The World Bank has released the Malawi economic monitor – managing fiscal pressures on economic and structural development issues in the country. The economic challenges Malawi faces in 2015 require the government to respond by restoring macroeconomic stability and rebuilding confidence in the economy, according to the report.
Mining and quarrying contributed 3.1% to Gross Domestic Product in 2014 but this contribution will drop this year with the suspension of uranium mining at the Kayelekera mine. Thus the hoped for export diversification through uranium mining has stalled, which is a challenge since Malawi’s “export basket is one of the least diversified among developing countries, leaving the country vulnerable to sector-specific shocks”.
The report explained that suspension of production at Kayelekera Uranium Mine, a project managed by Paladin Africa,
was a blow to Malawi’s efforts to broaden the composition of its export basket. Mine operations ceased in February 2014, with processing ending in May. This resulted in the gross value of uranium exports amounting to a total of just USD 40.4 million in 2014, a dramatic decrease from the figure of USD 169.9 million recorded in the previous year. The performance of this sub-sector suffered from weakening international demand for uranium ore, exacerbated by the lack of low cost and reliable grid electricity at Kayelekera, which resulted in production becoming uneconomical. The global slump in uranium prices means that production is unlikely to resume in the immediate future.
When Paladin was granted its mining licence, uranium oxide was trading at USD 110 per pound and the definitive feasbility study assumed a price of at least USD 60 per pound. In February 2014, when the mine announced that production was ceasing and the mine was going on care and maintenance, uranium oxide was trading at just USD 36 per pound. See Figure 11 below, taken from the World Bank report (page 10), on the boom and bust of global uranium prices that has affected Malawi’s largest mining project.
The report reflects on the future of Kayelekera and of Malawi’s mining sector development,
Whether or not the mine at Kayelekera eventually resumes operations will depend primarily on future prospects for global uranium prices, for which the immediate outlook is uncertain. Similarly, without an improved energy infrastructure and a more predictable and consistent regulatory framework for mining operations, it will be challenging to attract significant amounts of new investment to develop mining in Malawi.
Malawi’s fiscal position, according to the report, is under pressure as a result of the loss of budget support and decreased confidence in the government following “cashgate”, the theft of millions of dollars from public coffers. Its position is characterised by a large fiscal deficit, high inflation and high lending rates. The report recommends improving macroeconomic polices and stability to impact trade competitiveness:
Steps to restore macroeconomic stability
- Fiscal consolidation to reduce the size of the budget deficit
- The application of a tight monetary policy and scaled back domestic borrowing to gradually reduce inflationary pressures
- The reform of key subsidy programs, particularly the Farm Input Subsidy Program, in order to reduce fiscal pressures and to improve policy effectiveness
- Implementation of public financial management reforms in prioritized areas to rebuild confidence in the integrity of Government accounts
Reforms to build trade competitiveness
- Reviewing domestic policies that depress the performance of the export sector such as removing remaining export bans and ensuring that new ones are not introduced; reviewing existing import and export licenses; and streamlining the manner in which remaining licenses are applied
- Reviewing and publishing trade regulations and their application and making them easily accessible in order to reduce costs, delays, and uncertainty
- Consistent implementation of policy decisions to ensure a more predictable trading environment for existing firms and potential investors
- Improving border crossing times and reducing delaysand paperwork by implementing Government’s decision to reduce the number of agencies present at the border
- Reducing barriers to competition in the transport sector in order to encourage entry and to reduce transport prices