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Smuggling eats through local manufacturers’ soul

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COMING FROM MOZAMBIQUE—
A cyclist

The earth road from Thuchila River in Malawi to Mwanjanje, across Ruo River, in Mozambique is not a mere path; it is a route to improved welfare, a passage between poverty and prosperity, for the people of Mulanje District.

There is no time of the year when plants that grow along the dusty path are allowed to green over it due to the passage’s idleness; every day is a busy day.

No wonder, the sheer joy of moving up Ruo River, which is sandwiched between Malawi and Mozambique border at a point called New Port, outweighs the risks of the dugout canoe— loaded with Jonathan Wisikesi’s bags of wheat flour, containers of cooking oil, fizzy drinks, spaghetti and biscuits— tipping over.

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“This is one of the risks associated with the smuggling of goods from the Mozambican side of Ruo River,” he says.

“If anything, the most dangerous aspect of our journey from Luchenza in Malawi to Mozambique via Madokola Village, and from Mozambique back to Luchenza, is the routine encounter with police officers, who often stop us and grab our merchandise or let us free at a fee,” he says.

The way he describes police officers’ actions, it is clear that, given a chance, he would have risen up to the occasion and strung one of them from the nearest tree long ago.

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“To say the truth, police stand in our way,” he adds.

The ‘way’ he is referring to is the dusty road between Thuchila Bridge and Namtombozi, a spot on the Malawian side of the border, and Mwanjanje, which is on the Mozambican side of the border.

One litre of petrol, according to some of the smugglers, is enough to take one on two round-trips to Mozambique from Malawi, vice versa.

In the game of smuggling, Namtombozi and Mwanjanje – generally referred to as New Port— are the capital city of Malawi-Mozambique informal trade for the locals.

Yamikani Mkwate, who has been getting products such as cooking oil, wheat flour, fizzy drinks, spaghetti and others from Mozambique into Malawi for over 10 years, says they are forced to use uncharted routes because of factors such as the imposition of high taxes [Value Added Tax (VAT)] and other “unfavourable” conditions prevalent in Malawi.

“Just imagine, in Mozambique, we are buying 10 litres of cooking oil at K10,000. Compared to Malawi, where we buy 10 litres of cooking oil at K13,000, products here [in Malawi] are expensive.

“We feel like, when we buy goods from Mozambique and bring them here, we are serving the Malawian customer, more or less like playing a corporate social responsibility role, because most people in Malawi do not have a lot of money to spend on expensive things.

“With the Covid pandemic, buying power has been eroded. So, we put ourselves in the shoes of the ordinary Malawian in the village. People appreciate our little efforts. Maybe, if the prices of goods were lower in Malawi than in Mozambique, or at par, the situation would improve. We do not see that happening anytime soon,” Mkwate says.

He has a point.

In Mozambique, this month, they are buying a 50-kilogramme (kg) bag of wheat flour at K20,000 while, in Malawi, it is costing them K23,000 to purchase a 50-kg bag of wheat flour.

Thokozani Chakanika, another Malawian who buys products from Mozambique, crossing Ruo River on dugout canoes, concurs with Mkwate, saying prices of cooking oil, wheat flour, fizzy drinks, spaghetti, among other products, are worlds apart in Malawi and Mozambique.

This is ironic because, in reality, the world that is Mozambique and the one that is Malawi are only Ruo River apart.

“Despite that most factories are in Maputo, Mozambique, at least we buy products from Mozambique at a cheap price. Transport costs are low there. In addition, they do not have Value Added Tax on products such as cooking oil. I would rather buy products that are K5,000 cheaper in Mozambique than spend that much on products in Malawi.

“With one litre of petrol, I go to Mozambique and back on my motorbike twice, thereby saving on transport,” he says.

Maybe he has a point. The road to Mozambique from Luchenza is strewn with houses built using modern designs, most of which are products of trading in Mozambican products.

In a statement recently, ETG Parrogate Cotton Limited Senior Operations Manager, Rajneesh Dabral, bemoaned the influx of Mozambican products in Malawi.

One of the impacts of reintroduction of VAT, he says, has been the influx of illegal cooking oil from neighbouring Mozambique, with reports indicating that Mozambican cooking oil has been flowing as freely as Ruo River into such districts as Mangochi, Ntcheu, Dedza and Lilongwe.

“This illegal influx will lead the local manufacturers losing their sales as it’s really a daunting task to stop this smuggling as we have porous borders with Mozambique. This illegally brought edible oil often has quality issues which even the Malawi Bureau of Standards (MBS) has recognised. This defeats the MBS drive to avail consumers of quality and certified products.

“There has been a significant drop in sales and it’s going to have a negative impact on the oil industry in the country. The scrapping of VAT on essential products like cooking oil had greatly relieved the general masses and almost capped the illegal flow of oil from Mozambique and elsewhere.

“Moreover, quite a few industry players were on an expansion drive as well as value addition on existing plants and structure. The reintroduction of VAT in such times will further weaken the industry confidence. The industry has made a humble representation to the government to reconsider this issue in the interest of all, the industry and the consumers,” Dabral says.

The government introduced VAT on cooking oil in the 2020/21 national budget.

This led to increases in prices of the commodity. For example, a two-litre bottle of cooking oil, which was selling at K1,900 before VAT was reintroduced, is now being sold at K2,900.

When presenting the national budget to parliamentarians recently, Finance Minister Felix Mlusu said, to ensure efficiency in the VAT system, the government had introduced a standard rate of 16.5 percent VAT on refined cooking oil.

This was despite that a similar decision was rescinded by the previous administration [Democratic Progressive Party] in 2017.

According to Malawi Government Gazette (VAT Amendment Act) Number 25 of 2017, VAT was exempted on animal or vegetable fats and oils and their cleavage products, prepared edible fats, animal or vegetable waxes under customs tariff subheadings 1501.00.00 to 1522.00.00.

Consumers Association of Malawi Executive Director John Kapito says the introduction of tax on cooking oil would lead to a surge in prices.

But Treasury spokesperson Williams Banda indicates that the decision was made based on suggestions from industry players.

“With the introduction of the standard rate of 16.5 percent VAT on refined cooking oil, local manufacturers will now be entitled to claim input VAT paid on inputs or raw materials with respect to the production of the refined cooking oil,” he says.

Trade Minister Sosten Gwengwe has, meanwhile, bemoaned increasing cases of smuggling, describing it as a threat to Malawi’s manufacturing industry.

He has not addressed the issue of VAT on refined cooking oil, though.

As government officials fiddle on the issue, local manufacturers’ customer base is ‘burning’, literally.

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