Malawi needs concerted efforts to diversify its export portfolio if it is to solve the persistent loosening kwacha, a local investment and portfolio management firm has said.
In a published statement on Wednesday, Alliance Capital Limited said despite the recent appreciation of the local currency, the long-term value of the kwacha against other currencies has been on a downward trajectory which highlights that the problem is not effectively solved.
The local unit which routinely depreciates during the lean season—the time when the tobacco markets are closed and the country is importing various farm inputs—has this month started to gain value, trading at K703 to the dollar from a K765-high two weeks ago.
But the portfolio managers argue that more attempts need to be sought to identify long-term markets for the products produced in Malawi.
“The sources of forex must have different business cycles. This is essential to avert the forex in-flow in the medium term. If one product or commodity is in decline or not in season, other products or commodities must be available,” the statement reads in part.
According to the firm, the long-term approach of increasing manufacturing, as brilliant as it is, may not be feasible in the short-term and even the medium term as it requires time.
The investment managers say increase in exports is, certainly, one reliable way to escape the persistent forex shortages which have been haunting the country for years.
“There has to be determination to ensure that capacity to export becomes our reality. Monetary policy alone will not be enough to ensure stability of the kwacha because with poor in-flows, the only policy option for the Central Bank may end up being incessant tightening of money, leading to stagnation,” said the firm.
In a recent interview with Business News, Bankers Association of Malawi president, Misheck Esau, also challenged the private sector to invest in production to bridge the balance of payments gap which would bring the exchange rate stability.
“We cannot continue to import basic commodities from countries whose agricultural history is not as rich with heavy investment by government like that of Malawi,” he had said.
He encouraged the private sector, particularly, those whose businesses are predominantly import-oriented to rethink their business models towards diversification into exports to mitigate the risks they face as they go about the import business.
Malawi’s key exports have been on the decline in the past years due to, among others, slow growth in developed markets and an economic downturn in sub-Saharan Africa.
World Bank statistics indicate that Malawi’s exports slumped by 10 percent in 2015 to $1.58 billion compared to $1.75 billion in 2014.