This week, Malawians woke up to an average 41.6 percent hike in the pump price of petrol and diesel. The magnitude of the Tuesday hike and the earlier one on October 1 2025, three days before President Peter Mutharika was sworn-in on October 4 2025, could have been eased if market forces, as I argued in this contribution published on February 6 2025 below, were allowed to prevail in the past three or so years that will undoubtedly have a huge impact on the already high cost of living. Herewith the repeat article: Expectedly, President Lazarus Chakwera, through a ‘presidential decision’ simply dated ‘2025’, rejected a proposal to increase fuel pump prices by at least 30 percent.
The proposal is said to have come from unnamed “agencies responsible for the procurement and supply of fuel” although many of us know that it is the Malawi Energy Regulatory Authority (Mera) that is responsible for pricing of energy products, including fuel. The President is quoted as having given a 48-hour ultimatum for the agencies to resolve “their failure” to bring 31 million litres of “affordable” fuel that he purportedly secured a month ago through the government-to-government (G-2-G) procurement arrangement. The fuel is said to have been awaiting haulage from Tanzania to Malawi.
Under the APM, any changes worth minus/plus five percent in the value of the kwacha exchange rate to the dollar and free on board (FOB) prices of refined petroleum products on the international market should trigger price reviews either upwards or downwards. However, since November 2023 when the prices were reluctantly adjusted upwards, politics has loomed large. In such situations, Mera turns to the Price Stabilisation Fund (PSF) in the petroleum pricing build up to cover up for the situation and kind of massage the consumers to believe all is well.
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But there is always a limit to which the PSF can do the cover up as it also gets depleted as it has happened since last year when Mera found itself in a situation where it owes importers a whopping K785 billion as compensation for the losses incurred due to under-recovery emanating from the government’s indecision on fuel prices. Mera and the importers are in a tight corner. The scarcity of foreign exchange is not helping matters either for the importers who use the official exchange rate as determined by the Reserve Bank of Malawi.
While the authorised dealer banks may on paper quote the official rate of K1 751, in reality the importers pay more in form of charges and can buy the dollars at even higher prices. Proponents of the upwards adjustment in prices are not saying so out of ill-will, they have a basis. In a front page story under the headline ‘Fuel prices under review’ in The Nation of October 18 2024, Mera stated that based on the circumstances, the prices were supposed to go up as the kwacha exchange rate to the dollar, inflation rate and changes in international prices have heavily affected the capacity to recover working capital for fuel importers.
In the said ‘presidential decision’ I referred to earlier on, the President is quoted as blaming the fuel procurement agencies of not bringing in fuel. But then, the referred to volumes had a time span and I recall that the agencies, led by Ministry of Energy officials, did assure the nation that all will be well. Next we heard about logistical hitches and now we do not know how much of the fuel has so far been hauled in and the balance.
Transparency on these issues will be key. The day Malawi will find an alternative way of dealing with the supply side shocks will mark the start of the road to sustained recovery. In the global market, prices of commodities fluctuate all the times, calling for embracing of modern tools such as futures and spot rates depending on circumstances.
Such arrangements can be replicated with fuel and fertiliser by directly engaging the suppliers, not intermediaries or ma dobadoba. Not even the so-called G-2-G. RBM understands the world of futures, forward contracts and spot rates better, as such, should be given control of these transactions which are the key variables influencing inflation.
It can invest in crude oil market, an arrangement that would be beneficial as when prices dip they can buy for domestic market and when they go up they may sell some of the fuels under their investment into global markets to make profit. What we need is to cut on the bureaucracy and corruption in procuring these strategic commodities, the future can be bright. Back to prices, they may be suppressed now as does the ostrich in burying its head in the sand, but that cannot be sustained forever. Time will come when reality will catch up with us and the consequences could be ugly if not well managed.
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