Malawi continues to grapple with severe economic challenges stemming from high fuel prices.
The country has found itself in an unenviable position of being among the top 10 countries in Africa with the highest fuel prices. As of July 15, 2024, the price of fuel in Malawi stood at a staggering $1.46 (about K2 556) per litre, which is above the $1.32 (about K2 311) global average.
Based on data from Global Petroleum Prices, Malawi is ranked seventh in Africa and 61st globally in terms of gasoline prices. Malawi has consistently featured on the list of 10 countries with the highest prices in Africa between April and June this year, despite government officials’ insistence in previous interviews that the country has the lowest fuel prices in the region.
Rising prices threaten economic stability, growth
The far-reaching implications of this crisis are evident. The ripple effects of increased fuel costs are felt across the board as transportation expenses surge, inevitably leading to higher prices for goods and services. “Road transport accounts for around 90 percent of all transport needs for Malawi, and transportation costs feed into the cost structure of products and that has a negative implication on domestic inflation and GDP [gross domestic product] growth,” says an analyst and economist.
On Tuesday, ARC Malawi acting board chairperson and managing director Davies Langesi says the rail transport would be cheaper because locomotives can haul larger amounts of fuel over the same distance, effectively capitalizing on economies of scale. “The rail line can bring in 1.2 million litres of diesel to Malawi,” he says.
Langesi, a former Puma Energy Malawi managing director, said it would take about 40 trucks to transport the same quantity of fuel. Catholic University economics lecturer Derrick Thomo says other government interventions including subsidies and price controls can offer more temporary relief but stressed that they might put more pressure on public finances, which are already strained at the moment.
Centre for Democracy and Economic Development Initiatives executive director Sylvester Namiwa cautions that the upward spiral in the price of fuel threatens to ignite inflationary pressures as businesses pass on these increased operational costs to consumers.
He says: “Fuel is a strategic commodity with multiplier effects on the economy.
“The moment prices go up, it means an automatic increase in the prices of basic needs that includes food, transport, and rentals.”
The high fuel prices, coupled with the rapid growth in demand for fuel driven by the country’s mass motorisation, exert pressure on the country’s foreign exchange reserves.
In its November 2023 country report, the International Monetary Fund (IMF), observed that Malawi’s fuel imports grew by 56 percent over the past six years from 358 million litres in 2016 to 558 million litres in 2022.
This rate of growth exceeds annual population growth at 2.7 percent, human population growth at 2.4 percent and real gross domestic product growth rate at 3.2 percent.
Rail transport could hold the key
The Malawi Government is yet to implement the measures agreed with the IMF such as raising value-added tax on second-hand vehicles and aligning local petroleum pricing with global prices, but local economists say investing in cheaper transport modes could provide relief in the short to medium-term.
“I would recommend shifting from road to rail, as overreliance on road transport has more demerits than merits vis-à-vis rail transport in transporting fuel inland,” said Mtembizereka.
“For the first time in 21 years, a train on Tuesday ferried diesel to Malawi from Nacala Port in Mozambique, a move expected to boost the local transport sector.
The 16-wagon wet cargo train hauled 580,000 litres of diesel, according to National Oil Company of Malawi.”
Source: The Nation-Eric Mtemang’ombe- News Analyst-24 July 2024