Anti-Bakili Muluzi / MALAWI POLITICS TODAY

Export boom to cut trade deficit—bank

by Frank Phiri, 13 February 2006 - 05:24:23

A widely expected boom in agricultural production, coupled with a favourable exchange rate and aid inflows, will help reduce Malawi’s trade deficit this year, the Standard Bank Group has forecast. In a blueprint report for Malawi, Standard Bank—Africa’s biggest banking unit by assets—expects export earnings to rise by more than K4 billion (US$35.1 million) over 2005. The bank projects that a decline in emergency external food purchases will moderate imports, traditionally higher than exports because of food deficits. Malawi has since the mid 1990s registered trade deficits due to poor performance of major export commodities, namely tobacco and tea. Tobacco alone fetches more than 60 percent of Malawi’s total foreign exchange income. While exports have been failing, imports concurrently rose, particularly during drought years, which necessitated large-scale imports of relief maize to feed the hungry masses. The overall result for many years has been a deficit in the current account—the measure of a country’s balance of payments position or the difference between earnings from exports and spending on imports. A breakdown of Malawi’s balance of payments positions by Standard Bank indicates that exports will fetch about K74 billion (US$ 571.5 million) in 2006, up from about K69 billion (US$ 536.4 million) in 2005. The value of imports is forecast at about K125 billion (US$ 963.6 million), which is about K2.6 billion (US$ 20 million) less than in 2005. “Besides the support to the current account from the resumption of donor funding, exports are expected to increase in 2006, assuming normal weather conditions and a more favourable local currency price,” the bank said. “Imports will also be stimulated by expected gradual higher growth, although the effect will be moderated by a fall in emergency food imports and international oil prices,” it added. But the bank forecast the trade deficit to deteriorate to near 2005 levels by 2007. Last year, the deficit was a negative K58 billion (US$ 447.3 million). Standard Bank notes that progressive years of negative balance of payment positions often led to erosion of gross reserves and undermined stability of the kwacha, which has been depreciating. It says the government has to its credit, identified a number of potential products in agriculture, mining and spin-off opportunities like agro-processing in a bid to increase the export base and stem the trade deficit. Identification of auxiliary opportunities backed by agriculture in various sectors of the economy comes in the wake of Malawi’s heavy but unhealthy dependence on tobacco, which now faces various market restrictions due to the anti-smoking lobby. Thanks to the African Growth and Opportunities Act (Agoa), which allows duty-free entry of goods into the United States from eligible African states, direct and indirect apparel exports have emerged as a viable foreign exchange spinner for Malawi. The share of apparel exports in total exports increased from four percent in 1999 to nine percent in 2003, said the Standard Bank. In Africa, major export destinations for Malawi are South Africa and Egypt—accounting for 14 percent and nine percent of market share. The others are US (13 percent) and Germany (11 percent). With most of these export destinations, Malawi registers a negative trade deficit.