Malawi and Tobacco
What strategies can Malawi use to overcome problems relating to a change
in demand of its main export, tobacco.
QUESTION- what strategies can Malawi use to overcome problems relating
to a change in demand of its main export, tobacco?
Malawi, a LEDC, located in Southern Africa, has a population of 10
million. Tobacco is its main export and this provides the majority of
the countries export revenues. It has become dependant on exporting
tobacco to firms based in MEDC's such as the United States. Demand for
cigarettes has recently decreased because of health and ethical
reasons. Cigarettes, has reached the end on its product lifecycle.
However South East Asia remains a growing market, because of the
effects of globalisation and dumping. The decrease in demand is a
major problem for Malawi, a country that is not market orientated or
market aware. Decline in demand for cigarettes will obviously have a
direct effect on demand for tobacco because they are complimentary
products. With decreased demand for its crops of tobacco, Malawi will
find itself in a very dangerous situation that will not only threaten
its economic position but the very lives of its population.
Another concern that Malawi must take into account is the state of the
tobacco industry. At present the market could be described as an
oligopoly (see appendix) where suppliers compete on price. The outcome
of this is that the firms involved have a high market share and
therefore have much power to control supply and demand. They have the
power to control prices of tobacco and they can exploit countries like
Malawi. The national economy is dictated by exports of tobacco. The
decreased revenue, due to loss of demand, will and has enhanced the
economic and environmental problems Malawi faces.
Malawi is land locked and ranks amongst the worlds least economically
developed countries. It has external debts of £2.3bn and this is a
huge factor in preventing internal development through investment.
Although the country is rich in natural resources, such as, limestone,
uranium, coal and bauxite, these potential high value commodity
products are unexploited. Capital intensive investment would be
required to use them and this is not available from within the
country. The economy is predominately agricultural with 90% of the
population located in rural areas. Presently agriculture, including
tobacco-farming accounts for 37% of GDP and 85% of export revenues.
Malawi not only depends on tobacco to survive The World Bank and IMF
provides large sums on capital, creating debts that cannot be paid
for. To change the countries economic position, in the long-term the
government will have to solve short-term humanitarian problems, to
make the country attractive to investors for example FDI's.
Basic needs are not being met; Malawi has a HIV epidemic, a life
expectancy of 36 years and an extremely poor standard of living (54%