Promoting manufacturing sector growth should be serious priority for government in 2024-25 National Budget—MCCCI

MCCCI Director of Business Environment, Madalitso Kazembe making the presentation 

* Triggering growth in the manufacturing sector would offset the huge demands for imports

* Enhance import substitution, and in turn release pressure on foreign exchange reserves

By Duncan Mlanjira

The apex body of the private sector, the Malawi Confederation of Chambers of Commerce and Industry (MCCCI), is proposing that promoting the manufacturing sector growth should be a serious priority in the 2024–25 National Budget.

This was suggested on Monday at the first of three Pre-budget consultation meetings which Minister of Finance & Economic Affairs, Simplex Chithyola Banda has arranged with essential stakeholders, which continue on Wednesday in Lilongwe and Friday in Mzuzu.

The stakeholders included those in the business community, NGOs, faith-based organizations and the academia where they presented their views and proposals on the 2024/25 National Budget.

In its presentation, MCCCI applauded the government for considering the views and needs of the private sector to ensure business survival as the Minister prepares the 2024/25 National Budget — emphasizing that “triggering growth in the manufacturing sector would offset the huge demands for imports, enhance import substitution, and in turn release pressure on foreign exchange reserves”.

The body, whose president is Lekani Katandula — the Managing Director of Illovo Sugar Malawi Plc — said it “recognizes that the prevailing fiscal space amidst the shocks is very limited and gives little room for the government to maneuver in coming up with comprehensive incentives”.

MCCCI also offered solutions towards containment measures for after-effects of the 44% devaluation of the kwacha, which was effected by the Reserve Bank of Malawi (RBM) in November 2023 to combat the supply-demand imbalance of forex and align the value of foreign currency in the official and parallel markets.

“However, the private sector recognizes that there are risks if the way forward is not strategically planned,” said the MCCCI in its presentation. “The devaluation was done during a critical time for the agricultural sector- preparation period for the agricultural season.

“This has brought uncertainty on productivity and output for 2023-24 season as the price of agricultural inputs have significantly increased. Devaluation has also brought pressure on wage costs, which will put additional pressure on production costs, which are already high.

“Year-on-year inflation rate for November 2023 stood at 33.1%, an increase from the 26.9% recorded in October 2023.”

Thus, through the MCCCI, the private sector proposes some recommendations to make devaluation work, which include:

* Ensuring availability of foreign exchange in the official markets to offset the domination of parallel market;

* Allowing the exchange rate to float;

* Addressing foreign exchange leakages. Private sector should cooperate with government in identifying and addressing any forex leakages. This could help improve foreign exchange inflows and contribute to a more sustainable economy;

* Government should contain the budget deficit, which is at the moment very unsustainable (above 8% of GDP) because the pressure on the exchange rate is also coming from the government; and

* Establishment of long term solutions to increase exports.

On the manufacturing, the MCCCI offers the government the following solutions:

* To come up with an SPV/Industrial Development Fund in the 2024/25 budget to provide patient capital specifically targeting investments in the manufacturing sector;

* The maximum demand tariff should be applicable when businesses are operating at their maximum capacities;

* To allocate enough resources to fight against smuggling;

* To provide tax incentives to manufacturing and processing industries that use a substantial portion of local inputs in their production for them to have a comparative advantage as well as save forex;

* The priority industry qualification should be extended to existing taxpayers beyond those registered on July 1, 2013, with safeguards to prevent abuse. The current status prohibits other existing potential investors who registered their businesses before the regulation was introduced;

* Different rates should apply to local fruit wines and imported wines;

* The excise rate on local fruit wines should be reduced to 10% from 95% to encourage the survival of this emerging industry and domestic small-scale fruit suppliers who derive their living from this market. The importation of wines should be well monitored, and the excise rate on imported wines should remain at 95%;

* To impose a surcharge on imported plastic cups and plates to safeguard the local manufacturing industry;

* The imposition of value added tax (VAT) on cooking oil has generally had negative effects on the local market, such as loss of revenue; increased smuggling — therefore, VAT on local oil products should be reduced.

The private sector also observes that the 2023–2024 climate outlook shows that most areas should anticipate normal to below-normal total rainfall amounts, with the possibility of above-normal rainfall in this month of January.

“There is also a high chance of prolonged dry spells in the month of February and the country should anticipate low agricultural yields in 2024. Therefore, efforts must be made to reduce the agriculture sector’s vulnerability to climatic shocks such as dry spells through significant investment in irrigation.”

Thus MCCCI proposes that the 10% domestic excise tax on pipes used for large-scale irrigation should be removed and that import duties on spare parts for agricultural and manufacturing equipment should also be removed to enable cost-effective routine and timely maintenance of equipments.

“As a long term measure, Malawi should consider developing and investing in the Tooling, Dies and Moulds (TDM) Sector in order to reduce importation of some of the spare parts.

“Government should promote other export-oriented crops such as wheat, soya, sunflower, and macadamia production instead of sticking to the traditional ones.”

The government has also been asked to introduce special financing in the acquisition of farm machinery, including tractors for large-scale farming and furthermore, farm and manufacturing plant equipments should be given priority in the allocation of forex.

“Some of the levies that are in the composition of fuel prices do not apply to equipment that is solely used on farms or estates. A fuel rebate should be introduced to refund fuel levies on agricultural equipment that is used solely on farms or estates.

“The country has been able to secure trade agreements and export deals — however, the private sector has been unable to export under such deals due to a number of challenges.

“There is a need for the government and the private sector to engage on how to utilize the existing export deals and bilateral agreements. Government should also engage in striking deals for processed agriculture products.

Present at pre-budget meeting included Minister of Information & Digitalisation, Moses Kunkuyu; Malawi Revenue Authority (MRA) Commissioner General, John Biziwicki; Director General of National Planning Planing, Thomas Munthali; MCCCI president, Lekani Katandula, BAM president Zandire Shaba, among other high profile delegates.

Other presentations were made Malawi University of Business & Applied Science (MUBAS); Institute of Chartered Accountants in Malawi (ICAM) and Bankers Association of Malawi (BAM).