Malawi: The cost of devaluation!!!

Malawi: Facing the costs of food insecurity and rising prices

ThinkAfricaPress, by Edward Joy* -October 2, 2012

Mzuzu (Malawi) — The peaceful transition of presidential power in April from Bingu wa Mutharika to Joyce Banda highlighted the respect for democratic culture and constitutional order held by Malawian people and institutions. But now, Joyce Banda and her People's Party are testing this respect to the maximum as the full effects of their devaluation of the kwacha lead to rapidly increasing food prices.

Before his unexpected death in office last April, Mutharika had steadfastly refused to heed calls from the IMF to devalue Malawi's currency, arguing that to do so would hurt the country's poorest. Yet devaluation by nearly 50% was one of Joyce Banda's first actions, a dramatic move both for its inflationary impact and demonstration a new era of international and donor relations. It is particularly bold for a president who has not yet won an election, and in a country where food security is seen as the government's responsibility; in the fatal food riots last year, anger was directed at then-president Mutharika. In July, the Malawi Vulnerability Assessment Committee suggested that over 1.6 million people would be unable to meet basic food needs in the next three to eight months. Poor households, which spend a high proportion of income on food, will be particularly hard-hit. One rural street trader told Think Africa Press, "I am now using a lot of money to buy just a few things...I'm worried that I now can't buy enough for my family". She explained that she has cut back on many food items such as tomatoes and usipa (small dried fish). Her household is now eating little other than maize. "The food I sell is now more expensive, so customers feel I am cheating them and they don't buy", she added. To make matters worse, in the southern and central regions (but also in Karonga in the north), regional drought led to a poor harvest last season. Few have access to irrigation, and farmers in some districts harvested almost nothing last year. Once prices stabilise therefore, it is also crucial that the underlying problems that leave many Malawian households vulnerable to food shortages are tackled, the central causal factor being poverty and its vicious cycles. Poor households struggle to ride out food shortages or high prices as they lack food stocks or tradable assets. They also suffer from annual volatility of prices, selling soon after harvest when prices are lowest (to repay debts incurred during production and inadequate storage facilities), and buying in the lean season when prices are highest. Furthermore, poverty restricts investment in things such as food production and education. The aim of the currency devaluation, other than satisfying donors, is to promote Malawian exports. Under Mutharika, Malawi experienced a severe shortage of foreign exchange and a trade deficit, which led to debilitating fuel shortages. Banda gambled that the devalued kwacha will increase exports like tobacco and sugar cane, but there are nonetheless big challenges to overcome. Public sector employees, including health workers and university lecturers, have been striking as the government has failed to match their price inflation-induced wage increase demands. The government says it doesn't have the funds to do so, yet without quick resolution, services and the economy could suffer. Agricultural investment will also be restricted by the kwacha devaluation, with fuel and fertiliser prices rising. In spite of its contribution to maize surpluses in recent years, the government is not increasing its subsidy for farm inputs, given to the poorest and most vulnerable households, this year. Additionally, while national grain stocks have started to be fed to supply-limited regions by the parastatal Agriculture Development and Marketing Corporation (ADMARC), which claims to have sufficient stocks, the body's ability to act effectively has been questioned. In the 1990s, the World Bank's structural adjustment programme required the privatisation of ADMARC. Mutharika partially re-instated ADMARC powers, but the parastatal remains unpopular with farmer groups due to the low prices it pays and allegations of corruption. Having persuaded Banda to devalue the currency, international donors must act to deliver targeted food aid and provide budgetary support to maintain government programmes. But despite warnings of food insecurity, the donor response has not been particularly swift. Government and NGOs need to continue to work to improve market and credit access and storage facilities. This might include further reform of ADMARC, a move which could be seen as "government revolting against donors". Agricultural interventions could also help. Crop diversification is a form of risk-aversion, and shifting away from maize towards more drought-tolerant and/or less fertiliser-hungry crops including sorghum, millet, cassava, legumes and tree crops would help subsistence households cope with climate variation and rising fertiliser prices. But this will require assistance. Agronomic interventions are another area which could bring support and build resistance. First, the installation of small-scale irrigation schemes and adoption of farming techniques such as conservation agriculture, which help maintain soil moisture, can reduce susceptibility to erratic rainfall - historically a problem in the southern region. Second, the nutritional quality of maize grain can be improved through breeding and mineral-enriched fertiliser. This would help poorest households which rely almost solely on a diet of maize to meet energy and micronutrient requirements. Parallel health and sanitation programmes could also bring big benefits for nutrition, particularly by combating diarrhoeal diseases. To be sure, not all donor interventions have helped Malawi. Aid conditions have caused considerable market volatility and uncertainty. The IMF-required kwacha devaluation as well as the World Bank-required privatisation of ADMARC both exemplify this. And in 2002, Malawi experienced famine when donors turned their backs on President Bakili Muluzi's administration. Still, donors should act on humanitarian grounds to mitigate the price shocks currently hurting Malawians though there is ultimately a need to reduce dependence on international donations. The kwacha devaluation is widely regarded as a bitter pill that Malawi had to swallow at some time, with much of the blame being laid on Mutharika's administration and the economic mess it left behind. Joyce Banda's People's Party inherited a difficult economic situation and her belt-tightening reforms are made more painful by high global food prices. Whether southern Africa's first female president can survive the general election in 2014 will depend on her success in navigating the turbulent waters that have followed the currency devaluation. Banda will also be praying that the rain gods are kind to Malawi this year, as this season's harvest will be hugely influential in the fate of Malawians and her own fate at the ballot box. Malawi may have earned back the trust of major donors, but the country has yet to see donors' support coordinated into an effective response. *Eddie Joy is researching a PhD at the University of Nottingham, looking at addressing soil selenium deficiency in Malawi through use of organic fertiliser and soil conservation. Source: Africa News Upadate