Malawi to focus on regional trade

Minister of Industry and Trade Sosten Gwengwe has said intra-regional trade makes more economic sense to Malawi and has since encouraged the removal of non- tariff barriers among members for seamless trade.

In an interview on trade costs recently, Gwengwe said although the European and the American markets are lucrative to the country, Malawi traders face higher costs and experience more logistical bottlenecks to access these markets.

“Trading within the region such as the Common Market for Eastern and Southern Africa (Comesa) and the Southern Africa Development Community (Sadc) or the planned Tripartite Free Trade Area (TFTA) makes economic sense. What we need to do is to encourage the removal of non-tariff barriers within the region.

“But Malawi has preferential access to the European and American markets for instance under Everything But Arms (EBA) and African Growth and Opportunity Act (Agoa). We have also initiated the Economic Partnership Agreements (EPA) which we are yet to sign. Due to this preferential arrangement, these markets cannot be completely forsaken,” said Gwengwe.

He noted that we produce similar goods, primary products, as most of our neighbours, but there are still opportunities which we can.

He added that Malawi is working on improving quality of products to compete on these markets with assistance from developing partners.

“What we need is a better competitive edge. We need to produce better goods at lower costs and, therefore, be able to sell them in these markets,” said Gwengwe.

The World Bank’s new database developed jointly by the United Nations Economic and Social Commission for Asia and the Pacific (Escap) reveals that trade costs fall disproportionately on developing countries.

According to the research, trade costs are influenced to varying degrees by distance and transport costs, tariff and non-tariff measures, and logistics. The new data, which cover the time period 1995-2010, stress the importance of supply chains and connectivity constraints in explaining the higher costs and lower levels of trade integration observed in developing countries such as Malawi.

National Working Group on Trade Policy chairperson Geoff Mkandawire in an interview said there are negatives and positives in either trading regionally or with other African economies.

“Although overseas markets are lucrative traders certainly face bigger logistical problems in terms of transportation costs and time. And goods such as agricultural products may even face barriers such as heavy subsidies in Europe or other lucrative markets,” said Mkandawire.

In the recently launched National Export Strategy (NES) Malawi seeks to pivot towards the regional markets and apparently away from extra-African markets.

“The [NES] market strategy is generally to target regional exports, particularly in Sadc, Comesa, East African Community (EAC) and the upcoming TFTA as opposed to focusing excessively on extra-African markets, and benefiting from Malawi’s geographical access to fast-growing neighbouring economies. These are key markets for value addition products in the oil seed product and manufactures clusters,” says the NES in part.

The NES, however, notes that for certain products such as Toor Dhal or oil seed commodities, markets further afield are also important.

The World Bank in a press statement released recently says although developing countries are becoming more integrated into the world trading system in an absolute sense, they are starting from a higher baseline and their relative position is deteriorating because the rest of the world is moving more quickly.

“In an increasingly globalised and networked world, trade costs matter not only as a determinant of the pattern of bilateral trade and investment but also of the geographical distribution of production.

“Although tariffs in many countries are now at historical lows, the evidence suggests that trade costs remain high for developing countries struggling to gain a lasting foothold in international supply chains,” says the statement.

The statement adds that trade costs are therefore of great importance from a policy perspective since they are an important determinant of a country’s ability to take part in regional and global production networks.

Malawi’s main export trading partners are China, South Africa, Zimbabwe Russia, Germany, Egypt, the US and the Netherlands. Malawi mainly exports products such as tobacco, tea, sugar, cotton, coffee, peanuts, wood products and apparel.

Its main import partners are South Africa, India, Zambia, the US, Tanzania and Germany.

It imports petroleum products, semi-manufactures, consumer goods and transportation equipment.