Malawi can have a run of double digit growth rates and achieve a decade of real economic transformation, but even before I explain how the finance minister in charge of economic planning thinks this is just a layman’s wish.
However, let me take him back to 2008 when he stirred a growth rate of eight percent, to help draw his attention. That feat was not a ceiling of Malawi’s growth rate but a tip that with transformative ideas Malawi can grow even faster.
But that would not be possible when the minister keeps busy nursing the poor and continues to be generous with subsidies and safety nets instead of investing in infrastructure and lend prospective entrepreneurs and innovators.
According to the latest World Bank’s Economic Monitor report, subsidies in the 2015/16 national budget accounted for close to seven percent of the GDP. And most of these subsidies leave the beneficiaries calling for more every year. Sustainable subsidies liberate beneficiaries from the jaws of dependence and start creating wealth.
The recent IMF’s mission’s report says in part; “Maize subsidies, should they arise, would need to be carefully targeted to the most vulnerable segments of the population and managed in a cost-effective way that does not strain public finances further and worsen public debt, which has now risen from 40 percent of GDP in 2012 to 58 percent of GDP in 2016.”
This shows the country borrows but the economy is not creating enough wealth to suppress the debt proportion to the GDP and that will soon cause more fiscal pressure.
Perhaps the big question is how the country can start creating wealth. Obviously, it is by attracting Foreign Direct Investments (FDIs), foreign financing and inducing local investments towards industrial activities while employing policies that ignite entrepreneurship and innovation among Malawians.
The country will not grow by feeding Malawians with subsidies and free public services with borrowed resources. Of course, I am mindful that there are some who are physically unfit to fend for themselves, but let the rest work harder.
But I don’t see the minister and his master relenting, for obvious reasons that are a reason we are stuck watching other countries like Rwanda speed out of sight.
Malawi’s economy is just worth US$6.5 billion, according to the World Bank. This means the market size is not attractive enough to big manufacturing companies that the country needs to create hundreds of thousands of jobs and produce hundreds of millions of dollars worth of products.
Unless in mining and energy industries, big companies can only come to Malawi to produce for the export market and Malawi is well exposed to Comesa, Sadc, Agoa, Chinese and the EU markets with some preferential trade arrangements.
However, these companies will be allured by tax breaks, easy entry and free environment where they will produce at low cost and make better profits than anywhere else.
I might have touched some raw nerves for some civil society organisations that pity tax breaks. Actually, tax breaks attract FDIs to unattractive countries like Malawi and the benefits will be through creation of jobs, boosting of exports, bringing of skills and technologies.
Be mindful that taxes are also collected through Pay As You Earn (PAYE) and tax breaks make companies expand faster until the policy is no longer a necessary.
The government’s medium-term economic program supported by the IMF through the Extended Credit Facility arrangement is based on “Malawi’s second Growth and Development Strategy (MGDS II) which is aimed to achieving and maintaining macroeconomic stability and implementation of policies and structural reforms to spur growth, diversify the economy and reduce poverty.”
Just as in the MGDS I the intention of the MGDS II is exciting but the economic planner have once again failed to come up with projects that help achieve the dream.
Chinese authorities have a cliché, ‘the new normal.’ It is a notion that premises the 13th five-year development plan to sustain growth rate with new approach and new ideas.
Unlike Malawian policy makers, the Chinese have evolving ideas that suit the prevailing headwinds and opportunities.
The recent G20 summit by the forces behind the IMF and World Bank admitted that the fiscal and monetary policies are no longer effective tools to heal or transform ailing economies. In fact, the rhythm in the romance with IMF is about fiscal and monetary policies but for decades Malawi has not conceived.
Known as an innovation hub of China, the city of Shenzhen is where China’s industrialisation begun, turning a district widely covered by rice fields and fishing villages into an experimental Special Economic Zone that attracted both FDIs and local investors.
It is this industrial hub that eventually spilled over benefits to other places that developed similar industrial zones that are behind the ‘Made in China’ brand.
The Chinese initially offered tax breaks, lessened investment processes and dedicated a whole district to foreign companies to create a unique investment destination.
I would select Mangochi as a candidate of Special Economic Zone given its water resources, plain land and tourism potential. The district can be turned green with vast irrigation farms that do not depend on the cheeky rains to produce enough for food, value addition and export, creating hundreds of thousands of jobs.
Investments to create world class tourism environment would see the inflow of tourists and with the irrigation opportunities the couple would turn Mangochi into a well planned industrial and modern coastal city that pioneers Malawi’s economic transformation.
Programs such as the MGDS should be able to identify Mangochi, Salima, Nkhata Bay and the Lower Shire as candidates for Special Economic Zone concept which has seen agriculture based economies industrialise.
The Green Belt is a good attempt but it needs to be refined to create industrial hubs.
It is evident that Malawi’s development plans are too generic for intended results as they target everyone and everywhere- we need a starting point
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