How trade liberalisation killed local industries
At midnight on 6th July 1964, in a frenzy of national euphoria, bonfires were lit on hilltops throughout the country. In a jam-packed Rangeley Stadium in Blantyre, amid deafening ululations, HRH Prince Philip handed over the Instruments of Independence to Prime Minister, Dr. Hastings Kamuzu Banda. Ironically, the Prince was dismantling Her Majesty’s Empire.
The Union Jack was lowered. The National Flag was raised. God Save the Queen was played for the last time. The National Anthem was played for the first time.
The celebrations included traditional dances, marches and music by the army and the police-bands and a football game. The Black Stars of Ghana whipped the National Team twelve to zero. No one cried at the humiliation. It was a day of joy.
The Independence Arch astride the dual-carriage highway at Chichiri was constructed as a permanent reminder of this great, historical achievement.
Expectations were high. Independence had cost many people many years of toil, baton-sticks, tear-gas, stints in prison, tears and deaths, including the Chilembwe Uprising of 1915. Independence-Day was the Crossing of the Jordan into Canaan, the promised land of milk and honey.
Breaking with the past, Nyasaland became Malawi, Ma Nyasa became Malawians and Lake Nyasa became Lake Malawi. The free Malawians were dirt-poor, largely surviving on subsistence agriculture. They had no stake in the economy, except as poorly-paid employees.
They were four-million people and only fifteen university graduates. Dedza Boys, Zomba Catholic and BSS were the only secondary schools. There was no university. A national airline and a national radio-station were inherited from the dismantled Federation.
Lilongwe was a small, dusty, backwater town. Mzuzu was just a large village.
Britain paid for all the expatriate-staff. Not everyone appreciated why independence was desirable.
The important exports were Tea, Tobacco, Cotton and Coffee, in that order. Labour remittances from Malawians in South Africa, Zimbabwe and Zambia constituted significant foreign-exchange earnings. The Malawi Kwacha was pegged to Pound Sterling.
The British left an administration in which corruption in the Police or Judiciary was anathema. The civil service had a culture of professional integrity without any slothfulness, corruption, nepotism or fraud. Only the best were promoted. There were no political appointees. There was town-planning and fully-serviced industrial areas.
Any claim that Malawi has not developed since independence is false. However, many countries less-endowed with natural and human resources did better.
Before independence, Malawians had a reputation for hard-work, honesty and diligence in the neighbouring countries. They helped to build those countries. Now Malawi has educated and skilled manpower in almost all fields.
Malawi is blessed with friendly people, breath-taking scenic beauty, fertile soils, good rains, beautiful lakes and rivers, mountains and valleys and great wildlife in game-parks. Moon-struck tourists call Malawi the best-kept secret of Africa.
Visitors keep asking: with so much going for her, why is Malawi so poor? They shake heads and answer their own question; Malawi has everything except capable, political leadership.
Malawi became independent when the Cold War between the Capitalist West and Communist East was at its zenith. Dr. H. Kamuzu Banda pragmatically sided with the West. Consequently, Malawi received generous development, technical and financial aid.
The IDA and the ADB gave Malawi many soft-loans and grants for her social and physical infrastructure projects. Hydro-electric schemes, water-works, tarred roads, University of Malawi, hospitals, schools and other institutions were established. Postal
and telecommunications services were modernised and extended.
The USA, the EU, the UK, Germany, Canada, Japan and other countries funded many technical, financial and development projects. South Africa made the new Capital City and Nacala rail-line possible.
The list of donors and their donations is too long for this short article. Malawi received generous aid and used it very well.
The Private Sector responded enthusiastically. Companies like David Whitehead, Carlsberg, Sucoma, Malawi Distilleries came to make products which were previously imported.
These firms created jobs, substituted imports, saved foreign exchange, boosted exports, earned foreign exchange and expanded the tax-base phenomenally.
Agricultural production expanded. Tobacco-growing and processing overtook tea as the leading employer and foreign exchange-earner. Sugar was no longer imported but became a major export. Admarc gave market-access and guaranteed-prices to subsistence farmers. They graduated into commercial-farming and participated in the cash-economy. Rural incomes were raised.
For the first time, Malawi funded the National Recurrent Budget on her own. Yes, she did. In the late seventies and early eighties Malawi registered annual economic growth rates of between seven to eight percent. She earned accolades at the World Bank and IMF as a star- performer.
