It never rains, but pours for the Malawi Government now desperately hunting for foreign currency to finance fuel purchases amid worsening supply challenges as suppliers demand cash instead of letters of credit (LCs).
Minister of Information and Communications Technology Shadric Namalomba in an interview yesterday said disposal of gold reserves in the custody of the Reserve Bank of Malawi (RBM) and potential borrowing of about $120 million from Africa Export and Import Bank (Afrieximbank) are some of the immediate measures to secure forex to finance fuel imports.
He said: “Forex shortage remains a challenge and the Iran war has worsened our capacity to buy fuel because suppliers are now selling at a higher price and are demanding cash.
“So, we have sold some of the gold that RBM stocked and taken the portion of the forex from the sale of gold to pay $30 million so that we have fuel collected from the ports.”
Namalomba said the government was also expecting Afreximbank to release $120 million within a week to procure about 120 million litres of fuel that could take the country two months and ease the stockouts.
He said the situation is worsened by the fact that suppliers are now demanding cash instead of LCs, a situation that has compounded the problem.
In February this year, RBM said it had bought 545 kilogrammes of gold.
However, yesterday, the central bank’s spokesperson Boston Maliketi Banda asked for more time to consult on the matter before indicating the quantity of gold estimated at $30 million.
For decades, Malawi has struggled with foreign exchange challenges worsened by the fact that imports, valued at $3 billion, outpace exports at $1 billion. The situation got worse in the past five years as the country struggled to import commodities such as fuel, fertiliser, medical supplies and other essentials.
In the thick of the crisis, commercial banks started rationing foreign exchange allocations and suspended pre-approved limits.
Economists and financial market analysts yesterday said the current geopolitical tensions in the oil rich region, notably the Middle East due to the joint US-Israel war on Iran have worsened the situation for economies such as Malawi as dynamics have changed in the fuel global supply chain.
“It is now a sellers’ market since demand is outweighing the subdued supply and sellers are now dictating the terms because of those [geopolitical tensions] dynamics,” said a Blantyre-based financial market analyst yesterday.
Motorists, sectors feeling the pinch
Snaking queues of motor vehicles and motorcycles at fuel service stations across the country have become a poster face of the forex crisis across the country.
Desperate motorists are also forced to buy from a now thriving parallel market selling a litre of petrol at as high as K16 000 against the official pump price of K6 672 per litre.
The Nation spot-checks in some parts of the country yesterday established that most service stations have run out of both petrol and diesel, with only a few dispensing limited amounts.
In Blantyre City, by close of business yesterday, just two out of 15 stations sampled had petrol in stock with queues extending as long as 400 metres.
Mangochi, on the other hand, had gone five days without supplies, forcing some motorists to source fuel from neighbouring Mozambique.
In Lilongwe, stations with fuel included Petroda near Chitukuko and Area 49 Best Oil while in Ntcheu, a tanker was anticipated to offload petrol at Puma Energy station.
Mangochi-based driver Shadreck Kachere, in an interview yesterday, said they are forced to buy petrol from Mozambique at K10 000 per litre “just for survival”.
Fuel Retailers Association chairperson Happy Jere in an interview yesterday said urban service stations were operating at below 40 percent of normal sales while in rural areas, they are operating at as low as five percent.
He said: “This means we are struggling to meet our fixed costs. The worst-hit are rural sites which are mostly making losses and are paying for fixed costs like staff salaries.
“The main reason why the black market is thriving is poor enforcement of regulatory laws. Motorcycles are at the centre of this problem as they use their motorcycles as jerry cans.”
Meanwhile, Malawi Building, Civil Engineering and Allied Trade Association (Mabcata) vice-board chairperson Kondwani Kadango said the situation will lead to extended project durations, increased overhead costs and inefficiencies in resource utilisation.
Mera, players ‘helpless’
Petroleum Importers Limited (PIL) chief executive officer (CEO) Martin Msimuko, whose firm is a consortium of private oil marketing companies and imports up to 40 percent of the country’s fuel, yesterday said Malawi Energy Regulatory Authority (Mera) is better-placed to provide details.
On the other hand, National Oil Company of Malawi (Nocma) deputy CEO Micklas Reuben was yet to respond to our questionnaire by press time on the status of imports by the State-owned entity that imports about 60 percent of the fuel.
But Mera spokesperson Fitina Khonje conceded that the country is “obviously not doing well, but the intent remains that we build the stock levels”.
She said: “There is continuous fuel consumption which demands matching importation levels. The war has created a surge in both demand and price of fuel thereby further compounding the country’s fuel importation hurdles.
“Forex remains the main challenge. The main issue is sustainability and since the forex challenge is a national issue, other authorities may be best-placed to articulate measures being undertaken.”
Khonje expressed optimism that following the interventions by government and fuel importers’ continued efforts there should be some relief. She also said Mera is working to address the parallel market.
“The fuels sectors and consumers rely on law enforcement agents to take appropriate action on illegal fuel vending,” she said.
In a separate interview, Transporters Association of Malawi spokesperson Frank Banda said they continue to load fuel from Tanga and Mtwara ports in Tanzania as well as at Nacala in Mozambique.
He said: “Nocma had 10 million litres at Tanga and we have sent trucks to Mtwara and Tanga. We have loaded 27 trucks in Nacala.
“If there will be no logistical problems hopefully by next week the trucks will be in.”
Economic impact
Meanwhile, Economics Association of Malawi president Bertha Bangara-Chikadza has said Malawi’s fiscal deficit of about 10 percent increases import demand and debt, putting further pressure on foreign exchange reserves required for fuel purchases.
Two weeks ago, Minister of Energy and Mining Jean Mathanga told Parliament that the country had 798 000 litres of petrol and 1.9 million litres of diesel and that 16.048 million litres of petrol and 16.670 million litres of diesel were expected from Mozambique and Tanzania.
Malawi on average consumes one million litres of petrol and one million litres of diesel per day, translating to 60 million litres of petrol and diesel per month and 720 million litres of both items per year.
