Sugar exports earnings dwindle
Foreign exchange earnings from sales of sugar, the country’s third top export earner, continue to dwindle amid declining foreign forex reserves.
Published figures from the Reserve Bank of Malawi (RBM) show that sugar export earnings have dwindled to $8.7 million (about K8.9 billion) in the first quarter of 2022, from $18.2 million (about K18.7 billion) the previous quarter and $24.7 million (K25.4 billion) during the same period in 2020.
Illovo Sugar (Malawi) plc admits that earnings from sugar exports have been on the decline for the past two years, as the Malawi Stock Exchange-listed sugar manufacturer undertook a deliberate call to hold back on sugar exports until it stabilises the stock position in the country.
In a written response on Tuesday, Illovo Sugar (Malawi) plc managing director Lekani Katandula said as they recover from the recent cyclones, it aims to grow total production and restore higher exports without undermining sugar availability locally.
He said: “If you looked back to our financial statements for periods ending August 17, 18 and 19, our total production exceeded total sales.
“This meant that we had higher stocks that drove the much higher export levels that we achieved in periods ending August 20 and 21 when total sales were higher than production; hence, reversing the excess stock position.”
Katandula, who is also Malawi Confederation of Chambers of Commerce and Industry president, admitted that in the short-term, this means less foreign exchange for the company’s business and the country.
“But we consider this a lesser evil compared to the challenges that sugar shortages created in April and May this year,” he said.
Experts say that the drop in the reserves position reflects the increasing burden on the central bank to support the foreign exchange market with liquidity to smoothen the rate of depreciation or payment.
Earlier, Financial Market Dealers Association of Malawi president Mclewen Sikwese said the drop in the reserves position is a cause for concern as it shows the reduction in the resources at the disposal of the central bank to pay for government obligations and ensure they rein in volatility in times of limited foreign exchange liquidity on the market.
Last month, government devalued the kwacha by 25 percent, a move that RBM Governor Wilson Banda justified, saying the earlier interventions to improve foreign exchange liquidity challenges and its effects on the exchange rate have had little or no impact.
The RBM, among others, temporarily reintroduced the mandatory sale of 30 percent of export proceeds to the bank, continuously intervened in the foreign exchange market and closed the arbitrage opportunity arising from the fact that only trades denominated in the US dollar were subject to the reasonable difference on spreads rule.
In the half-year ended February 28 2022, llovo Sugar (Malawi) plc posted a K9.2 billion profit, a rise from the K6.1 billion reported during the same period last year.
The firm said interventions by the Malawi Revenue Authority and the Ministry of Home Affairs further assisted to reduce sugar imports into the country.
