Asset manager Alliance Capital Limited says the stability of the kwacha coupled with the decelerating inflation and other positive macroeconomic fundamentals has the potential of attracting the much-needed foreign direct investment (FDI) into the country.
In its market review for the period ending July 14 2017, the firm says for the general economy, a stable currency is one pointer which foreign investors look into when making a decision to invest in a country.
In the recent months the local currency has been on a steady path with data provided by the Reserve Bank of Malawi (RBM) showing the local unit has for the past six months been trading at K734 to a dollar.
The local unit, according to RBM figures, has managed to hold on to the current position since December last year before it retained another steady K730 to dollar in the months of November, October and September last year.
The country has also seen a sound forex reserves position in recent months, averaging above 2.8 months.
“For the private sector, such a stable exchange rate facilitates proper business planning as it ensures certainty in foreign exchange transactions. For farmers, the stability of the kwacha means that they do not suffer exchange rate losses during the selling season during which the kwacha usually appreciates against the dollar provided such stable kwacha is maintained during the lean season,” reads the report in part.
Government has maintained that it expects the local currency to remain stable going forward, with a report from the Ministry of Finance, Economic Planning and Development indicating that the kwacha will remain relatively steady anchored by foreign exchange earnings from tobacco and cash crops, such as tea and legumes.
Finance and economic expert Misheck Esau in a recent interview with The Nation said the country is not doing enough to stabilise the local currency, observing that the country is over dependent on donor and non-governmental organisations inflows to bridge the balance of payments (BoP) position.
FDI has been sluggish with the Malawi Investment and Trade Centre (Mitc) registered about $900 million of pledged investment in 2016, which about 5 percent higher than the previous year.