The Poor and Vulnerable People ought to be protected: CfSC

April 2012 Press Statement

The human costs of a broken economy are serious and perilous. When we look at the situation of unemployed people and many ordinary workers, we see not only individuals in economic crisis, but also struggling families and hurting communities. We see a society that cannot use the talents and energies of all those who can and should work. We see a nation that cannot assure people who work hard every day that their wages and benefits can support a family in dignity. We see a workplace where many have little participation, ownership, or a sense they are contributing to a common enterprise or the common good. An economy that cannot provide employment, decent wages and benefits, and a sense of participation and ownership for its workers is broken in fundamental ways. The signs of this broken economy are all around us.
The case studies undertaken by our Rural Basic Needs Basket in our impact areas in rural Lilongwe, Dedza, Chikwawa and Zomba districts paint a very grim picture. Households in these areas are struggling to keep their bodies and souls together. The months of January to April 2012 had been characterized by decreasing calorie (energy) intake by households in these study areas. The World Health Organization (WHO) recommends the minimum calorie intake of 2400 Kcal/person/day for an average person. The reality; however is that in our impact areas the calorie intake dropped drastically. For instance, in Kasiya - Lilongwe the calorie intake dropped by 424 Kcal, from 1630 Kcal in January to 1206 Kcal in April. Similar trends have been observed in our study areas of rural Zomba, Chikwawa and Lilongwe. Low calorie intake is one of the most accurate indicators of household food insecurity. When households are food insecure, household members consume inadequate and low quality food. This has a negative impact on their wellbeing and especially on the physical, psychosocial and emotional development prospects for children.
As for the Urban Basic Needs Basket, the pre-devaluation cost of living survey results for April reveal that the cost of living for Lilongwe, Blantyre and Zomba went down by 4.6%, 4.6% and 6.5% respectively. Mzuzu was an exception where the cost of living went up by 1.1%. The main reason for the fall in prices is that most food commodities are in season. Maize for instance, has registered a huge slump in prices to the extent that in some rural areas farmers desperate for cash are selling it below the minimum Farm Gate price of K35 per kilogram. Much as the low price for maize is good for town dweller consumers; it is bad news for producers; as it is far much less than the cost of production which includes inputs like seed, chemicals, fertilizers and labour.
The most worrisome thing about maize is that when the supply is high, prices tend to go very low such that producers hardly find enough money to buy farm in-puts for the following growing season. Spot checks of maize prices in rural areas show that maize prices have gone as low as K15 per kilogram. This situation calls for government to adopt a regulatory approach to maize because as it stands, it is the middlemen (traders) that are benefiting from maize growing other than the producers themselves. We applaud the Ministry of Agriculture for introducing the minimum Farm Gate prices for agricultural produce. By setting minimum prices, producers can anticipate the prices and that enables them to plan for the future. Having said that, in spite of introducing the minimum prices, most producers are ‘forced’ to sell their crops at a lower price to middlemen because ADMARC delays in buying from farmers. Thus, government ought to re-enforce these Minimum Gate Prices by raising awareness among small producers. ADMARC also ought to start buying maize from farmers in good time so as to protect them from being exploited by traders (middlemen).
It should, however, be stressed here that selling maize which is a main staple crop for Malawians does not necessarily imply over-production at household level. Producers are impelled to sell in order to raise funds for their basic needs and other non-farm commodities such as school fees, clothes and also meeting their medical expenses. Simply put, they do not have alternative source of income.

Of the Kwacha Devaluation:

The protracted delay to devalue the Kwacha for sometime in a way exposes the government’s inadequacies to proactively manage the monetary policy. This devaluation should have started way back in 2008 or there about in a sequential manner. That failure to proactively intervene means that the poor who have negligible ways to generate household income will bear the brunt. Hypothetically, this devaluation would have significant inflationary impacts; however, we ought to realise that the market system had already devalued the kwacha and that led to the soaring of the cost of living. This in a way invokes the ethical question: Will our traders increase the prices of commodities again considering that such an increase was already implemented to reflect the parallel market value of the kwacha?

These failures and challenges are not just economic, but also ethical. They are not just institutional, but also personal. The seriousness and the peril of the current economic situation require clear commitment from all sectors to come together to shape and rebuild a stronger economy that safeguards the lives and dignity of all, especially providing opportunities for work. No one entity alone can turn the economy around and every institution must move beyond their own particular interests. Structures for dialogue leading to comprehensive and coordinated action need to be established or strengthened among leaders in government, business, unions, investment, banking, education, health care, philanthropy, religious communities, the jobless, and those living in poverty so that the common ground can be laid for pursuing the common good in economic life.
CfSC believes that this devaluation is a bold step in the right direction however, it remains a temporary measure. The key still remains in addressing the fundamentals of our economy which will not be addressed by the resuscitation of donor support to Malawi, as it is generally meant for service delivery. Having said that, CfSC recommends that in re-negotiating the Extended Credit Facility (ECF) with the IMF, government should advocate for the provision of safety-net package or scaling up the existing safety nets to cushion the poor. Interestingly the terms of the ECF support an environment conducive for low inflation, more jobs, more forex, better public finance management, and increased pro-poor expenditures and safety nets.
Secondly, with the value of the Kwacha depreciating alarmingly, the cost of living has increased way above the income and expectations of low and middle income earners. One way to cushion the blow to the low and middle income earners is to increase the tax-free band to enable them to have at least enough money to meet their food basket. At present, the food basket stands at an average of K39, 577 while the average Basic Needs Basket which comprises food and non-food items is at K69, 221. Thus increasing the non-taxable band from K12, 000 to a range between K25, 000 to K40, 000 would go a long way in enabling low income earners to meet their food requirements. The money lost through the expansion of the income-tax bracket could be recouped through a negotiated social protection mechanism or by introducing a fourth bracket for high income earners. Thirdly, there is also need for government through its Ministry of Labour to raise the minimum wage so that it reflects the current situation. This too should have been done long time ago.
CfSC appreciates that the government through the Ministry of Finance is reviewing the Zero Deficit Budget (ZDB) which introduced and increased taxes on goods and services which pushed the prices up. Once the ZDB is removed, commodity prices might come down and assist in cushioning the impact of the devaluation.