Whose fault is the perpetual devaluation of Malawi Kwacha

As anxiety over depreciation of the Malawi Kwacha persists, so does the blame game. Some blame the previous Joyce Banda and PP government for floating the exchange rate regime, while others believe that Peter Mutharika and DPP government of five months have failed to stabilize the Kwacha. And there are those that blame the tobacco seasonal variations and the frozen donor aid which are both the main sources of foreign currency reserves.

Malawians to dig more in their pockets to pay for services

Malawians to dig more in their pockets to pay for services

But whose fault is it really?

If we remove our political grudges and vendetta, which clog up our judgment and choose to look at the perpetually depreciating Kwacha with some economic sanity, we will, before pointing the finger at anybody, ask ourselves why presidents and governments have come and gone, but devaluation has remained? We would consider that whether fixed or floated, tobacco or no tobacco, aid or no aid, the Malawi Kwacha has continued to depreciate drastically over the past 20 years of our democratic governance.

We must remember that when we talk of the perpetual devaluation, we are talking about a perpetual consumption of more foreign products against perpetual failure to domestically produce the equivalent output of products to sell outside Malawi. Therefore, if we must blame someone, then we must blame the one that has consumed more but failed to produce the equivalent or more exports.

We are in a Capitalistic and Free Market Economy, where the creation of wealth or the making of money is hugely the responsibility of the private sector or in simple terms, the people. Government is a fiscal policy maker, implementer, and monitor. It is also a monetary policy maker, implementer and regulator through the Reserve Bank of Malawi. The fiscal and monetary policies do not create wealth, or foreign currency. On the contrary the policies only endeavour to create, sustain and monitor an enabling environment for the economic growth of the people or the private sector.

Therefore, while all the past presidents and governments of Malawi, and probably the incumbent too, have their own portions of blame to shoulder for the ever depreciating Kwacha, a huge portion of blame rests on our shoulders for our continuous failure to produce the right quantity and quality of exportable products, to meet the demand of huge consumptions of imported products.  Unless we export, even the best of government and Reserve Bank policies will be wasted.

But why are we consuming more, and producing less, causing the instability of the Kwacha in the process? I have three main reasons:

First, we are busy making more babies than money: The population of Malawi has risen alarmingly the past twenty years now at more than 16 Million. Rapid population growth, in the long term increases consumers not producers and keeps the people poor, in one way, because of the law of the diminishing returns. The more the people we add on a fixed amount of land, the less output is added by each and every one that is added. This means that the additional humans that we are manufacturing are only parasitic consumers whose input is not even needed to produce the desired output of our economy. Thus, the humongous population is only a regrettable increase in the number of millions of unproductive beneficiaries of public services that are financed by the few taxes, and foreign currency generated by a handful that are producing.

Second is lack of technology: lack of technologically advanced methods in production and service delivery leads to substandard products and services which are not competitive enough even on the domestic markets. Consequently people with money and government too prefer to import better quality products and services into the country, thereby depleting the very reserves that we need in order to stabilize the Kwacha.  The use of technology would also offset the pressure that the huge population growth is exerting on the economy. For instance, with advance agricultural technology, we could yield on the same fixed amount of land significantly increased production enough for domestic consumption, and exportable surpluses.  Our services too, would be efficient enough and increasingly accessible to meet the growing population, and attract foreign consumption while reducing the appetite for foreign products.

Third, we are all busy looking for someone to employ us: But who will employ who, when everyone is looking for someone to employ them? Job hunting increases the rate of unemployment. A Capitalistic economy can only succeed and grow where people are entrepreneurs and innovators. We must think more about how we can make money, without having to rely upon government or others to employ us for some wages. We must investigate our skills and talents and identify opportunities within which our skills and talents can be converted into money and wealth. We must cultivate the skills and talents so much that they are competitive for international consumption. Many people that consider themselves capable of self employment blame their failure on lack of capital. But if your talent and skills are good enough, they are the capital.

