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Forex Shortage in Malawi Leads to Rising Cost of Living

by Richie
10/18/2023
in Economic Indicators, Global Trade

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In Malawi, a foreign exchange (forex) shortage has led to an escalating cost-of-living crisis, significantly impacting both businesses and households. Joe Kambale, a tailor in Blantyre, Malawi’s commercial hub, exemplifies the struggles faced by many. Despite previously earning around 200,000 kwacha ($173) a week, Kambale’s business has declined due to reduced demand, influenced by the rising cost of living and increased prices for imported materials.

The forex shortage in Malawi, a country where half the population lives on $1 daily or less, has been attributed to reduced exports and is impacting the availability of essential goods such as food, medicine, fertilizer, and fuel. The Reserve Bank of Malawi reported the country’s foreign exchange reserves were nearly depleted as of June.

Economic analysts, such as Betchani Tchereni, associate professor of economics at the Malawi University of Business and Applied Sciences, link the crisis to the aftermath of the COVID-19 pandemic and the war in Ukraine, which have disrupted the global supply chain and led to inflation. The price of bread in Malawi, for instance, has risen by at least 50 percent since the conflict began in February 2022.

To counter the dwindling forex reserves, Malawi’s central bank devalued the kwacha by 25 percent in May, with further weakening since then. This devaluation, coupled with high inflation – 28.6 percent as of September – has made basic necessities unaffordable for many. The price of maize, Malawi’s staple food, has risen by 15 percent, and a family of six in an urban setting now requires significantly more per month to survive than last year.

Agriculture, particularly tobacco exports, is a key component of Malawi’s economy but is insufficient to cover the nation’s import bill. The country needs approximately $3 billion annually for imports but earns about $1 billion.

The private sector is seen as crucial in generating forex and engaging in import substitution. Tchereni suggests industrialization, particularly in mining, as a vital step towards a self-sustaining economy. He believes that exploiting valuable minerals and adding value to exports could be a path forward if the private sector invests in mining.

The forex crisis has also led to fuel shortages, compelling individuals like taxi driver Gift Lukas to find alternative means to sustain their livelihoods, such as buying fuel at higher rates on the black market. These challenges have forced many, including Kambale, to consider seeking opportunities abroad or changing their consumption patterns to cope with the economic situation.

Your source for supply chain report news updates: The Supply Chain Report. For international trade insights and tools, head to ADAMftd.com.

#MalawiForexCrisis #CostOfLivingCrisis #MalawiEconomy #ForexShortage #RisingPrices #TobaccoExports #MalawiKwacha #InflationImpact #AgricultureInMalawi #MiningInMalawi #COVID19Impact #UkraineWarImpact #EconomicChallenges #MalawiHouseholds #FuelShortages #BlackMarketFuel #ReserveBankOfMalawi #Industrialization #PrivateSectorGrowth #MalawiBusiness #MalawiTailor #EconomicSolutions #SupplyChainDisruptions

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