Tobacco farmers to cash in on Malawi Kwacha plunge

Economic experts have indicated that the 48 percent kwacha plummet has straight-away put the tobacco farmers on the smiling queue to the bank.

The tobacco growers in the country will have a best gain in kwacha terms by carting home K250 to a dollar rate from their tobacco sold.

“If a farmer has sold for instance one bale of tobacco weighing 100 kgs at an average price of 1 dollar a kilogram, he will have about K25,000 as opposed to when the exchange rate was at K166 to a dollar which will would have seen him collecting only K16,000 on a 100kg bale,” said one financial expert.

However, the expert warned that this excitement could be short lived when walking out of the bank as the happy grower is likely to meet rising costs of commodities on the market.

Chuka: Increased earnings

“My view is that now that the country has demonstrated the will to put the economy in order, the donors must quickly move in and pump in their dollars as a matter of urgency otherwise the weaker Kwacha and unavailability of the hard currency on the market will cause a spiral in macroeconomic instability and cause strained governance position,” the expert said.

On the other hand, most commodities may not rise through the roof as speculated because “most traders were already using the then black market rate of K300 to a dollar to import their products.”

“The high rate of exchange was already in practice so there will be little or minimal impact on the commodity prices unless other indicators move into play such as continued unavailability of foreign exchange on the market which will drive the entrepreneurs back to the parallel market which could push its rates towards K450 to a dollar,” said the expert.

Reserve Bank of Malawi allowed the currency to devalue by 50 percent, heeding calls from the IMF to cut what was seen as an artificially high exchange rate that was hitting the impoverished state’s economy.

Central bank Governor Charles Chuka said the devaluation of the kwacha is further expected to have the effect of reducing demand for imports of consumer goods in favour of domestically produced goods.

“Most importantly, it should also, together with the liberalisation of foreign exchange market, contribute to government’s efforts to reach early agreement with the IMF which should leading to unlocking donor flows in the next few months,” he said.

Chuka dded: “Existing exporters, including sellers of tobacco at the auction floors, should benefit from the devaluation through increased earnings.”

Furthermore,  the central bank said the smuggling of products, including tobacco, across the borders in search of better prices is likely to be reduced.

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