Then disaster struck. The IMF got into the evangelism business and evangelised for trade liberalization. It was code for removal of tariff and non-tariff barriers. The consequences for Malawi were immediate, far-reaching and catastrophic.
Trade-Liberalization skewed Malawi’s international trade in favour of imported-products. Protective-duties and other customs levies on imported-products were removed. Imported- products became cheaper than local-products. They flooded the market. Local-products lost market-share. The trade deficit widened.
Trade-Liberalization exacerbated Malawi’s foreign exchange shortages. Malawi started to pay more, for more imported-products, just when she was earning less foreign-exchange from less exports.
Trade liberalisation killed local industries and jobs. The loss of market-share by local products forced many local-firms to close down. Tens of thousands of jobs evaporated. The government watched helplessly as the economy nose-dived and big employers like BAT, Unilever, clothing-factories, Band C and PEW closed down, scaled-down their manufacturing operations or went belly-up. It became cheaper and more profitable to import finished-products than to make them here.
This economic-sin increased the cost of domestic production even more. Local-products lost more market-share to imported-products. More domestic-firms dropped dead. More jobs evaporated. The tax-base shrunk more.
Insufficient tax-revenues obliged government into more domestic and foreign-borrowing. It thereby opened the door for the twin-beasts of over-spending and suffocating-debt or overspending just to service debts. These twin-beasts got Malawi’s fiscal and monetary policies out of sync and brought about inflationary and recessionary tornadoes for the entire economy. Consumer-prices were rising when the economy was not growing.
On the foreign-front, Malawi started to spend more foreign-exchange not only for more imports but also for repaying and servicing government debts. The exacerbated foreign- exchange shortages pushed for currency-devaluation.
On the domestic-front, banks made more money by lending to government than to businesses. They bought more Treasury Bills and raised lending interest rates for businesses. No business can borrow at forty percent when it makes only twenty percent profit. Businesses starved for credit. The banks could only lend short-term for consumption, at very high interest rates, rather than long-term for production at low rates.
Under this economic environment, both development-banking and domestic-savings became impossible. All banks became commercial banks. They introduced numerous but expensive services for their clients and made astronomical profits. A country that has no development-banking and is not creating domestic savings cannot invest for the future and has no future.
Almost at the same time, the IMF evangelised for Economic Structural Adjustment Programmes, [ESAPs]. Dozens of government-owned businesses were forcibly divested.
Important development institutions like Admarc, MDC, Indebank, New Building Society and others were emasculated, largely for ideological reasons. Their investment interests and numerous subsidiaries were divested. Some collapsed, others were privatized or given away for a song to non-Malawians. There were no Malawians with cash or bank-credit to acquire them.
Fifty years on much of the economy is still in the hands of non-Malawians. Little has been done to facilitate the economic empowerment of Malawians. Instead, institutions such as Sedom, DEMATT and the Import and Export Company which were grooming Malawians into businesses were dismantled.
It is easy to blame the IMF-reforms for Malawi’s economic problems but it does not wash. Why did other countries benefit from these reforms when Malawi did not? She missed out on opportunities and made economic blunders out of ignorance, misplaced populism or incompetence. Malawi can do without jokes like Nsanje Port and cashgate.
50 years after independence, a police officer’s daughter, who was fourteen at the time, is now the fourth president of Malawi. Donor-dependence is more than it was thirty years ago. Donors support the Recurrent Budget by 40 percent and the Capital Budget by 80 percent.
No one sees any light at the end of the tunnel.
The question remains: after fifty years of independence, why does Malawi still depend on donor-aid? The answer is clear: her tax-base is too small to generate sufficient tax- revenues for all government expenditure-needs.
Malawi is like a person on minimum-wage: she cannot drop meat for beans because she is already on beans. She cannot drop from three-meals a day to one-meal because she is already on one-meal a day. She cannot borrow to live on, without drowning in debt. She can only beg to live on charity.
Paradoxically, this answer contains the solution to the problem. The solution is to formulate and implement economic policies which can expand the national tax-base as soon as possible. Then, and only then, will Malawi be able to collect sufficient tax revenues to stop depending on donors.
*The author is a politician, former speaker of parliament and an author. He is writing in his personal capacity.
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