The Development Situation in Malawi

Written evidence submitted by Humphreys Timothy SHUMBA , PhD. Stu dent in Strategic Management , Exploits University

How the UK can best help to improve opportunities for economic growth, job creation and meeting the millennium development goals targets in Malawi

1.0 Introduction

This paper is a response to the request for inputs by the UK Parliament’s International Development Committee for submissions on how Her Majesty’s Government (UK) can best help to improve opportunities for economic growth, job creation and meeting the Millennium Development Goal targets in Malawi. In the background section of this paper, attempt has been made to provide the context in which the Malawi economy is operating. The paper further discusses the challenges facing Malawi and goes on to suggest solutions to these challenges. The paper concludes the discussions with recommendations on possible areas of support to reignite the economy and create jobs for Malawians. The paper also addresses the Millennium Development Goals and how her Majesty’s government could support efforts to attain the targets.

2.0 Background

Malawi was declared a British protectorate of Nyasaland in 1891. It became the independent nation of Malawi in 1964. After three decades of one-party rule under President Hastings Kamuzu Banda the country held multiparty elections in 1994, under a provisional constitution that came into full effect the following year. Four presidents namely; Dr. Banda 1964-1994, Bakili Muluzi 1994-2004; Bingu Wa Mutharika 2004-2012 and Joyce Banda 2012 incumbent have ruled Malawi since independence and the incumbent is Mrs. Banda, is the first ever female president in Malawi and the entire southern Africa region. Mrs. Banda ascended to presidency following the death of the former president Dr. Bingu wa Mutharika on 5th April 2012. The former president, Mutharika had overseen some economic improvement particularly during his first term in office. Since 2009, however, Malawi had been experiencing some setbacks, including a general shortage of foreign exchange, which significantly damaged its ability to pay for imports, and fuel shortages that hindered transportation and productivity. Investment fell 23% in 2009, and continued to decline in 2010 [1] .

At the time of his death Dr. Mutharika’s government had failed to address barriers to investment such as unreliable power, water shortages, poor telecommunications infrastructure, and the high costs of services. Donors, who provided an average of 36% of government revenue in the past five year, suspended general budget support for Malawi in 2011 due to a negative IMF review and governance issues. All these developments are happening against a backdrop of extreme poverty levels with over 60% of the population living below a dollor per day. Landlocked Malawi ranks among the world's most densely populated and least developed countries. The economy is predominately agricultural with about 80% of the population living in rural areas. Agriculture, which has benefited from fertilizer subsidies since 2006, accounts for one-third of GDP and 90% of export revenues.

The performance of the tobacco sector is key to short-term growth as tobacco accounts for more than half of exports. The economy depends on substantial inflows of economic assistance from the IMF, the World Bank, and individual donor nations. In 2006, Malawi was approved for relief under the Heavily Indebted Poor Countries (HIPC) program. In December 2007, the US granted Malawi eligibility status to receive financial support within the Millennium Challenge Corporation (MCC) initiative.

The implementation of the Millennium Development Goals (MDGs) in Malawi is being done through the medium term development strategy known as the Malawi Growth and Development Strategy (MGDS). The strategy, aims at creating wealth through sustainable economic growth as a means of reducing poverty. The 2010 Millennium Development Goals report has shown that the country is on track to attaining some of the MDG targets by the year 2015. Malawi has made tremendous strides in MDGs 1, 4, 6, 7 and 8. Malawi is seriously lagging in its efforts to attain MDG 2, 3 and 5. It makes sense therefore to invest in addressing the lagging MDGs whilst still supporting those whose indicators are favourable.

3.0 Challenges facing Malawi in attaining MDG targets

The government of Malawi faces many challenges including developing a market economy, improving educational facilities, facing up to environmental problems, dealing with the rapidly growing problem of HIV/AIDS, and satisfying foreign donors that fiscal discipline is being tightened

3.1 Developing a market economy

Malawi ranks among the world's most densely populated and least developed countries. Her recent economic performance has been unsatisfactory due to low capacity to generate real economic growth estimated at 4.6%. The major challenge has been a lean economic base with heavy reliance on tobacco as the backbone of the economy. Tobacco alone contributes about 67% to the country’s export receipts (GoM, 2010a).The manufacturing industry is virtually nonexistent. The unsatisfactory rate of growth of manufacturing industries is due to such factors as foreign competition, unreliable utilities, high cost of imported inputs induced by devaluations, foreign exchange shortages, unsatisfactory state of the internal road network, an unstable economic environment, decreasing rates of investment and inadequate delivery of credit to small and medium-scale enterprises. This is due to lack of competition as most industries are dominated by monopolies and oligopolies; excessive regulation of the economy; and price controls which remain in force on some products after the authorities had started to dismantle price controls. . The contraction in output of previously protected tobacco industry has not been offset by a sufficiently vigorous development of other export industries. Malawi is predominantly an importing and consuming nation. Over 90% of the value of Malawi’s exports is accounted for by natural resource sectors. The economy of Malawi is linked to the environment in many important ways. There is evidence that forestry resources, for example, are degrading at a fast rate of

2.6% per year (World Bank, 2002). The main cause of this is agricultural expansion caused by rapid population growth. Inadequate electricity generation, which results in electricity rationing, contributes to forest degradation by increasing firewood and charcoal demand in the major centers of Blantyre, Lilongwe, Limbe, Zomba and Mzuzu.

