Malawi remains one of Sub-Saharan Africa's less attractive auto markets, reflecting the still-difficult economic and political backdrop within the country. In our newly released Industry Risk/Reward Ratings for the autos sector in the Sub-Saharan African region, Malawi ranks in 14th place (out of 17), with a score of 26.47 out of 100. A full ratings table and commentary can be found in this report. Where Malawi fares particularly poorly in our ratings methodology is in its score for 'autos market', which measures how we feel the new car sales market will develop over our forecast period to 2016. Malawi scores just 10 out of 100 on this measure, the lowest in the entire Sub-Saharan African region. In addition, both car ownership rates and per capita incomes remain among the lowest in Africa. However, counting in the country's favour is the fact that its infrastructure is better developed than some of its regional peers.
Our prognosis for new car sales is also downbeat, with our current forecasts calling for a total of just 2,064 vehicle sales in 2012. Annual sales growth will average just 3.2% between 2012 and 2016, when we estimate annual sales of 2,341 new vehicles.
Malawi is one of the least developed and most densely populated countries in the world with an economy based almost entirely on agriculture. In fact, agriculture is a source of income for more than 80% of the population, accounting for 30% of GDP and 90% of export revenues, according to the World Bank.
The GDP per capita of Malawi is low, estimated at just US$407 in 2011, the lowest figure but one in the region, higher only than Mozambique. There is a natural correlation between per capita income and car ownership, with Malawi actually having the lowest regional vehicle ownership rate in 2010. As such, in the current economic climate, purchasing, owning or even operating a vehicle remains unaffordable for the majority of the population. Current vehicle demand prospects are therefore limited, with the used car market dominating the landscape.
Malawi was once seen as a promising destination for investment. But economic crisis means we are downbeat about its autos industry and vehicle sales growth in the country.
Malawi had a difficult year on several fronts in 2011, with revenues for tobacco, which account for about 60% of the country's export revenues, falling precipitously; and aid flows, which account for about 40% of government receipts, being cut off amid diplomatic tension with the UK and other donors over Malawi's lack of transparency and accountability. As a result, we believe that government consumption will be constrained, weighing down headline growth.
On April 4 2012 the Wall Street Journal reported that an extreme shortage of foreign currency, which began last year when foreign donors cut off aid to an increasingly oppressive government, is forcing international companies to scale back their operations in Malawi. The situation was exacerbated by dropping tobacco prices, Malawi's main export.
Foreign companies are shrinking their operations as they struggle to pay suppliers and move money out of the county. Carmakers have been hit. Toyota Motor, Nissan Motor and Daimler, among others, are closing dealerships or stopping shipments to franchises, according to the Wall Street Journal, which cites employees and dealers in Malawi. Siegfried Schulz, managing director in Malawi for France's CFAO SA, the largest vehicle distributor in Africa, told the Wall Street Journal that sales have dropped 30% from 2011 at CFAO Malawi's three dealerships, which sell Nissan, Ford and other brands. Toyota said its sales have dropped 30% in Malawi in the past year, and could fall further if access to foreign exchange does not improve.
The Wall Street Journal report adds that large car, truck and motorcycle makers including Mitsubishi and Yamaha Motor are demanding upfront payment for new vehicle and part orders from dealers in Malawi that that can't meet these terms. The chief executive of Stansfield Motors, the Malawi distributor for Mercedes-Benz, Peugeot and other brands, told the Wall Street Journal it had cut 33 staff. The IMF has asked the government of Malawi to reduce spending and devalue its currency, as major donors including the UK and the US have stalled aid packages over fears regarding the human rights record of then president Bingu wa Mutharika. The IMF has called for the devaluation as the official exchange rate is unable to check inflation expectations, according to Tsidi Tsikata, IMF mission chief for Malawi.
The country's inflation rate jumped to 10.8% in February, compared with 10.3% in January. The IMF says devaluation is a prerequisite for restarting its US$79mn loan programme with Malawi, which could prompt the World Bank and donor countries to restart aid flows as well. The IMF expects growth of 4.2% this year, a continuing decline from 9% in 2009. Adding further pain to passengers, Malawi Today reported in January 2012 that minibus operators were looking to hike fares by 100%, following a sharp rise in the cost of insurance premiums. As the Malawian autos market is in very much an embryonic phase, BMI believes the rate of growth is dependent on the correlative external factors of infrastructure, economy and foreign investment.
However, political change might mean the crisis is addressed. President Joyce Banda, the former vice president, was sworn in to office on April 7 after the sudden death of President Bingu wa Mutharika on April 5. BMI believes the confirmation of Banda's presidency is a positive sign for Malawian democracy, which some had feared was under threat during Mutharika's increasingly repressive rule.
Although the transition of power has been smoother than many feared, Banda will face significant challenges. Most pressingly, she will need to address major economic problems haunting the country, the major ones being the shortage of fuel and foreign currency. These issues are largely the result of the reduction in foreign assistance and one of Banda's first tasks will therefore be repairing relations with Malawi's benefactors (mainly the UK and the US) in a bid to attract much-needed foreign currency inflows. There are early signs of optimism. Although the official exchange rate has been unmoved, the more relevant black market rate which was trading at close to MWK300.00/US$ before Mutharika's death appreciated to about MWK270.00 shortly afterwards, according to Reuters reports, on anticipation that the aid taps would reopen.
According to the IMF, Africa is the fastest-growing region in the world, with its gross domestic product jumping an average of 5.5% a year between 2000 and 2012, compared with a global average of 4.4%.