Malawi economy improving, my foot! -‘Cut the chuff’

In Weekend Nation newspaper, popular columnist  Ephraim Munthali of the  ‘Cut the chaff‘continues to critique the economic performance of  President Joyce Banda. Here if the full articled as it appeared:

Maybe it’s me who is blind but I can’t see the optimism that is coming from politicians, policy makers and even respected economic analysts who somehow see that the economy is improving.

Apparently, there is a capacity utilisation survey that the Reserve Bank of Malawi (RBM) conducted in February 2013 which shows that real gross domestic product (GDP) would rebound this year.

Nico Asset Managers quotes the survey as indicating that industrial activity is expected to improve to 66.7 percent in 2013 from 55.8 percent in 2012.

But given how tiny our manufacturing sector is, even if the mining industry was included, I do not see an increase in capacity utilisation impacting GDP output much.kwacha bundle

All the same, there seems to be consensus that 2013 is the year of “breakthroughs” after more than two years of tepid growth.

For this year, the highly regarded Economist Intelligence Unit (EIU) forecasts growth of 4.1 percent whereas the International Monetary Fund (IMF) projects output of 5.5 percent and the Malawi Government is targeting annual GDP expansion of 5.7 percent by December 2013.

“Growth in 2013 will be supported by the recovery in aid, the expansion of agricultural subsidies, fiscal discipline, possible stabilisation of exchange rates and improved investor sentiment as well as an increase in uranium production,” observes Nico Asset Managers.

But looking at the major macroeconomic variables—which are crucial to the country’s industrial resurgence—we have reason to be cautious.

For example, Nico Asset Managers notes that:

• During the month of February 2013, headline inflation rose to 37.9 percent from 35.1 percent in January 2013, with urban inflation increasing by four percentage points to 39.60 percent from 35.60 percent and the rural inflation increasing by 0.4 percentage points to 33.70 percent from 33.30 percent. Let me add that even with people starting to harvest; inflation is likely to continue climbing due to lagging effects of high food prices and continued jumps in fuel prices.

• The All-type Treasury Bill (Tb) yield increased to 42.37 percent in March 2013 from 32.16 percent in February 2013. To me, this signals heavy domestic borrowing by government that is crowding out the private sector as it pushes borrowing rates up which, apart from other factors, will worsen the cost of doing business in the country, including manufacturing.

• The kwacha weakened against all the major currencies during April. As at March 31 2013, the kwacha was trading at K405.18 to $1 (6.9 percent decline); K613.04 to £1 (6.6 percent decline); K43.75 to the South African rand (4.1 percent decline) and K517.82 to €1 (4.6 percent decline). I have to say that for a local industry that imports most of its raw materials, this will hit output hard, especially given that the local unit will continue to slide on the back of a large and monetary current account deficit.

Finally, there is the small matter of our confused and confusing economic policy in which the objectives of strengthening competitiveness and growth are fatally colliding with the need to control inflation (unsuccessfully) and limit excessive credit expansion.

Let’s wait and see.malawi-nation-point-of-order-ralph-mawera

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