MALAWI: CONTINUING FUEL CRISIS BITES DEEPER INTO

UNCLAS LILONGWE 000647 SENSITIVE SIPDIS LONDON FOR AF WATCHER PETER LORD E.O. 12958: N/A TAGS: EPET ECON EFIN MI SUBJECT: MALAWI: CONTINUING FUEL CRISIS BITES DEEPER INTO ECONOMY REF: A. LILONGWE 594 ¶B. LILONGWE 628 ¶1. (SBU) Summary: A month-long fuel shortage continues to plague Malawi. Efforts to resolve the crisis continue to fall short of demand, with shortages now affecting petrol and parafin as well as diesel. While the transportation industry was the first to feel the effects of the shortage, the crisis is now affecting other sectors of the economy. Caused primarily by a lack of hard currency to pay suppliers, the fuel crisis is the most dramatic consequence yet of Malawi's general shortage of foreign exchange (ref A). IMF sources indicate that forex flows are unlikely to improve before mid-January at the earliest. End Summary. ¶2. (U) Malawi continues to suffer from a widespread and serious fuel shortage, now into its fourth week. Initially affecting only diesel fuel supplies (the majority of Malawi's fuel consumption),the shortage has now spread to petrol and parafin (widely used in Malawi for lighting). Fuel shipments are en route from the ports of Beira and Nacala in Mozambique, and Dar es Salaam in Tanzania, but deliveries remain far below the level of demand. Efforts to fill the backlog of demand for diesel has meant that petrol deliveries have been crowded out, creating shortages. Traffic in Lilongwe, Blantyre and other urban areas has been snarled by long lines around filling stations as motorists try to obtain the scarce supplies that are available. Retail suppliers have limited sales to vehicles (no jerry cans) to limit black market sales, and some stations have been selling only to customers carrying buyers cards for that company. ¶3. (U) In addition to impacting transportation companies and fertilizer distribution (ref. B),fuel shortages have hampered transport of tobacco seedlings from nursery areas at a time when they would normally be transplanted into farmers' fields. Anecdotal reports also indicate that Malawi's fishing industry has been hurt since traditional night fishing practices rely on lanterns for which there is no parafin. All contractors on road projects have suspended works due to lack of diesel. Standby generators for industrial use (necessary in Malawi due to unreliable power) have been affected for almost all industries and factories. Dairy industries have incurred major losses as they cannot deliver milk and lack facilities to store fresh milk. Some hospitals' standby generators can no longer operate, leaving patients vulnerable to frequent power outages. ¶4. (SBU) The GOM initially blamed logistical problems for the fuel shortage, but it is now general knowledge that the lack of foreign exchange is the root cause of the crisis (septel). IMF resident representative told Post Nov. 30 that the GOM was unlikely to receive significant new inflows of hard currency prior to mid-January at the earliest, when some donors providing budget support might release those funds if the IMF looks likely to approve a new country program for Malawi. Until then, the significant disruptions caused by the fuel crisis are likely to continue. ¶5. (U) Comment: The ongoing fuel shortage affecting Malawi clearly has the potential to cripple the country's economy if not resolved soon. While government has been reluctant to face the costs in high inflation historically experienced following a devaluation of the kwacha, the current crisis shows that the consequences of intransigence may be worse. BODDE