Narrowing the worsening trade deficit

 

For many years, Malawi’s trade balance has been widening despite government implementing an array of policy interventions to reduce the trade deficit.

Trade deficit is a situation where there is a negative balance of trade, meaning that a country imports more goods and services than it exports. It is also called the balance of trade.

In 2017, Malawi’s trade balance stood at K758 billion, up from K706 billion in 2016. The 2018 Malawi Government Annual Economic Report, dated December 31 2017, showed that exports grew from K792 billion to K837 billion in 2018 and are projected to grow to K860 billion in 2019.

Two weeks ago, the Malawi Investment and Trade Centre (Mitc) reported that while bilateral trade between Malawi and neighbouring Tanzania is on the rise, the scales are skewed in favour of Tanzania. This means that Malawi imports more goods from Tanzania than it exports over a given period. In monetary value, in 2015 Malawi imported $40 million (about K29 billion) worth of goods from Tanzania against $20 million (about K14 billion) exports.

The situation is not peculiar to trade between Tanzania and Malawi. Malawi always has a negative trade balance with its trading partners, including the European Union (EU), China, India, South Africa, Zambia, Zimbabwe and the United States of America.

In a nutshell, Malawi is a net importer which imports even the most basic of stuff such as toothpicks, tomatoes, bottled water and meat products.

Being an agro-based economy, agricultural produce dominates the country’s export basket with tobacco, sugar, tea and coffee accounting for the largest exports for the economy.

On the other hand, major imports include petroleum oils, medicines, machinery, fertiliser, postage stamps and banknotes.

In 2017, Malawi’s main export destinations were the EU, Zimbabwe and Mozambique whereas imports mostly originated from South Africa, the EU and China

To improve the trade balance by way of narrowing the deficit, it is important that Malawi starts large scale value addition. There is also need for greater political will than mere rhetoric towards implementing policies and programmes that support trade, industry and the private sector. These include the Draft Private Sector Strategy, National Investment Policy, National Export Strategy and the Buy Malawi Strategy.

Strong political will should include implementing an aggressive import substitution policy and industrialisation.

Worth strongly pondering is that exports are key to future economic prosperity. Thus, allowing free-for-all importation of goods—including toothpicks, tomatoes and chickens—that unfairly kill domestic manufacturers is not the best way to take.

To grow the local industry, the better option should be creating an environment that stimulates competition among domestic producers while, at the same time, protecting them from external competition. Domestic producers should be given room to grow before wholesale opening of the market. Many of the developed economies are where they are today because they employed such strategies.

It is yet another fact that Malawians’ penchant for zakunja (goods of foreign origin) also worsens the situation. But Malawi produces one of the best rice. There is also a legumes market that remains unsatisfied. Deliberate efforts should be employed to capitalise on such competitive edge and enhance export earnings.

 

Share This Post