 

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35 thoughts on “Whose fault is the perpetual devaluation of Malawi Kwacha”

  1. Pido says:

    Peter Adakamwaza K400M Just A Trip to America

  2. fkr says:

    Excellent and true article. Poor education should be number 1 on the list though.

  3. Gimbogo says:

    Let Governmet provide condusive environment for production surely the private sector won’t fail

  4. Enock says:

    Another issue is that we don’t add value to our products,most of our goods are sold as law materials hence they fetch low price @ the foreign market,and I agree with mr x as he said luck of technology which has made our products not to do well even at the local market how do you expect it to do better at foreign market

  5. Mmihavani says:

    Very very true. The writer is knowledgeable.

  6. Amutchona says:

    I read on another paper a writer arguing that weak currency does not necessarily mean weak economy. The problem in our case is that when our currency is weak it does not translate into more exports as we do not have a lot of exportable products. Hence I would argue that weak currency in our case will (without a doubt) lead to weak economy especially if the unavoidavble imports such as oil become more expensive.

    As to who is to blame: well you cannot divorce the government as it has a hand in everthying that goes on including those areas that you may think are purely in the hands of the private sector. It is true that sothtimes and some people import “sillY” things thereby wasting the foreign exchange. The government can control that. I know that we want a free economy without government interferance. In an economy such as ours free for all may not work.

    The real concern to me is that we are not emphasizing on job creation and (especially) import substitution which could create jobs. In the process people travel to South Africa to buy virtually everything including. You might think I am exaggerating, but I have seen it with my own eyes.

    During these tough times let us reserve the limited foreign currency for critical items. The government through the Reserve Bank can assist in this regard.

  7. chuwa chimo says:

    this is true, we are not living within our means, and pipo here are shortsighted, amaona kuchedwa, they want to start a busisnes today and see the profit tommorow.

  8. Thats what we deserve.we had a chance to choose a leader so we did.

  9. mitu says:

    sindikugwiriza naye za chimanga chifukwa pali zambiri zoponsa chimanga ,kuli Beans,gnuts,peans,tomatoe,goats,apples abale pali zambiri we can exports these but we wait Gvnt to employe us Look Bunda students wait for BOMA

  10. MP says:

    current contributing factor to depreciation (and high inflation) is the CASH GATE scandal….too much money chasing few forex currencies….demand and supply issue

  11. lead by example says:

    Invite those economist they will always tell you why? Malawi has one big problem the biggest Problem “KOLAPUCHONI” this problem is what is killing our economy. This disease of Kolapuchoni is what makes us to be poor. all the money that was looted in past 20 years could have been used to construct something beneficial to the economy like maintenance of power stations which one of the driving force of economy in any country. lets take for example how can you process raw material into finished product when you don’t have electrical power and machinery? kolapuchoni is costing us a lot.

  12. kwacha says:

    mufuna tisiye ma sukulu basi….osakonza bwanji ndalama imeneyi…….mufuna Malawi ikhale Zambia eti kapena Zimbabwe? mpakana subject tizilipila k100,000 kuti tilembe…..musovengetu pamenepa boma

  13. Malawian says:

    I totally agree with number 6. The main problem we have in Malawi is that we lack good political leadership. All our leaders concentrate on how they can prolong their stay in power instead of developing the country.

  14. Mwenecho says:

    courts and Mbendera r to blamffe

  15. Ngakha says:

    Also too much free things in this country. Free stuff brings laziness.

  16. Yamikani says:

    Just out of interest, how many of those who have commented on this article have actually produced and sold anything? and so whilst we’re throwing economic jargon and history at each other, the Asian and White man are crackin their nuts as to the new innovation to sell to the world. Talk is Cheap. I agree with the writer, the citizenry has a fair share of blame to bear. We need to moderate our commitment to analysis of some of this economic hogwash/academia and actually get down to work. Serious Hard Work!

