The Reserve Bank of Malawi has forecast that Malawi’s mining sector will shrink this year while all other sectors will grow. This analysis was made during the second Monetary Policy Committee meeting held last week (see their full statement here).
Production at Malawi’s largest mining project, Kayelekera Uranium Mine, was suspended in February 2014. Paladin Africa Limited, a subsidiary of Australia-based Paladin Energy, announced the suspension, citing continuing depressed prices for uranium oxide and non-profitability of the operation.
Suspension of production at Kayelekera will have a significant impact on the revenue collected from the mining sector. The revenue generated and projected from Kayelekera informed expectations in the Mines and Minerals Policy, launched last year, that mining will
surpass the contribution of agriculture to GDP which is currently at 30 percent. This will be a gradual process considering that the mineral sector contribution to GDP is currently at 10 percent.
Paladin’s Quarterly Report ending 31 March 2014 explains that production will restart once the uranium price provides a sufficient incentive (circa USD 75 per pound of uranium oxide). Paladin will continue exploration work on site, as long as the relevant exploration licences are granted, in order to extend the project lifespan by expanding the mineral resource base. Paladin also requires grid power on site, provided by ESCOM (Electricity Supply Corporation of Malawi), to replace the diesel generators with much lower cost hydro electricity before the mine is taken off care and maintenance.
The contraction of mining sector, the withholding of budget support and the collection of less domestic tax revenue than was projected may contribute to “post-election hard times” in Malawi. Nonetheless, with expenditure cuts, the government can navigate this situation, according to Chancellor College economics professor Ben Kaluwa. This will test the ability of elected candidates to deliver on promises made about the economy during the run up to the elections. The elections will be take place in 13 days.