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Aligning Malawi’s trade with foreign policies

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LONGING FOR A MARKET—Local producers

By Mphatso Kampeni:

Social, political and economic developments have been some of the greatest challenges for low income and least-developed countries.

“Development” can be explained in a variety of ways including economic growth and purchasing power parity but one of the best ways to illustrate development is described by Amartya Sen as the capability or opportunity to develop.

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Sen says poverty is capability deprivation and, therefore, not a lack of income but a lack of access to opportunity.

This shows that exclusive economic growth and development may not address all of the problems associated with poverty and would not lead directly to human development, contradictory to what Modernisation theory would suggest.

It is, therefore, necessary to additionally align Malawi’s trade and foreign policies with other tools, as all three types of development are entwined in such a way that near simultaneous improvement is necessary for optimum development gains in International relations.

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Political development and democratisation leads to magnified economic growth and greater opportunities for international trading relationships, as republics are more likely to trade with other republics.

Additionally, democracies tend to spend more on social spending and welfare programmes, leading to greater funding for social development. The capital required to spur social development is derived from economic growth, and can additionally be procured by aligning trade and foreign policies.

Foreign direct investment is an increasing commercial trend in today’s commercial world when we are grappling with Covid.

More and more capital is flowing from developed countries to the developing countries. Awareness among the companies about the potential of the overseas markets especially the developing markets has given boost to the flight of capital from developed world to the developing world.

Companies, products and services which were once available or heard in developed world are now readily available in developing nations. Mining companies, telecommunications services, cars, garment brands are now shifting their attention to the emerging markets in Africa due to falling revenues in the domestic market and increasing demand in the emerging markets.

Regional, global trade and investment agreements which are negotiated well in order to protect the locals will help stimulate Malawi’s ailing economy and increase in foreign direct investment activity.

Aligning trade and foreign policies can be difficult but it will help to resolve wide range of complex issues associated with international trade that make movement of capital and technology smooth.

Foreign investors usually look for nations which are less risky and offer political and economic stability and robust economic growth due to favourable policy measures. Malawi has enjoyed peace and stability for decades, which makes her a go to destination for investment.

Global trends like the advances in trade and services, surge in information technology related services, efficient investment and friendly economic policies by the government in the emerging economies will help developing economies like Malawi to grow at an impressive pace.

Quality man power is a major component in functioning of a company, especially for Multinational Corporation’s coordination of human resource and match of talent across borders is necessary.

Presence of a well-educated and cost effective labour force in developing nations like Malawi will attract multinationals to invest and begin operations in no time.

Combination of talented and cost effective human capital, increasing demand for capital, goods, services, and disposable income, less than mature economies and access to natural resources makes them ideal candidate to shadow and replace the saturated developed world economies in the coming decades.

The developed world economies have become less attractive due to falling demand and low economic development indices. This has prompted the commercial organizations to look towards developing world for better return on investment.

Several developing economies liberalised, privatised and deregulated their economies since 1990’s Malawi inclusive in order to attract investment from developed world. Investment favourable policies have been a major part of the market liberalisation era. But not all foreign direct investment related policies are investment friendly. Both encouraging and discouraging policies are part of the economic liberalisation.

Policies framed to increase foreign direct investment inflow like tax breaks, favourable regulatory treatment and others are aimed towards restricting inward foreign direct investment and focused on the service sectors like banking, telecommunication, manufacturing and other sectors of economy.

Foreign investment brings benefits like employment creation, capital accumulation, transfer of technology, improved provision of services and increased competition. These are the desired trends Malawi needs to move forward. But foreign direct investment may pose threat to the local firms. There is a good chance of displacement of local manufacturers and the work force just as what happened here in Malawi immediately after adopting democracy in the 1990’s.

Government should deliberately put measures to restrict inward foreign direct investment at the same time. However non-economic factors play a vital role in deciding the reasons for limiting foreign ownership and control, relating to national security or economic nationalism.

The service sector is more prone to strict government control and is subject to heavy restrictions. Government must make sure it veils high degree of controls on the sensitive sectors like telecommunications, banking, transportation and energy in order to benefit locals more.

The author is an International Relations and Development Studies expert based in Kingdom of Eswatini

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