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Market Report Fortnight ending 25th April 2003 Report
08/03
Tobacco Sales and Long Term Prospects for the
Malawi Economy
The state president officially opened the 2003 tobacco-marketing
season on 15th April 2003 at the Limbe Auction Floors.
Actual sales at the Limbe and Lilongwe auction floors,
respectively, started on the 10th and 11th March 2003
while the Mzuzu Auction Floors opened its doors on 23rd
April 2003, over a month late than the other floors
due to inadequate supply of the leaf.
According to the Tobacco Control Commission, Malawi
will again this year not meet the demand from prospective
buyers more especially in the burley and flue cured
tobacco categories. The market demand for burley tobacco
this year is estimated at not less than 140 million
kilograms against a projected supply of 120 million
kilograms. In 2002, the demand for burley was 150 million
kilograms against a supply of 125 million kilograms.
The 2003 estimated demand for flue cured tobacco, at
20 million kilograms, will exceed the supply which is
projected at 16 million kilograms. Last year, the market
demand for flue cured tobacco was again at 20 million
kilograms but supply was 11.5 million kilograms.
This notwithstanding, the excess demand for the leaf
has done little to improve on the prices. The opening
price for burley tobacco this year averaged US$1.10
per kilogram in sharp contrast to an average price of
US$1.60 registered last year.
This outturn reflects to a larger extent the effects
of the worldwide anti-smoking lobby and is worrisome
as it shades a gloomy shadow over the long-term growth
prospects for the Malawi economy. Tobacco has for decades
taken a leading role in the growth of the economy. Proceeds
from tobacco have provided a critical source of foreign
exchange.
The anti-smoking lobby is slowly creating uncertainties
about the future of the tobacco industry and this is
a challenge to all stakeholders to expeditiously find
or consolidate alternative sources of economic growth
and foreign exchange earnings.
Although it inevitably impossible to find a perfect
substitute to tobacco as a major source of foreign exchange
overnight, measures should be put in place to ensure
prudent use of our hard earned foreign exchange. Economic
managers should devise deliberate policies that will
see the economy produce its own basic food products
to cut on imports of such products. Ways should also
be found of strengthening our export front. Due to effects
of globalization, the best way of approaching this challenge
is to create an enabling investment climate that will
attract foreign investors, more especially those from
multinational corporations.
The involvement of multinational corporations has added
advantages in that in addition to bringing in scarce
financial resources, they also bring with them up-to-date
technology and they already have command over international
markets. The presence of multinational corporations
also creates a spirit of competition among local industries.
Competition brings about increased productivity, a prerequisite
for sustainable economic growth.
The Malawi Kwacha Exchange Rate
Increased availability of foreign exchange on the market
from tobacco proceeds has witnessed an improvement in
the kwacha exchange rate against its major trading partners.
Currently, the average exchange rate of the MWK to the
USD has dropped to around MWK90.30 compared to MWK91.65
registered at the close of March 2003.
Indications on the foreign exchange market
are that the current downward trend in the kwacha exchange
will continue and the MWK per USD is likely to level
off at around MWK90.00 in the short and medium term.
Financial Markets and Interest Rates
Yield rates continued to increase despite excess demand
for government paper by investors. According to auction
results for treasury bills conducted on 11th April 2003,
the demand for treasury bills amounted to K1, 084.1
million against a required amount of K1, 000 million.
This notwithstanding, the yield rates for the 91 days,
182 days and 273 days bills increased to 37.73%, 38.97%
and 39.66% from respective rates of 37.69%, 38.91% and
39.57% recorded on 4th April 2003.
The market for Reserve Bank of Malawi
Bills as per auction results of 15th April 2003 experienced
a surge when issues increased to K1, 142.15 million
compared to K869.67 million raised on 8th April 2003.
Nevertheless, yield rates for both tenors rose when
the rate for the 63 days increased to 37.06% from 36.99%
recorded on 8th April 2003 while that for the 91 days
increased to 37.44% from 37.41%.
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