Widening trade gap: is it policy failure?

Despite a flurry of policy prescriptions on boosting exports and promoting local production to cut on imports, Malawi’s trade deficit remains stubbornly high.

In absolute terms, the National Statistical Office (NSO) says between 2009 and 2015, exports and imports increased by 159 percent and 245 percent respectively at current prices.

This means imports grew at least 1.5 times exports over the period, signalling an entrenched appetite for foreign goods, a paucity of industrial expansion locally that can compete on the global market, a weakening agricultural base and a tough road to evening out business deals with the rest of the world.

The decline has been there well before the six-year period leading to 2015 that the NSO report looks at.

A report from the Directorate General for Trade of the European Commission on Malawi’s trade with the world over a 10-year period shows that imports have  jumped by 146 percent from €598 million (about K492 billion) to  €1.4 billion euros (K1.2 trillion) in 2015 while exports expanded at a much slower pace.

The figures show that imports grew by 4.6 percent in 2006 to €626 million (K515 billion), and thereafter jumped by 5.6 percent in 2007 to €661 million (K544 billion).

Imports increased markedly by 33.5 percent to €882 million (K675 billion) in 2008 and rose again to €906 million (K745 billion) in 2009, a 2.8 percent rise.

Malawi continued to import more from the rest of the world as in 2010, imports grew by 9.6 percent in 2010 to €993 million (K817 billion), 4.9 percent in 2011 to €1.04 billion (K855 billion), 32.7 percent to €1.3 billion (K 1 trillion) in 2012 and jumped again by 6.9 percent to €1.4 billion in 2013.

But the following year, imports fell by -12.1 percent to €1.2 billion (K987 billion) before rising again by 13.3 percent to €1.4 billion (K1.1 trillion).

With regards to exports, the report shows that they have mostly been dwarfed by imports and grew by 72 percent between 2005 and 2015.

In 2005, Malawi exported goods worth €480 million (K395 billion), but the exports fell by -6.4 percent to €450 million (K370 billion) in 2006 before rising by 17.8 percent to €530 million (K436 billion) the following year.

In 2008, according to the report, exports fell by -2.2 percent to €518 million and substantially grew by 24.9 percent to €646 million (K426 billion) in 2009, and the following year, they grew by 11.9 percent to €723 million (K595 billion).

In 2011, exports grew by 7.7 percent to €779 million (K641 billion) and went up again by 8.0 percent to €841 million (K692 billion) before registering a -9.8 percent growth in 2013 to 2013.

The following year, exports grew by a paltry 0.9 percent to €766 million (K630 billion) before jumping by 8.3 percent to €829 million (K682 million) in 2015.

At the same time, the trade deficit over the 10-year period has been rising from 118 million euros in 2005 to €641 million (K527 billion) in 2015.

James Kamwachale-Khomba, a professor of finance and corporate strategy at the Polytechnic, a constituent college of the University of Malawi, said in an interview on Tuesday, Malawi’s appetite for foreign products will continue to grow on account of the country’s monetary policy and attitude by consumers who have an insatiable appetite for imports.

He said unless authorities re-look into its monetary policy and consumers change their attitude, increased imports will only help to kill local businesses, which is bad for the economy.

Said Kamwachale-Khomba: “We have engaged in more of importation, and unfortunately, most of the products are actually for consumption. If we can invest whatever we are importing, that could be good for the economy. We have been a net importer all long probably this is also to do with the issue of substitution of our products to the extent that we are even importing tomatoes, crisp and cornflakes.

“We have for a long time been talking about monetary policy issues such as inflation rate, foreign exchange and interest rate. These days, in the presence of these factors, doing business is becoming a nightmare. If we are to encourage the private sector to be investing, we have to play around with the monetary issues.”

According to NSO, tobacco, tea, sugar and coffee top the country’s export list, raking in K16.6 billion ($23 million), K5.3 billion ($7.2 million) and K2.1 billion ($2.8 million) respectively.

Thus, poor agriculture output and depressed prices for commodities such as tobacco and tea contribute to lower export earnings.

At macro level, high interest rates, high transport costs weak industrial linkages that leave producers importing most of their raw materials also make domestically produced products more expensive than their competitors on the international market.

As such, a coordinated policy overhaul that cuts across industries could provide a road map for better results.

National Working Group on Trade Policy chairperson Frederick Changaya said Tuesday there are several policy instruments that Malawi can use to encourage exportation of products, including taxation and pricing of electricity.

He said while Malawi has made strides to promote exports through agreements with other economies, there is need to note that Malawi is one of the weakest economies in the region.

In an e-mailed response on Tuesday, Ministry of Industry, Trade and Tourism spokesperson Wiskes Nkombezi said there is need to tame the huge appetite for some imports that are domestically found.