Why the trade deficit keeps worsening

When it comes to international trade, Malawi is always having a negative trade balance or deficit regardless of which country or economic bloc it is dealing with.

Figures from the National Statistical Office (NSO) show that between 2017 and 2018, Malawi recorded a negative trade balance or deficit which doubled to K2.7 trillion from K1.2 trillion.

Negative trade balance means that a country is importing more goods and services than what it is exporting in return. Practically, it means that as a country Malawi is “exporting jobs” by buying more foreign-manufactured goods and less locally-produced products.

What is disheartening with the situation is that things seem to be getting worse despite having in place strategies such as the National Export Strategy (NES), the Buy Malawi Strategy and Malawi Growth and Development Strategy (MGDS) III designed to stimulate import substitution.

If truth be told, over the years, private sector growth has been stifled due to several factors chief of which is unreliable power supply and a generally hostile business environment. Many a local producer will tell you that they incur high costs of production. In turn, this makes locally-produced goods fetch higher prices than similar imported goods.

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

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

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.

Malawi’s major imports include petroleum oils, medicines, machinery, fertiliser, postage stamps and banknotes.

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

To narrow the ever widening deficit, it is critical that Malawi embarks on large-scale value addition. Further, 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, NES and the Buy Malawi Strategy.

Strong political will should be demonstrated through aggressive implementation of import substitution policy and industrialisation.

Free-for-all importation of goods, including toothpicks, tomatoes and chickens is not the best way to take.

To grow our industry, the better options should include 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 stand where they are today in terms of trade because they employed such strategies.

Malawians also need to tame their penchant for zakunja (goods of foreign origin).

To narrow the trade deficit, more action and less rhetoric is key.

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