* 35% of businesses rated their performance as fair, and 29.4% indicated poor performance, an increase from the 23% recorded in 2023
* Additionally, the survey revealed that 82.8% of businesses operated with a capacity utilisation rate of 75% or below, underscoring the significant constraints facing the private sector
* The survey highlights the critical nature of foreign exchange issues in facilitating effective business operations
By Duncan Mlanjira
The 2024 Malawi Business Climate Survey reveals that the scarcity of foreign currency and exchange rate volatility were the top challenges in the year, scoring 9.43 out of 10 — as a result, only 34.8% of businesses reported positive performance, compared to 42% in the 2023 survey.
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This is contained in a statement by Malawi Confederation of Chambers of Commerce & Industry (MCCCI) in its position on forex control measures, which the business community — the main driver of the economy is grappling with.
In the survey, 35% of businesses rated their performance as fair, and 29.4% indicated poor performance, an increase from the 23% recorded in 2023. Additionally, the survey revealed that 82.8% of businesses operated with a capacity utilisation rate of 75% or below, underscoring the significant constraints facing the private sector.
The MCCCI takes note that the survey “highlights the critical nature of foreign exchange issues in facilitating effective business operations”.
“Without access to adequate foreign currency, businesses face operational disruptions and production delays, leading to increased costs and heightened price volatility.
“The foreign currency scarcity also disrupted the supply chain of essential commodities, such as fertilizer for the 2024/2025 agricultural season and fuel, particularly petrol and diesel.
“Fuel shortages severely impacted business operations by delaying the movement of raw materials and finished goods, increasing transportation costs, and hindering workers’ mobility.
The MCCCI observes that implementation of the Foreign Exchange Control (2024) regulation — which the government introduced requiring public institutions to hold foreign currency reserves at the Reserve Bank of Malawi (RBM) with a mandatory conversion of 80% — is likely to result in unintended negative consequences, including a further decline in exports and, consequently, reduced foreign currency inflows.
On this government intervention, the MCCCI observes that the “supply-demand imbalance in the domestic foreign exchange market has manifested in various ways, including low foreign exchange reserves, declining official foreign reserves, and widening spreads between Authorized Dealer Banks (ADBs) TT and Bureaux Cash exchange rates.
“In response to the forex liquidity and pricing challenges, and their effects on exchange rate developments, the Reserve Bank of Malawi (RBM) has instituted several short-term measures to support the importation of strategic commodities.
“These measures include the introduction of foreign exchange auctions and the reintroduction of the mandatory sale of 30% of export proceeds instituted in August 2021, among others.
“The reintroduction of the requirement to sell 30% of export proceeds mandates that all exporters sell a minimum of 30% of their export earnings to ADBs while retaining no more than 70% in their foreign currency denominated accounts (FCDAs).
“This measure has reduced the availability of foreign exchange for businesses to import raw materials essential for their operations. Businesses that generate foreign exchange have faced challenges accessing the forex they help generate.
Agriculture as the backbone of Malawi economy
In its background to the analysis, the MCCCI reiterates that “Malawi relies heavily on agriculture as the backbone of its economy [as] the sector contributes nearly 30% of Gross Domestic Product (GDP) and accounts for more than 80% of export earnings”.
“However, the country faces persistent challenges, including a narrow export base, trade imbalances, and heavy reliance on donor aid. Its key exports — tobacco, tea, and sugar — are highly vulnerable to external shocks, such as fluctuating global prices and climate-related risks.
“This dependence on a limited range of commodities leaves Malawi significantly exposed to both external and internal vulnerabilities.
“Considering these challenges, Malawi needs to double down on its strategic focus to diversify the economy and strengthen the private sector investment climate.”
The MCCCI further says as the country is working towards achieving its development agenda through the MW2063 vision — which emphasises industrialisation, urbanisation, and agricultural commercialisation as central pillars for achieving long-term sustainable and inclusive growth — it needs further reinforcement of the enablers, “including a dynamic and vibrant private sector”.
“By driving export diversification, promoting industrialisation, and attracting foreign direct investment (FDI), the private sector will significantly contribute to the economy.
“Additionally, fostering value addition by processing raw materials into finished goods will enhance export revenues while generating employment and tax revenues.
“However, the private sector is facing a constrained business environment characterised by inadequate infrastructure, weather shocks, limited access to finance, macroeconomic imbalances, and persistent foreign exchange shortages, all of which contribute to rising production costs.
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“The scarcity of foreign currency has indeed been a significant challenge for the private sector in Malawi. According to RBM data, Malawi’s foreign exchange reserves have been consistently below the recommended three months of import cover, averaging less than two months.
“This situation has been exacerbated by trade imbalances, with higher import bills and low export earnings. The RBM data highlight that these factors have severely impacted private sector performance, making it difficult for businesses to access the foreign currency needed for importing raw materials and engaging in international transactions.
“Consequently, businesses reliant on importing essential raw materials, machinery, and fuel face significant challenges. Over 80% of businesses have reported access to forex as one of the key challenges in operating leading to operating levels of 50% to 75% below optimal levels.
“Furthermore, the scarcity of foreign exchange has led to delays in processing payments to international suppliers, eroding trust and damaging business relationships therefore increasing the risk index for Malawi.”
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