3.2 Education

The structure of formal education system in Malawi follows an 8-4-4 pattern comprising three levels. These levels are primary, secondary and tertiary. At each level the Ministry of Education is the main provider but is assisted by line ministries. The government in 1994 introduced free primary education. Enrolment in primary school rose exponentially exerting pressure on facilities such as classrooms and teachers. Despite the framework for Free Primary Education (FPE) having been created, there is still a need for more and better educational facilities for the enhancement of the capacity of a qualified teaching force.

Only 15% of the Primary School Leavers have access to Secondary School education. Until 1998, secondary education in Malawi was offered through conventional secondary schools and Distance Education Centers (DECs). Only about 3% of secondary school graduates are enrolled in the public universities of Malawi.

3.3  Manufacturing Industry and Privatization

During the last decade, Malawi’s large manufacturing companies such British American Tobacco (BAT), David White Head and Sons (DWHS), Brown and Clapperton (B&C) closed their operation s and new establishments have been few and far apart. Interestingly, there has been an upsurge in the number of micro/small manufacturing enterprises, with some being registered whilst the majority could be considered informal. As in any poor country, the objective of promoting participation by many indigenous people in the privatized enterprises is easier said than achieved. This is due to very low average levels of income of the majority of Malawians. As a result of rapid rate of economic growth in recent years, and restrained growth of wages, the level of formal sector employment should have increased. However, owing to lack of appropriate data, one cannot say by how many people such employment has expanded or at what rate. Since the rate of growth of formal sector employment usually falls behind the rate of growth of the labour force, it is believed that the high rate of economic growth has failed to absorb all entrants into formal sector employment. Acceleration of output growth is not sufficient to create adequate wage employment to absorb all entrants into formal sector employment. Formal sector employment growth is unlikely to be at rates comparable with labour force growth unless less capital-intensive techniques and sectors are prioritised. Therefore, the majority of the workers will, for the foreseeable future, be employed or self-employed in smallholder agriculture, forestry, fisheries or in nonagricultural informal activities, making the attainment of higher productivity in these sectors crucial for output growth, for the adequacy of household incomes to meet basic needs, for meaningful increases in employment, and for limiting pressure on limited natural resources (Chipeta, 1996).

3.4 Population growth and environmental degradation

Rapid population growth is a major concern for Malawi. The population of Malawi grew from 8.0 million in 1987 to 13.1 million in 2008 representing an increase of 38.9% in a decade or an inter-censal population growth rate of 2.8%. Population density increased from 105 persons per square kilometer in 1998 to 139 in 2008. The rapid population growth is increasing pressure on agricultural lands and the environment which are the mainstay of the economy. Malawi’s economic development and the livelihoods of its population are largely dependent on natural resources. In order for the country to experience sustainable economic growth and alleviate poverty, Malawi must conserve its valuable environmental resources. Degradation of natural resources continues to be a major threat to the social and economic development of Malawi. Malawi’s high population density and the dependence of Malawians on agricultural production in the absence of other economic opportunities have led to alarming rates of environmental degradation. The result has been deforestation; decreasing soil fertility and increasing erosion; water depletion, loss of biodiversity; and increasing pollution. These poor environmental conditions are exacerbated by poverty: in order to subsist, a high proportion of the population relies on the exploitation of natural resources such as firewood and fish stocks. In Malawi, the distribution of employment shows that in 2008, 84% of the employed (aged 15 years and above) were engaged in agriculture, forestry and fishing (NSO, 2009) indicating direct dependence on natural resources. For women, the percentage so employed was larger than the national average, at 90%. The number of people employed in agriculture in rural areas at 90%, was higher than in urban areas at 24% (NSO, 2009).

4.0 Discussion

To achieve an economic turnaround, Malawi needs an economic growth rate of not less than 9% per annum. The real growth however stands at 4.6% although politicians claimed a 7% annual growth rate for several years. At 4.6% the economy is under performing and therefore cannot spur growth. Developing a vibrant market economy in Malawi is a priority but remains a challenge. The deliberate efforts should be made to free and liberalize the economy and remove trade barriers including prohibitive policies. This should encourage direct foreign investment and as a result create local employment. With Malawi having a well-knit extended family system creation of jobs would have ripple effects to family members and the communities. People will be able to feed their families, send their children to school and off course pay taxes.

Keeping girls in school is one of the best ways to fight poverty both in the medium and long term. The schools are well known to provide social protection to girls from HIV and AIDS. For most of the girls in rural areas, the schools are the only sources of information not only on HIV and AIDS but also for other lifesaving skills. As the case is at the moment, over 50% of the population of Malawi is under 18years old. This is both a challenge and a huge opportunity economically speaking. The challenge is arising from the fact that in less than 10 years from now, Malawi will have to create jobs for them, most of them will have been married and start bearing children. With no jobs and no proper skills, the youths will pause a big security and developmental threat to the economic advancement of the country. Any intervention in this area is long overdue and should point to urgent action to harnessing the latent energies of this bunch of untapped resources.

