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Too far yet too close to Ukraine

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By Justin Mkweu

On February 24 2022, Russia invaded Ukraine in what Russian President Vladimir Putin described as a special military operation, but since then, the conflict has been escalating, advancing towards Ukraine’s capital city, Kyiv.

Located in Eastern Europe, Ukraine is over 6,800 kilometres (km) from Malawi with a flight duration of nine hours and six minutes, assuming a direct commercial flight is cruising at 805km per hour.

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Even though the conflict is happening such far away, in a country with do direct diplomatic ties with Malawi, the country has already started feeling the pinch due to overdependence on imports.

Impact on fuel

Already the country is expecting a hike in fuel prices as landing costs have skyrocketed due to, among other things, affected production in the two countries and a disturbance in the supply chain.

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According to a statement from the Malawi Energy Regulatory Authority (Mera), landed costs for petrol, diesel and paraffin have increased by 16.16 percent, 24.67 percent and 24.71 percent respectively.

Now that a new Mera board has been instituted, fuel prices are likely to go up on the local scene because under the Automatic Fuel Pricing Mechanism which Malawi uses pump prices qualify for an adjustment when the landed costs of petroleum products move beyond the positive or negative five percent trigger point subject to availability of resources in the price stabilisation fund, which Malawi has since been depleted.

Apart from making motorists dig deeper into their pockets to purchase a litre of the product, a rise in fuel prices has grave effects on both micro and macro economy such as rising cost of production which leads to inflation.

As inflation affects the cost of production, manufacturers of different products pass the cost to the consumer who feels the larger pinch.

Malawi Confederation of Chambers of Commerce and Industry Chief Executive Officer, Chancellor Kaferapanjira, indicated in an interview that since Russia and some of its allies are the biggest producers of fuel, the war in Ukraine will affect the commodity’s supply and the results may become grave.

“Fuel prices may reach K1,400 per litre as a result of the tension between the two countries and this will heavily affect our economy although Malawi has nothing to do with the war and it is far from these countries,” Kaferapanjira said.

Impact on agriculture

Apart from fuel, there are other products whose prices on the international market are rising.

The other products which Malawi could have had control over but does not and prices behave the way they want are fertiliser and bread with the former being critical to Malawi’s economy which is agrarian.

Agriculturalist Leonard Chimwaza singles out the rising prices of fertiliser as an effect that will hit Malawi the hardest and eventually have spillover effects to other sectors.

International media indicates that since the invasion, fertiliser prices across the globe have increased three times, which means as farmers in Malawi were buying the commodity at K27,000 per 50-kilogramme bag this farming season, the price is likely to hit above K50,000.

“Russia is one of the major producers of ammonium fertiliser and other components of fertilizer which most farmers use in this country. Therefore, our rate of importation of fertiliser will be disturbed and affect crop production and the economy,” Chimwaza said.

Anything that has an impact on agriculture threatens the stability of the economy because, eventually, the disturbances will knock on the Affordable Inputs Programme, reduce production and cause food insecurity and skyrocket inflation.

Bread and cooking oil

According to available data, Russia is the world’s biggest exporter of wheat to African countries and Malawi imports approximately 30 percent of the commodity from that country and Ukraine.

The war has already affected Malawi as the price of bread, which is a product of wheat, has shot up by 100 percent from around K500 per loaf early March to around K1,000 per loaf by end March.

The prices are likely to surge further.

Apart from wheat, which has made bread prices to go up, Russia is among producers of crude oil and the war’s impact on prices of crude oil has already been felt on the local scene as cooking oil prices continue to escalate.

Supply chain disruptions

Approximately 53 percent of Malawi’s production costs go to transportation because the country is land-linked and the war has sent chills down the spines of Indigenous Customs and Forwarding Association which has painted a dark picture of how the conflict has disrupted the supply chain.

The association’s President Kumbuka Kalua said the saddest thing about the situation is that Malawi is a largely importing and consuming nation with more than 80 percent of goods and services consumed in the country being imports.

“We rely on clearing and forwarding for survival, but this means the cost will increase and people will hardly manage to import goods; so it means our business will be affected and this will also affect the economy,” Kalua said.

Impact on monitory space

The Reserve Bank of Malawi (RBM) also expressed concern that the tension between Russia and Ukraine threatens the stability of the global economy whose negative economic impact may spill over to emerging and developing economies such as Malawi.

According to RBM Market Intelligence Report for January, 2022 the ongoing geopolitical tension between the two countries is a cause for concern as the higher than anticipated oil prices induced by the phenomenon could delay the convergence of inflation to medium term targets in most countries.

The report adds that the developments could compel central banks to implement less accommodative monetary policies that could jeopardise economic recovery plans because if big economies such as the United States tighten their monetary policy stance, risks of currency depreciations in lower economies and fuel inflation pressures could intensify.

“Domestically, the RBM continues to monitor both domestic and global developments and take necessary action to mitigate any risks to the inflation outlook that are perceived to be permanent,” reads the report.

Minister of Information Gospel Kazako and Minister of Trade and Industry Mark Katsonga Phiri also admitted during Wednesday’s government ‘Face the Press’, that Malawi will not be spared from the economic knocks of the tension.

‘Puppet economy’

The impact of the Russia – Ukraine war is just a drop in an ocean of how Malawi is a puppet economy naked to external shocks due to its overdependence on imports.

Most of what Malawians use is imported; a problem analysts believe is manmade and can be dealt with if there can be willingness from all angles.

The fluctuations that were brought by the Covid pandemic also sent the economy onto its knees and so has been the case with many other situations on the international market which smash the Malawi economy from corner to corner.

Way forward

Chimwaza believes that Malawi needs to put in place strategies that will help in the short to long term and deal away with overdependence of imported fertiliser.

“We need to change the countries from where we should import fertiliser immediately and the sooner we do that, the better, because other countries will be targeting the same markets. We also need to put incentives to woo investors in fertiliser plants in the country for long term,” Chimwaza said.

Economics Association of Malawi Executive Director Frank Chikuta is of the view that building buffers in any essential product such as fuel, fertiliser and foreign exchange is the best solution to the problems in the short term.

“We do not export enough to satisfy our imports; therefore, we need to escalate our exports in all sectors in the short term and consume what we produce in the long term,” he said.

The Tonse Alliance administration has banked its hopes on the Malawi 6063 agenda and special economic zones and industrial parks which it believes will turn around the country’s economy.

Minister of Finance Sosten Gwengwe indicated, when delivering the just passed national budget, expressed optimism on the success of these development aspects.

It is clear that Malawi is a puppet to other economies and can be pushed from left to right at their mercy.

Observers say this is an opportune moment for the country to think about helpful strategies that will fail and withstand future shocks.

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