Forex shortage hits local firms
Industry players say they are struggling to import key raw materials due to the worsening shortage of foreign exchange which has forced some firms to suspend manufacturing and packaging activities.
Speaking in separate interviews yesterday, Malawi Confederation of Chambers of Commerce and Industry (MCCCI) and the National Working Group on Trade and Policy said the situation has put a huge strain on business operations.
MCCCI director of business and policy advocacy Madalitso Kazembe said small and medium enterprises, pharmaceutical firms and those in wholesale and retail trading have also not been spared.
She said: “Most of the businesses in the country rely on imports to operate their businesses.
“The shortage or lack thereof has resulted in slow down of business operations and in some cases a complete halt in product lines.”
Kazembe said firms in manufacturing sector are the worst hit as they are finding it hard to import raw materials critical in the production chain.
“All in all, the private sector has been heavily affected by the foreign exchange shortage,” she said.
National Working Group on Trade and Policy chairperson Frederick Changaya said the shortage of foreign exchange is causing a drop in economic activities.
He said while government is implementing austerity and other other policy measures, there is need to adopt sustainable and enduring policies for meaningful economic development in the long-term.
Changaya, who is also Applecore Grain and Milling Limited managing director, said: “My factory is struggling to import boards for making corrugated cartons and polypulene chemicals for plastic bags for use in flour bags, water and other beverage drinks bottling, cartons for soaps and cosmetics as well as flexible packaging suspended carton manufacturing because of foreign exchange shortage.”
He said this situation replicated across the entire manufacturing sector as their members are complaining that they are failing to operate.
National Statistical Office (NSO) data shows that imports began declining in early 2022 and collapsed in May 2022, reflecting the impact of foreign exchange shortages.
This led to a contraction in the trade deficit, eventually leading to a small trade surplus of K100 million in August 2022.
The timing of the contraction, according to the World Bank’s Malawi Economic Monitor, shows acute foreign exchange shortages rather than price and exchange rate movements.
The timing also coincides with widespread fuel unavailability and the Reserve Bank of Malawi’s (RBM) move to become a net buyer of foreign exchange.
Currently, the system of foreign exchange allocation prioritises ad-hoc support for selected essential imports such as recent interventions in fuel import financing, according to the bank.
“This uncertainty creates challenges for the private sector, as many firms require imported goods and services as inputs to production,” said the bank in the report.
In his 2022/23 Mid-Year Budget Review Statement, Minister of Finance and Economic Affairs Sosten Gwengwe said government expects to accumulate foreign exchange reserves on account of enhanced production and increased donor grant financing, which will stabilise the exchange rate.
He said government will continue undertaking policy actions to ensureg that the market has adequate foreign exchange and at the same time boost holdings of gross official reserves.
Meanwhile, gross reserves decreased by more than half, from $847 million in December 2019 and one-third over the year from $605 million in August 2021 to $326 million in October 2022, or around 1.3 months of import cover.
This is much lower than the recommended adequacy level of 3.9 months of import cover for a credit-constrained economy such as Malawi, according to International Monetary Fund statistics.
