Revitalizing Malawi’s Export Sector: Harnessing the Power of Urban Markets
Key Business Points
- Targeting urban markets in trading partner countries can increase the lifespan of Malawi’s exports and boost economic growth by reducing the risk of export failure by approximately 4.5 percentage points.
- Agglomeration in importing countries enhances the survival of Malawi’s exports, particularly in sub-Saharan African destinations, and policymakers should prioritize trade promotion efforts toward markets with higher agglomeration levels.
- Strategic market targeting is crucial, as combining market density with strong institutions yields optimal results, and Malawi should prioritize trade agreements and partnerships with countries that demonstrate both high agglomeration and strong institutional quality.
A new study published in the Journal of Industry, Competition and Trade has revealed that targeting urban markets in trading partner countries can increase the lifespan of Malawi’s exports and boost economic growth. The study, conducted by University of Malawi-based researchers Tadala Banda and Farai Chigaru, analyzed Malawi’s export data from 117 trading partners over 20 years, from 2003 to 2022. The findings show that agglomeration, or the spatial concentration of economic activities in importing countries, reduces the risk of export failure by approximately 4.5 percentage points.
The researchers recommend that policymakers prioritize trade promotion efforts toward markets with higher agglomeration levels, particularly urban centers in trading partner countries. Urban markets such as Johannesburg, Nairobi, Dar es Salaam, Lusaka, and Lagos offer thicker demand, better distribution networks, lower information and matching frictions, and greater scope for relationship learning and repeat transactions. As Economics Association of Malawi (Ecama) President Bertha Chikadza noted, targeting foreign urban markets is not only desirable but empirically justified as a survival-enhancing strategy for Malawian exports.
The study also highlights the importance of strategic market targeting, as combining market density with strong institutions yields optimal results. Malawi should prioritize trade agreements and partnerships with countries that demonstrate both high agglomeration and strong institutional quality. This can be achieved through sector-specific trade missions to major metropolitan areas, participation in urban-focused trade exhibitions, and development of distribution networks that leverage agglomeration economies.
Additionally, the study reveals substantial heterogeneity in export survival across destinations and product types, emphasizing the importance of strategic market targeting. The researchers also note that distance has significant negative effects, highlighting the importance of reducing transaction costs. Policy interventions should include investment in trade facilitation infrastructure, particularly for landlocked Malawi, development of export logistics hubs and consolidation centers, and training programs to improve exporters’ language skills and cultural competence.
In Chichewa, this concept is known as "kujumpha kwa masoko", or market penetration, and it is crucial for Malawian businesses to understand the importance of targeting the right markets to increase their export lifespan. By prioritizing trade promotion efforts toward markets with higher agglomeration levels and combining market density with strong institutions, Malawi can boost its economic growth and increase its exports. As Chigaru noted, government should provide targeted incentives, including export credit guarantees that cover re-entry costs, mentorship programs pairing experienced and novice exporters, and market intelligence services providing real-time information on partner country conditions.
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