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Strategy for foreign currency problem in Malawi

 The Big Issue Malawi 04 June 2019

Recent years have seen the world become a more open place as people move freely from one corner to the other, trading in different goods and services. It has even become increasingly difficult to find a product that is entirely made in one particular country. The Big Issue Malawi’s Betchani Mbuyampungatete Tchereni reports on how the unceasing march towards globalisation has affected Malawians and their micro and macro economic environment. (904 words) - By Betchani Mbuyampungatete Tchereni

The world has become more open as people move from one corner to the other trading in different goods and services. It has even become very difficult to find a product that is entirely made in a particular country. What is now more inevitable is to find a product that has been assembled in a particular country using parts made in different countries.

Trade has now broken the language barrier and has become part of our lives. However, there are questions to be answered as one thinks about this network that now cannot be broken. How do people from different countries conduct trade using different currencies? What mechanism is used to conclude these transactions? Why is it that some economies are classified as small or developing while others are developed?

To begin with, Malawi's biggest trading partner is now South Africa (RSA). At macro level, Malawi is a net importer of most of manufactured goods and other advanced services from this African super power. We buy most of our household durables such as entertainment units, refrigerators, kitchen wares, clothes and even soaps from South Africa.

In turn, we export curios, labour and other items, however on a smaller scale. As we go to RSA to purchase goods we need to use their money (the South African Rand) to enable us exchange money for such items. The Malawian Kwacha then exchanges at the equivalent value of the Rand. This exchange rate is determined by considering, for example, how much it would cost to purchase a suit in Malawi and how match it costs to purchase the same suit in South Africa. In so doing, we would then know at what rate we should exchange the Kwacha for the Rand.

In practice there are foreign exchange regimes/policies depending on the availability and needs of the economy as a whole. In Malawi the exchange rate is ideally determined through forces of demand and supply but the Reserve Bank of Malawi also has a hand in the range at which the Exchange Rate is expected to be.

The major problem is for countries, like Malawi, which rely more on imports than exports. Every vehicle we see on the road has been imported. Most people wear clothes that have not been made in Malawi. The computers we use, plates, even cooking and body oils are imported. This now provides pressure on the already lean foreign exchange (forex) reserve. For such a reason all Malawians should be last in calling for a devaluation of the Kwacha since by doing so, we will make life difficult for ourselves as, inevitably, prices will increase.

The same lean forex reserve is required to acquire luxuries and necessities for people who need them. It is the duty of any responsible government to allocate forex to areas which people cannot do without. Such areas include fertilizer expenditures, drugs, fuels and other health related goods and services.

Goods like motor vehicles, clothes, bottled water and furniture have to be given a lesser importance. The point being advanced is that we should not blame government for the scarcity of foreign currency that lubricates international trade transactions.

Considering the great demand for forex, it is unreasonable to believe that tobacco alone could suffice all forex needs for the country. In other words, there is need for the nation to come together and consider improving initiatives such as the National Working Group on Trade Policy, value addition projects and human resource development in international market development to enable the country penetrate the so called developed markets with our products. In so doing we shall no longer cry for forex because we will be generating it ourselves.

The scarcity of forex should be approached holistically using strategies that will offer long-term solutions. Our current policy on forex management is a necessary evil because without it certain important areas may not be functional.

The problem of foreign exchange is aggravated by over-reliance on tobacco as a means of forex generation. As a nation, we have heavily depended on farmers who sell a primary product when we could add value to the tobacco, maize, groundnuts and other commodities. We are in need of forex because we the people are relying on imports to satisfy our wants and needs. We, as a nation, should end this culture.

Let us create a situation where the Kwacha can buy anything, not a situation where the Kwacha is only a medium of exchange for other monies and not goods and services. It's not time to stop thinking just because there is Kayerekera mine in operation.

The Government should be commended for realising the mining project. But it is time to consider wearing a suit made in Malawi, shoes made in Malawi, eating cornflakes made from our local maize and eaten from plates made in Malawi, and even driving branded vehicles assembled in Malawi as a priority.

It is time every Malawian did something to improve the corporate image of the country. It is time we stopped the blame game and began working to save the country. In the final analysis, let us all remember that offering primary commodities for sale will always place us at a disadvantage as we will become price takers, which will exacerbate our already worsening forex begging situation. The immediate and long-term strategy for the forex problem in Malawi is to revive and reinforce the "Best Buy Malawian" campaign.

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