By Francis Chanthunya, economist:
The appointment of a new Cabinet should stoke a citizen’s interest in the work of the executive arm of government. Alas, many citizens are either ignorant of or indifferent to what their functions are.
Political apathy is a major reason politicians get away with mediocre performance: why work hard to build a better nation when its citizens are happy enough with the status quo?
But perhaps a renewed Cabinet should inspire renewed hope, hope that its members need no external motivation— no carrot or stick—to push the country forward.
- Advertisement -
Effective governance involves the collaboration of the executive, legislative, and judicial branches, ensuring that policies are not only well-crafted but also efficiently enforced and judiciously interpreted.
- Advertisement -
This synergy is essential for creating a stable, predictable, and investor-friendly environment. In 60 years of independence, we have yet to see this happen.
I believe that governments should be referees, not coaches. They are best when creating a fair playing field and not when they attempt to dictate play itself.
By fostering an attractive environment for both foreign and domestic investors, the government plays a pivotal role through policy formulation and implementation. Creating a conducive business environment is critical to achieving economic growth.
Unfortunately, the Malawian government seems more preoccupied with public spending than with private sector growth.
- Advertisement -
According to the World Bank, GDP growth has declined from 8.3 percent in 2009 to 0.9 percent in 2022. Central government debt as a percentage of GDP has climbed from 20.1 percent in 2009 to 44.9 percent in 2019. Government spending as a ratio of GDP has grown from 19.31 percent in 2019 to 26 percent in 2022.
If this increase in government spending and the accumulation of debt were directed towards investment in infrastructure, surely this would be reflected by growth in economic output.
Two indicators that could be used to ascertain a country’s regional or global competitiveness are its net exports and the associated currency reserves. As per RBM, the country had a trade deficit of $2.13 billion in 2023.
In May 2024, foreign currency reserves in Malawi amount to $595.2 million, providing only 2.4 months of import cover, which leaves the country in a precarious position should even a minor supply shock occur.
To mitigate risks associated with currency volatility and improve economic stability, the government must boost these reserves. This can only be achieved through increasing the country’s productive capacity and enhancing competitiveness in the global market.
One of the critical roles of the executive, specifically through the central bank, is to manage monetary policy.
The current policy rate stands at a startling 26 percent, with a maximum lending rate for commercial banks at 35.72 percent.
While these rates are intended to control inflation, they also increase the cost of borrowing, potentially stifling business investment. The government can enhance the investment climate by gradually lowering these rates, encouraging borrowing, and stimulating private sector activity. Additionally, incentivising banks to lend to private enterprises instead of solely investing in high-yield government securities could further boost business.
Improved monetary policy should partner with enhanced fiscal policy. With lower interest rates must come fiscal discipline and lower government spending. The government can then adopt measures to make the tax environment more attractive.
Currently, Malawi’s corporate tax and capital gains tax are both set at 30 percent, which can be a deterrent to potential investors. Reducing these tax rates can enhance competitiveness and attract more businesses. Moreover, reforming import duties, which average around 40 percent, can reduce the cost of doing business, particularly for companies reliant on imported goods and raw materials.
Streamlining business regulations to reduce bureaucratic hurdles and improve the ease of doing business is another step the government could take to enhance the investment climate significantly.
This involves simplifying procedures for business registration, licensing, and permits, making it easier for both domestic and foreign investors to start and operate businesses.
Malawi lags behind Zambia in both ease of doing business and starting a business. Creating a reliable legal framework for contract enforcement and property disputes is also vital. Investors need assurance that their investments are secure and that legal disputes will be resolved fairly.
Investing in infrastructure is another area where the government can make a significant impact. It is shocking that no significant investments have been made to improve electricity generation since the 1970s. Rail networks were allowed to sit idle for close to two decades through the 2000’s and 2010’s.
Improved roads, electricity, and internet connectivity are essential for business operations. To achieve this, perhaps the government can leverage public-private partnerships (PPPs) to develop infrastructure projects, which not only attract private investment but also bring in expertise and efficiency.
Both the private and public sector should invest in education and vocational training to support innovation and skills development.
A skilled workforce is crucial for attracting and retaining investment, particularly in sectors requiring specialised knowledge and capabilities. Tailoring education programmes to the needs of key industries and promoting technological innovation can drive productivity and economic growth.
It should go without saying that political stability and economic predictability are fundamental to creating an attractive investment environment.
The government must maintain a stable political landscape, uphold the rule of law, and ensure transparent governance. Implementing strict anti-corruption measures can further enhance investor confidence, as corruption is a significant deterrent to investment.
Policy harmonisation across the different ministries would, therefore, be key to economic growth. However, I suspect that in our 60-year history as an independent nation, our government has never truly been oriented towards economic growth as its main goal.
The tax regime, the crowding out of the private sector from the debt market, and the reluctance to curb government spending indicate that the government is primarily motivated by revenue generation for the public sector. Given the citizenry’s indifference towards long-term economic planning and holding government accountable when they underperform, I doubt the status quo will change any time soon. For the sake of our nation, I hope the new cabinet proves me wrong.
