Global multilateral lender, the International Monetary Fund (IMF), has allayed fears that the suspension of Kayelekera Uranium Mine (KUM) in Karonga will suppress Malawi’s economic growth in 2014.
The Bretton Woods institution has also backed the decision by the Australian miner to have the mine suspended until uranium prices rebound on the international market arguing ‘it doesn’t make sense to produce at a loss.’
“In any case, the longer the delay to re-open the mine, the higher the potential impact it will be on Malawi’s growth rate. But it doesn’t make sense to produce at a loss,” IMF Mission Chief for Malawi Tsidi Tsikata told Business News in an interview in Lilongwe.
He was quizzed to explain IMF’s optimism over Malawi’s real gross domestic product (GDP) growth in 2014 despite both exogenous and endogenous shocks this year, notably the suspension of the ‘loss making’ Kayelekera Uranium Mine and also last year’s withdraw of budget support by Malawi’s major donors under the Common Approach to Budget Support (Cabs), among others.
Mining currently contributes 10 percent of the country’s total wealth as measured by real gross domestic product (GDP) but prior to Malawi’s first commercial mining venture at Kayelekera, mining sector only contributed around 3 percent of GDP.
Added Tsikata: “Paladin had a pile of uranium and had contracts which means that there would be some uranium exports this year. They run on a loss due to prevailing world prices.”
Uranium miner in May 2014 reported a narrower net loss of $11 million for the three months to March 2014, compared to a net loss of $60 million during the same period in 2013, but the company remains under pressure from low uranium prices.
On February 7, 2014, Paladin Energy Limited announced the suspension of production at Kayelekera mine and said the suspension will involve placing the operation on care and maintenance until the price of uranium recovers on the international market.
And as if that was not enough, on May 27, 2014, the uranium producer announced that it has completely ceased the supply of uranium on the international market up until uranium price-hovering around $28 per pound-rebounds on the global market to around $70 and $75 per pound, an incentive price for operational restart deemed to be profitable.
Soon after the mine was suspended, Blantyre-based Nico Asset Managers and Alliance Capital Limited, cautioned that Malawi’s growth prospects for the year 2014 will likely be revised downwards following the suspension of production at Malawi’s biggest uranium mining investment in Karonga.
They argued that the shutdown of the Kayelekera mine might drag growth as its exports significantly contribute towards GDP growth.
But Tsikata preliminary indications are that Malawi’s real GDP growth in 2014 will be in the 5 to 6 percent range with strong contributions from agriculture, information and communications and also wholesale and retail trade sectors.
Malawi has this year been earmarked to be among top three best performers in terms of agriculture production, especially in producing cereals in southern Africa, trailing South Africa and Tanzania, according to the Food and Agriculture Organisation (FAO).
“The ready availability of foreign exchange and fuel resulting from continuation of the flexible exchange rate regime and automatic fuel price adjustment mechanism will also support economic activity,” said Tsikata.
Other commentators earlier said Kayelekera mine might increase the current account deficit if it is suspended for a long time as uranium accounts for 10 percent of total exports but said tobacco export growth will prevent a worsening shortfall.