It is not only fuel-driven industries that are feeling the pinch. The whole private sector is slowly dying from Malawi’s age-old foreign currency pandemic, which is growing exponentially, with the casualty rate skyrocketing, Business Review has established.
Our analysis, based on reviews of court records, interviews with industry leaders, individual firms hit by the forex crisis and the Malawi Confederation of Chambers of Commerce and Industry (MCCCI), shows that many local businesses are downsizing while some are closing.’
With official foreign-exchange reserves standing at less than one month of import cover, well below the minimum recommended three months deemed adequate even by the Malawi Government itself, the scale of the country’s perilous forex ailment is one of the biggest threats to the survival of the private sector, according to World Bank.
One company operating in the agro-chemical industry we talked to said it is sitting on billions of kwachas in cash, but a major international supplier is suing the firm because it cannot buy forex to pay off long outstanding dues amid supply-demand imbalances in the local forex market.
This forex dilemma has also forced key suppliers to suspend selling critical agricultural inputs such as pesticides to Malawian firms, which experts warn could affect the harvest of the 2024/25 season.
The pesticides are normally imported earlier than April each year in preparation for the new growing season, but industry players and experts say this did not happen due to scarcity of forex shortage.
In the said lawsuit issue, court documents we have reviewed show that Farmers Organisation Limited (FOL), the firm that supplies about 60 percent of crop protection inputs in Malawi, was dragged to court for failing to pay about K1.8 billion to its supplier. Some of the company’s unpaid bills date back to 2020.
FOL was dragged to the High Court of Malawi on March 22, 2024 by D & B Holdings (PTY) Limited, a South African company which was demanding its money in United States (US) dollars.
According to the documents, D & B Holdings sold and delivered to FOL various chemicals for agriculture use between October 31 2021 and March 2 2023 at $1 460 000. But FOL only made part payment of $426 156.56, leaving $1 033 843.44 (about K1. 8 billion) as outstanding.
Besides demanding the $1 033 843.44, the claimant also demanded $131 726.66 interest accrued as of March 12 2024.
They also want payment of $174 835.52 (about K306 136 995.52) indemnity in respect of 15 percent collection charges.
In its defence, FOL confirmed the amount owed to the supplier, but said it has become impossible to pay in US dollars.
Reads in part the document: “Remittances of foreign currency are subject to availability of the foreign exchange and the non-payment of invoices to your client is due to the acute shortage of forex currently being experienced by Malawi.
“Malawi has very limited foreign exchange reserves available, which can be externalised. Companies are required to submit applications to their various retail banks in order to get a forex allocation, which we have duly done. FOL has also approached the RBM [Reserve Bank of Malawi] for an increased allocation of forex, however, this is yet to materialise.”
The company further asked the claimant to be paid in Malawi kwacha, according to the documents we have sourced.
“It should be noted that FOL has sufficient cash in Malawian kwacha in its bank accounts. As at 31 January 2024, FOL had the approximate equivalent of R100 million [over K10 billion] in cash available. However, the difficulty, at present, is in externalising the cash out of Malawi. Should your client be willing to receive payment in Malawi kwacha, FOL would be able to settle the balance owing immediately,” reads part of FOL’s submission.
In March this year, the two parties had settled outside court to pay the balance in Malawi kwacha, but FOL has lost external suppliers, some of whom have suspended selling it goods.
In an interview, FOL national sales and marketing manager Ronald Chilumpha said failure to get forex allocation from the commercial banks has crippled his company’s ability to pay external suppliers.
As a result, supplies are being suspended and some suppliers are charging FOL interest on the amounts owing.
“Consequently, we have been unable to supply farmers the inputs that they need, including farmers that grow for the export market,” said Chilumpha.
“Our sales revenues have inevitably dwindled, putting our business in a precarious situation. We are incurring huge exchange losses because of the premium rates that we pay when we access some forex,” he said.
Chilumpha said the forex market is currently dry such that once in a while access they forward contracts in tranches of around $50 000 (about K88 million).
“Such contracts come at a higher cost to us because of the spread [in some cases up to 50 percent] between the official rate and the actual rate that we pay. This is why we have continued to suffer exchange losses since this forex crisis started,” he said.
