Malawi advised to ban luxury imports

Market analysts have asked government to impose a temporary ban on luxury imports to lessen foreign currency drainage.

Capital Alliance chief executive officer (CEO) James Chikavu Nyirenda said in an interview on Friday that this can help to contain the country’s appetite for imported goods.

Nyirenda’s call comes barely two weeks after another economic commentator Frederick Changaya made a similar suggestion.

“What we have to ask ourselves is, do we really need imported toothpicks, chickens, onions, tomatoes? Is it not a question of some Malawians getting machines abroad and start producing toothpicks locally?”

Nyirenda was commenting on the recent demand for foreign currency which has prompted the Reserve Bank of Malawi (RBM) to revise upwards Malawi’s monthly foreign exchange demand from $129 million (K41 billion) to $189 million (K60 billion).

Such a huge aggregate demand for foreign currency has puzzled RBM Governor Charles Chuka who said two weeks ago that the current mismatch between demand and supply of foreign cash is unsustainable considering Malawi’s low export base.

Malawi needs foreign currency to meet its import bills, service foreign debt and pay government expenditures overseas, among others.

If government buys Nyirenda and Changaya’s proposal, Malawi—a net importing country—will cut its surging import bill which has over the years been widening its trade deficit, an economic measure of a balance between imports and exports.

“Import substitution, export diversification, reduction in imports and perhaps even a short-term ban on agreed luxurious imports and food items is the way to go,” said Nyirenda.

While acknowledging principles of free market, Nyirenda cited China which, imposed a temporary ban on non-essential imports.

He said it was worrisome to compare this year’s tobacco earnings of about $177 million (K56 billion) against the monthly foreign exchange demand of $189 million (K60 billion).

According to latest figures, as at October 5 2012, there was a marginal decline from K176 million (K55 billion) in gross official reserves recorded on September 28 2012 to $169 million (K53 billion).

Such a mismatch between supply and demand for foreign exchange has fuelled the depreciation of the kwacha against major international currencies.

But Chancellor College economics professor Ben Kaluwa said the best way is to impose heavy taxes on importation of luxury goods rather than banning them completely.

“You can still devise clever policies which are price-based. Banning is not price-based but it is coercive. If you raise prices of such things, you discourage people from buying them,” said Kaluwa.

During the 2012/13budget consultation meeting, Economics Association of Malawi (Ecama) vice-president Edward Chilima also asked Finance Minister Dr Ken Lipenga to consider imposing punitive taxes on luxuries and second hand clothes which, he said, contribute to the depletion of foreign currency.

Lipenga could not be reached for comment as he was reportedly in Tokyo, Japan for the 2012 joint annual meetings by the International Monetary Fund (IMF) and the World Bank.