Poor tobacco sales have never been good news for Malawi. Tobacco is not touted as the country’s green gold for nothing. The crop accounts for about 13 percent of the country’s gross domestic product (GDP). And every time proceeds from the leaf plummet, the economy goes south.
This year’s sales from tobacco are likely to be US$50 million lower than last year’s. As of last Friday, cumulative sales were about US$240 million, which is about the same amount the country fetched last year at the same time, except that this year sales are almost going to an end.
The problem this year is the poor prices flue cured tobacco sold using the auction system is fetching because there are few buyers for the leaf against an oversupply of stocks globally.
China, which prefers flue cured tobacco, for example, is said to be sitting on large stocks, according to the Tobacco Control Commission (TCC) Chief Executive Dr Bruce Munthali. The TCC chief attributes the poor prices this year to farmers failing to produce in line with demand. He advises that the remedy is to seek more buyers and for farmers to align themselves to buyers. In the wake of this development, TCC has been encouraging small buyers to participate in buying the crop.
What is evident from the poor sales is that the economy is likely to take a knock, especially against the backdrop of donors withholding aid owing to the unresolved issue of looting of government coffers. They are also hesitance to resume direct budget support because they still do not trust the government’s financial systems following continued massive looting of government coffers through manipulation of the Human Resources Management Information System (HRMIS).
From the look of things, government will have to do much more to persuade donors to resume direct budget support as they have fallen head-over-heels with off budget support.
Coupled with this is the fact that government has to procure about 80,000 metric tonnes of maize from Zambia and Tanzania, a development that will eat into the already small envelope. Of course, the World Bank which will provide money for the procurement of the maize. But this money is not given gratis. That is half the story about the economy—the fiscal side.
On the monetary side, as if the above scenario is not bad enough for the economy, the Kwacha has been tumbling against other trading currencies even with tobacco sales still underway.
As for interest rates they are very high—at between 37 percent and 39.5 percent—despite the Reserve Bank of Malawi policy lending rate of 25 percent. This has resulted in high default rates resulting in commercial banks and other financial lending institutions repossessing property from loan defaulters.
However, as this is happening, and everybody, including the manufacturing sector is complaining, commercial banks are posting obscene profits. Even the beleaguered Malawi Savings Bank (MSB) which faced imminent closure with a run on has this year declared a mouth-watering K2.5 billion profit after tax. How does one justify these gargantuan profits in the banking sector against the outcry that lending rates are prohibitive? And who determines the commercial banks’ interest rates? Aren’t there ways to protect customers from this broad daylight exploitative behaviour by the banks? So even the Reserve Bank of Malawi is so powerless to bring some sanity on this issue.
If the problem is that we have very few commercial banks which then determine interest rates willy-nilly, then probably government should be encouraging more players in the banking sector. It is as if commercials banks are working like a cartel whose sole aim is to milk their customers. Surely, these profits are not ethically justifiable.
Of course, both the private sector, through the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) and government are crying foul over the high interest rates. But one wonders why all that government can do is cry wolf.
From the look of things government does not seem to have a quick fix to this issue and only God knows how long the problem will be upon us. Government’s position is that the way forward is to create a development bank. But for all we know that cannot happen anytime soon.
Both the Minister of Finance Goodall Gondwe and Minister of Industry and Trade Joseph Mwanamveka have argued that the creation of the proposed development bank would offer a solution to the problem of high interest rates which make it difficult for individuals and the private sector to access financing.
The question then is if the problem that bedevilled MDC and MSB are one and the same—government compromising on the professionalism of the bank’s management—then it (government) is contradicting itself with the decision it has made to establish another bank.
By the way, a few weeks ago former Finance Minister Friday Jumbe announced that he is seeking a whopping K584 million as compensation from government for unfair dismissal from the yet-to-be-established Malawi Development Bank (MDB). Jumbe claimed he was appointed Chief Executive Officer (CEO) for the bank and has already been paid K14 million for the two-and-a-half months he occupied the position. Is Parliament not supposed to approve the establishment of such a bank? But I digressed.
The issue here is that government has to come clean on how the proposed bank will not be abused in the same way that led to the closure of MDC and sale of MSB.
Without being nostalgic of the single party era—when government wholly owned banks like MDC and other entities would operate efficiently, the problem is that the transition to the multiparty dispensation did not insulate state-owned entities from abuse by the powers that be. The need for the ruling party to appease people who helped to put it in power and the propensity to defend the status quo is what led to the demise of MDC and now the sale of MSB.
All said, the contradictions on the part of government are very clear. If it wants to establish another bank, it must come clean on how different the new entity will be in terms of its ownership as well as organisational structures so that it does not fall prey to the same problems that led to the collapse of MDC and sale of MSB.
And there is need for all Malawians to take a keen interest in this issue. They can ill-afford to leave it to the Executive and Parliament alone.Follow and Subscribe Nyasa TV :