Can malawi narrow the trade deficit?
Malawi Government plans to narrow the trade deficit in the next five years, according to the Malawi Growth and Development Strategy (MGDS III).
The country continues to suffer from a negative trade balance due to insatiable appetite for foreign goods and continued reliance on imported inputs for production.
Figures from the final draft of the MGDS III indicate that trade balance is projected to decline by 0.5 percentage points to two percent of gross domestic product (GDP) in 2022 from 2.5 percent in 2018.
During the same period, exports of goods and services are expected to decline from 28.3 percent of GDP in 2018 to 27.2 percent of GDP in 2022 while imports of goods and services are expected to decline to 36.9 percent of GDP in 2022 from 41.4 percent in 2018.
Although both exports and imports are projected to decline during the review period, the country will still be importing more than it exports, with the trade balance in 2022 projected to stand at 9.7 percent of GDP.
University of Malawi’s Chancellor College economics professor Ben Kaluwa thinks it will be difficult to narrow the trade balance because of the nature of commodities the country relies on for the export market as well as increased imports.
He said: “It will demand that as a country we double our exports, but to achieve this, we need to think outside the box. With this, it will be even difficult to achieve balance of trade.
“We are failing to make strides on the export market because we depend on primary commodities for exports. The danger with these primary commodities is that consumption does not double in most cases even if incomes in the affected areas double. The only way out of this is to just get out of the primary exports.”
Commenting on the same, James Kamwachale Khomba, a professor of finance and corporate governance at the University of Malawi’s The Polytechnic said there is need to make radical strides in the economy by propagating a revolutionary approach to enable the country to progress socio-economically, adding that without this, the country will be doomed.
He said: “Why should we plan to shrink an export base instead of expanding the same in a significant manner? Why marginally reducing the imports over this whole five-year period? As a nation, we should be planning for an aggressive import substitution programme through massive industrialisation of our local manufacturing companies.
“There are some commodities that we can easily produce here; thereby substituting those that we import such as toothpicks, cornflakes, shoes, textiles, biscuits, soap, crisps, chemicals, and medicines. I am not talking about manufacturing cars here, but we can easily do the assembling here as well.”
National Working Group on Trade Policy chairperson Frederick Changaya is on record as having said that the country’s lack of competitive advantage poses risks on the export market.
He said with Malawi being a high-cost country on doing business, it reduces competitiveness of local products on the international market, which leaves other economies to take advantage of the situation.
Malawi Confederation Chambers of Commerce and Industry (MCCCI) president Karl Chokotho in an earlier interview said while a needs assessments to display business opportunities is ongoing, the issue of capacity and restrictions are both pertinent and paramount to exports.
