Malawi risks losing out on free trade area
Malawi risks losing out millions of dollars annually if it becomes party to the African Continental Free Trade Area (AfCFTA) and a signatory to other regional pacts without first fixing the economy’s structural challenges.
This is according to an impact assessment on AfCFTA, Tripartite Free Trade Area (TFTA) and full liberalisation for South Africa (SA) on Malawi conducted by the Trade and Development Studies (Trades) Centre.
On Monday, the Malawi government hosted a validation workshop of the studies in Blantyre where stakeholders also discussed Malawi’s potential to make the most of the agreements.
The study was conducted under the European Union (EU) Technical Assistance initiative aimed at supporting the government in process of making bilateral, regional and multilateral trade agreements.
“The total revenue impact from the CFTA without SA and (with or without exclusion) is also marginal -0.0 percent. However, should Malawi fully liberalise its import regime under the AfCFTA including South Africa, the total revenue loss will be substantial $11 million which represents about -5.2 percent of the revenue loss,” part of the report reads.
It says this is understandably, a huge amount taking into account that the government relies heavily on import taxes to meet its development needs.
According to the report, over the past decade, most major exports have declined with the exception of cereals, edible fruit and nuts, coffee tea and spices.
Tobacco has remained the top export commodity, but export value has decreased from $646 million in 2014 to $493 million in 2018.
Exports of machinery have fallen from $117 million in 2014 to only $13 million in 2018 while exports of plastics have declined from $30 million in 2015 to $9 million in 2018, according to the report.
The share of non-traditional exports such as macadamia and groundnuts in exports, however, increased strongly, from 0.2 percent in 2014 to 3 percent in 2018.
Trades Director, Moses Tekere, said private sector especially SMEs are seriously concerned with increased competition from cheaper imports on local market resulting from trade reforms in general.
“SMEs cited low productivity, limited access and high costs of backbone services (transport network, electricity, water, ICT), limited capital and cost of working capital, high cost of trading across borders and lack of market information as some of the factors limiting their competitiveness.
“Local industry also expressed serious concern about the weak national capacity to take trade remedies,” Tekere said.
Principal Secretary in the Ministry of Industry, Trade and Tourism, Ken Ndala, said given the current situation, way forward is for firms to reposition towards expanding.
“There is need to address other problems related to high cost of production and doing business exacerbated by energy shortfall, high transport costs, difficulty to access affordable finance, inadequate skilled labour,” Ndala said.