Malawi Financial Mirror

Economist  Malawi Growth Forecast (Dec 9 2018)

Economic growth After accelerating to 4% in 2017, on the back of a bumper harvest, economic growth will have slowed to 2.1% in 2018. Farmers had already reduced their maize plantings for the 2017/18 growing season (October-April), as a ban on maize exports caused a glut on the local market and losses on their sales. However, problems have been compounded by pest damage and insufficient rain. As a result, the latest official estimates point to a 28% contraction in maize output in 2017/18. Drought has also affected the production of other key crops, including rice. Assuming a return to more plentiful rainfall, 2019-23 should be stronger years for maize. Plans to expand other cash crops, such as soybeans, tea and sugar, are expected to have some success, helped by the eventual introduction of some pro-market reforms in the agricultural sector, which accounts for nearly 30% of GDP. This will be an important force behind an annual average real growth rate of 4.6% in 2019- 23. However, one major drag on growth will be the tobacco sector; production is set to register little or no growth during the forecast period, as a quota system introduced in 2017 by the Tobacco Control Commission in order to support prices is likely to be retained. In the power sector, frequent load-shedding and outages will remain a problem, even though water levels at dams should improve as the forecast period progresses. Electricity shortages will constrain industrial performance, only partly ameliorated by diesel generators. Rising aid inflows and public capital investment will be important growth-drivers for construction activity as the government seeks to expedite projects that address the country's infrastructure deficit. Growth elsewhere in the industrial sector is, however, expected to remain fairly lacklustre. Coal output will stabilise and improve slightly after recent contractions, but the sector is unlikely to re­emerge as a key driver of growth—particularly given a forecast decline in global prices in 2019-23. Malawi's mines will also struggle to compete with their counterparts in neighbouring countries. Flue­curing for tobacco—another domestic use for coal—will not support growth either, as output of the crop will be stagnant. There is an upside risk that uranium production will resume during the forecast period, but as Malawi is a high-cost operating environment, it is unlikely that international prices will rise sufficiently to justify bringing the country's only mine, Kayelekera, back into operation.