Tobacco And Economic Growth

Source from:  by Davie Mkwambisi, 03 April 2006 - 06:05:56  04/04/2006

The current cold war between government and buyers on one hand, and buyers and farmers on the other is a clear sign that the country's reliance on tobacco is at stake. It is no longer a secret that Malawi's economic growth has been dependent on the tobacco industry. Currently, tobacco accounts for 70 percent of the country's export revenues. This makes the tobacco industry Malawi's second-largest employer after government. Agriculture, which is dominated by tobacco and subsistence farming, is responsible for 38 percent of the country's gross domestic product. The tobacco industry was intended to increase economic growth and promote development in Malawi. Unfortunately, things have not gone according to plan. The price of tobacco, both on the international and local markets, continues to fall, with no sign of abating. Currently, despite the expectations that the GDP will grow by seven percent on account of improved crop production, Malawi remains economically stunted, environmentally vulnerable and socially weak. It was believed, and still is by some, that tobacco in general, and especially barley, will assist in the development of Malawi by allowing poor rural farmers to produce and sell a relatively high value crop. However, the industry is now facing critical constraints that have even forced President Bingu wa Muthalika to intervene by setting minimum prices for tobacco. My argument is that there is more to this business that ought to be addressed on a single platform. Some economic observers and stern believers in market liberalisation have congratulated the President because tobacco constitutes the basic livelihood of the majority of Malawians and indeed the economic survival of the country. But we need to know that such moves and other strategies that disturb the basic concepts of marketing will not benefit the nation in terms of economic growth. If anything, it will only create more problems that will scare other investors. Tobacco buyers have been blamed for the low prices offered at the auction floors. It has even been argued that our buyers have been holding meetings to agree on the range of prices at which to buy our green gold. While this is economically bad for the poor farmers, the public should also note that tobacco prices on the international market have declined by 50 percent in real terms over the past 10 years. Industrialised nations, the main market for Malawi's tobacco, have been experiencing a consistent decrease in tobacco consumption, with the increased awareness of the negative health effects of tobacco. This drop in demand has caused a decline in market prices, thereby lowering the earnings Malawi gets from its crops. This has had a devastating effect on the country's ability to earn foreign currency. It has even been observed that the recent announcement and expectation that tobacco exports will fetch more money by weakening our kwacha against the dollar is another dangerous move by government which will also have negative effects on the economy as it will lead to huge losses for importers as more kwachas will be needed to buy a few dollars for bringing imports such as farm inputs and fuel. As a result of the falling prices and the rising input costs, tobacco is a liability to Malawian farmers. Any developing country like Malawi which is heavily dependent on a single export places itself in a vulnerable economic position. The decline of the tobacco markets and its impact on Malawi illustrates this point. And although government seems aware of this situation, there is little that is being done to change it. The idea and proposal by government to promote other crops like cotton should be encouraged and mechanisms should be put in place to support growers. Even though the crop has specific climatic conditions, intensive production and use of technologies can increase its output, create employment and bring foreign currency. Alternatively, if tobacco has no substitutes, then government should support the idea of processing tobacco into final products within the country. A Malawian economist working in the United Kingdom suggested that if we do not have the capacity to invest heavily in manufacturing, let us collaborate with manufacturers within the SADC. These should collect all our raw materials, be it tobacco, tea, coffee, and process them on condition that we get a share of the shelf or market price of the manufactured product e.g. a cigarette packet. By collaborating within the region, the economist argues, at least we will be expanding manufacturing capabilities within the region and harness synergy and compete favourably with manufacturers in the West. In fact, he thinks that in doing so, the West are likely to come back with fairer prices because they will be starved of the cheap raw materials they have enjoyed for the past century.-The author is a lecturer at Bunda College of Agriculture. Enditem