Mending broken fences
Business In Africa Online
TRADE AND ECONOMY
Mending broken fences
14 January 2005
It seems neighbours Malawi and Zimbabwe are kissing and making up after a couple of years of strained trade relations.
By Hobbs Gama in Blantyre
Malawi and Zimbabwe are two countries with a long history of trade partnership which began even before independence. However, several recent political-economic misfortunes have hampered the smooth implementation of bilateral trade pacts, with issues of trade imbalance, flouted trading rules and an unfavourable environment being bandied about.
For the past few years, Zimbabwe has failed to repay debts owed to Malawian exporters and to remit pension funds for thousands of Malawian workers in that country. This is largely because of a foreign exchange shortage, with the depreciating Zimbabwe dollar at one stage trading at Zim $500 to US$1.
From the Malawian side, all hope is not lost. The strict financial measures put in place by the administration of President Robert Mugabe have been noted. The Reserve Bank of Zimbabwe put a tight lid on borrowing from the domestic financial market, which has seen interest rates drop from 600% to 200%, while the foreign reserve position has stabilised at $1.2bn - compared to $300m in 2003.
And with recovering forex rates, Harare has since remitted part of the outstanding payments for Malawian firms and pensioners. “The Malawi government now has faith that active trade will resume. The challenge is with the private sectors of the twocountries. Malawi is optimistic about economic recovery in Zimbabwe following reduction in borrowing and inflation rates in that country,” said Eunice Kazembe, Malawi’s minister for Trade and Private Sector Development after a trade and customs meeting.
A Malawian delegation to Zimbabwe recently signed a fresh bilateral trade accord. Known as the Reciprocal Investment Promotion and Protection Agreement (RIPPA), it aims to promote and protect a conducive trading and investment environment. Such arrangements give confidence to investors and help promote inflows of investment into Zimbabwe and Malawi, said Zimbabwe’s minister of Finance and Economic Development, Herbert Murerwa.
“Foreign investment is critical to the economic development of any country as it provides new technology, improved production methods, inflows of foreign currency, access to international markets, joint venture partnerships and helps to create employment,” said Murerwa, rather stating the obvious.
It was also agreed that Malawi would lift its duty-free import status on its neighbour’s products to protect its struggling markets until it recovered from tough competition on the local and regional markets. It is a temporary strategy to give respite to Malawian manufacturers. Previously there had been temporary bans on Zimbabwean products like dressed chickens and other poultry products, soaps, cooking oil, eggs and cement.
In recent times, Malawian markets have been choked with cheap Zimbabwean imports, leaving no space for Malawian producers. Issues of exploiting the local market as a dumping ground, and trade imbalances where Zimbabwean producers dominated the market, naturally arose.
“The temporary scrapping of the duty-free landing aims to address the dumping of Zimbabwean goods, which was hurting local manufacturers. The proliferation of these products on our markets has hurt industries which have linkages with the rural sector; as you know, development in the sector concentrates on agricultural produce,” said Kazembe.
In the past ten years, more than 30 Malawian companies have closed, rendering a lot of people jobless and causing numerous social ills. Wholesale liberalisation, characterised by an unregulated influx of foreign products from around the more advanced industries of southern Africa and abroad, are frequently singled out as the cause of the demise of Malawi’s infant industry. Currently, countries of the Southern Africa Development Community (SADC) are grappling with the issue of tariff removal. In Harare, ministers from the SADC states reviewed the regional trade protocol established in 1996, which among other things provides for reduction of tariffs on certain products and removal of some trade barriers.
The protocol is one of the adopted concepts to open up free circulation of goods and opening up of trading activities to the wider regional market before the countries explored the stiffer global market which cannot yet import products from the developing world.
It looks as if the phasing out of tariffs is a broader problem. Most countries of the region heavily depend on revenue collected from customs duties to finance their budgets. In the case of the Malawi government, it would not do away with certain tariffs that would limit its revenue base.
“There is need for government to turn around revenue collection before it can fully implement the articles of the protocol,” says Kazembe.
At a recent symposium in Blantyre, stakeholders in the economy talked at length on the rampant proliferation in Malawi of fake products, some of them smuggled in from neighbouring countries. The Malawi Confederation of Chambers Commerce and Industry (MCCCI) and the Consumers Association of Malawi (Cama) were vocal not only about the health hazards of counterfeit and substandard products. They also noted that Malawian consumers reeling under the impact of shrinking personal incomes are attracted by the cheaper pricing of such products, and have since launched awareness campaigns on the need to protect Malawi’s local industries.
Government is presently working to enact a law that will provide for stiffer punishment for producers and sellers of counterfeit products.
Another bone of contention in Malawi has been the negative impact of the donor-imposed privatisation programme, as government was forced to shed its unproductive state entities that were burdening already constrained state budgets. Whatever its merits, privatisation has brought untold miseries emanating from massive lay-offs and restructuring (downsizing of operations).
