bank, it is unlikely that Malawi would gain from barter relative to currency-based exchange, as money, “as an easily comprehensible unit of account”, introduces advantages of transparency.
The bank says money removes the requirement of coincidence of wants— that is, trading parties have something on offer of value for the other party.
“[Money] removes some of the incentive[s] to deliver low-quality goods (a common problem in barter arrangements) and tends to be a better store of value (money can easily be transferred and invested while goods often lose value when not needed immediately),” the bank says.
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Initially, East Bridge was expected to supply 600,000 metric tonnes (mt) of fertiliser to Malawi.
But Finance Minister Sosten Gwengwe recently said Cabinet recommended the halving of the quantities.
In that case, East Bridge will supply 300,000mt of fertiliser in two batches of 150,000mt each valued at $124.5 million.
“Cabinet reduced the quantities to half and directed that two SGs [sovereign guarantees] of $124.5 million be issued,” he said.
A section of the commodity exchange agreement reads: “The contract between the parties, being a Commodity Exchange based arrangement, the parties have agreed that the seller will accept the below commodities at the below agreed prices as payment in respect of the fertilisers. Further, the purchaser will aggregate for the seller the commodities in the quantities.”
Under the agreement, Malawi will pay are as follows: 250,000mt of soya beans at $528 per mt, which translates into $132,000,000 (K132 billion); 250,000mt of groundnuts at $725 per mt, costing $181,250,000 (K181.25 billion); 200,000mt of pigeon peas at $365 per tonne making $73 million (K73 billion).
It will also deliver 50,000mt of rice at $370 per tonne, making $18.5 million (K18.5 billion); 25,000mt of sugar at $483 per tonne making $12.075 million (K12 billion); 50,000mt of sorghum at $295 per tonne making $14.750 million (K14.7 billion) and 25,000mt of cotton at $785 per tonne translating into $19.625 million (K19.6 billion), among other crops.
However, agriculture policy expert Leonard Chimwaza said barter is practical in the country.
“In trade, barter system is often established as a means of maintaining the trading of goods and services as well as a means of helping a country function. This usually occurs if physical money is not available or if a country sees hyperinflation or a deflationary spiral as is the case in Malawi currently.
“However, we, as a country, need to be careful on risk management, which is an integral part of honouring this contractual agreement. The country needs to be very cautious of the market forces, inflation and natural disasters,” Chimwaza said.
