The Reserve Bank of Malawi (RBM) says political uncertainty in the run-up to the May 21 Tripartite Elections coupled with seasonal economic activity slow-down suppressed credit to the private sector in March.
In its Monthly Economic Review for March 2019, the central bank said during the review month, the banking system’s outstanding claims on the private sector declined by K453.9 million to K442.6 billion while loan repayments by commercial and industrial sector amounted to K10.6 billion.
This reduced the stock of credit to the private sector to K162.2 billion as at the end of March 2019.
Analysts say the suppressed credit to the private sector could be as a result of commercial banks taking a wait-and-see mode as elections approach, which could potentially result in the change of government or maintaining the status quo.
In terms of economic sectors, RBM said the decline in stock of private sector credit was mainly on account of a net repayment amounting to K10.8 billion in the electricity, gas, water and energy sectors.
Meanwhile, credit expansion amounting to K2.5 billion, K2.2 billion, K1.3 billion and another K1.3 billion were observed in the agriculture, wholesale and retail trade, construction and community, social and personal services, respectively.
Reads the report in part: “The distribution of the outstanding stock of private sector credit across the economic sectors remained generally unchanged.
“At 26.1 percent, wholesale and retail trade sector accounted for the largest share of the outstanding stock of total private sector credit, followed by the agriculture sector at 21.5 percent, manufacturing sector at 17.9 percent; and community, social and personal services sector at 11.3 percent.”
Market analyst Armstrong Kamphoni, who is also chief executive officer of Cedar Capital Limited, said the credit spread gives direction as to where the economy should go.
He said while the trend could signify demand for outstanding sectors, it could also mean that due to their risk averse, banks are shunning them.
“This tells the story of where the country is and where the country needs to go economically. It means there is demand for retail, which means most of our entrepreneurs in the country are into trading and this might involve, to a larger extent, importing of commodities. But we need to be moving to areas like agro-processing and manufacturing.”
Kamphoni said this could also mean that banks are not comfortable lending to some sectors, adding that there is more demand by retail and banks are more comfortable with the retail sector.
Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has a number of times cited lack of finance as one of the major obstacles to doing business in Malawi.
![President Peter Mutharika has said in his New Year's message Malawi is set to make progress this year after his government erected economic building blocks over the past five years.
"In the past five years, we have collectively saved the economy from the ruins of 2014 to the stability and inspiring growth we are seeing,” he said. “By all international standards, Malawi has proven to be an economic performing star— a rising African star. This is what patriotic Malawians can do for their country."
The President pointed out that in the past five years, Malawi has started making progress which this country lost in 1979, adding Malawi’s economy was ahead of China and other countries in income per capita but due to state violence and oppression, people’s participation in the economy was inhibited.
Mutharika said with violence and oppression the country was creating poverty instead of ending it.
He, therefore, praised development partners and foreign governments for their support and endorsing the progress Malawi is making.
He mentioned Global Fund which has committed to supporting Malawi with $500 million and International Monetary Fund for resuming budget support for the first time since it was suspended in 2013, as some of the partners who have shown their confidence in his government.
"We also have serious investors who intend to start building a city in Mangochi, together with Mangochi Airport and a five star hotel. We are set to make progress,” he said,
However, the Malawi Confederation of Chambers of Commerce and Industry believes as much as Malawi is making progress serious challenges remain.
In its assessment of business in 2019, the chamber—which is the voice of the private sector—decried rampant corruption and persistent power cuts which it said impacted negatively on investment and business.
For instance, MCCCI said gross domestic product (GDP) growth rates in the past five years reflect lack of meaningful creation of wealth by the private sector owing to persistent insurmountable obstacles to doing business whose solutions are not forthcoming.
“While progress was made in increasing the electricity carrying capacity of the national grid, thanks to the United States Government’s grant assistance through the Millennium Challenge Corporation, there is need to generate adequate electricity for the expanded grid to carry.
“It was expected that Egenco [Electricity Generation Company] and other Independent Power Producers [IPPs] would measure up to the expectations but thus far, that has not happened. Issuance of licences to IPPs took inordinately long and therefore their start time was pegged back,” reads the 2019 Business Environment Assessment report signed by MCCCI chief executive officer Chancellor Kaferapanjira and its president Prince Kapondamgaga.
Due to this depressed scenario, MCCCI says the performance of the private sector—often referred as the engine of the economy—will likely continue to be negatively affected unless authorities appreciated the impact of these challenges on the private sector and ultimately on the economy and worked on them.
Despite the power and finance challenges, the Reserve Bank of Malawi (RBM) agrees with Mutharika that Malawi has turned a corner.
RBM Governor Dalitso Kabambe in earlier interviews also downplayed the fears of sluggish growth, saying the economy is on track as evidenced by stable inflation and exchange rates as well as stable fuel prices.
RBM also maintains the economy will still grow by five percent in 2020.
“Our projection is data intensive. Therefore, we cannot speculate based on what is happening out there, but we use available data,” he told Business News last month.](https://www.mwnation.com/wp-content/uploads/2018/06/Peter-Mutharika-350x250.jpg "Election fever affects private sector credit 3 | The Nation Online")