He further said the available forex could not enable them to import the required inputs for the country.
Since mid this year, the company has been alerting key stakeholders, including RBM and ministries of Agriculture and Finance about a looming farm input crisis that has the potential of derailing the new farming season.
Said Chilumpha: “We have had some support from RBM in terms of forex, but far from sufficient to bring all the required inputs. This forex crisis is a recipe for hunger and economic instability because without requisite inputs, crop production will be hampered. Time to save the situation has almost run out because the bulk of the inputs come from the Far East and it takes a minimum of three months to get stocks into the country.”
Another company that did not want to be named said it has so far made a loss of K1.6 billion in forex losses while in 2023, the loss was more than K5 billion.
The company has over 30 external suppliers across the globe. Most of these are multinationals manufacturing and supplying agricultural inputs.
According to its officials, Malawi does not present economies of scale that will entice suppliers to invest in local manufacturing of inputs like pesticides.
“Our creditors’ book is sitting at around $10 million [around K18 billion at official exchange rate]. If the company can get $5 million, there is an assurance that it will be able to unlock supplies. The company is yet to get RBM allocation and the company is already late for China supplies.”
We reached out to other companies, but they refused to grant us an interview. We also contacted Ian Lockington of Agricultural Supplies Limited, but he could not answer our calls.
Hannock Madeira of Agriculture Trading Centre (ATC) requested a questionnaire, which he had not responded to as we went to press.
Francis Veremu of Afriventures, another company involved in supply of such inputs, asked us to follow-up with him on another day, but there was no response when we called again.
Jones Chidothe of Marji Agro-Chemical promised to call back, but did not while an official of Bayer Limited said they did not want to be quoted in the story.
Companies closing down
An official of a private company that did not want to be named said they are closing down because they cannot do business without forex.
“Our businesses import inputs and sell them to farmers and we have some companies which we supply. This means without that, then there is no business. We are into the second year without forex. We were just paying people for nothing. So, we have retrenched some workers due to the same factors,” said the source.
Some of the beleaguered companies we have talked to claim that they have opened multiple accounts with different commercial banks to maximise chances of accessing forex, but it has yielded little as they are getting less than 20 percent of what they used to access when forex was readily available.
Employers Consultative Association of Malawi (Ecam) executive director George Khaki said on a weekly basis, his organisation is receiving notifications from their members that they want to retrench and ask how best they can go about it.
Khaki said the forex dilemma has put a lot of companies in a tight corner as they fail to make business.
“A lot of companies depend on importation of raw materials, and others sell goods that have to be imported. Without importing, it means companies are failing to operate on a full capacity. There is low productivity and many are ending up retrenching because they want to find a way.
“If forex is [available], it is on the black market and the rates are high. For the few that are able to get on a higher rate, it means the price [of products] is higher, making it difficult for consumers to buy, thereby pushing the inflation,” he said.
Khaki wants the government to sit down with various stakeholders as one way of finding a solution to the current crisis.
“If we keep going at this pace, then people will keep losing jobs. Government needs to come to the round table and find an alternative. They may not have a solution, but if we talk then we might find a way out,” he said.
We sent a questionnaire to Ministry of Labour spokesperson Nellie Kapatuka who promised to provide us with information on job losses, but is yet to do so.
Companies have tried engaging most of the government institutions, including RBM, ministries of Agriculture and Finance plus meeting President Lazarus Chakwera, but there is no solution in sight.
A source from the Ministry of Finance and Economic Affairs said the situation has gotten out of hand as they could not assist the companies.
The source said Treasury in October 2024 communicated to companies that asked for its intervention in the forex saga, saying they could not provide any solution.
“So, companies are writing to us requesting for foreign currency with others asking for around $3 million (about K5.2 billion) for them to import pesticides since we are approaching the rainy season.
“As a ministry, we engaged RBM to assist in allocating foreign currency for importation purposes. The bank understands the importance of these farm inputs, however, due to the prevailing foreign exchange challenges and restrictions under the IMF ECF [Extended Credit Facility] programme, prevent the bank from committing toward such requests,” he said.
Secretary to the Treasury Betchani Tchereni said it was misplaced for the companies to write to his office for forex access, saying it is the RBM that handles such issues.
