Imports to moderate in 2014 says EIU

Malawi’s imports are expected to moderate this year on account of slow growth in investment, global commodity prices fall and expected currency depreciation which will dampen domestic demand.

The sub-Saharan country has always had a narrow export base because it imports more than it exports and efforts to widen the export base have over the years not worked leading to a widening trade imbalance.

But the Economist Intelligence Unit (EIU) in the latest report for Malawi said that between 2016 and 2018, import growth will increase on the back of increased economic activity and growing public investment spending.

On the other hand, the EIU said exports are forecast to rise in 2014 buoyed by increased tobacco production which has gone up by about 25 percent.

“However the risk of low tobacco prices may lead to lower revenues though it may be offset by large production volumes,” said the EIU in the report quoted by a local investment advisory firm Nico Asset Managers Limited.

The EIU further said that the shutdown of Kayelekera mine in Karonga [in February this year] could increase the current account deficit—the measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and service it exports—if it is closed for a long time as uranium accounts for 10 percent of total exports but tobacco export growth will prevent a worsening shortfall.

But it said export growth will be robust between 2015 and 2017, underpinned by favorable tobacco prices and government efforts to promote production of cotton and other agricultural commodities.

With a wider export base, foreign exchange inflows could increase which could help to cushion the negative effects of the country’s economic downturn.

Trade experts say a larger export base may help to provide support for the value of the kwacha; hence, lower depreciation.

It could also improve forex availability, leading to increased forex transactions and improved performance for banks which trade in forex.

According to Nico Asset Managers Limited, Malawi is expected to remain in good terms with major donors such as US, the UK and the European Union (EU), despite having concerns of corruption and theft scandals in the public sector that culminated into what is called Cashgate.

But a lack of donor funds, according to economists, may hamper government reform efforts as the government revenue will not be sufficient to sustain its programmes.