Exploring Malawi’s export potential
Regional integration is the key to Malawi’s trade success, according to a new ITC report that uncovers the country’s greatest untapped export potential in agro-processing.
This report is a roadmap for Malawian exporters and policymakers to identify higher value-added products and markets with growth potential, as well as giving guidance to realize these opportunities and overcoming production challenges.
Over the course of the past 15 years, there has been a marked slowdown in the growth of Malawi’s major traditional exports, such as sugar, tea and groundnuts. This has been accompanied by strong growth in imports, creating an overall trade imbalance.
The country’s trade also tends to be concentrated in a few markets and products. The 2014 update of the Diagnostic Trade Integration Study concluded that a lack of product diversification resulted in Malawi’s inability to plug into regional or global value chains. In response to these challenges, the country’s Second Growth and Development Strategy aims at expanding and diversifying exports.
This paper draws ITC data, customized methodologies for product and market prioritization, desk research, and consultations with local stakeholders to identify products that could help Malawi achieve the following three objectives:
Expansion of existing exports;
Diversification of the export bundle;
Identification of possibilities for adding value to existing export products.
The paper’s findings highlight the importance of regional integration for Malawi’s trade development and export growth. Its analysis demonstrates that most of the potential for the country’s export growth and diversification lies in the Southern African Development Community (SADC) region.
The paper also presents a new analysis on opportunities for upgrading to transformed products, taking into account the existing export structure and available inputs. It reviews the current trade challenges that Malawi faces and provides guidance on targeted avenues for enhancing export growth, diversification and product upgrading by moving towards higher value added products within a value chain.
Finally, it identifies a number of promising export products for the country, including raw cane sugar, macadamia nuts, black tea, eggs, oil products, groundnuts and various legumes.
These are the key findings:
(i) The future of Malawi’s trade performance hinges on its effective integration within the region.
SADC is the natural market for Malawian exporters where 39% of the country’s untapped export potential ($154.4 million) lies. Realizing these opportunities should help create a solid export basis for the country while also enabling to acquire the experience needed to reach more distant markets.
(ii) Untapped export opportunities in the SADC region comprise a mix of Malawi’s traditional and novel export sectors.
Among traditional exports, raw cane sugar, black fermented tea, groundnuts, maize seeds for sowing, dried peas, and wood-related products offer room for export growth, ranging from $30.6 million to $3.7 million. Among non-traditional exports, Malawi recently increased its exports of chicken eggs to Mozambique dramatically (353% annual growth between 2011 and 2015), a performance that opens the door to further regional opportunities valued at $29.7 million for chicken eggs. Plastic products also have an unrealized potential for intraregional trade, amounting to $8.9 million.
(iii) Regional markets will be at the heart of future competitiveness.
Malawian exporters remain generally competitive vis-à-vis other suppliers in the regional market. Other SADC countries offer a natural testing ground for diversification opportunities, in particular for processed products based on raw materials currently exported. The development of an oil processing industry seems to be the most natural path for the country’s industrial development.
Exports of wooden furniture constitute yet another opportunity for building on the export performance of key inputs, such as fibreboards. Other diversification opportunities in the sugar and poultry sectors could lead to exports of cane molasses, refined sugar, and fresh and frozen poultry products. In addition, the country’s climate conditions appear suitable for diversification of production into palm oil tree and sunflower seed.
(iv) Export competitiveness in international markets needs to be sustained.
Some Malawian agricultural products, such as macadamia nuts (shelled and in shells), dried shelled common peas, chickpeas, and raw cane sugar, are already reaching overseas markets. This presence allows exporters to acquire specific market knowledge that could be useful also for the exporters of other products wishing to expand their sales internationally. Cashew nuts and frozen common peas seem to be promising options for market diversification.
(v) A coherent framework of domestic and sectoral policies is needed for realizing opportunities and overcoming production challenges.
Ensuring widespread access to finance for national producers, reducing transport costs through improved connectivity to regional markets, and implementing an attractive and effective taxation system are overarching policies that will have a positive impact on the general business environment.
A business-friendly environment is also important for attracting investment and increasing competition in the Malawian economy. However, more coordination between public and private stakeholders would help increase the impact of sectoral policies along the production chain (farmers, processors, exporters).
Download the full paper on the ITC website.