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Home Columns Guest Spot

‘Malawi’s economy has been in ICU’

by Staff Writer
12/05/2012
in Guest Spot
4 min read
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Government on Monday announced a 49 percent devaluation of the kwacha. Albert Sharra talks to Consumers Association of Malawi (Cama) executive director John Kapito to discuss what this means to Malawians.

Government has finally devalued the kwacha. Was this optional?

The devaluation is one economic reform realities for Malawi, especially at a time the economy was going through a number of challenges to create economic growth and macro economic stability. I do not think it was optional given the circumstances we [found ourselves in] economically over the past two years.

We had no choices to create confidence to both the local and new investors, but more important the economy did not create consumer confidence as most of the trading was dictated by the informal markets. The effects of any devaluation are not welcome news for consumers, but there are times when consumers pay a price for the common good and resolve some of the short-term and long-term challenges.

Kwacha has fallen from K168 to K250 against the US Dollar. Is this okey? What does it mean to the economy of the country?

The percentage of the devaluation had indeed to take into account several factors beyond what the parallel market was offering and for sometime, our kwacha needed some realignment to address the key challenges the country was facing. Sometimes when you have to deal with chronic problems, you need to come up with long-term drastic and painful decisions that would have or give you long-term solutions. It is like cancer; you could make a decision to cut just the foot and prolong the problem or cut the whole leg and cure the cancer.

The continued experiments on the devaluation rate did not help solve the many challenges we faced; hence, the small movements on the exchange rates made our economic situation even worse than before

In the long term, I expect the economy to pull up and stabilise and this cannot happen without the economy going through some difficult times and consumers bearing the brunt of such shocks. As consumers, we must expect to go through that painful path and heavy turbulences, hoping that our pilots will finally land us safely.

Most Malawians seem to misunderstand devaluation. How can you define it in simple terms?

I must indicate that there is no simple definition for this other saying that this devaluation is meant to create economic stability in the medium and long-term which will see Malawi getting back to the times its economy was growing at acceptable rates; where employment will be created that in the medium and long-term, but most important, is the fact that we will witness a lot of Foreign Direct Investment in Malawi some of which will be export-oriented, thereby creating new wealth for Malawi and reducing our dependence on borrowing and aid

Do you think this has come at the right time?

Malawi’s economy has been in the Intensive Care Unit (ICU) for some time and holding on to some of the key therapies that would have resuscitated the economy would have been total death or collapse of the economy.

I am convinced that Malawi was late in coming up with some of these reforms in time and had we performed our responsibility at the earliest possible time, I am sure we would have minimised the pain that we will go through.

The question that we should be asking ourselves as Malawians is why did we keep a very serious sick person in the house for too long without going to the hospital for help?

What the economy is getting are the right dosages that you will give to a patient who was near death. What Malawians should do is see what role they can play to ensure that the economy is back to normality. To me, that’s not only the work of the government, but it must start with us as consumers and the private sector.

Some commentators say the kwacha was already trading in this range on the black market. Do you think this will improve anything?

Indeed as a consumer organisation monitoring the movement of prices over the last two years, we noted that the private sector was using the parallel market exchange rates in the pricing of the commodities and services.

Otherwise, it was difficult for the traders to continue filling up their shelves as they were doing except for some, especially in the service sector that could not afford to do so, and for the service sector, we noted that most of the providers scaled down or closed down their operations.

We are aware that the devaluation will also trigger the prices of fuel and that would be one of the few changes that we expect.

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