“We do receive such issues on a daily basis, but we are directing them to the Reserve Bank of Malawi,” he said.
Shortage of pesticides
These companies do not have the key inputs required for the rainy season already underway, especially herbicides, insecticides, fungicides, foliar fertilisers and spraying equipment.
This, experts argue, means any breakout of fall armyworm or locusts or any crop disease would be disastrous.
Head of extension department and a senior lecturer at Lilongwe University of Agriculture and Natural Resources (Luanar) Paul Fatch said without chemicals at the onset of rains, Malawi will likely have a bad season as they were supposed to have been imported by April last year.
He urged companies to have a conversation with the RBM so that it gives an allocation for companies to bring inputs.
Fatch wondered why these companies should struggle to source forex when agriculture is the country’s major forex earner.
“Of course we have alternatives for pests and disease control, but chemicals play a bigger role as most big farmers and companies depend on chemicals.
“Now, you say we do not have chemicals? And this is November? Then we should expect a bad season, this means that we will have low yields, people will suffer, we will not have enough food, this will also affect forex since agriculture generates forex,” he said in November last year when we had asked him.
Fatch added: “Still, we need to plant cowpeas, onions that push away pests plus cultural methods of removing weeds.
“So, some of the methods that can help in the absence of chemical methods, we can have biological methods, botanical methods and physical methods which should be promoted in order to reduce heavy dependence on chemical methods.”
An attempt to speak to Minister of Agriculture Sam Kawale yielded nothing as all our calls were not answered.
But MCCCI chief executive officer Daisy Kambalame said forex scarcity has affected every sector of the economy as businesses are failing to import raw materials, including fuel and farm inputs, among others.
Kambalame said the chamber has proactively engaged government and its members to identify workable solutions to the current state of affairs.
“We have been advocating for more effective forex policies to ensure that critical industries receive the necessary foreign currency to sustain their operations and promote policies that will stimulate increased production,” she said.
On October 31 2024, we sent a questionnaire to RBM spokesperson Mark Lungu, but he did not provide responses by press time.
On July 20 this year, President Chakwera met companies in Mangochi where they presented a number of concerns, including exchange control and forex restrictions, high cost of finance, high cost of construction materials, regulatory environment and policy harmonisation which the President had pledged to solve.
This is not the first time Malawi has experienced forex scarcity. The country had a similar challenge in 2011-12 during Bingu wa Mutharika’s era.
The current forex shortage started rearing its ugly face late 2022 and is only getting worse with time.
The World Bank, in its bi-annual Malawi Economic Monitor in July last year warned that with so many businesses contending with foreign-exchange shortages and exchange-rate policy uncertainty, this will discourage investment and result in slow job creation.
“As a result, the private sector is unable to generate sufficient high-quality jobs to sustainably improve the welfare of most Malawians,” said the bank.
Policy measures too slow
World Bank observes that efforts to balance the external accounts have been slow and uneven, putting additional pressure on the exchange rate, driving foreign-exchange shortages and leading to further debt accumulation amid unfavourable terms of trade that have left Malawi exporting just $1 billion worth of goods annually against imports of $3 billion.
Malawi has struggled to diversify its export base as it still relies on tobacco.
Exports of products other than tobacco fell by four percent as prices for macadamia nuts fell and groundnut export volumes declined, according to the World Bank.
The Chakwera administration is currently implementing the agriculture, tourism and mining (ATM) strategy as catalysts for export-led growth.
So far, in tourism, government scrapped Visa requirements for entering Malawi, which authorities hope will attract tourists, although investments in public infrastructure such as roads and airports remain weak and private sector efforts are poorly coordinated.
In agriculture, authorities are aggressively facilitating the launch of mega farms to produce high value crops and animals on a large scale for exports and have re-organised agricultural value chains to promote value addition and market access.
But it is in mining, especially the production of materials necessary for the green energy transition, that the World Bank believes continues to hold great potential in the medium-term for Malawi.
This year, the Ministry of Mines announced the signing of two major mining agreements for large pipeline projects that could start production and exports within months, sometime in 2025.
But for now, the forex pandemic rages on.
