To Solve Forex Problems, Malawi Needs to Focus on the Mining Sector
Malawi is grappling with chronic foreign exchange shortages, which continue to undermine the economy and hinder the country’s ability to pay for essential imports such as food and fuel.
The recent crisis, which has been exacerbated by climate-related disasters like El Nino-induced droughts and devastating cyclones, has left the country with dangerously low levels of foreign currency. Long queues at filling stations and fuel rationing have become an all-too-familiar sight, highlighting the country’s pressing need to diversify its forex sources.
As Malawi continues to face these economic challenges, many experts believe the country should turn to its mining sector to help resolve its forex problems. Thom Khanje, spokesperson for the National Planning Commission, sees mining as a key solution, noting that the sector is insulated from the vagaries of natural disasters.
“If the country can do serious investment into mining, we can change our situation,” Khanje stated. He added that unlike agriculture, which is highly vulnerable to climate change, mining offers a stable and lucrative alternative that can significantly bolster the economy.
Mining currently accounts for just one percent of Malawi’s GDP, but experts believe it could grow to 12 percent by 2027. With new mining projects like the Kayelekera Uranium Mine in Karonga, the niobium mine at Kanyika in Mzimba, and the rare earth minerals project at Kangankude in Balaka expected to become fully operational, the sector is poised to play a major role in the country’s economic transformation.
The Malawi Chamber of Mines and Energy estimates that mining could become the second-largest forex earner for the country, after tobacco, by the end of the decade.
The benefits of investing in mining extend beyond the generation of foreign currency. By focusing on value-added mining operations, Malawi can increase its revenue from minerals and create new job opportunities for its people. The growth of the mining sector also has the potential to attract international investors, stimulating further economic activity and contributing to the country’s long-term development goals.
However, the push to develop Malawi’s mining sector comes with concerns about corruption and illicit financial flows. Anti-corruption advocates have raised alarm over the risk of exploitation by multinational companies, tax evasion, and underreporting of income from mineral sales.
In particular, the Attorney General’s office is attempting to recover $310 billion from Nyala Mines, a US-based company operating in Malawi under the name Columbia Gem Stone, for underreporting income from rubies and sapphires since 2008.
Moreover, transparency in the mining sector remains a significant issue. The 2023 Mining Act includes a confidentiality clause that allows companies to keep agreements with the government secret for up to two years after their licenses expire.
Civil society groups argue that this lack of transparency could enable companies to underreport profits and avoid paying fair taxes. The government’s reluctance to publish mining agreements has put Malawi at odds with the Extractive Industries Transparency Initiative (EITI), an international body that sets standards for good governance in the extractive sector.
Despite these concerns, many believe that the mining sector holds the key to solving Malawi’s forex problems. By focusing on sustainable development and enforcing stronger regulations, the government can ensure that the benefits of mining are maximized while minimizing the risks of corruption and illicit financial flows.
If Malawi can successfully navigate these challenges, the mining sector could become a critical driver of economic growth and stability in the coming years.
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