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Is Malawi a fertile dumping ground?

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UNDER-UTILISED?— Sugarcanes

Earlier in 2021, Malawi, like most regional peers, deposited the African Continental Free Trade Area (AfCFTA) ratification instruments to the African Union (AU).

The AfCFTA brings together all the 55 member states of the AU, covering a market of more than 1.2 billion people, including a growing middle class and a combined gross domestic product (GDP) of more than $3.4 trillion.

The intra-regional trade under the AfCFTA has potential to bring significant economic and social gains, leading to higher incomes, lower poverty and faster economic growth, according to the World Bank.

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But Malawi might be entering the market puzzled, more so because, for years, it has been perceived by peers as a dumping ground for low value commodities.

The country, relatively undersized when compared to neighbours Zambia, Tanzania and Mozambique, is, ironically, the destination of a thousand-plus imports compared to the number of commodities it produces for the export market.

It continues to suffer from a negative trade balance due to insatiable appetite for foreign goods and continued reliance on imported inputs for production.

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To reverse the situation and boost exports, in 2012 the country rolled out the five-year National Export Strategy (NES I) whose core objective was to develop three priority clusters, namely oil seeds products, sugar cane products and manufactures.

It targeted to raise exports as the share of imports from 51.5 percent in 2011 to 75.5 percent in 2017 and also 93.4 percent in 2022.

Alas, this was just one of Malawi’s myriad failed dreams and aspirations as the country continues to grapple with a significant deficit.

Figures presented to the recently held Economics Association of Malawi symposium in Lilongwe show that Malawi needs $3 billion per year to finance its import bill, but only generates $1 billion.

Latest figures from the Treasury, for instance, show that the country’s merchandise trade balance worsened from K520 billion in 2016 to K797 billion in 2021, with imports jumping from K1.02 trillion in 2016 to about K2.06 trillion in 2021.

During the same period, exports jumped from K64.8 billion in 2016 to about K1.26 trillion in 2021.

In an interview yesterday, economist at the Malawi University of Business and Applied Sciences Betchani Tchereni said, as the local industry remains in its infancy stage, this poses a greater threat to the economy.

“We can open up but we are going to continue to be a marketplace until we change our approach because we don’t have much yet to sale. We are not manufacturing competitively and that is a huge problem,” he said.

He said economic diversification remains one of the key remedies to the challenges Malawi has been facing, coupled with the need for value addition to maximise earnings from her traditional exports.

Agricultural products continue to weigh heavily in Malawi exports basket, with tobacco, sugar and coffee accounting for over 70 percent.

But the Ministry of Trade and Industry said Malawi remains systematically positioned to make the most of the availed opportunities under markets like the AfCFTA.

The ministry has since outlined about 10 key commodities which, according to its spokesperson Mayeso Msokera, have a comparative advantage in some of the member-countries and have export potential.

They include raw cane sugar, black tea, oilcake of soya-bean oil and legumes; cereals, maize seed, pulses, fruits and nuts, rice and tobacco.

Msokera said Malawi is committed to the cause of regional integration, of which one is the implementation of the AfCFTA.

“The country’s readiness is demonstrated through the signing and ratification of the AfCFTA agreement. The national AfCFTA liberalisation modalities were also gazetted in May 2021, signifying commencement of application of the AfCFTA trading regime in Malawi.

“More importantly, the Ministry of Trade and Industry has developed the National AfCFTA Implementation Strategy to guide the country in the effective implementation of the AfCFTA,” he said.

According to a joint report titled ‘Making the Most of the African Continental Free Trade Area’, published by the AfCFTA and World Bank recently, if fully implemented to harmonise investment and competition rules, the trade pact could boost regional incomes by nine percent—to $571 billion by 2035.

The strategy mainly is focusing on interventions aimed at expanding market access for targeted goods and services beyond Common Market for Eastern an Southern Africa and Southern African Development Community, in particular new markets in North and West Africa.

The AfCFTA remains the largest free trade area in the world measured by the number of countries participating.

It could create almost 18 million more jobs, many of them higher-paying and better-quality jobs, with women workers seeing the biggest gains.

In a statement accompanying the report, World Bank Managing Director for Development Policy and Partnerships Mari Pangestu said the implementation of the trade agreement would also lead to larger wage gains for women and skilled workers.

“Countries must work together to make the AfCFTA a reality and reap its many benefits – including reducing barriers to trade and investment, enhancing competition and ensuring markets function fairly and efficiently through clear and predictable rules,” it says.

The report discusses two scenarios to assess the benefits for a market of more than 1.3 billion people with a combined gross domestic product of $3.4 trillion.

The key findings indicate that the AfCFTA has the potential to encourage greater foreign direct investment required for Africa to diversify into new industries, such as agribusiness, manufacturing and services, and reduce the region’s vulnerability to commodity boom-bust cycles.

The report finds that greater FDI could raise Africa’s exports up to 32 percent by 2035, with intra-African exports growing by 109 percent, especially in the manufactured goods sector.

A few weeks ago, President Lazarus Chakwera launched the Private Sector Labs with optimism to improve productivity and competitiveness of local commodities on the international market.

He said, through the labs, his government is ready to listen and deal with barriers to private investment such as legislation, tax regimes and administrative impediments.

However, for Malawi’s dreams to be realised, there is a need for more action than words.

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