Let’s fix the economy


I don’t have to tell you that the economy isn’t doing very well. In fact, it has been sick for decades.

I am sure I also don’t have to tell you what the economy is suffering from. The symptoms are obvious: stunted economic growth, perpetual hunger and food shortage for the majority ultra-poor, growing unemployment, a runaway inflation and exchange rate, volatile prices in the market place – all resulting in unbearable living conditions, deepening poverty and deteriorating living standards.

A recent report by Oxfam shows that there is growing inequality between the rich and the poor. It is shocking that the richest 10 percent spends 34 times more than the poorest 10 percent. In other words, for every K1,000 that the poorest spend, the richest of our society spend at least K34,000.


Where are the richest 10 percent? They are in key positions, both in government, academia, civil society, faith organisations, business, political and traditional leadership. These are the people who can make a decision to either uplift the bottom 10 percent, or further depress their economic prospects.

Unfortunately, for decades, the choice by the top 10 percent has been selfish and evil, seeking only to maintain and grow its share of the national economic cake at the expense of the poor. This needs to change and the change is long overdue.

President Peter Mutharika, while opening the 45th session of parliament, said some profound and sobering words; “We are at a very pivotal moment of our history as a nation. The first 50 years of independence were a mixed bag. While we have so far registered a number of successes, we have also not done well in some areas.


“Mr. Speaker, Sir, I am reiterating today that we, as a nation, have to always learn from experience and past mistakes. The opportunity to correct mistakes lies with us. Mr. Speaker, Sir, we all have to be mindful of the fact that history will harshly judge us if we do not seize the opportunities that are currently available for us to redefine and reposition our destiny as a nation. Our children will NEVER forgive us if we fail to make the right decisions for a better future.”

We have to act decisively and act now.

I have taken the time to speak to and solicit views from different people, seeking ideas on how we can together, working in unison as ants, fix this ailing economy. My hopes have been raised that Malawi has the solutions and there are people who are thinking and willing to offer some help.

My former Economics lecturer, Professor Chinyamata Chipeta, has this response regarding what policies have worked in Malawi: He says “immediate post-independence policies were interventionist”.

“They included import substitution industrialisation under tariff protection, maximum and minimum price regulations, pegged exchange rate regimes, interest rate controls, directed bank credit. They worked because of capable leadership and a development ideology; effective development planning and implementation; a strong and competent bureaucracy (civil service) that was corrupt free; coordination of economic activities and resources. In other words, Malawi had several ingredients of a developmental state then. In addition, the internal economic environment was stable, and world markets favoured Malawi’s export crops.”

So what has not worked and what lessons can we draw from our failures? A friend bluntly stated; “Our country has had a singular misfortune of elevating thieves to positions of power. They lack the moral backbone to discipline others.”

Another concurred; “The problem is that people that have power seem not to have ideas and those that have ideas do not have the power.”

The professor who taught me Indigenous Economics eloquently stated:

“The policies pursued during the 1980s and the 1990s were the opposite of the earlier ones. These policies were neoliberal and emphasised freeing of commodity prices from controls, so too interest rates and markets generally, liberalising of exports and imports from controls, and reducing tariff barriers on imports. The implementation of these policies unleashed inflation, an increase in interest rates and an increase in exchange rate instability. So, the internal economic environment became unfavourable.”

As I write, we are still struggling with the adverse effects of the liberal policies we have been from the stiff competition that comes from highly industrialised nations.

We are selling our soya beans which we grow using a hoe, on the same market with soya beans grown by tractors. We are producing biscuits and sweets using unreliable power and these have to compete against imported biscuits from nations with almost no power interruptions.

The economic reforms, which first came under the name Structural Adjustments, saw many of our state owned industries changing hands to private investors, who mostly were foreigners. The local entrepreneur, lacking in capital, has had to compete with foreign investors who are able to access cheap capital from their stable economies.

Today, a local industry has to operate with borrowed capital at 40 percent interest while his competitor from another stable economy, is borrowing at 6 percent. It is not a fair ground.

Depreciating currency

From 1985 to 1994, the Kwacha depreciated by almost 182 percent against the US$. In 1985, the exchange rate was 1.59 and fell to 4.48 by 1994 when power changed hands to Bakili Muluzi. In his ten-year leadership, Muluzi president presided over a 2,314 percent depreciation of the Kwacha, helplessly watching the exchange rate fall steeply from 4.48 to 108.15.

The leadership mantle was passed on to Bingu wa Mutharika, who did not fully subscribe to the free exchange rate policy. As a result, in 8 years, the Kwacha depreciated by only 51 percent against the US$, and it moved from 108.15 to 163.59. But we also know the price we had to pay for artificially managing the exchange rate. The country almost run out of forex.

