Last week, the government announced the names of people who will serve as commissioners in the National Planning Commission (NPC). NPC is overdue as far as development planning in Malawi is concerned and the authorities need to be congratulated on passing the Act in Parliament and now setting up some of the first steps to operationalise the process.
The Nutcracker does not need to comment on the credentials of the new commissioners. The credentials of the people chosen speak for themselves and there is no doubt that given the space and resources to deliver, they will deliver. NPC will help in the formulation and review of policies and strategic plans for national development and recommend the appropriate allocation of resources needed to deliver on the plans.
Many a development commentators in Malawi has for a long time been calling for an independent body for strategic thinking to guide the development of this nation. It is also understood that the NPC shall be reporting to NPC, which will be chaired by the President and deputised by Minister of Finance, Economic Planning and Development and their main purpose will be to ensure continuity of development. Rapid, transformative growth requires a more autonomous development strategy and institution like the NPC and not only political part manifestos. In fact, the political party manifestos will be sold based on which party has the best potential to implement the nation’s development trajectory.
A couple of years ago, this Democratic Progressive Party government started talking about a National Development Bank (NDB) and somehow that talk seems to have died down. The Nutcracker believes that this country just like it needs NPC also needs NDB. This is because NDB can fill the gaps left by private financial institutions, which are often geared towards commercial activities. Commercial banks involve provision of loans and is usually insufficient finance for economic transformation while NDBs typically involve large-scale projects with long maturation periods, which require long-term finance and thus imply risks that banks are unwilling to undertake.
Malawi’s economic transformation requires long-term investment to support the expansion of productive capacities as well as infrastructure development that underpins industrial activities and reduces bottlenecks. In addition, many large-scale development undertakings generate positive externalities and therefore social returns that are greater than private returns and these are not normally recognised by the commercial banking industry whose assessments of returns is skewed towards private returns. The commercial banks have a very huge appetite for short-term financing and not long-term finance, which involves a risk that banks usually prefer to avoid. The establishment of NDB in Malawi designed and mandated to fulfil this role will assist in the economic transformation of the country.
In addition to long-term finance, development banks can provide countercyclical lending, thereby making economies more resilient to shocks and downturns. In doing so, they can help countries protect their productive capacities for their next expansionary phases.The NDB can be instrumental not only in addressing market failures such as the lack of provision of long-term finance due to the risks and uncertainties involved but as a critical tool in supporting a proactive development strategy. The time in Malawi is ripe for the authorities to have the courage to establish NDB.
It is, therefore, ironic that some of the major opposition to the establishment of an NDB are the donor partners and yet most of their countries developed courtesy of NDBs. Examples include the Kreditanstaltfür Wiederaufbau (KfW) in Germany, established in November 1948 to support the reconstruction of the country. This NDB in addition to playing a major role in accelerating German’s industrial take-off has now evolved as an important component of long-term financing for infrastructure and has continuously revised the focus of its activities. In Brazil, the country’s main development bank, Banco Nacional de DesenvolvimentoEconomico e Social (BNDES), has always been fully owned by the State and has played a big role in the economic development of Brazil. The economic transformation of countries like Korea, China and India cannot be divorced from the fact they established NDBs like KDB in the Republic of Korea, IDBI in India and CDB in China.
NDBs have a unique role and focus compared to bilateral international agencies or multilateral development banks. NDB has a unique opportunity to have the special knowledge and long-standing relationships with the local private sector put them in a privileged position to access local financial markets and understand local barriers to investment. Compared to commercial banks and investment funds, they have a greater potential to take risks than the financial intermediaries, providing long-term financing in local currency in their local credit markets. Public financing from NDBs can be used to leverage private investment, contributing directly to the incremental cost of implementing the national development strategies that the NPC will oversee.
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