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Glaring 2022 trade deficit

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Murry Siyasiya
Murry Siyasiya

Malawi faces a glaring trade deficit for 2022 as figures from the National Statistical Office (NSO) indicate that the country imported goods worth $64.7 billion between January and November.

The country, however, exported goods valued at $12.4 billion in the period, highlighting a trade deficit of $52.3 billion.

Among the top five markets for imports for Malawi are China, which exported goods valued at $23.9 billion to Malawi, South Africa at $20.7 billion, Zambia at $7 billion, India at $2.6 billion and Mozambique at $2.2 billion.

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Among the top five export destinations for Malawi’s products are Uganda at $4 billion, Rwanda at $2.4 billion, India at $1.6 billion, Tanzania at $1 billion and Zambia at $932 million.

In an interview, international trade economist Murry Siyasiya said the trend is not new but a continued sad development as Malawi has known and talked about the problem for long.

He said imports were valued at $64.7 billion and exports valued at only $12.4 billion, hence a trade deficit of $52.3 billion, means that to keep up the pace with our current levels of imports, we must increase our level of exports four times or more to keep up the pace.

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Siyasiya emphasised the need to reduce imports by 81 percent as it is concerning that the country has managed to survive this far, with such a large trade deficit.

“One potential solution to this issue could be for Malawi to focus on increasing its exports to other countries in order to reduce the trade deficit. This could be achieved by diversifying the types of goods that the country exports and by finding new markets to sell these goods. Additionally, the country may want to review its trade agreements and tariffs with other countries to ensure that it is not at a disadvantage, in terms of trade. It is also concerning that the government is not taking more active steps to stimulate exports.

“Another solution could be import substitution, which would involve encouraging local production of goods and services to reduce dependence on imports and create jobs. This could be done by providing incentives to local businesses and supporting local industry. This is also a way of reducing the country’s dependence on imports and creating jobs,” Siyasiya said.

Malawi Economic Justice Network (Mejn) Southern Region Coordinator Mike Banda concurred with Siyasiya, saying it is a worrisome situation that imports keep subduing exports, which is the whole reason the country struggles with foreign exchange.

“We continue singing the song of transforming Malawi from being a predominantly importing and consuming nation to a producing and exporting country while our priorities, in terms of investment into the productive sectors, can’t be traced anywhere. Year in year out, we continue implementing a consumption budget not an investment one.

“I expect the 2023-24 budget to begin taking a serious direction in as far as investment is concerned. I am looking forward to see an allocation of the much-needed K5 billion for the establishment of the Malawi Mining Company and the Mining Authority, I am expecting to see a huge decrease or complete wiping off of the AIP, I am expecting serious allocation towards operationalisation of the mega farms initiative. These are but some of the investments that have potential to change the status quo.”

The recent Malawi Economic Monitor (Mem) published by the World Bank holds that Imports began declining in early 2022 and collapsed in May 2022, reflecting the impact of foreign exchange shortages.

Officially reported imports, already slightly below longer-term trends, dropped by 46 percent to 10.0 percent of GDP in May 2022 while the trade deficit continued to contract, eventually leading to a small trade surplus of K0.1 billion in August 2022.

The World Bank believes timing of the contraction suggests that acute foreign exchange shortages, rather than price and exchange rate movements, underlie the trend.

“The timing also coincides with widespread fuel unavailability and the Reserve Bank of Malawi’s (RBM) move to become a net buyer of foreign exchange. The poor performance of exports, amid elevated global prices for most key commodities, will result in a further weakened external sector and a high current account deficit.

“While a more flexible exchange rate regime has some negative consequences in the short term, such as an increase in the cost of imports, it should gradually help increase export competitiveness and improve the trade balance in the medium term. However, limited diversification and declining global demand for tobacco will contribute to sustained difficulties in reducing the current account deficit. As such, increasing exports in identifying new potential export sectors, most notably in agribusiness and mining, will be essential,” the Mem reads.

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