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Untapped forex hub at Mgona

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FAULTS
MALPRACTICES—
Zakeyo

It is nine o’clock in the morning in Malawi’s administrative capital, Lilongwe, and some 10 minutes away from the seat of government, Capital Hill, at Mgona, Ahmad is busy monitoring a group of women packing the last bags of groundnuts.

Ahmad started loading an articulated truck with bags of groundnuts the day before and today he only needs 54 bags weighing 50 kilogrammes (kg) each to finalise the job.

According to Ahmad, the groundnuts are exported to regional capitals such Nairobi, Kampala and Kigali.

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Under his charge is a group of about 20 women from the Mgona vicinity and surrounding areas, who are busy grading and packing the groundnuts in transparent sacks.

Some 10 metres from Ahmad, another group of women is taking orders from their boss.

In total, over 100 women are spotted behind heaps of groundnuts which they must grade for their bosses.

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At the sight of the camera, the women get angry. They do not want their pictures taken. Even Ahmed does not want his picture taken.

He gets hostile when asked about export permits for the groundnuts.

“No, my friend, just go. No more questions. Just go,” he said.

Under normal circumstances, exporters in this category are expected to obtain a Sanitary and Phytosanitary (SPS) Certificate from the Ministry of Agriculture and an Export Licence from the Ministry of Trade.

Lilongwe City Council (LCC), under which the Mgona Market lies, has described it as an informal market.

LCC Spokesperson Tamara Chafunya said the city council does not collect market fees from the market but collects business premises licences from the containers.

“Produce markets are controlled by the Ministry of Agriculture where one needs to collect a licence. Furthermore, it is the Ministry of Trade that’s responsible for licencing foreigners.

“However, efforts are underway for all government departments responsible for the said market to work together to formalise the market,” Chafunya said.

In its March 2021 Working paper titled ‘The Political Economy of the Groundnut Value Chain in Malawi: Its Re-emergence Amidst Policy Chaos, Strategic Neglect and Opportunism’, Agriculture Policy Research in Africa (Apra) says the trucks transporting groundnuts pass through the borders with groundnuts on the way out and bring assorted merchandise on their way back and bring are not apprehended at all.

Apra observes that the issue has reportedly been discussed in meetings involving government officials, traders, civil society organisations and development partners, but no concrete action has ever been taken.

Apra concludes that the system is captured.

“It appears that some grain traders, politicians, technocrats, and independent Malawian traders are benefitting from this market. They are supplying goods to this market through their Burundian surrogates.

“This seems a plausible explanation because of the blatant illegality of this market, which would otherwise have faced efforts to thwart it altogether or, at least, to formalise it, given that it has been a subject of intense discussion in several policy forums. The government is losing considerable revenue due to voluminous informal groundnut exports,” Apra says.

Malawi’s terms of trade are highly skewed towards imports with the country importing goods amounting to $3 billion per annum and exporting $1 billion worth of merchandise.

Finance Minister Sosten Gwengwe said Malawi’s poor trade statistics are not necessarily that the country is not exporting enough but that some of the exports are not recorded.

According to Gwengwe, although Malawi produces huge volumes of agriculture produce, most of them are smuggled out of the country and are recorded as exports for other countries.

“Basically, what is happening is that when we produce, we need to be able to export and then the dollars must come back to Malawi. But if you have more of our products crossing unchartered routes into neighboring countries, those are never recorded as exports.

“So, you will be surprised that Malawi produces more soyabean than neighbouring countries but when you look at the export figures, the neighbouring countries have more exports of soyabean than Malawi,” Gwengwe said.

Reserve Bank of Malawi Director, Economic Policy and Research, Kisu Simwaka said anecdotal evidence indicates that about $400 million annually is externalised through illegal means either by underreporting of export proceeds or over-invoicing of imports.

“This problem is much complex and is beyond the Reserve Bank. We need the Reserve Bank to be there, we need Immigration to be there, we need Financial Intelligence Authority to be there, we need MRA to be there but we also need Malawians to be there to report such cases.

“A lot of it is getting out and we, Malawians, are just watching helplessly as if we cannot do anything about it. But we also need political will,” Simwaka said during a panel discussion at the launch of the 16th Malawi Economic Monitor.

