Bloomberg News

Malawi Currency Fall Fuels Protests as Banda Courts IMF

January 16, 2013

Malawi’s President Joyce Banda faces her biggest test since coming to power with nationwide protests planned against a currency devaluation and inflation.

The Consumer Association of Malawi has organized a march in the commercial hub of Blantyre tomorrow to draw attention to an inflation rate that’s reached 33 percent and the kwacha’s collapse. Similar demonstrations are being planned in the capital Lilongwe and Mzuzu in the north.

A month after Banda, 62, took office in April, she devalued the kwacha by a third against the dollar to meet conditions set by the International Monetary Fund for a resumption of donor aid. Since then, the currency has lost 29 percent, making it the worst-performing unit in Africa. While Banda has been hailed by the IMF for economic reforms including deregulating fuel prices, her support at home is waning as costs soar.

“Malawians had a lot of expectations when Banda became president, but there hasn’t been significant economic improvement,” Simiso Velempini, an analyst at Control Risks Group in London, said by phone. “She had considerable goodwill when she came to power, but some has been lost.”

Malawi is Africa’s biggest exporter of burley tobacco, a low-grade variety of the crop, and Limbe Leaf Tobacco Co., a unit of the U.S.-based Universal Corp. (UVV:US), Alliance One International Inc. (AOI:US) and Japan Tobacco Inc. (2914) are among buyers in the country. About half of the population of 15 million live on less than $1 a day, according to the IMF, while the government relies on donor funds to finance 40 percent of its budget.

Currency Shortages

Banda, Africa’s second sitting female president after Liberia’s Ellen Johnson-Sirleaf, succeeded Bingu wa Mutharika after his death in office in April. The former leader had alienated donors by refusing to devalue the kwacha, causing fuel and foreign-currency shortages, and cracking down on critics. In 2011, Mutharika expelled the U.K.’s envoy after reports that he’d criticized the president for his autocratic behavior.

In July 2011, 22 people died when police clashed with protesters, prompting the U.S. to stop aid to the country. Banda promised to mend relations with donors, fix the economy and curb corruption when she took office.

The Public Affairs Committee, Centre for Human Rights and Rehabilitation and the Malawi Council of Churches -- the three groups that led the protests three years ago -- have called on the Consumer Association of Malawi to forego demonstrations and instead hold talks with government.

Earnings Slump

John Kapito, executive director of the consumer group, said on Jan. 14 the protests will take place every month until the government responds to its demands, including Banda cutting her travel spending.

“Business is bad,” Anthony Chisale, a 38-year-old taxi driver, said in an interview yesterday in Blantyre. “Our daily earnings have slumped significantly. People are now walking instead of taking taxis because they don’t have enough money in their pockets.” Chisale collects about a third less in daily fares since fuel costs climbed and passenger numbers dropped.

Inflation accelerated to 33 percent in November from 30.6 percent in the previous month, while gasoline costs have climbed 69 percent since the devaluation. The Reserve Bank of Malawi raised its benchmark interest rate on Dec. 4 by 4 percentage points to 25 percent, the highest in six years.

Banda said on Dec. 31 that while the currency’s depreciation had resulted in economic suffering for many, reversing the devaluation would be “suicidal.”

Kwacha Value

IMF Managing Director Christine Lagarde hailed Banda during a visit to Malawi this month, congratulating her “bold economic policies” and urging the government to “stay the course, while putting in place social protection programs to alleviate the impact of the adjustment measures on the poorest households.”

The kwacha gained 1.2 percent to 344.30 a dollar as of 3:12 p.m. in Lilongwe today.

“The foreign-exchange problem in Malawi is likely to be a fairly long-term difficulty,” Razia Khan, head of economic research at Standard Chartered Plc in London, said in a phone interview. “Businesses are reporting that it’s very difficult to buy dollars with kwacha.”

Food shortages have aggravated consumers’ woes. About 2 million Malawians are without adequate food after dry weather cut harvests, forcing the government to increase aid to vulnerable families, Banda said on Dec. 31. Malawi’s economic outlook is threatened by a slump in agriculture, which makes up 30 percent of gross domestic product, Lagarde said on Jan. 5.

Euphoria Wanes

Banda’s refusal to reverse her policies even as discontent mounts may undermine her support in a national election scheduled for 2014.

“The problem with our president is that she is busy marketing herself, building her profile as Joyce Banda the person, while neglecting the larger picture which is the government,” Billy Banda, executive director of Malawi Watch, a human rights organization, said in a phone interview. “The reforms are taking time to register positive results and this is frustrating many Malawians. The euphoria people had after she took over government has waned. If she is not careful, this will cost her dearly.”

To contact the reporters on this story: Brian Latham in Johannesburg at blatham@bloomberg.net; Frank Jomo in Blantyre at fjomo@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net


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