The leadership mantle passed on to Joyce Banda for two years and a 175 percent depreciation was recorded (from 163.59 to 449.22). Obviously, the first 49 percent depreciation should have been passed on to her predecessor. We are not in the first two years of Peter Mutharika and the Kwacha has already depreciated from 449.22 to 759.9776, representing a 69.2 percent depreciation.

One of our challenges is that we seem to be experimenting with foreign solutions without attempting to domesticate them and modify them to suit our local economic environment. We have fully trusted the advice of the Bretton Woods institutions without arguing the applicability of certain reforms.

According to the world respected economist, Jeffrey Sachs, in his book, The End of Poverty: How we can make it happen in our lifetime; “By the start of the 21st century, Africa was poorer than during the late 1960s, when the IMF and World Bank had first arrived on the African scene”.

Probably it is high time we question the effectiveness of some of the imported policies in our local context.

Managing the present Common adjectives about our current situation include dire, scary, unpredictable, volatile, free-rolling, auto pilot. People are frightened and they should be.

So, how do we manage the present?

First of all, I suggest that we stop playing politics and be real. Let us call a spade a spade. Our economic situation is indeed dire, shocking, and scary. It is characterised by the following indicators of instability: high rates of inflation, high interest rates both in the formal and microfinance financial sectors, steadily depreciating exchange rate, worsening current account deficit in the balance of payments, declining reserves, an unsustainable budget deficit, a rising public debt, and serious maize (food) shortages.

Having acknowledged that we are in a crisis, we need to act like people in a crisis. This is not the time to be wasting money on numerous press statements defending or justifying. It is time we had an honest and frank national debate on our dire economic situation.

We need to clearly outline the critical issues that need sorting out and not waste time sugar-coating our problems. What are the key fundamental challenges facing the Malawi economy? There are many including indecisive and visionless leadership, undiversified economy, low productivity in smallholder agriculture, low export capacity, high population growth rate and high literacy rates.

These challenges have led to unsatisfactory development indicators in the form of no growth and rising inequality, poverty levels and unemployment.

We are sitting on a time bomb as the population continues to swell unchecked. We have a growing youthful population which is jobless, uneconomically active and increasingly getting frustrated.

As the president has stated, we are at a very pivotal moment of our history as a nation and the opportunity to correct mistakes lies with us. Let us seize the opportunities that are currently available for us to redefine and reposition our destiny as a nation.

Practical action steps

Seal off leakages in the public purse: The fact that our developmental partners still don’t trust our public financial management systems should be a cause of great concern to every tax-paying Malawian. We need to demand seriousness in public financial management.

Have a new budget template: We have always depended on direct budget support. Now that this is unlikely to resume, let us discard the old budget template and design a new one that only plans on locally generated resources. We need to do radical reforms to our budget lines. We cannot continue to give a thousand litres of fuel to some citizens when the bottom 10 percent can’t even afford a bag of fertilizer.

Fiscal prudence: As citizens, we must demand that our government only spends on us what we have contributed to the national purse through taxes and other revenues. It is unpatriotic of us as citizens to expect the government to spend on us money we didn’t give it. This will require an honest national conversation that redefines the role of government on its people.

We must effect a proportionate cut in all government and parastatal recurrent expenditures except those that enhance long-term growth of the economy.

We must abolish car entitlements for all officials except probably ministers and the presidency. In choosing the cars to buy, have to have regard for economy. Let us always remember that we have a bicycle economy and we cannot afford or satisfy limousine appetites.

Do not cut development expenditure at all costs. Rather, trim consumption expenditure. In the short term, let us abolish Fisp and give notice of the impending abolition so that smallholder farmers can prepare for life without it. We need to appeal to NGOs to empower smallholder farmers financially by promoting communal and cooperative mechanisms for saving and mobilising financial resources among them.

Invest in irrigation agriculture: The rains will from now onwards remain unreliable, trust me. We need to realize that crops need water to grow, not rains. Let us invest in irrigation infrastructure that will support irrigation farming.

Have a long term national vision: Most importantly, we need to develop a long term national development agenda. We can no longer depend on short term political party manifestos to develop this nation.

Can this be done?

Fixing the Malawi economy needs guts, something our politicians will never have. It needs a hatchet man, someone who does not care about a second term or even impeachment. You need someone who will go into government and Magufulise everything, seal the leakages, change the multiple layers of concrete and get out! Until that happens, we are dead”.

According to Greg Mills in his book, Why Africa is Poor and what Africans can do about it; “Economic growth does not demand a secret formula. (But) The main reason why Africa’s people are poor is because their leaders have made that choice.”

The truth is: “You cannot turn a stone without risking killing a few ants”.

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