“Trade remedies protect local products from imports, not devaluation”

Chithyola Banda flanked by Minister of Local Government, Richard Chimwendo Banda (left) and RBM Governor Wilson Banda

* What made local products expensive than imported products and which products are being reffered to?

* We all know Malawi cannot compete on quality and on production costs

* The one who should have spoken on the devaluation issues should have been the Reserve Bank Governor and not the Minister

* Otherwise, here it clearly shows interference in the independence of the functions of the Reserve Bank

By Duncan Mlanjira

South Africa’s Don Consultancy Group (DCG) Chief Economist, Chifipa Mhango says trade remedies are used to protect local products from imports — not devaluation.

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He made the observation after Minister of Finance & Economic Affairs, Simplex Chithyola Banda said the recent 44% devaluation of the kwacha was a necessary step to take if the economy is to be put back on the right track.

At the press conference in Lilongwe today, Chithyola Banda described  it as an “overvalued kwacha”, which was not trading on its real market value that brought some negatives on the country’s economy and was hurting the local production of goods and services.

He added that people found it cheaper to import things than buy locally produced goods and services, a thing which leads to long-term results of killing local production.

Chifipa Mhango, has advised the government before on economic matters

But Mhango says the one who should have spoken on the devaluation issues should have been the Reserve Bank Governor, Wilson Banda “and not the Minister — otherwise here it clearly shows interference in the independence of the functions of the Reserve Bank”.

He also asked: “What made local products expensive than imported products and which products are being reffered to? We all know Malawi cannot compete on quality and on production costs.

“The Minister should have identified the list of products in reference and put a case of increasing import tarrifs on those products to protect the local industry — you don’t use currency devaluation on trade matters.”

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Chithyola Banda also said the overvalued kwacha was scaring away foreign direct investors, saying they started to shun Malawi because no one would want to spend dollars in an economy that undervalues them.

To which Mhango hinted that the Minister should have mentioned which investors indicated that “the currency was an impediment to investing in Malawi due to overvalued currency”.

“I don’t think this case holds, for the issues raised in the competitiveness report on Malawi puts several issues to which a currency does not feature in top 10.”

The Minister also alluded to that the overvalued kwacha was promoting the growth of a criminal and illegal black market, and there was a risk of collusion between the black market and some corrupt bankers. He said if such would be sustained the legitimate businesses could only access forex by buying it from criminals.

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But Mhango would have none of it, saying “if Minister has evidence of criminal activities in the forex market, was it not better that he effects arrest with that evidence through law enforcement than punishing the nation with devaluation?”

Otherwise, Mhango applauded the Minister as positive the announcement he made that as a long term solution is the re-establishing of government parastatal, Malawi Development Corporation (MDC) by initiating tight legislations to protect it from plunder that led to its demise.

In October 2022, Mhango who wrote to Government proposing that Malawi must put itself in sanction mode and revive MDC as a vehicle for industrial financing through direct lending and equity participation with international partners.

Mhango shared with the Office of the President and Vice-President — copied to Secretary to the Office of the President & Cabinet; Minister of Finance; Minister of Trade & Industry and the Malawi media, that such creation of strategic investment is what his host country did in fertilizer manufacturing.

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He had added that South Africa was forced to invest in industrialisation based on imports substitution when the country was under international sanctions due to apartheid — thus the Industrial Development Corporation (IDC) of South Africa was created to support the creation of industries for self reliance against sanctions.

Mhango made the suggestion when it was discovered that the Ministry of Agriculture found itself in a mess when it engaged with a bogus UK company to but fertilizer for the agricultural input programme (AIP).

He maintained that the model of importing fertilizer in Malawi should be replaced by a key massive investment locally with participation of MDC and other international partners.

Chifipa, who is revered in his host country for his economic contributions there, offered his thoughts having worked for the IDC for over 10 years, stressing that this statutory company “is a perfect link to addressing the mess that is occurring in Malawi and how we can have a long-term solution”.

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“The history of the IDC is a lesson for development financing in Africa, for its diversified sectors of lending and also having not received any financial support from South African Government since 1958,” he wrote. “In other words, it’s a self-sustaining development finance institution (DFI).

“South Africa, under the apartheid system was isolated for a long period, and even its colonial past made it difficult to trade and attract investment into the country. The country decided to embark on an import substitution program of industrialisation.

“Key to this was also the establishment of the IDC to support the financing of the major industrialisation projects by the then South African Government.”

Mhango added that key sectors identified through the IDC were agriculture, agro-processing, manufacturing, mining and construction — which is also what is contained in the MW2063 that says Malawi should be a “vibrant knowledge-based economy with a strong and competitive manufacturing industry that is driven by a productive and commercially vibrant agriculture and mining sector”.

Mhango went further to say that crucial to South Africa’s plan towards import substitution was the financing of the establishment of Sasol for oil, gas and chemicals such as fertilizer manufacturing before introducing Foskor fertilizer manufacturer — several other manufacturing initiatives.

“It is also through the IDC of South Africa that Malawi Government — under Dr Kamuzu Banda — was granted a loan of R3 million for the construction of the Capital Hill in Lilongwe — the seat of Government,” he said.

In August this year, National Planning Commision (NPC) Director General, Thomas Munthali told the media that for ‘Inclusive Wealth Creation & Self Reliance’ that is enshrined in the MW2063 national vision is to be achieved and delivered, the government needs to play its role as a developmental state — a state that takes an active role in the market especially where market failures exist.

National Planning Commission Director General, Thomas Munthali

He thus said the defunct MDC needs to be resuscitated for it to trail-braze investments in all strategic sectors of the economy so that a diversified economy would be built that will be resilient in times of exogenous shocks.

He also the MW2063 advocates that the Agricultural Development and Marketing Corporation (ADMARC) should be fully commercialized to be jointly managed with the private sector and that Malawi should have its own mining company in strong alliance with the private sector.

Munthali said the mining company has already been developed awaiting being gazetted, through which all foreign mining investors will be strictly regulated and monitored so that minerals are not smuggled out of the country.

In August last year, former Finance Minister — who has since been deployed to Ministry of Trade, exchanging with Chithyola Banda — told the media that the Government had plans to revive MDC to promote what he said was its interventions in businesses and promote production.

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MDC was a fully government-owned and controlled profit-oriented entity, that was established in 1964 but became defunct in 2000 during President Bakili Muluzi’s administration and Gwengwe said the death of corporations such as the MDC is what is exposing the economy to myriad shocks and disruptions in the production and supply chains — citing closure of Peoples Trading Centre (PTC) as an example of an entity in which the state cannot directly intervene as it does not have such mandate.

He was quoted by Times Group as saying: “A government must be able to intervene and if a government cannot intervene, it is a weak government but you would know that since the dawn of multiparty, we moved from intervention to liberalisation — which has failed our country.”

He further said revival of MDC could be a carrier of equity into various companies that if needed to intervene, government must be able to.

MDC was being financed by ADMARC, which was mobilising resources and channelling them to MDC towards investments and the investments of the corporation saw the birth of many companies including the Commercial Bank of Malawi, Sugar Corporation of Malawi, United Transport of Malawi (UTM), which died due to privatisation under Bakili Muluzi administration.

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