2.- MALAWI'S TRADE


Malawi’s principal sources of external revenue are oda and exports of goods, at about the same level; exports of services are very low. Malawi is much more dependent on aid to finance its trade even than the average for other African or other least developed countries. Tourism, a major earner for other countries in the region, is only 1% of export revenue, and declining. Its imports are typically 30-50% greater than its exports, so that a policy operating on them would, arithmetically, have a larger impact on the economy.

The concentration of its exports remains among the highest in the world, so that although it shows relatively good performance by value, it is very vulnerable to price movements by a single commodity, tobacco. About 60% of exports are tobacco, and tobacco, tea and sugar make up three quarters of the total. Malawi is an important supplier of tobacco in world terms, about 4% of total world exports, but this is still only half the share of Zimbabwe, for example. An important difference is that for Zimbabwe and the other major suppliers of tobacco it is a much smaller share in their total exports (about a quarter for Zimbabwe, substantially less for the others). This high dependence on a single commodity, without being the major supplier, is not unique for a least developed country in Africa (coffee in Uganda, copper in Zambia), but it is a very vulnerable position, particularly when the commodity is one subject to health concerns. It would make it difficult to use that export as a basis for expanding exports or for financing investment.

The costs of trading, both exporting and importing, are increased by the natural conditions of Malawi: landlocked, with limited transport routes to all external markets and a complex and highly inter-mediated system of transport; by inadequate physical infrastructure: in Malawi and in the neighbours on whose transport it depends; and by inadequate institutional arrangements at the borders. One trader estimated that the total cost of taxes, transport, and other additional costs added 80% to the original cost of imports, and a study of transport costs found that they accounted for up to 28% of the retail price, for maize. This is in line with estimates which have been made for Uganda, with similar constraints, that non-tariff costs effectively double those from tariffs. The result is that the price responsiveness of both exports and imports will be attenuated (a 10% change in the price of the good will be only about 6-7% to the final supplier). This means that market responses will be relatively weak, unless there are countervailing characteristics of suppliers or policies by the government.

In both goods and services, the policies are principally permissive, with general protection for domestic providers, and no special promotion for exports. This suggests a trade policy more directed towards imports than exports, and, in combination with the high non-tariff barriers to trade, gives a bias against trade, compared to other countries.


3.- Analysing the effects from trade