  17. Namate says:

    i invested alot of money in maize production thinking that i will export them to DRC at K25000.00 per bag. Alas government has imposed a ban on maize exportation. Is this what you call liberised economy? The production cost of maize per bag is more than K6500.00 per bag and yet government wants me to sell it at K4000.00., is this not on? No wonder malawians will always face acute food shortage. People are hard working but there some policies which deter pple from enganging in some production bussiness.

    1. johnM says:

      Like you , I am against the ban on maize export. This has led to the price of maize being depressed such that there is no impetus for commercial farmers to go into maize production. If people were allowed to export maize, prices would go up and there would be a greater impetus for maize production. We should fully liberalize the economy so that it can perform to its maximum potential

  18. Stop Population Explosion says:

    Excellent article, the first I have read on this site that actually touches on the real issues:

    1. Population explosion. Limit number of children (through health education and practical limits on number of children per female).

    2. Importing more than we export. Reduce appetite for consumption of imported finished products through punitive taxation. Use any tax raised directly as part of intensive programmes to support exporters.

    3. Frozen aid. Always assume zero-aid and construct government policies around that. Malawi must live within its means.

    It needs something radical. I am old enough to have exchanged MWK 2 with £1 when I first travelled to the UK and the population was around 6 million, we were taught!

  19. The Truthful One from the West says:

    A shallow and theoretical article. Government sets the pace, policy and direction. And we all know that during the campaign DPP were very vocal in promising Malawians that they will deal with the problems and the blame goes to the DPP Govt. You cannot blame innocent ordinary Malawians.

    1. johnM says:

      Obviously you are ignorant. Does Governmetn produce tobacco? Does Government order tomato from South Africa? The influence of Government in economic activities is greatly exaggerated. At the end of the day, what determines the value of the Kwacha is the demand of foreign currency versus the amount of foreign currency we can earn from what we produce here at home. If what we are producing cannot meet what we are demanding then the value of the currency goes down, irrespective of what Government can do.

      1. Zamadula says:

        JohnM, the only ‘knowledgeable’ person in the whole of Malawi, who does not understand the critical role of Govt to create an enabling environment. How can a sensible Govt allow the importation of tomatoes since imports are supposed to be regulated? How can a sensible Govt carelessly spend the little forex we have on useless jaunts to New York with bloated delegations (twice within a month)? How can a sensible president blow valuable forex through the burning of fuel because his convoy is always longer than that of Obama, Cameron and Merkel combined?

        It is the duty of Govt to ensure that we generate more forex than we consume – this is why we elect these buffoons in the first place: To properly run the economic affairs of this nation.

        In the past when all Sub-Saharan African countries were run like Malawi is run, APM and his DPP would have been able to hide. But the good news is that many have now seen the light. All three countries that surround us are doing things differently. Each passing year we are falling further and further behind because our politicians are only interested in amassing more power and wealth and doing everything to extend their stay in power. However, there is a lot that can be achieved by a Govt with adequate political will…

        1. johnM says:

          I am interested to find out from you, how does Government ensure that we generate more foreign exchange. If a tobacco farmer this year decides to cultivate 3 hectares instead of 10 hectares, how does Government influence his decision to cultivate more land or less land?

          The generation of foreign exchange is a decision that is suppose to be made by entrepreneurs who are suppose to examine the business environment and come up with way of generating income from that particular environment. In Malawi, we do not have many entrepreneur. Most of what we call businessmen are really individuals who wait for contracts from Government hence issues such as cashgate. They are not many who generate their own ideas and attempt to explore new area in which they can generate income.

          I am also against “regulating imports” as you put it unless the imports pose a threat to the health of people and other living things in the country. Putting up barriers against imports of various products only makes things worse. What is required is to generate more foreign exchange by diversifying the economy. The country has huge potential for fish farming yet we are barely scratching this potential. While we are sitting on our laurels, in Zambia, they are producing fish from Lake Kariba, which very small compared to our lake, and exporting to this country. Are you telling me that it is the Zambian Government producing the fish for export or is it individual Zambians using their talents to do this?

