CONTENTS | ANB-BIA HOMEPAGE | WEEKLY NEWS
|
Malawi |
ECONOMY
Malawi is heading for tough times if the current crisis doesn’t quickly end
Malawi’s economy is in dire straits. Inflation, interest rates and prices are increasing. Government Treasury Bills now attract 46% interest rates. Commercial Banks are reluctant to lend to corporate entities; instead they are opting to trade in Treasury Bills. Interest rates are at 53% while inflation is over 30%. The high interest rate and inflation rates have resulted in high increases in price of commodities. Food is very expensive.
Economy in dire straights
Malawi is a country in the Southern Africa Development Community (SADC), with high malnutrition and high infant mortality rates. It is now experiencing a low intake of food as most people cannot afford it. Eighty per cent of Malawi’s 11 million people live in the rural areas and over 65% of the population are in dire poverty and live below the World Bank poverty line of less that US $1.00 per day.
While only a small sector of the population is employed, the few that were working are also losing their jobs due to closure of companies. A number of big companies have closed down and others are closing down some subsidiaries under the guise of restructuring and downsizing. Big corporations in the country such as Blantyre Printing and Publishing, Mandala Limited, Press Corporations Limited, have sold some of their subsidiaries or closed down. This has resulted in unemployment as people cannot immediately secure a job in a job market which is failing to expand.
Indeed, there have been massive job losses in the country recently. Malawi Telecommunications Limited (MTL) axed three hundred workers in the first quarter of 2002. Southern Bottlers Limited (SOBO), distributors of Coca-Cola, has dismissed six hundred workers due to business difficulties and unfriendly economic factors. This is despite the fact that SOBO does not face direct competition on its products. In addition, Mafumu Textiles and David Whitehead and Sons between them cancelled over 10,000 jobs last year for the same reasons.
Employers are blaming the political leadership for not creating a conducive environment for the operation of the private sector. While the government’s policy has recognised the importance of the private sector in economic growth, this recognition has not been accompanied by commitment. The local manufacturing industry has died a natural death, as the private sector has no capacity to match imports from other African and Asian countries. Also, employees are experiencing delays in payment of their salaries.
In a country where 20% of the land is taken up by Lake Malawi, bottled water comes from as far as United Arab Emirates (UAE) and South Africa, and has flooded the water market in most of our shops. The prices for bottled water range from US $1 to about US $3. This situation only compounds the fact that all is not well in a country blessed with plenty of water.
Declining foreign reserves
The economy is experiencing a downturn in its foreign exchange reserves, mainly because of a rise in demand as against a reduction in supply. According to a Loita Investment Bank Report released on 1 February, «This position was mainly a result of a rise in the demand for foreign exchange during November and December as against a reduction in supply. During this seasonal period, businesses were stocking for the traditional festive expenditure and agricultural planting season, while the economy was entering its lean foreign exchange period».
By late January 2002, there was a continued decline in reserves compounded by a decline in donor inflow. Meanwhile, the Kwacha has been losing its edge against the Zimbabwe dollar, the South African Rand and the United States Dollar. The severe maize shortage that has hit the country will continue to exert an upward pressure on domestic prices.
Spending beyond means
Despite the low growth in the economy, the Government has been accused of over-expenditure. International Monetary Fund Mission (IMF) Chief for Malawi, Alfred Kammer, said over the past few months of the 2001/02 financial year, Malawi’s budget has been characterised by over-expenditure. Kammer said Malawi needs to spend within its resources and he pinpointed target expenditure for poverty-related areas of health, agriculture and education — areas which benefit the poor.
It is well known that the United Democratic Front (UDF) government of President Bakili Muluzi has failed to control expenditure. Cost-cutting measures with a view to reducing the budget deficit and keeping macroeconomic indicators in proper check have failed.
The fact is, the Government has always promised to introduce cost-cutting measures, but this has remained mere lip service. President Muluzi has been spending a lot of money through intensive local travels. Every time he travels within the country, the presidential motorcade has a minimum of 32 cars. This is costly to a country where many people are struggling to make ends meet.
Donor pull-out
Malawi has been hit hard by the pulling out of one of the biggest donor partners in the country -– Denmark. Early this year, Denmark decided to pull out of Malawi, accusing the Government of failure to address corruption, interference with the Judiciary, political intolerance and mismanagement. A number of programmes that were being supported by Denmark through agencies such as DANID, have been stopped.
The Danish aid programme concentrated on three sectors: Education (mainly intermediate schooling and vocational training); agriculture (with emphasis on animal husbandry and irrigation); telecommunications (plus balance of payments support). Danish assistance has been US $ 27 million per year since 2000, with 38% spent on economic management, 17% on agriculture, 17% on human resources, 20% on communications, and the remaining 8% on other items.
Other donors have withheld aid to Malawi. This has created panic in government circles about its inability to meet its budgetary requirements. On 26 February, Malawi’s Finance and Economic Planning Minister, Friday Jumbe, admitted that the country is «sailing through economic turmoil».
Challenges ahead
Malawi has been implementing structural reforms with the support of the International Monetary Fund (IMF) and the World Bank. In 2000, Malawi signed the Poverty Reduction and Growth Facility (PRGF). The PRGF is a programme that has replaced the Enhanced Structural Adjustment Programme (ESAP).
Under the PRGF arrangement, Malawi will seek to attain, by the last year of the programme, sustainable real Growth Domestic Programme (GDP) growth of 4.5%; an inflation rate of 5.0%; gross official external reserves that would cover at least 4.8 months imports of goods and non-factor services; a current account deficit (including public transfers) below 6.0% of GDP; and a reduction in the number of people living beneath the poverty line.
However, Malawi will need a miracle to achieve economic growth and address the high levels of poverty. Despite progress on structural reforms, Malawi faces many daunting tasks. The biggest challenge is to achieve a lasting reduction in poverty, and macro-economic stabilisation is an essential precondition.
According to the IMF Country Report Number 01/38 of February 2001, high growth rates and poverty reduction will be achieved if Malawi can address some fundamental weaknesses. Private saving and capital formation rates are inadequate. Lapses in fiscal discipline have led to monetary expansion and high real interest rates. Public expenditure monitoring and control have been weak. There have been substantial and unwarranted swings in economic policy. The formal sector of the economy is still dominated by oligopolies. Land issues continue to constrain agricultural output. The momentum of civil service reform has declined. Accountability and sound governance have yet to be improved. The high cost of utilities and domestic and international transportation hamper international competitiveness. There is over-dependency on foreign financial assistance. Statistics are not of sufficient quality or timeliness.
Can President Muluzi stimulate hope among Malawians? Only time will tell.
ENGLISH CONTENTS | ANB-BIA HOMEPAGE | WEEKLY NEWS
PeaceLink 2002 - Reproduction authorised, with usual acknowledgement