Fixed kwacha affecting export business—MCCCI

Fixed kwacha affecting export business—MCCCI

Post was last updated: May 19, 2023

Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has faulted the current exchange rate regime, saying it is a disincentive for formal exporters.

MCCCI president Lekani Katandula said this on Wednesday in Blantyre during the opening of the 33rd Malawi International Trade Fair and inauguration of Malawi Bureau of Standards office complex and laboratory.

Katandula: It is creating disincentives

His sentiments come almost a year after the Reserve Bank of Malawi (RBM) devalued the kwacha by 25 percent to narrow the gap between the official and parallel exchange rates.

Katandula, who is also Illovo Sugar (Malawi) plc managing director, said the local currency is rigid, thereby costing exporters who are realising less than what they should have realised from their exports in local currency.

He said: “Our tobacco farmers are getting their dollar earnings converted to kwacha at K1 036 or less after bank charges per dollar when other informal exporters are trading their dollars above K1 500. This is an immediate case in point.

“The unintended consequence of this official policy is the creation of disincentives for formal exporters.”

Katandula said incentives for import substitution to grow formal exports should be key, but achieving this when the official exchange rate is misaligned would be a challenge.

When the RBM devalued the kwacha last year, imbalances between supply and demand were huge on the domestic foreign exchange market evidenced by low foreign exchange supply, declining official foreign reserves and widening spread of rates on the market.

However, close to a year after the devaluation, the kwacha is trading at an average of K1 500 on the parallel market and forex bureaus against the official exchange rate of K1 036 based on daily foreign exchange bureau rates published by the central bank.

This is also despite the central bank and Treasury indicating that it would commit to a flexible exchange rate regime that allows the kwacha to automatically adjust to domestic and international currency developments.

Economic consultant and researcher, Exley Silumbu said the current exchange rate regime has given a lot of tasks as supply for forex is increasingly becoming difficult.

“We are facing supply and demand imbalances in the forex market as we are not even meeting the minimum requirement forf imports,” he said.

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