          I firmly believe that we Malawians are spoilt. We are constantly looking at Government for solutions to our problems. Solutions to our problems lies with us and not Government.

        2. Inu says:

          Zamadula, i think you just want to politicize issues here. What the writer has written is true. Government cannot ban the importation of tomatoes because that will be against free trade principles of the WTO which Malawi is a signatory. Tax regimes can be used to make imported tomatoes very expensive. What we need is to find mechanisms for import substitution. Things that we can produce locally should be well distributed throughout Malawi and make imports of the same very expensive and uncompetitive. As the writer has suggested, as Malawians we need to become more innovative to idenify ways of making more money through exports

  20. Medrian Kaunda says:

    It is really pretty simple. Without a transparent and competent government, the donors have to hold back much of the support, since otherwise the money will be wasted and eaten. Donor countries are not like Malawi where the government can play around with public funds and services as they see fit for their own purposes, ignoring audit eports and other necessary checks and balances in the process.
    Secondly, Malawi needs a totally diversified agricultural sector, not just depending on tobacco. The last 40 years of government have known (and said) that, but noone have done anything about it. Therefore it i only tobacco, a waning cash crop internationally, which can carry Malawi. It is pretty simple. Do not bother to mention political parties.
    Malawi do NOT have any REAL political parties as yet.
    As it is, it is back to the queing lines you know so well from 2011-2012.

  21. Redeemed says:

    Very good article. I wish all Malawians could read this.

  22. kanchenga says:

    This is academic and completely rubbish. No reality at all. Look around you and see the real facts on the ground and you will see that it is government fault we are facing the problem. As you rightly say it is government job to create an enabling environment for wealth creation by the private sector, has government done That? The answer is no.Consider this factor. In 1994 Muluzi in a drive to help his fellow yaos who were running kaunjika business, removed the restrictions on sale of kaunjika which Banda had put in place. Banda in his wisdom knew that uncontrolled sale of kaunjika would destroy the textile industry which had just started growing but Muluzi foolish as he is could not see this. Result, DWH closed and sold the plant to mapeto who are suspected to be ordering much of the cloth from India and re bland as if it is Malawi product. Chain reaction is because DWH stopped buying cotton from admarc ginning factories closed NOIL a malawian company producing oil from cotton seed also closed. Farmers had no market for their produce so they also stopped growing. And companies supplying raw materials and tools to these farmers also suffered. Huge taxes were lost. The other point is lack of continuity of state undertakings due to foolishness of government leaders. Take General farming for example. A well established and efficient company destroyed just because Muluzi wanted to erase Kamuzus record. By killing GFC Muluzi did not realise that most companies that were doing business with GFC would go with it. There was a directive that all tobacco bales should now be a special cloth that DWH was asked to start making this would have increased the demand for cotton because tobacco requires twine for hanging in barns that would come from DWH. Another example is the bus company. Muluzi allowed the importation of minibuses that killed UTM just when Dr Banda had asked UTM to start using locally manufactured bodies. PEW was making top class bodies they died for lack of market because minibuses had killed their market. So you see there are Malawians who are enovative enough for us to develop. It is foolish leadership that has destroyed the kwacha. I will agree with you though if you say that by electing foolish leaders Malawians are guilty. Not the academic rubbish you have written.

    1. owen odinga says:

      Kanchenga,I fully support you

    2. Inu says:

      While you have written so much sense, however it does not dispute what the writer has put forward. Yes Muluzi would have done better if he had a clue which he did not and how could he being that he was not well educated. However, we have also to factor in structural adjustment programmes and how they destroyed state owned enterprises in developing countries. When Muluzi came to power, decentralization and privatization were the main strategies to improving state performance. However these could have been adopted but in a clever way. For instance instead of people buying minibuses, they could have bought shares in the bus company. This could have been extended to all the companies that were owned by government.

      So while Muluzi did not help matters, it is the past and there is nothing we can do about it. What we need to consider is what we should do now in order to improve our fortunes as a country. That is what this article is all about.

