Weak export demand for some of the country’s cash crops due to unfavourable weather experienced last year will affect the manufacturing sector which will decline by 3.4 percent this year.
This year’s drop from last year’s 3.8 percent is a result of reduced export demand for processed tea and sugar, according to Reserve Bank of Malawi’s (RBM) Financial and Economic Review, a development which may cause companies’ output to slump.
This situation may likely affect firms’ profitability.
Nampak Malawi managing director Simon Itaye, in an interview on Tuesday, said the decline, to some extent, could be on account of the country’s economic environment, which is largely characterised by high interest rates at around 37 percent, inflation rate at 22.6 percent and a depreciating exchange rate.
He said high transport costs to move goods into the country and a narrow manufacturing base are some of the key factors contributing to the dwindling manufacturing sector.
For the past two years, the manufacturing sector has contributed less than 10 percent to the gross domestic product (GDP), the broad measure of the country’s economic output.
Said Itaye: “When borrowing [from commercial banks], everyone expects to see better results, but with current rates, businesses are not realising the much needed returns.
“On top of that, the manufacturing base of our country is narrow; hence, we import most our raw materials for production. Now with our unstable currency, it becomes costly for us in an event where we import products and the rate has depreciated.”
He, however, called on local manufacturing firms to be innovative for them to compete favourably on the market and also produce quality products that should stand out.
On his part, Malawi Confederation of Chambers of Commerce and Industry (MCCCI) president Karl Chokotho, in an interview, said the manufacturing sector would grow if the Buy Malawi Strategy (BMS) is operationalised.
“What we would like to know is where we are with regards to what government said that it would be buying a minimum of 30 percent from Malawi companies because we believe this that is the essence of the Buy Malawi Strategy.”
He believes this approach can play a part in stimulating production.
During the launch of BSM in April this year, President Peter Mutharika outlined a number of measures to boost the manufacturing industry key among which was that allocation of land should be prioritised to enterprises and investors that intend to manufacture goods and provide services.
Despite the manufacturing sector’s output expected to decline, the construction sector is estimated to expand by 2.1 percent in 2016 compared to 3.4 percent in 2015.
“The decline in growth is explained by stalling of public investment in infrastructure which accounts for a larger proportion of the construction industry,” said the RBM report.
The financial and insurance services sector is estimated to grow by 4.7 percent in 2016, lower than 6.9 percent growth registered in 2015 with the main challenge being an increase in non-performing loans and the lack of foreign reserves in the market, according to the report.
The hospitality sector is estimated to grow by 6.2 percent in 2016 from 5.6 percent growth registered in 2015.
The 2016 growth is mainly attributed to an increased demand for accommodation and related services by local and foreign organisations holding national and international conferences in Lilongwe and Blantyre.
Malawi’s real GDP growth rate is expected to slow this year from to 3.1 percent in 2015 largely due the slump in the agriculture sector due to El Nino-induced weather phenomenon.