One of the country’s investment management and advisory firms, Alliance Capital Limited has described the first three months as tough for the local economy.
The firm says during the first quarter, the economy struggled to gain ground owing to the twin bears of sharp depreciation of the kwacha and elevated food prices following widespread dry spells and spillover effects of food shortages.
In its first quarter economic report released on Friday, the firm says the fiscal front also faced pressures as the Malawi Revenue Authority (MRA) opened the quarter with another target miss.
“Following this, money market investors especially those that place their funds on short term government securities benefitted a great deal as interest rates rose markedly.
“On the contrary, capital market, especially the market for equity registered relatively poor performance as most counters suffered share price losses following poor performance in the listed companies. As if that was not enough, one entity commenced its processes of delisting from the local bourse posing threats to the development of the capital market,” reads the report in part.
Alliance Capital says the development has therefore necessitated the need to step up efforts to deepen the capital market further.
“However it all boils down to government and the regulatory authorities to create an economic environment where the capital market thrives, among other things, by reducing domestic debt financing and also making efforts to improve publicity,
awareness and deal with some of the misconceptions potential investors might have about capital market in Malawi,” says the report.
Looking ahead, the firm says it expects the kwacha to appreciate further in the next quarter following an indication that the country is back on track to access IMF’s Special drawing rights.
“The forex that will be brought in during the tobacco season will ease pressure on the forex market and strengthen the appreciation,” says Alliance Capital.
The firm has since recommended that government introduces price floors on the tobacco market to counter the effects of tobacco overproduction.
According to the Ministry of Agriculture’s first round of crop estimates, Malawi is expected to produce over 200 million kgs of the green gold against a demand of around 160 million kgs.
Alliance Capital has also predicted that the benchmark interest rates will remain unchanged in the second quarter.