Malawi transport costs highest in Sadc—UN

Malawi’s transportation costs remain the highest in the Southern African Development Commission (Sadc) region, the United Nations (UN) has said.

Recently released UN Economic Report on Africa (2016) indicates that Malawi’s transport sector accounts for 56 percent of landed transport costs and 30 percent of export costs, thereby increasing the cost of imported consumer goods and hurting Malawi’s regional trade competitiveness.

According to the report, transport accounts for 3.8 percent of the country’s energy consumption and 43 percent of its commercial energy consumption.

“Transport costs in Malawi are the highest among countries in the Southern African Development Community (Sadc). They account for up to 56 percent of landed import costs and 30 percent of export costs, increasing the cost of imported consumer goods and hurting Malawi’s regional trade competitiveness.

“More than 70 percent of internal freight traffic and 99 percent of passenger traffic is handled by road transport,” reads the report.

A survey done by Sadc in the road freight sector in 2014 also revealed that Malawi’s transportation costs were the highest in the region, with about 60 percent of the cost of production taken up by transportation costs.

In an interview in January with The Nation, Minister of Transport and Public Works Francis Kasaila had attributed the high costs of transportation in Malawi to inefficiencies in logistics and the transport sector which he said accounted for about 50 percent of the total.

Kasaila had acknowledged in the interview that transport costs significantly contribute to the landing costs of both imports and exports which affect the cost of trade. He was, however, unavailable for comment on the findings by the UN.

Reacting to the findings, the Road Transport Operaters Association (RTOA) says the high cost may largely be driven by perception as they competitively offer similar transport rates with their counterparts in the region.

In an interview on Thursday, RTOA executive director, Chrissie Flao, argued that Malawian transporters offer competitive rates compared to their counterparts in the region despite incurring high operational costs.

“Our interest rates are very high at 42 percent. If you need to buy new equipment it means you have to pay for more in this regard. Again, if you look at the cost of spare parts and fuel, you will find that our prices here are higher. So, when doing business, we take all these into consideration.

“On the other hand, when we are doing cross-border business, we only carry cargo for one way, which makes it difficult for us to have a mark-up that would guarantee profit us on the cost,” said Flao.

The UN report further says the average consumption of petrol and diesel in the transport sector is one million litres a day, making it the largest sectoral consumer of liquid fossil-fuel energy—with transport accounting for 3.8 percent of the country’s energy consumption and 43 percent of its commercial energy consumption.

It acknowledges attempts by the Malawi government to improve fuel security and create viable incomes for smallholders—owing to a history of fuel scarcity and price hikes—by developing ethanol as a green feedstock.

The report notes that the government policy commitments present a sound business case for private sector investment in ethanol production and blending.

“In the run-up to the Paris Climate Summit, the Government of Malawi announced plans to expand bio-ethanol production from 18 to 40 million litres per year under its climate mitigation plan. The government’s goal is to alter the current trajectory of greenhouse gas emissions from liquid fuels, which are projected to increase from 290 000 to 420 000 million tons of carbon dioxide equivalents between 2015 and 2040. The ambition is also to increase biodiesel production from 2 million to 20 million litres a year so that 5–7 percent of all vehicles will be running entirely on ethanol by 2020,” reads the report.

However, plans to roll out ethanol driven vehicles—where vehicles will use ethanol as a standalone fuel or a blend with petrol—seem to have stalled over government’s delays to approve a pricing model.

In April 2015, Ethanol Company Limited (a subsidiary of Press Corporation Limited) presented a proposal for the pricing model to the Ministry of Finance, Economic Planning and Development, which priced ethanol at 20 percent lower than petrol, but it is yet to be considered.