The private sector and an economist say the weakening of the rand for the past five months is an opportunity for businesses, but may affect Malawi’s balance of trade with South Africa (SA) if it persists.
In an interview yesterday, Malawi Confederation of Chambers of Commerce and Industry (MCCCI) director of business environment and policy advocacy Madalisto Kazembe said most of the country’s imports are from SA; hence, a weak rand is good news for the businesses.
“This will mean that there will be an increase in imports from South Africa as the currency is worth less. Imports from South Africa will become less expensive,” she said.
But Kazembe noted that the development may also negatively affect exports to SA, saying it will be more expensive for SA to import goods from other countries.
She said: “If the rand depression trend prolongs, there is a possibility of a widening trade deficit since Malawi is a net importer and has a narrow export base.
“Just to put things into perspective, Malawi’s exports to South Africa as a percentage of gross domestic product [GDP] were at 1.3 percent while our imports from the same country were at 7.7 percent as a percentage of GDP. The drop in value for rand may, therefore, result in an increase in Malawi’s imports which may increase our trade deficit.”
While arguing that the softening of the rand is not surprising as it was only buoyed by speculation, University of Malawi’s Chancellor College macroeconomist Lucious Cassim said this is a boon for importers but a disadvantage for exporters.
He said: “The gain in the rand was largely on the perception people had upon the coming in of the new government. The current state of the rand is its true value.
“Nonetheless, the trend may have both negative and positive implications for traders. This simply means that while importers will get goods at a lower value, exports will be expensive.”
But for Small and Medium Enterprises Association (Smea) president James Chiutsi, a weak rand presents an opportunity for local businesses to run at a lower cost.
“Most of our members in the trading business buy raw materials from South Africa. This means we will produce cheaply and be able to offer goods competitively. This is a chance we are going to be utilising,” he said.
The rand, which strengthened against the kwacha and other major currencies in January 2018 has within months changed direction, weakening against the kwacha and other trading currencies.
Reserve Bank of Malawi (RBM) figures show that between April and July, the rand dropped from K60 to around K54.
Since Malawi trades more with SA compared to other countries in the region, economic conditions in that country are likely to influence Malawi’s economy.
Last year, Malawi exports to SA stood at $82.53 million (about K59.8 billion) while imports were recorded at $487.16 million (about K355.5 billion), according to the National Statistical Office.