The mining sector is set to shrink according to the Reserve Bank of Malawi (RBM) although the country’s real GDP growth rate for 2014 is still estimated at 6.1 percent.
The RBM, according to the second Monetary Policy Committee (MPC) meeting held last week, noted that all sectors of the economy are forecast to register positive growth rates in 2014 except the mining sector.
During the meeting, the MPC analysed prospects for global output, domestic growth, inflation, money supply, fiscal developments, foreign exchange reserves, financial stability concerns as well as developments in money and capital markets, and resolved to maintain the policy rate at 25 percent.
Paladin Africa Limited on February 7 2014 announced the suspension of production at its Kayelekera Uranium Mine (KUM) in Karonga due to continuing depressed price for uranium and unsustainable cash demand to maintain the loss making mine.
According to the central bank mining and quarrying grew by 524.8 percent in 2010, and shrank by 2.2 percent in 2011. The sector also grew by 14.6 percent in 2012, and was estimated to have grown by 8.5 percent in 2013. Mining and quarrying was set to grow by nine percent this year.
But recently, Paladin Energy Limited said it is optimistic that the spot uranium price on the global market will recover during the course of the year raising hopes that the Australian-based company might resume uranium production at the mine.
According to its quarterly activities report for the period ending March, 2014, the company has banked hopes on uranium contracting market which it says has begun to show activity, as a large US nuclear utility has requested offers for deliveries spanning 2016 up until the year 2022.
In the wake of the KUM suspension experts cautioned that the decision would negatively affect the country’s exports and consequently dragging economic growth.
Malawi was tipped to fetch K66 billion ($161.6 million) from uranium according to the International Monetary Fund (IMF) estimates.
Nico Asset Managers in its March 2014 Economic Report noted that the shutdown of Kayelekera mine might increase the current account deficit if it is closed for a long time as uranium accounts for 10 percent of total exports but tobacco export growth will prevent a worsening shortfall.
However, according to Nico Asset Managers exports are forecast to rise in 2014 as tobacco production continues to increase with Tobacco Association of Malawi (Tama) forecasting demand for tobacco at 210 million kilogrammes, a 25 percent increase from 2013 and prices remain buoyant.