In a paper titled ‘At the Mercy of Politics? The Groundnut Value Chain in Malawi’, Blessings Chinsinga and Mirriam Matita note that stakeholders agree that lucrative groundnut export markets can be revived through the establishment of structured markets through the declaration of export mandates, which would ensure that all groundnuts are sold and exported through structured markets.

According to the paper, two commodity exchanges currently exist: the Agricultural Commodity Exchange (ACE); and Auction Holdings Limited Commodity Exchange.

They argue that while government officials push for these two exchanges to pioneer export mandates, private traders, both indigenous and Malawians of Asian origin, are fiercely opposed to using them.

These traders, according to the paper, feel that these two exchanges do not have the requisite capacity and cannot be independent arbiters, especially since some of the stakeholders behind the exchanges also operate as traders.

“Progress towards the possibility of establishing structured markets has stalled completely. Indigenous traders feel they will be unduly exploited, while Malawians of Asian origin resist the entrenchment of export mandates which they feel will expose their tendencies of export under-declaration and transfer pricing.

“Policymakers are profiting from the impasse, with some of them exporting their share of crops through the shady deals,” the paper reads.

In the middle of the chaos, the Mgona informal groundnut export market thrives right at the heart of the capital city, Lilongwe.

RBM Director of Foreign Flows Monitoring, Esther Machado, admitted that there is a challenge with monitoring export proceeds from commodities because the country does not have a structured market.

“And we are all aware we have the Mgona Market, Mwansambo and other markets.

“And we are all aware there are trucks that leave that place. So I think we, as a country, need to make sure that we have structured markets to make sure that people know where to sell formally and then know who exports those products,” Machado said during the 2022 Monetary Policy Conference.

According to Machado, Malawi could wait for structured markets to ensure that its borders are not porous.

“There is a need to sensitise the communities to the issues because these trucks go through their communities,” Machado said.

Secretary for Trade Christina Zakeyo said investigations by her ministry and other government agencies confirmed the prevalence of undocumented export trade at Mgona commodity market.

Zakeyo said the market is indeed dominated by East African traders with different residential statuses, some of whom are naturalised Malawians while others are asylum seekers who are using Malawians in such malpractices through fronting.

“It should be noted that with the closure of Admarc and Auction Holdings Commodities Exchange, the use of Mgona for buying and selling of farm produce has been very prevalent for most traders.

“This arrangement has led to so many trade malpractices which have prompted the Ministry of Trade and Industry to find solutions by jointly working with other agencies such as MRA, RBM, Ministry of Agriculture, Malawi Police, NIS, the Office of the Secretary to the President and Cabinet, among others,” Zakeyo said.

She observed that Malawians that have been fronting foreigners in this commodity trade have had their export licences or permits revoked, adding that RBM has commenced investigations that will lead to prosecution of those involved.

Asked as to whether proceeds from the Mgona Market come back to Malawi, Zakeyo said a recent inquiry by her ministry revealed that some exporters do not fully reconcile their export declarations with the RBM while some use export proceeds to import goods into Malawi.

“In order to address this, government, through RBM, has developed a Foreign Exchange Bill and recently gazetted Exchange Control Regulations which, among other provisions, introduce stiff penalties for non-compliance such as non-reconciliation of export proceeds which were not there in the previous Act.

“Furthermore, we have been reliably informed that the export reconciliation systems at RBM and MRA have also been enhanced. Likewise, the Ministry of Trade and Industry is only issuing export licences to companies with evidence of export proceeds reconciliation.

“You may also wish to know that the commitment of the current government through the Ministry of Agriculture is also to revive formal and structured markets for agricultural commodities such as Admarc to be off taking commercial crops from farmers. This is expected to provide a reliable and alternative market to farmers,” she said.

While authorities continue to let forex slip through their fingers by letting unlicenced foreigners operate an informal market right at the heart of Malawi’s capital, the country continues to grapple with a serious shortage of forex, resulting in shortage of fuel and medical supplies.

But, as Apra says, the trivialisation of the Mgona informal groundnut export market and the government’s inaction, which allows the market to thrive, despite the Control Goods Act (CGA) requiring every export trader to be licenced, raises questions.

Who is benefitting from the chaos at Mgona? That is the million dollar question.

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