Malawians are still murmuring about the recent 44 percent devaluation of the Kwacha. Who can blame them? Commodity prices have rocketed.
Not just commodity prices; services, too. On Tuesday this week, I went for my dental appointment at my favourite clinic in Blantyre and, while waiting to be attended to, a certain young lady [Of course, I know that all ladies are women and that not all women are ladies] trod into the room.
In no time, she handed a sealed envelope to the receptionist— another lady— whereupon the receptionist opened the envelope and shouted: “Oh, no! It cannot be!”
When the lady who had brought the envelope left the place, the receptionist said, aloud: “We buy dentures from them and they have raised the price from K80-something-thousand to K110,000.”
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That is it. Prices of both commodities and services have rocketed.
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Now, while Malawians are still thinking about devaluation, and how to navigate everyday challenges, in comes the news that the International Monetary Fund (IMF)—who definitely discussed the issue of devaluation with the country’s policymakers— has suggested that car import charges be raised.
Apparently, the charges are lower in Malawi than other countries in the region, a development the Bretton Woods institution has linked to the rising demand for fuel.
In other words, IMF wants the authorities to put in place urgent measures to contain growing demand for used motor vehicles and fuel imports.
In the Malawi IMF Country Report No. 23/375 released on Wednesday this week— maybe they timed it to come after the Reserve Bank of Malawi’s devaluation announcement— the fund claims that rapid motorisation seems to have been driving the rising fuel demand.
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The Bretton Woods institution further points out that Japanese secondhand (or used) car imports more than doubled from 2,948 cars in 2016 to 7,368 cars in 2022. It says there may have been both push and pull factors resulting in this rapid growth.
In its own words: “Prices in Malawi are comparatively low, reflecting lower taxation levels. Like in much of the region, Malawi’s car supply is mainly sourced as secondhand imports from wealthier left-hand drive countries, primarily Japan but also Australia, Singapore, and Thailand. A few companies provide competitive services that allow African customers to select a vehicle online and have it shipped, imported and registered in their country.
“The transparency of these companies’ business model allows a comparison between secondhand car prices in the region; price differentials are due only to differences in transport costs and local taxation— including VAT (Value Added Tax), excise, duties, and related fees). Despite the higher transport costs to Malawi (requiring transit shipment through Tanzania), Malawi’s car import prices are consistently the lowest,” the fund says.
It adds that Japanese secondhand car exports have grown rapidly since 2001, saying, after plummeting during the global financial crisis in 2008-09, they [prices] saw a dent during the China stock market turbulence of 2016, before suffering yet another dent during the Covid pandemic in 2020- 21, implying that they are sensitive to world economic conditions.
It, however, warns of repercussions if Malawi does not mend its ways and stem cases of secondhand vehicle importation.
“The high level of vehicle imports constitutes a drain of scarce foreign exchange earnings but also causes elevated demand for fuel (and political pressures for low and stable fuel prices). Mass motorisation and the resulting fuel demand constitute a macro-critical risk factor. Furthermore, the relative under-taxation of vehicles and fuel imply a sizeable loss of potential revenue,” the fund says.
It then suggests four policy actions that may be considered to close VAT loopholes and ensure that all residents are paying the “full tax” on vehicle imports. These measures include raising import taxes on vehicles to at least the regional average, updating the fuel price formula, including by applying a market-based exchange rate and raising fuel taxes.
Maybe, to avoid adding salt to Malawians’ injury—an injury suffered from the news and subsequent impacts of devaluation of the Kwacha—I should end ‘here’.
By ‘here’, I mean on this painful note.
It is what it is, Dear Pain. The IMF is a ruthless doctor who, sometimes, even kills to pave the way for a mighty resurrection.
