Malawi’s recurring shortages of fuel, electricity, fertilizer, medicines and other essential imports are often treated as separate sectoral challenges. In reality, many of these pressures are linked by a common structural constraint: the limited availability of foreign exchange required to finance imports.
This raises an important policy question.
To what extent can Malawi reduce its dependence on hard currency by expanding reciprocal trade with neighbouring and regional economies?
The answer lies not in abandoning international trade, but in restructuring part of it. Malawi could make greater use of regional sourcing, reciprocal trade, local-currency settlement and multilateral payment infrastructure, particularly through the Pan-African Payment and Settlement System (PAPSS).
The underlying principle is straightforward:
Increase regional trade, settle locally where possible, and reserve scarce foreign currency for the net external obligations that genuinely require it.
Regional trade should be viewed from both sides
Malawi’s trade discussions often focus on what the country needs to import. A more balanced regional trade strategy should simultaneously consider what neighbouring countries require from Malawi.
For example, Malawi may require fertilizer, electricity, machinery, industrial inputs and food commodities from Zambia. At the same time, Zambia represents a potential market for Malawian agricultural products, processed foods and manufactured goods.
If Malawi imports goods worth US$100 million from Zambia while exporting goods worth US$70 million to the same market, the underlying bilateral imbalance is US$30 million.
A payment and settlement system that facilitates greater use of local currencies and net settlement can therefore reduce the extent to which gross trade flows create immediate demand for hard currency.
The policy objective should not be to eliminate foreign exchange from regional trade altogether. Rather, it should be to ensure that foreign currency is used primarily where necessary, instead of being required for every individual transaction.
PAPSS provides an existing continental settlement framework
The Pan-African Payment and Settlement System provides Africa with an important mechanism for cross-border payments using local currencies.
The system was developed by Afreximbank in collaboration with the African Continental Free Trade Area framework to facilitate intra-African payments and reduce unnecessary dependence on third-country settlement currencies.
For Malawi, this is significant because the relevant infrastructure does not have to be created from the beginning.
Malawi is already connected to the PAPSS ecosystem, and several nearby economies, including Zambia, Tanzania and Zimbabwe, also have participating institutions.
This provides a foundation upon which Malawi can build a more deliberate regional trade and settlement strategy.
The key policy question is therefore no longer whether such an arrangement is technically possible, but whether Malawi is making sufficient strategic use of the infrastructure already available.
Regional sourcing should become part of the foreign-exchange strategy
Malawi should systematically identify essential goods and services that can be sourced within the region before turning to more distant international markets.
This should include goods such as:
fertilizer,
electricity,
transformers,
switchgear,
pumps,
agricultural machinery,
industrial chemicals,
medicines,
cables,
steel products,
electrical equipment,
spare parts,
and selected food commodities.
Regional sourcing can reduce transport distances, shorten supply chains, improve repair and maintenance turnaround times, and increase the scope for settlement through African payment systems.
It can also strengthen reciprocal trade by creating markets for Malawian exports.
Zimbabwe is a particularly relevant example
Zimbabwe should not be viewed only as a market for agricultural trade. It also possesses an established industrial base in the electricity sector.
Zimbabwean firms manufacture and refurbish a range of electricity infrastructure components, including:
distribution transformers,
power transformers,
switchgear,
protection and control panels,
substation equipment,
electrical motors,
concrete poles,
line hardware,
and other transmission and distribution equipment.
This capability is directly relevant to Malawi.
When ESCOM or EGENCO requires replacement transformers, switchgear, substation equipment or related components, regional suppliers should be assessed before procurement is automatically directed toward Europe, Asia or other distant markets.
Where the required technical standards, voltage specifications, protection requirements and equipment ratings can be met, procurement from Zimbabwe could offer several advantages.
These may include shorter delivery times, easier technical engagement, lower logistics costs, improved access to refurbishment services and greater opportunities for regional settlement.
A more strategic trade relationship could therefore involve Zimbabwe supplying electricity-sector equipment and services while Malawi expands exports of agricultural products, processed foods, manufactured goods and other tradable products into the Zimbabwean market.
PAPSS could facilitate settlement between participating financial institutions and reduce unnecessary dependence on external currencies.
Mozambique remains strategically important
Mozambique is of particular importance because it provides Malawi with access to the sea through the Nacala and Beira corridors.
Malawi relies on Mozambique for or through:
port services,
fuel transit,
transport infrastructure,
electricity,
logistics,
fertilizer,
and other imported goods.
At the same time, Mozambique represents a potential market for Malawian agricultural products, processed goods, manufactured products and services.