  23. Kenkkk says:

    Trying to artificially fix the kwacha is like painting a rotten wood or timber. So JB and the current dpp govt policies on the kwacha are on the right direction. Let the kwacha find its own level on the world currency market. You can not make the kwacha what it is not. That is deceiving ourselves or cheating!!

    Pain now and smile later. You have touched other issues there which are contributing to the fall of the kwacha and I agree. Yes donor budget non- support is one of them; yes agriculture, etch but also cashgate over the years has contributed to that as well because such large thieving of govt money was actually factoring in instability on the kwacha due to a significant chunk of the budget money being stolen for personal rather than national development projects. Now the failure to significantly make inroads into the cashgate issue is contributing to the downfall of the kwacha as there seem to be no confidence that the govt will seriously sort out cashgate to the satisfaction of donors and most malawians.

    Back to the drawing board work hard and instil good governance to bring back confidence.

  24. mesho says:

    with all these trees, bushes and grasses we have in Malawi, we spend the scarce forex importing tooth picks from China. My foot!

  25. Ngiyakufisela ntcheu says:

    POOR AND SEMI-BAKED ANALYSIS HERE. The writer’s analysis is wrong in seeming to absorb government of its key responsibilities and blaming The citizenry for its failure to innovate etc. etc. Policy choices and setting are the roles of government and are so critical that they can make or break the economy. Kamuzu did great work for this country but failed terribly to innovate beyond tobacco and. Chair Muluzi perfected the art of corruption in this country and wasted our 10 years. Bingu did well initially but when he smelled the public purse he grew big-headed biting at the hand that feeds in the name of fighting imperialism. He invented cash gate which Joyce Banda perfected. Now we are paying the heavy price. BOMA sets the stage for private sector to dance properly. I believe our governments could have done better.

    1. johnM says:

      I totally disagree. In my opinion, Government’s key responsibilities are to maintain law and order and to defend the nation against internal and external enemies. A lot of people think that Government should get involved in commercial activities however that should not be the case. When Government does get involved in commercial activities, Government does not do a good job. A case in point is the telecommunication sector, before the coming of cellphones, it was very difficult for one to get a line. He or she had to be special in the society. The coming of cellphones changed all that. Private operators were allowed to enter the sector and now even John Banda in Nambuma can get a line and a phone.

  26. mwika says:

    I agree with you. Agree with the arguments you are advancing. I believe for this problem to end, we should remain in this state for sometime without handouts from donors, then out lessons from this experience we will begin to work hard, stop producing children to our leisure and then we will begin to move forward.
    It is painful to see folks literary doing nothing, and yet they continue to eat. Check the holy book, it strongly talks about hard work and discourages laziness, idleness. In fact it says, those that do not work should neither eat.
    Doing something, anything that is productive will bring wealth and prosperity to Malawi

    I remember another thing. Let us fight this ignorance. Look at how many people already working but also engaged in some additional cash creating activities, while those fellows that have no or little education are just living like everything is normal, and they beg also like it is normal. Come on.

  27. My take says:

    Good analysis and I totally agree with you…..however, the little that is available, if well invested could shoulder some of the problems….our politicians know this but they prioritize in enriching themselves first without consideration of the poor Malawians. I believe for example the large sums of money chewed through cashgate and other corrupt means could have made a huge difference on the economy if put to the right use. How can we improve on technology if there are no monies to explore it?? and how can we be entreprenuers if no one has money to buy and promote our products?? the end result is frustrated people who find solace in sex and alcohol and hence population boom.. a very vicious cycle that is hard to break….but possible to tackle…..We need to go back to the basics, and education is the right step to address this although the results are in the long-run it is worth giving it a shot…as for our leaders, we need to make them accountable and keep reminding them that they are serving the people and not themselves, so it is our responsibility to put in place leaders that are responsible…… i think there are so many issues we need to address but these are just some of them….. As a united Malawi we can reverse this situation for the better….

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