The manufacturing sector’s contribution to gross domestic product (GDP) shrank by eight percentage points to 9.1 percent between 1994 and 2019, findings of a study by the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) have shown.
The study notes that the onset of poor performance in the sector is concurrent with a period in which the country’s trade regime was made more liberal and a timeframe in which crowding out of public sector investment in the manufacturing industry took effect.
It further assumes that the country adopted an open trade policy without a strategic assessment of its impact on manufacturing enterprises and, in turn, eroding the industry’s market share.
“In the years following the changes made to industry related-policies in Malawi, a number of manufacturing companies have since shut down their production lines. The subsequent job losses that have been associated with these shut downs of production have facilitated the rapid growth of the informal manufacturing sector in the country,” the report reads.
MCCCI reiterates that the manufacturing sector faces very high tax burden which makes local products less competitive.
The industry captains cite 65 percent excise tax on sales of alcoholic beverages, 40 percent tax on opaque beer sales and excise tax on non-alcoholic, carbonated soft drinks, which are tax exempted in other countries.
It further says Malawi’s manufacturing sector remains stagnant as it fails to shift from labour-dependent production to use of machinery due to lack of capital.
The study then recommends development of national business incubation centres, development of strategic plans to facilitate policy changes and provision of incentives to foreign investors in manufacturing industry.
The situation, however, has been aggravated by the resurgence of the Covid pandemic with players in the sector indicating that they have reduced production as they were trying to decongest factories and reduce demand for products on the market.
A recent financial and economic review published by the Reserve Bank of Malawi (RBM) predicted growth in the manufacturing sector of 5.6 percent in 2021.
According to the report, in 2020, the sector grew by 1.2 percent from 5.1 percent in 2019.
It says the sector has experienced logistical challenges due to importation restrictions which affected the importation of inputs as well as exportation of goods as neighboring countries closed their borders as one way of containing the Covid pandemic.