The relationship should therefore be viewed as a two-way economic corridor rather than simply as a route through which Malawi pays for imports and transit services.
A stronger regional trade arrangement would seek to increase Malawian exports into Mozambique while making greater use of regional payment and settlement systems.
Tanzania also offers significant potential
Tanzania is another important trade and transport partner.
Malawi imports or transports petroleum products, fertilizer, machinery, cement and other commodities through Tanzania.
At the same time, Tanzania represents a large regional market for agricultural commodities, processed foods and manufactured products from Malawi.
The expansion of reciprocal trade with Tanzania could therefore support both supply security and foreign-exchange management.
PAPSS should complement, not replace, production and exports
PAPSS is an important payment mechanism, but it is not a substitute for production.
A country that imports significantly more than it exports will continue to face external payment pressures regardless of the settlement system it uses.
Malawi must therefore continue to expand the volume and value of what it produces.
This means increasing agricultural productivity while also accelerating value addition.
The country should increasingly move from:
raw commodity production
towards:
processing, manufacturing and regional value chains.
For example, instead of exporting only groundnuts, Malawi should expand production of processed foods and consumer products derived from groundnuts.
Instead of exporting only soybeans, Malawi should expand into cooking oil, animal feed and other value-added products.
The objective should be to create stronger, more diversified regional export capacity.
Domestic requirements should remain the first priority
Regional trade should also be structured carefully.
Malawi should avoid exporting commodities that are already in short supply domestically simply to earn foreign exchange.
Where possible, the country should first meet domestic requirements, increase production beyond domestic demand, and then export the surplus.
This helps prevent situations in which the country exports a commodity and later has to re-import it at a higher cost.
A sustainable regional trade policy should therefore be based on production expansion and exportable surplus, not domestic scarcity.
Malawi should develop a regional sourcing and export map
A practical policy measure would be to establish a national regional sourcing and export map.
This would identify:
critical goods and services Malawi imports;
African countries capable of supplying those goods;
products and services Malawi can export to those same markets;
participating banks and payment channels available through PAPSS;
technical and regulatory requirements for regional procurement;
logistics corridors and transport costs;
non-tariff barriers restricting reciprocal trade;
opportunities for local manufacturing and joint ventures.
Such a framework would allow government, utilities, commercial banks and private businesses to make more deliberate procurement and trade decisions.
Before scarce foreign currency is committed to a distant supplier, policymakers and major importers should ask:
Can the required product or service be sourced competitively within SADC, COMESA or the wider AfCFTA market?
If the answer is yes, regional procurement and regional settlement should be given serious consideration.
The objective is to reduce unnecessary gross demand for foreign currency
The core issue is not simply how much Malawi imports.
It is also how those imports are financed.
If Malawi imports US$1 billion worth of goods from African countries and exports US$700 million to African markets, the gross flows are large, but the underlying net imbalance is significantly smaller.
Greater use of local-currency settlement and netting mechanisms can allow more of those opposing trade flows to offset one another.
Foreign currency can then be preserved for areas where it is genuinely necessary, including imports from outside the region and external financial obligations.
This is especially important for an economy facing persistent foreign-exchange shortages.
A broader regional economic strategy
Malawi’s response to foreign-exchange constraints should therefore go beyond seeking additional dollars.
The country should also examine how much of its trade can be reorganised around regional production and settlement.
The strategy should combine:
greater domestic production → regional sourcing → regional exports → local-currency settlement → PAPSS utilisation → value addition → and settlement of only the remaining external imbalance.
This would not eliminate Malawi’s foreign-exchange challenges.
However, it could improve the efficiency with which scarce foreign currency is used, strengthen regional supply chains, reduce vulnerability to distant suppliers, and support the development of African markets for Malawian products.
Conclusion
Malawi’s foreign-exchange challenges require both short-term interventions and long-term structural reforms.
One important element of that response should be greater use of African markets and African payment infrastructure.
The country should deliberately identify what neighbouring economies can supply, determine what those markets require from Malawi, expand production accordingly, and use regional payment mechanisms such as PAPSS wherever appropriate.
Zimbabwe’s capacity to manufacture and refurbish transformers and other electricity-sector equipment illustrates the wider opportunity.
The same approach can be applied to fertilizer, machinery, medicines, industrial inputs, food products and other critical imports.
The policy direction can be summarised as follows:
Produce more locally. Source strategically within the region. Expand reciprocal trade. Use African payment infrastructure. Preserve scarce foreign currency for obligations that genuinely require it.
For Malawi, regional trade should therefore be viewed not only as an export opportunity, but also as an instrument of economic resilience, supply security and foreign-exchange management.
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