Why Malawians abroad shun local investments
Findings of a recent study have highlighted the prevailing exchange rate regime policy as a contributing factor to Malawians in diaspora not making financial investment and remittance back home.
A Draft Report—Part 1 of the Feasibility Study on Diaspora Engagement for Enhanced Investment submitted to the International Organisation for Migration by University of Malawi’s School of Law, Economics and Government economics professor Winford Masanjala says the Malawian diaspora’s ownership of financial assets is geographically diversified and 68 percent of them own financial assets in other countries.
Ironically, a majority of Malawians in the diaspora have a transactional account with three in four respondents or 72 percent, owning a local currency bank account and three in 10 or 30 percent, maintaining a foreign currency-denominated account, according to the study.
The study also found that Malawians in the diaspora have a big affinity for direct diaspora investment with two in every three respondents owning some sort of an undeveloped residential plot, half already owning residential properties and one third have farms or estates.
Unlike financial assets, two thirds of the Malawians in the diaspora do not own any real assets in other countries and territories.
Of the 32 percent that have properties in other countries, the two thirds have residential properties, and negligible ownership of other assets mostly led by those in the United Kingdom and South Africa.
Reads the study report in part: “Malawi’s policy stance for the past three years of fixed exchange rate and capital controls seems to have had a deleterious impact on foreign exchange markets and moved remittances away from official sources into informal channels.
“The government of Malawi needs to incentivise its diaspora to save more or redirect their current savings towards diaspora portfolio investments.”
Reserve Bank of Malawi (RBM) data shows that between 2021 and 2023, the kwacha continued to weaken, with spreads between telegraphic transfer and bureau exchange rates widening to 54 percent.
For instance, despite the official kwacha/dollar exchange rate being adjusted downward by 25 percent in May 2022, the official exchange rate remained at K1 064 to the dollar while the median bureau rate reached K1 592.5 in mid-June 2023.
On the other hand, gross reserves decreased by half from $388 million (about K679 billion) in May 2022 to $195 million (K341 billion) in May 2023, equivalent to 0.8 months of import cover.
In an interview on Tuesday, economic statistician Alick Nyasulu said: “Investors put their money where they get the best returns and the regulatory framework strikes the right balance between investor needs and those of the country.”
Scotland-based Malawian economist Velli Nyirongo observed that to encourage investment from the diaspora, there is need to facilitate easy transactions between the diaspora and Malawi, reduce fees charged on remittances, improve the business environment and leverage technology to improve efficiency and provide better information for people in the diaspora.
He said: “It is important for the government to consider establishing a venture equity fund in collaboration with the diaspora. This could serve as a vehicle for the diaspora to invest in important sectors of the economy such as megafarms, green energy, technology and mining, among others.”
In Malawi, critical laws for the diaspora engagement include the Financial Services Act (2010) which provides for supervision and regulation of the financial institutions; the Exchange Control Act which regulates in and outflows of foreign exchange; the Securities Act (2010), which regulates capital markets and portfolio investment; and Payment Systems Act (No 15 of 2016) which regulates different payment system and money transfer platforms.
Meanwhile, Treasury is hoping to generate $250 million in foreign exchange every year through its diaspora engagement initiative.
