The Reserve Bank of Malawi (RBM) says it will exempt some companies from mandatory conversion of export proceeds under the new repatriation of export proceeds directive to promote exports and value addition.
The new directive, which Minister of Finance and Economic Affairs Simplex Chithyola signed on July 31, compels exporters to sell 25 percent of the export proceeds to the central bank few days after receiving unless they successfully apply for exemption or risk up to K200 million penalty.
Meanwhile, RBM has outlined a framework for assessing applications for exemption from mandatory conversion of export proceeds, observing that the granting of exemptions will be tied to export growth, value addition and usage of local raw materials, among others.
Reads the directive in part: “The framework has been developed so that exporters who will benefit from the exemption will also contribute significantly to economic growth.
“As a result, the granting of exemptions will be tied to six criteria which relate to export growth, value addition, usage of local raw materials in the production process, creation of employment for the locals, use of local services in the operations and the level of parity of prices of products and services with global prices.”
The criteria are assigned with weights and every time an exporter meets a criterion, they will qualify to earn credits for exemption from the proposed surrender requirement of 25 percent, according to RBM.
“The framework has also been designed to ensure that the criteria and weights apply differently to various sectors of the economy. The Bank intends to apply this framework in the interim until the foreign exchange situation improves,” it said.
Meanwhile, economists and industry players have hailed RBM, saying the decision could promote production and exports as determined exporters can use the expiry proceeds to buy raw materials for continuity of production activities.
In an interview, Economics Association of Malawi president Bertha Bangara-Chikadza, who teaches economics at University of Malawi, described the move as a productivity-linked incentive.
She said: “By tying flexibility to factors such as export growth, value addition, local raw materials use and job creation, the bank is encouraging exporters to contribute more directly to Malawi’s structural transformation.
“This policy enforces discipline through not only penalties, but rewards firms that strengthen local value chains and competitiveness. If it is well implemented, it can stimulate productivity, expand employment and improve Malawi’s long term export performance.”
In an interview, financial analyst Brian Kampanje described the fine as an effective deterrent for illegitimate exporters and needs to be strengthened by additional oversight.
“This is a step in the right direction, but a lot more needs to be done to overcome illegal and unauthorised exports, which slip through our borders every day, translating to substantial forex leakage,” he said.
On his part, National Planning Commission director general Fredrick Changaya said while this will motivate exporters, the policies should be reviewed holistically to ensure the objectives are realised.
“Changing regulatory space for forex without addressing the real fundamentals would leave us where we are or even worse,” he said.
Former Finance minister Joseph Mwanamvekha said the policy change could help to improve foreign exchange reserves and curb the black market.
In March this year, RBM also amended foreign exchange controls by among others reducing the mandatory conversion ratio on export proceeds from 30 percent to 25 percent for exporters with exemption from the mandatory conversion of export proceeds for manufacturers meeting criteria issued by the central bank.
