Malawi runs out of forex
Mount Meru Petroleum Limited has announced its decision to permanently relocate its trucks from Malawi to Zimbabwe due to the lack of business opportunities in Malawi caused by the scarcity of foreign exchange.
According to a letter addressed to the commissioner for Malawi Revenue Authority (MRA) and dated May 9th, Meru sought guidance from the MRA regarding the deregistration of 10 trucks and trailers worth over K500 million before their relocation to Meru’s sister company in Zimbabwe.
The need for foreign exchange in a country stems from its importance in facilitating the trading of different national currencies or units of account. The exchange rate, which represents the price of one currency in relation to another, plays a crucial role in determining a nation’s economic health and the well-being of its residents.
While the foreign exchange market serves various purposes, its primary objective remains the buying and selling of currencies. Forex traders aim to profit by purchasing a currency at a low price and selling it at a higher price.
Forex trading offers several advantages, including minimal costs in the form of brokerage and commissions. Most forex brokers generate profits through spreads between forex currencies, eliminating the need for separate brokerage charges and reducing overhead costs.
The absence of foreign exchange has significant implications. Without a reliable supply of foreign exchange and relatively stable exchange rates, international trade experiences a drastic decline. Consumers would no longer be able to purchase tennis shoes made in Asia or enjoy apples grown in South Africa.
This situation indicates that Malawi lacks a reliable supply of foreign exchange, resulting in a sharp decline in trade and leading Mount Meru Petroleum Limited to permanently relocate its trucks to Zimbabwe. These circumstances reflect a concerning state of the country’s economy.
Foreign exchange is essential, as it enables the determination of the value of imported and exported goods and services between countries. The inability to engage in trade would severely hinder companies relying on overseas resources and talent.
In conclusion, foreign exchange significantly impacts the economy. Changes in the exchange rate directly affect the real economy by influencing the demand for exports and imports. A depreciation of the domestic currency enhances the competitiveness of exports abroad and reduces the competitiveness of imports domestically, thereby increasing the demand for domestically produced goods.
