Amid continued rising prices of goods, Minister of Trade Sosten Gwengwe says there is little that Malawi can do to hedge against rising prices in the global economy.
In an interview, this week, the minister said the world economy is currently going through a “turbulent patch” and “is on its knees” since the Covid-19 pandemic in early 2020.
The global pandemic has disrupted supply value chains, subdued demand, affected the labour market as well as triggering persistent lockdowns.
While agreeing that prices of goods and services keep on surging, Gwengwe said he has received complaints from consumers and the business community on the increase in the price of cooking oil, steel products, fertiliser and cement, among others.
He said: “Malawi is a net importer of most of its consumables. When prices of raw materials across the globe increase, Malawi has little to hedge herself against such price increases. It has little or no strength to dictate global prices.”
For example, he said the price of soya beans has increased from a low of $290 (about K239 000) in 2020 to a high of at least $700 (K577 000) in 2021 while the price of crude soya oil has moved from $910 (about K750 000) to over $1 595(K.3 million), representing a 75 percent jump.
Internet search also shows that Brent crude oil is currently trading at about $83 a barrel up from an average of $42 in 2020.
Crude palm oil has also increased by at least 59 percent in the same period, he said.
“Our cooking industry is largely dominated by crude oil refiners rather than crushers of actual raw materials.
“Increases in global commodity prices have pushed commodity prices across different economies in the region and beyond,” said the minister.
Commenting on the increase in freight costs, Gwengwe, quoting the United Nations Conference of Trade and Development (Unctad) policy brief number 84, said the underlying causes of freight increases are severe shortage of containers as they are held up in waiting ships.
Shipping experts, on one hand, contend that rising freight rates are a result of disruptions across the supply chains that triggered delays at the ports and inland distribution networks.
But Gwengwe acknowledged that the exchange rate has also deteriorated by 12 percent from around K750 to the dollar to K850 between 2020 and 2021.
He said: “In terms of mitigation steps, the ministry is working tirelessly with the business community to ensure that we encourage local production for purposes of import substitution.
“The Ministry of Trade is also working closely with the Ministry of Industry to promote local investment in strategic sectors such as cooking oil, fertiliser and other essential commodities to minimise the impact.”
Commenting on the issue, economist Gowokani Chijere-Chirwa, who teaches economics at the University of Malawi, said the country does not produce capital goods, but relies heavily on imported capital goods for industries to produce finished products.
As a result of this, he said Malawi experiences cost-push inflation which is triggered by increases in the cost of production.
He said: “In terms of solution, we have to sit back and ask where we went wrong in terms of programmes such as Ovop [One Village One Product].
“Secondly, this should give us a lesson that we should increase or intensify technical schools so that we should start manufacturing our own things and this could be through basic engineering, village garages or even producing solar products.”
Last week, Leader of the Opposition in Parliament Kondwani Nankhumwa also tasked Gwengwe to explain why prices of essential commodities keep on rising for the past year and what government through the ministry is doing to ensure prices are affordable for most vulnerable Malawians.
The rise in the prices of goods and services has pushed up the cost of living, according to the Centre for Social Concern.