Economics Association of Malawi (Ecama) has said Malawians should brace for tough times ahead as the local unit will be under immense pressure due to low tobacco income this year.
The country was banking on tobacco sales to bring some level of stability to the local unit which has fallen by more than 77 percent since it was devalued from K169 in 2012 to trade at around K705 in most authorised dealer banks (ADBs) as of Thursday.
The continued depreciation of the kwacha has been driving up the cost of living and increasing social stress in the country, a situation the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) recently described as “out of control”.
Industry players hoped the inflows from the green gold which account for 60 percent of foreign exchange income would bolster the country’s forex reserves at the Reserve Bank of Malawi (RBM).
But with low tobacco inflows, Ecama says a depleted buffer of forex reserves—partly created by aid suspension and low export proceeds—will futher threaten the stability of the weak kwacha.
In an interview, Ecama executive director Edward Chilima said this is why his organisation has been pushing for crop diversification of export commodities so that the country can continue earning more foreign exchange when tobacco crop fails.
After week 12 of tobacco sales, cumulative seasonal earnings from tobacco stand at $119.37 million (about K85 billion), 35 percent lower than same period last year.
“The sector has not been performing [well] of late as we all know… and this year again the country will not get as much forex from this sector.
“Naturally, financial markets start to react. It will, therefore, not be surprising if this loss of value of the kwacha continues. Which confirms what I said earlier that we have failed as a nation to read market signs and adjust accordingly,” Chilima said.
He said there are alternative export crops which we could have prioritised but we have not.
“As long as we do not export as much as we import, the kwacha will continue to lose value. Each year, we earn less from tobacco, no wonder the local currency is under pressure” he said.
Tobacco Association of Malawi (Tama) chief executive officer Graham Kunimba said poor prices and high rejection rates have negatively affected tobacco sales this year.
“Prices are being compressed and we are not happy,” he said.
Kunimba accused buyers of taking advantage of the issue of tobacco overproduction by offering lower prices in “anticipation that they can buy everything and spread the price.”
This year, demand for tobacco was pegged at 132 million kilogramme (kg), but growers produced in excess of 175 kgs, according to Tobacco Control Commission (TCC).
