The rough start to the year 2012 characterised by twin shortages of fuel and foreign exchange will dampen growth in the manufacturing sector to a paltry two percent, the Reserve Bank of Malawi (RBM) has reported.
RBM governor Charles Chuka last week attributed the slow real gross domestic product (GDP) growth of 1.6 percent this year from an initial estimate of 4.3 percent to negative growth in manufacturing and agriculture sectors.
In its second quarter review of the economy, the central bank figures show that the manufacturing sector will pick up by 0.3 percentage points from 1.7 percent last year.
This is a clear indication of how the chronic shortages of fuel and forex that have haunted the economy for the past three years crippled productivity in the sector.
Most of the businesses reduced their production capacity because they could not move goods from one place to another and most of them failed to import raw materials for production.
“The sector has, however, shown signs of recovery following improvement in foreign exchange and fuel supplies since May 2012 policy changes,” says the bank.
In May this year, the RBM effected a number of monetary policy decisions, among them, the devaluation of the kwacha by nearly 50 percent and subsequently floated it, a development that has led to a â€˜massive dip in the value of the kwachaâ€™ leading to improvements in foreign exchange supply.
Individuals who were hoarding foreign currency were selling it on the black market where the profit margin was quite substantial and when the RBM devalued the currency, they had no choice but to sell it to authorised dealer banks (ADBs) where the rates were attractive.
Meanwhile, the local unit is currently trading at K315 to one dollar in ADBs and at around K350 on the parallel or black market, but indications are that the kwacha will continue falling owing to lack of forex reserves to support it.
The RBM quarterly report which has commented on the performance of a number of sectors, says construction is projected to rebound and expand by 4.2 percent in 2012 after contracting by 2.4 percent in 2011.
This sector was also acutely affected by the fuel shortages and the scaling down of government-funded construction projects due to financing constraints.
RBM is hoping that the recent improved availability of fuel and the resumption of government projects are expected to have a positive impact on the sector.
But the sector may not grow to expecte0 levels because foreign currency is currently in short supply with the reserves cover hovering at less than one month or about $189 million (K59 billion).
Already, shortages of fuel have resurfaced in some parts of the country largely due to the scarcity of foreign exchange due to, among others, the lucklustre performance of tobacco which wires in 60 percent of the countryâ€™s foreign exchange earnings and delays in donor disbursements whose contribution accounts for about 40 percent of the budget.
But good news is expected from the mining and quarrying sector, whose growth is expected at 13.9 percent in 2012 after shrinking by 4.5 percent in 2011 owing to a drop in demand by the construction sector as well as fuel shortages and energy challenges.
“The projected growth in 2012 will be spurred by respective expansion of 30, 20 and 10 percent agriculture, lime and quarry aggregate and coal,” says the report.