Firms to face tough times ahead—report
Local firms will continue to struggle due to the harsh operating environment characterised by high interest and inflation rates, a weak exchange rate and poor exports, an investment advisory firm has said.
In its latest monthly economic report for April, Nico Asset Managers Limited said the kwacha—currently trading at around K713 against the dollar in some authorised dealers banks (ADBs)—is expected to depreciate further due to significant current account deficit and weak foreign direct investment (FDI) inflows despite tobacco exports and improving foreign exchange reserves.
The firm explained that the local currency has been depreciating despite the country selling tobacco, which brings in more foreign exchange, because of low prices and high rejection rates.
It said, despite inflation showing signs of easing, now at 20.9 percent as of April 2016, it will likely rise in the coming months on account of the drop in maize output due to the El Nino weather condition.
Reads the report: “Second round agricultural production estimates revealed that maize output is expected to decline by more than 10 percent during the 2015/16 agriculture season due to the El Nino weather conditions that have resulted in dry spell. This may keep inflationary pressures from food production high.”
The elevated inflation, according to Nico Asset Managers, will result in high interest rates which will also affect lending rates and eventually decrease the amount borrowed and lessen disposable income for spending and investments as the real return declines.
The firm has projected that the rates on the interbank market are expected to remain volatile due to high volatility of liquidity levels and that Treasury bills (T-bills) yields will remain high as investors seek to receive positive real returns in light of the persistently high inflation rates.
Economic commentators yesterday agreed with the assessment by Nico Asset Managers.
Economics Association of Malawi (Ecama) executive director Edward Chilima said the economy is not performing well, suggesting that it can only pick up on the back of a rapid and significant move by all economic players to invest in production for export purposes.
“The economy has relied on single-handed measures as a way of bringing economic stability and exchange rate stability, but these measures are only working to hurt the economy even more
“Without backing from production, these measures will not work as we have seen,” he said.
Indigenous Business Association of Malawi (Ibam) president Mike Mlombwa said their only hope relies on government to intervene to ensure that the economy does not collapse.
He said: “Already, it has been difficult for businesses to operate and realise profits with the current rates, making it hard for businesses to borrow for their various enterprises. We call upon government to speed up the establishment of the development bank as it can only be our hope for borrowing at better rates.” n
