Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has urged government to reconsider its approach to foreign exchange management and adopt holistic measures that prioritise the private sector as a critical driver of economic growth.
In its January 2025 Position on Foreign Exchange Control Measures paper, MCCCI argues that implementation of the foreign exchange control measures would likely result in unintended negative consequences, including a further decline in exports and, consequently, reduced foreign currency inflows.
Reads the position paper in part: “Although the measures aim to curb illegal forex trading, they fail to address how businesses will access foreign exchange once it is directed to the Reserve Bank of Malawi [RBM].
“The principles being promoted contradict policies of a market economy and would likely increase the perception of instability in the policy regime and discourage investments.”
RBM has instituted several short-term measures to support the importation of strategic commodities in the face of forex scarcity, including the introduction of foreign exchange auctions and the reintroduction of the mandatory sale of 30 percent of export proceeds instituted in August 2021.
The measure, according to MCCCI, has reduced the availability of foreign exchange for businesses to import raw materials essential for their operations while businesses that generate foreign exchange have faced challenges in accessing the forex they help generate.
In addition, government introduced the Foreign Exchange Control (2024) regulation in December 2024, which requires public institutions to hold foreign currency accounts at RBM with a mandatory conversion of 80 percent.
The regulation also mandates commercial banks to convert, within 48 hours, 70 percent of non-governmental organisations foreign exchange receipts into Malawi kwacha and immediately transfer the proceeds to the RBM.
However, MCCCI is of the view that the Exchange Rate (Repatriation of Exports Proceeds and Operations of Foreign Currency Denominated Accounts) Regulations of 2022 are sufficient to curb illegal forex activities, and that efforts should instead focus on ensuring compliance with these regulations.
Reads the MCCCI paper: “These proposed changes will likely create the desire to hedge further, promoting parallel trading, which will result in the escalation of parallel rates, continuing to fuel increases in production costs and price instability for basic goods and services.
“This trend is likely to enhance speculation and motivation to declare Malawi as a country operating in a hyperinflationary status, further impacting its attractiveness as an investment destination.”
MCCCI has also urged government to maintain the role of the RBM as the regulator and enable commercial banks to continue operating as expected whilst prioritising the allocation of the available foreign exchange to productive sectors, which can generate additional forex and thereby support both the private sector and the broader economy.
MCCCI data shows that over 80 percent of businesses have reported access to forex as one of the key challenges in operating leading to operating levels of 50 to 75 percent below optimal levels.
The 2024 Malawi Business Climate Survey revealed that the scarcity of foreign currency and exchange rate volatility were the top challenges, scoring 9.43 out of 10, highlighting the critical nature of foreign exchange issues in facilitating effective business operations.
As a result of these challenges, MCCCI data shows that only 34.8 percent of businesses reported positive performance in 2024, compared to 42 percent in the 2023 survey.
Meanwhile, 35 percent of businesses rated their performance as fair, and 29.4 percent indicated poor performance, an increase from the 23 percent recorded in 2023.
On Friday, Minister of Finance and Economic Affairs Simplex Chithyola Banda, noting that the urgent challenge affecting the economy is foreign exchange supply, said addressing forex shortages requires both immediate and long-term interventions.
He said: “In the short term, we are negotiating bilateral agreements with countries to secure forex inflows. For the long term, we are focusing on diversifying our exports through mining, agriculture, and labour export.”
The country’s gross official reserves in Reserve Bank custody have been below the internationally recommended level of three months import cover -a situation that made importation of pharmaceuticals and petroleum among others, difficult.
