Malawi’s exports have continued recovering from the shock caused by the COVID-19 pandemic. The country’s total merchandise exports continued recovering to USD 1.0 billion in 2021. Malawi has a slightly diversified export profile and earnings from tobacco have begun recovering despite being below the medium-term average to USD 442.3 million (approx. 43.9% of total exports) in 2021. Other top exports from Malawi include sugar and oil seeds. These exports contributed USD 212.6 million (approx. 21.1% of total exports). Malawi’s export earnings from sugar have continued increasing to USD 121.6 million in 2021; and earnings from oil seeds have continued increasing to USD 91.0 million in the same period. Malawi’s trade deficit continued widening beyond the historical medium-term average of -USD 2.1 billion for 2018 to 2020, to -USD 2.6 billion in 2021.
Total merchandise export earnings have continued increasing which ameliorated the relieved pressure caused by net FDI inflows (foreign capital being invested domestically). Malawi’s FDI inflows have begun recovering despite being below the historical medium-term average at USD 50.3 million in 2021. Malawi’s FDI stock has continued increasing from an annual average of USD 1.5 billion for 2018 to 2020, to USD 1.6 billion in 2021. This bodes well for Malawi as a country that is aiming to attract more foreign investment to develop and diversify its economy away from the reliance on tobacco exports. However, the transition will require much further investment in human capital and development to enable domestic growth in Malawi. The recovering net FDI inflows could also signify the improving interest of international investors in Malawi.
Remittances receipts have grown moderately over the period. Personal remittances received have begun recovering from COVID-19 from an annual average of USD 231.2 million for 2018 to 2020, to USD 258.9 million in 2021. Personal remittance payments to foreign nationals have begun moderating since the COVID-19 pandemic from an annual average of USD 28.0 million for 2018 to 2020, to USD 36.4 million in 2021. Malawi has had net remittance inflows (net remittance receipts from the diaspora) which increased to USD 222.5 million in 2021. This has affected the current account balance and strength of the MWK over the period.
The MWK has continued depreciating. In nominal terms, the MWK depreciated by an annual average of -1.6% against the USD for 2018 to 2020. The MWK depreciated by -9.3% to an annual average of MWK 805.8 per USD in 2021. Malawi’s current account deficit narrowed despite being wider than the historical medium-term average. Malawi seems to have benefited from the improved climatic condition which have improved its agricultural output and exports. However, Malawi has been affected by the higher fuel and food prices which continued appreciating due to lower global supply following the sanctions against Russian exports after its military exercises in Ukraine. This is also reflected in the projections for Malawi’s current account balance.
In 2023, Malawi’s current account deficit is projected to widen in relative terms despite being below the historical medium-term average at -USD 1.4 billion (approx. -12.9% of GDP). In the medium-term from 2024 to 2026, Malawi’s current account deficit is projected to continue widening to an annual average of -USD 1.5 billion (approx. -12.7% of GDP). This illustrates a persistent deterioration in the current account balance due to the currently high fuel and food prices which is primarily driven by the impact of sanctions against Russia and the conflict with Ukraine. However, this could change in the medium-term due to the expected easing of geopolitical tensions. Therefore, Malawian authorities are still faced with difficulties ahead unless they can take advantage of opportunities in sugar and oil seeds to offset the cost of high fuel and food imports. The global price of sugar appreciated by 4.6% to USD 0.187 per pound in 2022 (2021: +38.6%; USD 0.179 per lb).
The issue of developing and diversifying the Malawian economy remains an elusive obstacle for the country. Malawi has a potential to grow its exports from sugar and oil seeds. These represent the highest growth potential towards diversifying the Malawian economy and export earnings. Apart from this, Malawi needs to invest in further infrastructure and human development through programmes that focus on climate change adaption and resilience. Deepening integration in the SADC region and increase intra-regional trade goes without saying. This will provide an opportunity for Malawi’s exports to compete against goods and services of comparable quality from the SADC region. Moreover, Malawi can offset the risks with its traditional export markets by increasing its dependence on the SADC region for its exports.