Private sector financing drops 37.2%
The roll-out of the first 10-year implementation plan of the Malawi 2063 (MW2063) is potentially at risk after sluggish economic growth and weak demand caused a decline in private-sector credit to the manufacturing sector.
In its May 2023 issue of the Monthly Economic Report, the Reserve Bank of Malawi (RBM) says private sector credit to the manufacturing sector dropped by 37.2 percent from 12.9 percent in January this year to 8.1 percent in May 2023.
The report further indicates that in the same period, private sector credit to primary production areas of agriculture, hunting, and fishing rose from 14.3 percent to 18.4 percent.
Mzuzu University economics lecturer Christopher Mbukwa cautioned that the drop in private sector credit to the manufacturing sector could undermine the performance of the sector, which requires investment to “develop the much-needed infrastructure and the required technology for value addition”.
He said: “Quality investment in the manufacturing sector is critical in achieving the overall objective of the NES [National Export Strategy], which is to boost exports.
“The unprecedented reduction in private sector credit may be attributed to the government’s tight monetary policy it has been implementing for over a year now.”
The Malawi 2063 and the second iteration of the National Export Strategy II (2021-2026) are anchored on industrial development through manufacturing value-added products for exports to reduce the growing trade balance in the country.
Mwapata Institute executive director William Chadza said the reduced credit to the manufacturing sector is a result of the subdued economic growth following disruptions in the past three years caused by the Covid-19 pandemic and prolonged electricity blackouts.
He further said the firms in the manufacturing sector have experienced a “difficult time” with the rise in the cost of borrowing and shortage as well as the weakening of the foreign exchange required for importing raw materials.
In reaction, Ministry of Industry and Trade spokesperson Mayeso Msokera said the Malawi Government has implemented various financing mechanisms to support the manufacturing sector and promote industrial development, including, Export Development Fund and Malawi Agricultural and Industrial Development Corporation.