Malawi’s road to catching-up

Some 30 years ago, Malawi’s development level was similar to a number of countries in sub-Saharan Africa such as Mozambique, Rwanda, Niger, and Burkina Faso.

But today, the country lags behind many of her peers despite no greater number of weather or external shocks compared to other countries in the region, and with the added advantage of peace and political stability.

This puzzle of Malawi’s slow pace of development compared to her African peers raises a number of questions about past policy choices.

“The question that we have to answer, and, every one of us particularly in the leadership is: where did we go wrong and how can we make it right,” said Goodall Gondwe, Minister of Finance, Economic Planning and Development during the commemoration of the golden jubilee of the World Bank in Malawi.

So, working in partnership with government and likeminded development partners, the World Bank Group has prepared a Country Economic Memorandum (CEM) to dissect the problems and propose practical ways for Malawi to move beyond business as usual and achieve stable and sustained growth and poverty reduction.

Titled From Falling Behind to Catching Up, the CEM identifies ways for Malawi to achieve growth that benefits the poor. The CEM recommends directions for policy in four interrelated areas: macro-economic stability, agricultural transformation, private sector development, and institutional reform.

“There is considerable consensus around the policies and investments that Malawi needs to make in order to improve growth and poverty reduction,” Greg Toulmin, World Bank Country Manager for Malawi said.

“Malawi has from time to time shown that it can do well economically; the challenge lies in consistent implementation. Hence the CEM focuses less on the ‘what to’ and more on the ‘how to’ of Malawi’s development pathway,” he said.

Government has already used several of the 11 background papers for the CEM to help prepare the third Malawi Growth and Development Strategy (MGDS III), which will run from 2017 to 2022. The theme of MDGS III is “Building Productive, Competitive and Resilient Nation.”

Informed by both the CEM and the MGDS III, the World Bank will be developing its Country Partnership Framework for Malawi for 2018- 2022.

Entrenching macroeconomic stability for the long term

“Government’s immediate goal should be to restore and—even more importantly—maintain macroeconomic stability and low inflation,” Richard Record, lead author of the CEM said.

“Such stability is a prerequisite for private investment and job creation, and is something that Malawi has struggled to achieve for long enough periods in the past.”

Central to achieving macroeconomic stability is reducing the size of fiscal deficits, managing the budget with careful prioritisation of expenditures, avoiding recourse to excessive domestic borrowing, and managing inflation.

The CEM observes that if stability is entrenched, it would then give room to government to focus on the necessary long term policies and investments that will foster the volume of investment and job creation that Malawi needs.

Further, if Malawi is going to be better able to absorb the impact of the next shock (such as drought or floods), then buffers need to be rebuilt by creating fiscal space and reducing domestic debt.

Focusing resources to support agricultural transformation

Malawi’s economy is based on agriculture, which contributes about a third of GDP. Some 85 percent of Malawians live in rural areas and pursue small-scale, rain-fed agriculture.

Low productivity of subsistence agriculture is one of the factors that contribute to the country’s persistent poverty. Around 70 percent of Malawian’s live below the international poverty line of $1.9 per day.

To help Malawi catch-up and turn around the country’s economic fortunes through agriculture, the CEM suggests a future vision of a significantly more diversified agriculture sector, where more specialised high-productivity farmers supply markets with the food and other agricultural products that Malawi needs.

It further highlights boosting agricultural productivity, value addition, and strengthening agricultural markets. To transform the agriculture sector, the CEM also encourages the country to shift resources from risk coping approaches to risk management strategies, including investing more in irrigation and extension services, market information systems, and communication and transport infrastructure.

A more commercially oriented agriculture sector, that is more connected with international markets, and where public sector institutions operate in a reformed and more transparent way could help the country break the cycle of food insecurity and transform agriculture into a source of growth and development.

Under taking reforms to foster private sector development and generate employment

Much as agriculture is important to Malawi’s economy, there is also need for faster development of the non-farm economic sector. This would require a radical reformation of the business enabling environment, building on Malawi’s recent progress according to the 2018 Doing Business report.

“The objective would be to develop an investment climate that can attract higher-quality investors and investments, and facilitate the creation of more and better-quality jobs in diversified sectors,” Record said.

The CEM suggests taking the following priority steps:

• Removing barriers to entry–make existing regulations simpler, more accessible and easier to implement to enable new investors enter the market;
• Addressing deficits in utility supply– mainly water and electricity-which currently undermine productivity;
• Improving the road transport system to lower the costs of domestic and international trade.
• Developing infrastructure and systems to exploit the opportunity of the modernized Nacala railway corridor.

Executing reforms and restoring the effectiveness of Malawi

Much of what Malawi needs to do to start catching up with its peers is well known, and “lack of implementation” is all too often cited as the problem.

The country is often successful in changing the way public sector institutions look, but struggles to achieve meaningful changes in the way that they actually function.

The CEM recommends taking a more “problem-driven” approach to undertaking public sector reforms where g rea ter experimentation is part of the process and where policymakers look beyond the selection of technical solutions to the identification of reforms that are politically supportable and practically implementable.

Development partners will also need to adopt new approaches to better help government fully execute reforms.—World Bank Group

Tom Sangala

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