The Malawi economy could create a niche among top African countries that benefit significantly from service exports, but unfriendly foreign remittance instruments have translated into a negligible Gross Domestic Product (GDP) contribution from the country's human resource capital abroad, experts have said.
Malawi is grappling with a forex shortage problem that has paralysed its ability to import essential goods and services. But the Economics Association of Malawi (Ecama) says foreign remittances have the potential to help heal the battered economy and lift the market gloom.
Statistics from the National Statistical Office (NSO) imply that financial contributions from Malawians abroad could make less than 4 percent of GDP. This is shown in an April 2011 report released by NSO's Economics Division, which fails to mention remittances' actual contribution to GDP.
Instead, foreign remittances are included under the 'Other services' slot, rendering impossible efforts to establish its real value contribution.
Among others, NSO's 2007-2010 'GDP by Activity Report' only includes such activities as accommodation and food service; information and communication; human health and social work; transport and storage; real estate; finance and insurance; mining and quarrying; professional, scientific and technical, administrative and support services; agriculture, forests and fishing; wholesale and retail trade; manufacturing; and, other services.
Of these, agriculture, forestry and fishing contribute more to GDP, at 30 percent, followed by the wholesale and retail sector at 20 percent, financial and insurance activities at 6 percent, transport and storage 4 percent, human health and social work 4 percent, other services 4 percent, information and communication 3 percent, among others.
The situation forced former Finance Minister, Ken Kandodo, to urge Malawians in Diaspora to start remitting foreign currency back home as one way of pumping up depleted forex banks back home.
Ecama president, Naomi Ngwira, said this week research on the financial contribution of Malawians in Diaspora was attempted in 2005 by Alimon Mwase with the support of the Malawi Government and United Nations Conference on Trade and Development (UNCTAD) and, in a nutshell, pointed at the potential benefits of forex remittances to the local economy.
"Of course, foreign remittances do have an economic impact. The Malawi economy could be among those that benefit much from remittances. One way to facilitate transfer of forex is through offering financial instruments and also investment opportunities in PPPs.
"Improving the legal and service environment for remitting forex for those who are employed is the other policy area," Ngwira said.
She, however, said this depended on reforms in development planning, logistics, and improved engagement mechanisms with those in the Diaspora.
Ngwira suggested that development planning should include mechanisms on how to prepare for export of services. She also asked for the need to revisit the logistical and legal framework for making and remitting payments back home.
Malawi could also benefit significantly "if there was enhanced involvement of the Diaspora in financial markets' instruments, Foreign Direct Investment (FDI), Public Private Partnerships and venture capital investments".
She said the country could take advantage of the demand for human capital to prop up its foreign currency reserves.
"Services like teaching - high school and university- medicine, aviation pilots, nursing, housekeeping and chauffeurs are in much demand in Europe, Asia and the Arabian peninsula, where incomes have risen significantly such that middle income consumers want good quality services but find that local labour is expensive. Some countries like Sri Lanka, the Philippines, or those in the Caribbean, depend a lot on export of services.
"So, Malawi could expand the export of services by entering into proper agreements with partner countries, partly to protect their rights, and training more people in those services required.
This requires doing periodic environmental scanning to know the skills demanded for the moment.
"For example, English teachers are in great demand in non-English speaking Asia and Arabian peninsula. Malawi should be able to offer crash courses for specialized kinds of teachers needed in these countries, as well as nurses, and chauffeurs," Ngwira said.
For this to happen, however, there is need to encourage people to channel their money through the official financial system, which Ngwira said was "presently not the case".
"Remittances can aid various forms of development—construction of houses, education and as venture capital. They add to forex reserves which are critical for importation of raw materials and general imports and hence economic growth. Remittances boost rural economic activities and socio-economic change and, therefore, have development impact, "Ngwira said.
All these benefits are being hampered by institutionalised bottlenecks.
"There has been much done but, perhaps, not enough to persuade huge inflows into the formal forex and financial system given the lucrative black market rates and limitations on forex/capital inflows in banks.
"The legal framework needs to be revised to allow for a fully liberalised capital account that allows for ease of in and outflows.
"The use of the informal system further means inflows are not captured in the official accounts (Balance of Payment statistics)," Ngwira said.
Ngwira said the situation could be improved by minimising the discrepancy between black and official market forex rates, a development that calls for liberalisation of the Kwacha.
The second option is to remove restrictions on forex and capital account outflows so that individuals and institutions running Foreign Currency Denominated Accounts (FCDA) are able to withdraw as much as they want "any time or, at least, given priority unless there are huge forex shortfalls."
She said further liberalisation of the market would promote FCDA accounts' opening, as remitting forex becomes more conducive with improved access to formal remittance transfer channels and with increased transparency of the flows and the low cost structure.
"Otherwise, for those in the Diaspora, one is better off keeping the forex outside and changing at the black market back home when need arises," Ngwira said.
Reserve Bank of Malawi (RBM) spokesperson, Ralph Tseka, acknowledged on Tuesday that forex remittances make a contribution to a nation's economy.
"In fact, foreign currency remittances are included in our Gross National Disposable Income calculations, along with goods transfers and incomes," Tseka said.
Tseka said, however, that NSO was the right authority to speak on foreign currency remittances' contribution to the country's GDP.