The environmental degradation is taking place at an alarming rate. This is due to high levels of poverty. The environmental degradation is arising from over exploitation of the natural resources such as trees, over fishing, poor land husbandry practices leading to soil erosion. The electrical energy shortage is also exacerbating the situation. Efforts to address environmental degradation in piece meal fashion will not work. A comprehensive and aggressive move to addressing the drivers of the environmental degradation issues is a must and not an option. With the current rate of environmental degradation taking place, not meaningful development can happen in Malawi.

5.0 Recommendations

Malawi government in its Growth and Development Strategy 2 has placed emphasis on Agriculture and Food Security particularly on increasing food security and agro processing/manufacturing for domestic and export markets. Her majesty’s government could build on this in recognition of the fact that her majesty’s government is already involved in these interventions. This augurs well with Her Majesty government’s plans on Malawi Agriculture Programme- a s programme that will: provide 350,000 vulnerable farmers a year with high yielding maize and legume seeds; improve value for money in the Government of Malawi’s Farm Input Subsidy Programme; increase incomes for 7,000 existing dairy farmers and enable 2,000 smallholder farmers (including 1,000 women) to move into dairy farming; and support 90,000 farmers (including 31,000 women) to increase yields and improve soil quality through conservation farming. Such investment will have ripple effects including ccontaining environmental degradation in. Complimentary to this support could be the a programme similar to the current EU-funded Income Generating Public Works Programme (IGPWP), which aims at reducing poverty by increasing local production of fuel wood, timber and poles through community woodlots and planting on individual club member farms. Gains could also be made in agro-processing The MGDS identifies agro-processing as a priority area, covering production and processing of tea, tobacco, sugar, wheat and cotton. This strategy is key in driving development in Malawi.

There are no specific measures for creating formal sector jobs in the MGDS. The MGDS envisages that high rates of economic growth will stimulate formal sector job creation. In the absence of comprehensive data on employment, it is difficult to ascertain if high rates of economic growth have succeeded in creating such jobs. However, the UK government could support Malawi especially by introducing the Financial Sector Deepening Malawi (FSDM) which seems to be working in other countries as Kenya and Rwanda to increase access to financial services for poor people.

Coupled with what the UK government is already doing in Malawi in the area of road infrastructure, considerations should also be made to improve the rail transportation. Rail transport still remains the cheapest form of transport in Malawi. However, its usage is limited but has potential for growth especially for moving both domestic and international cargo. The development of the rail network will have to be linked to target areas such as ports, industrial sites and national borders.

In addition to what Her Majesty’s government efforts in the energy sector such as the current initiative on replacing incandescent light bulbs with two million low energy light bulbs thereby reducing peak time demand by up to 20% at a total cost of around £3 million, the proposed support could also be directed to developing other alternative forms of energy in Malawi. Electricity generation from solar panels and wind turbines has a huge potential and offers a plausible alternative. Malawi has some experience in this area especially in Thyolo. The initiative needs to be scaled up across the country. Overreliance on Shire River for generation of electricity is risky because chances of outflow from Lake Malawi receding below the minimum elevation of 474 m above sea level as was the case between 1915 to 1935 are high.

Although Malawi is on track to achieving five (5) of the eight (8) MDGs, the three remaining goals which are (1) maternal health, (2) universal primary education and (3) gender equality and women’s empowerment, Her Majesty’s government should consider investing heavily in girls education, improving sexual and reproductive health of adolescent girls and young women. Family planning services should be accessible to adolescents and young girls as opposed to the current approach where these services target older women who are exiting child bearing in most cases after already have borne six and above children. Investments could also be directed at improving skills of birth attendants. Provision of emergency obstetric care will go a long way in curbing some of the unnecessary maternal deaths currently being experienced.

On gender equality and women empowerment, the ascension of Mrs. Joyce Banda to the high office of the president of the land is a good starting point in women empowerment in Malawi. Programmes should therefore be designed aimed at increasing women participation in decision making positions. Male involvement at community level and with traditional and religious leaders is critical in getting women in influential positions and curbing gender violence.

6.0 Conclusion

In conclusion, whilst it is extremely difficult to address all the challenges facing Malawi, tremendous gains could be made by directing investments in strategic focus areas which have potential for ripple effects. It is clear that investing in girls’ education has both short and long term benefits and should therefore be encouraged. The state of the environment in Malawi is deplorable and urgent attention need to paid be to restore the environment which is the bedrock for development and economic growth of the country. In addition to the laudable efforts by Her Majesty’s government in the energy sector, investments should also be made in alternative forms of energy such as solar and wind mills. It is clear that tobacco, tea and sugar remain the key backbone industries in Malawi. However, opportunities abound in agro-processing business. It is also worthy considering supporting small to medium scale agro-processing to spur economic growth.

10 May 2012