Malawi’s terms of trade have deteriorated, with imported commodities now 92 percent more expensive and exported commodities only appreciating by four percent in 2021, the World Bank has said.
The development comes as Malawi continues to import high-value finished products such as fertiliser and fuel and is exporting low-value products, most of which are exported raw.
According to the World Bank, commodities represented 57 percent of Malawi’s exports and 13 percent of imports in 2021.
The Bretton Woods institution says exported commodities are dominated by tobacco, at Kl,328 billion in 2021, sugar at K60 billion and tea at K58 billion. On the other hand, fertilisers at K228 billion and fuels at K104 billion were among the most significant imports.
“Commodity prices have continued to rise in 2022, as the import price index stood at 80 percent above 2021 levels by end-April 2022 due to the escalating Ukraine crisis,” the bank says.
It notes that fuel import volumes in the six months to January 2022 were also down by 25 percent during the same period one year earlier, showing the impact of price increases.
“However, global price increases mean that the value of imported fuel went up.
“More generally, the significant volatility in commodity markets illustrates the vulnerability of Malawi’s economy to such shocks, highlighting the need for further diversification and commercialisation,” the bank says.
Associate Professor of Economics at the Malawi University of Business and Applied Sciences Betchani Tchereni said the escalating prices of imports, as compared to exports, are worrisome.
“In the short to medium term, Malawi needs to start effecting import substitution in earnest. In particular, the mega farm project needs to be fast-tracked.
“Along with the mega farms must be value-addition centres near the farms to add value. In this way, we will be self-sustaining and also exporting relatively higher value products,” Tchereni said.
He added that it is also important to explicitly ban the importation of certain commodities such as big fuel-guzzling vehicles, certain luxurious commodities and services too.
“At the same time the tourism industry needs support to be visible for international holiday makers to bring us the much needed foreign exchange and improve the Balance of Payments,” he said.
Both Minister of Trade Mark Katsonga Phiri and the ministry’s spokesperson Mayeso Msokera were not immediately available for a comment.
Secretary for Trade Christina Zakeyo asked for more time before she could respond to our questions.
In the Mem, the World Bank notes that the government is increasingly promoting import substitution to address foreign exchange shortages, but that the effectiveness of this approach remains questionable.
The bank says one of the strategies Malawi is using is the Buy Malawi Strategy, which was officially launched in 2016 and attempts to inspire Malawians to buy more locally produced goods instead of imported products.
“It is worth noting, however, that international experience shows that promoting the competitiveness of exporters is typically more effective than pursuing import substitution [aimed] at increasing productivity growth, especially when the domestic market is small.
“While such perspectives are reflected in select government documents and initiatives, such as the National Export Strategy II, which was launched in December 2021, as well as in Malawi’s participation in the African Continental Free Trade Area, there remains some ambiguity as to how determined Malawi is to commit to an export-led growth strategy,” the bank says.