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Let us talk manufacturing

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With Fanwell Kenana Bokosi:

Malawi, will not develop economically without increasing the manufacturing base. Without growing and diversifying the manufacturing base will keep Malawi a poor country. Malawi’s trade balance is structurally in deficit: in 2017, Malawi exported less than it imported, resulting in a negative trade balance.

The main exports remain raw tobacco, sugar and tea. The main export destinations of Malawi in 2017 were the European Union (EU), Zimbabwe and Mozambique. The majority of the imports are from South Africa, the EU and China.

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Lack of debate on how Malawi can improve its manufacturing base seems to be lacking from those seeking the highest office of the land. Even those promising jobs for the youth seem to talk of jobs that are not based on a strong manufacturing base.

It would be interesting to debate the ideas of various political parties on making manufacturing the base of the economy. In the past, business people and local investors have complained of higher interest rates and a deterrent to investment in transforming Malawi’s economy.

In the past two years the interest rates have been reduced and one would have expected that the bank loans would have increased to those wanting to go in production of the various goods that Malawians are importing.

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Unfortunately, the low interest rates have not translated into the type of investments that could be termed transformational. The latest Reserve Bank of Malawi figures indicate that as of July 2018, the distribution of credit largely concentrated in the Wholesale and Retail trade and agriculture which jointly account for 44.8 percent of the entire loan portfolio. Individually, agriculture sector and wholesale and retail trade sector accounted for 20.8 percent and manufacturing was only 18.1 percent of total loans.

The importance of manufacturing extends far beyond employees, companies and investors directly involved in the industry. It affects everyone. Manufacturing provides the necessary foundation for an economically, socially and environmentally sustainable society. Malawi’s standards of living cannot be detached from the continued success of the manufacturing sector. In addition, manufacturing drives technological innovations. Manufacturing is and will remain a critical component of transforming the economy.

It is rather depressing that political actors who want to be in charge of a transformational leadership seem to leave the matter out of the campaign trail. The debate should move beyond the rhetoric Malawians have heard before of claiming that this country will transition from an importing and exporting country without developing the manufacturing base.

The idea that there will be export-led growth is only possible if proceeds of exports of raw commodities lead to investments in proper manufacturing of intermediate and finished products that the country is importing. Transitioning from predominant importer to a largely dominant exporter will require policies that encourage exports while reducing the imports of inputs for exports which are all imported. Take the case of tobacco, sugar and tea. In order to produce Malawians have to import almost all inputs, from seeds, chemicals, fertiliser, pesticides to, sometimes, labour.

Economic development involves the accumulation of productive capabilities that allow a country to produce increasingly diverse and complex products. These productive capabilities can be described as non-tradable networks such as logistics networks, finance networks, supply networks, knowledge networks. The more complex products a country produces, typically manufactured products, the more complex the economy is. However, Malawi is one of the African countries with low levels of economic complexity. This is consistent with the export structures of the economy being dominated by basic commodities or products from agriculture, as opposed to more complex manufactured products.

Malawi can unlock its true potential by following in the footsteps of every modern economy by transiting to more investments into manufacturing. With more local value-addition that would create more and better-paid jobs to those people directly employed in the sector, but also has high economic multipliers in its linkages to upstream production sectors and downstream sectors, including services making the country become more resilient to economic shocks and less dependent on natural resource exports.

In addition, it is important to note that manufacturing can not be possible without a stable economic environment, a reliable supply of energy (fuel and electricity) and an education system that is geared towards practical appropriate technology suitable for a true transformation of the economy and not a destruction of the only productive sector Malawi has, agriculture, and become the world wholesaler and retailer of goods manufactured beyond the borders of the country.

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