On Thursday this week, the Reserve Bank of Malawi devalued the Kwacha by 44 percent. This was at the back of several other piecemeal devaluations totaling 13.1 percent after the 25 percent devaluation of May last year. In total, therefore, the kwacha has been devalued by 82 percent since May 25 last year.
Needless to say, the effect of these devaluations on the lives of Malawians has been devastating and will continue to hurt them. Every time the kwacha loses value, prices of commodities—from food items such as bread, sugar, cooking oil, salt, maize, to non-food items such as fuel, detergents, cement et cetera—also go up by the same range. In other words, everyone is affected whenever the local currency loses value, but it is the ultra-poor who suffer most.
Like all the kwacha devaluations before, the full effect of the Wednesday’s devaluation will be felt after in a few more days as the business sector adjusts prices of their commodities and commercial banks raise lending rates.
Having seen several kwacha devaluations, I got interested to know where we have come from and how we have fared as a country on kwacha devaluations over the years. My starting point was obviously at the dawn of the multiparty dispensation—in 1994.
In 1994, the exchange rate was one United States dollar (1 U$) to K1.79. Ten years down the line, in 2004, one U$ was being exchanged for K108. This is a devaluation of 5 933 percent. This is an average annual devaluation of 593.3 percent.
Just for noting, 1994 to 2004 is also the period when the Malawi Government also privatised most of its companies. Some were closed down completely sending thousands of jobless people onto the streets. A total of 42 firms were privatised between 1995 and 2002 alone. Proceeds from the privatisation were estimated at $20million, according to the Malawi Economic Justice Network (Mejn, 2002). What this money was used for, there is a raging debate. But that is not the focus of this entry.
By December 2014—10 years later—one U$ was being exchanged for K419. This means the kwacha had been devalued by 287 percent over the 10-year period.
And from selling at K419 to the U$ in 2014, the Kwacha is now trading at K1 700 to the U$ following last Wednesday’s fall. This is an average devaluation of 305 percent over the past nine years, giving an average annual devaluation of 35 percent. From December 2020, to date, the Kwacha has lost value by 102 percent with 82 percent of that lost in the last 17 months alone.
The above analysis of the devaluations shows that the worst period was between 1994 and 2004 when the kwacha fell by a whopping 5 933 percent, followed by the current period (2014 to date) when the kwacha has already been devalued by 305 percent and counting. On the other hand, the period between 2004 -2014 experienced the least devaluations (287 percent).
From the foregoing, we can see that the current kwacha fall is not the worst in multiparty Malawi after all. So why is the cry now louder than during the earlier period? The answer could lie in the fact people are now feeling the pinch more because incomes have not been growing at the same pace as the currency devaluation. Unemployment is higher now than ever before. You just have to look at the number of dobadobas that swarm you whenever you want to buy something at the produce market or other places. They want to put something on the table (kupeza chakudya cha lero).
Another reason for the increased whining now is social media. It was not there in the first 10 years of the country’s multiparty era. Today everyone wants to have a go at anything they are not happy with which amplifies the issues. The point I am making is that some of the economic hardships the country is experiencing today have their genesis from many years ago. The country’s economy took a nosedive the day we privatised or closed down 42 companies but could not invest the proceeds from the privatization into fruitful enterprises.