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Malawi |
ECONOMY
The suspension of the privatisation programme in July 2001 is arguably
one
of the major economic decisions to be taken by Malawi’s cabinet in recent
times
Set up in 1996, following the enactment of a Privatisation Act by Parliament, Malawi’s Privatisation Commission (PC) started off with a divestiture sequence plan under which government had earmarked a hundred state-owned enterprises (SOE)s for privatisation. Five years on, the PC has now disposed of over forty small, medium and larger SOEs. Some of the SOEs successfully floated, include the National Insurance Company (NICO), Packaging Industries (Malawi) (PIM), Soche Tours and Travel, Malawi Railways (1994) Limited. According to annual reports from the PC, over K1.25 billion (US $ 60.8 million) had been raised from the privatisation programme by December 2000.
Benefits of privatisation
Dye Mawindo is PC‘s Executive Director. He says the privatisation programme which is partly funded by the World Bank, USAID, the EU, has had definite effects on the country’s economic prospects. «Privatisation has reduced the drain, loss-making public enterprises had on the budget, and there has been additional income from sales and taxes from enterprises that have become profitable after privatisation,» says Mawindo.
Let’s take a look at the situation of the former Malawi Railways since privatisation. The government had granted its operating concession to the Central East African Railways (CEAR) Limited in December 1999. Barely one year after taking over from the government, the CEAR has managed to radically improve the operating standards of the rolling stock. It should be noted that prior to granting the concession, the government was spending US $1 million (about K69 million) annually in subsidising the railways losses, and approximately 40% of the rolling stock couldn’t be used.
Officials at CEAR say the company has received considerable commercial support since it started operating the concession. «Shippers have been very positive towards us. We are on target to carry a large part of the tobacco crop this season», says Peter Walker, CEAR‘s Chief Commercial Officer.
Apart from tobacco which forms a large part of the railways’ freight business, reports indicate that there has been a 100% increase in the volume of sugar being moved this year. According to estimates, CEAR had moved about 24,000 metric tonnes of sugar through the Nacala corridor from June 2000 to June 2001.
The way things are proceeding, CEAR seems determined to meet all government conditions for operating the former Malawi Railways. CEAR has the right to operate the railways for a 20-year period, as well as buying the locomotives and rolling stock. Real estate, buildings, tracks, bridges and other fixed infrastructures remain the property of the Malawi government. CEAR, however, pays a minimum concession fee of US $5 million a year for the right to operate the railway, and US $4.5 million over a period of four years for the purchase of all rolling stock and locomotives.
Since 1996, a number of companies, previously fully state-run or parastatal, have been listed on the Malawi Stock Exchange. These include: NICO, The Commercial Bank, the National Bank, The Press Corporation Limited, The Sugar Corporation of Malawi (SUCOMA), Blantyre Hotels, Old Mutual.
But have ordinary Malawians benefitted from the millions of Kwacha saved from the government’s previous annual support of what were once loss-making enterprises? The fact is, proceeds from the privatisation programme have not assisted in promoting the government’s poverty alleviation programme. Also, Malawi’s privatisation programme has seen many companies sold off to foreign investors, some of which have laid-off workers as part of their restructuring programme. Malawi Railways laid off 400 of its 1,000 workforce, whilst the former Malawi Dairy Industries (MDI) declared some of its senior managers redundant, when the company was sold to Dairboard Zimbabwe.
It could be that Malawi’s fragile economy would perhaps have benefitted more if the government had concentrated on encouraging direct foreign investment in the economy, instead of selling off established companies. But on the other hand, some of the foreign companies which showed interest in bidding for privatised entities in Malawi, were themselves state-owned enterprises from the developed World.
Why suspend the process?
But why has the government decided to suspend the privatisation process which is one of its key commitments to international donors such as the World Bank and the International Monetary Fund? The on-going silence has given birth to speculation that irregularities in the privatisation of Malawi Telecommunications Limited (MTL), the country’s sole provider of terrestrial telephones, forced the cabinet to suspend the whole process.
What happened? As part of its partial privatisation, MTL had to tender out all its telephone bureaux and public call boxes, but to the surprise of many, these were quietly offered to the company’s senior managers and board members! The Malawi Anti-Corruption Bureau (ACB) moved in on 31 July 2001 and arrested the MTL‘s Chief Executive, Emmanuel Mahuka; the Director of Finances, Masauko Chisala; the Senior Telecommunications Officer, Edna Mleme; and the Controller of Legal Services, Aiman Maliyani.
Reacting to the suspension of the privatisation programme, Dye Mawindo, the Privatisation Commission’s Executive Director, states that privatisation remains the way forward for Malawi’s economy. He says the government could reduce its budget deficits and lower inflation by privatising most of its parastatals. He gives an example: «Look at David Whitehead and Sons (DWS) which the government refuses to privatise. The government has pumped in over K500 million over the years in trying to save this company but it is still on the brink of collapse, and about 2,600 people may soon lose their jobs. The ever-growing trade in second-hand clothes in Malawi since the economy was liberalised in 1994, has badly affected business at DWS which was once one of Malawi’s major employers. If it were privatised, DWS, which is a textile manufacturing company, only about 1,000 employees would be laid-off, and the firm would stop being a drain on the government’s finances».
On the sale of the national assets to foreigners, Mawindo says Malawians would benefit from the increased and efficient services run by foreigners. According to reports, funds realised from the privatisation programme have so far been utilised in the construction of eight day secondary schools, setting up a youth credit scheme and providing compensation for workers laid-off.
Ken Williams Mhango is president of the Malawi Congress of Trade Unions (MCTU), a body englobing over thirty individual trade unions. He agrees with Mawindo that the privatisation programme has brought many benefits to Malawi’s economy, far outweighing any negative aspects. He states: «Depending on who buys and who manages a privatised entity, privatisation is a welcome process. So far, most of the privatised companies in Malawi have improved their performance and job losses are minimal».
Many Malawians feel the privatisation process should be continued with, perhaps, a better selection made of those companies to be privatised.
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