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Of imported ‘zipande’, ‘mithiko’, ‘zigwenembe’!

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For those who believe that Malawi needs to develop through a combination of export-led agricultural growth that spurs industrial development, it will be a disappointment if they happen to visit the Chinese shops at the City Mall and Shoprite shop at the Gateway Mall in Lilongwe.

In one of the Chinese shops at the City Mall, there are rows of wooden spoons and folks – zipande and mithiko.

There is nothing wrong with a foreign investor coming to Malawi to establish a business and sell zipande and mithiko if those items are manufactured in Malawi but to import these into the country in the name of Foreign Direct Investment (FDI) is a joke.

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The items being referred to above come from China. Has this country sunk so low that it can afford to waste the scarce and hard-earned forex importing zipande and mithiko? As if this is not enough, the Shoprite shop at Gateway Mall prides itself in displaying wooden rat traps (zigwenembe) on their shelves for sale. Again these wooden traps are actually imported from China. Seriously, does it make sense that in 2017, Malawi cannot make rat traps of good quality? If these were in demand, is it plausible to even imagine that Malawians have failed to master the art of making mithiko, zipande and zigwenembe?

Of course, one of the reasons is that these imported items are sold at relatively cheaper price than those made in Malawi. Taking a look at the website of the Malawi Investment and Trade Centre (Mitc) one would be forgiven for assuming that the costs of production of a Malawian manufacturer are higher than those of the foreign investor.

In the name of attracting FDI, Malawi has put across a number of incentives. While FDI incentives might be desirable, it would make sense to examine their advantages and disadvantages. If incentives are not clearly thought out, they may actually lead to negative balance sheet on the industrialisation accounts book. Take the case of these examples above, the difference between a Malawi mithiko maker and the Chinese or South African trader who has established a business in Malawi is that the Malawian zipande manufacturer will bear the full costs of production while the foreign investor will not.

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This then makes the Malawian manufacture unable to compete on prices feeding in the wrong assumption that Malawian goods are expensive. While there may be valid reasons as far as inefficiencies in the quality and skills of a Malawian, it is doubtful that a Chinese man can make a better chipande for the Malawian family than a Malawian. Perhaps the explanation could lie in the level and type of differential incentives that are available to the Malawian versus a foreign investor.

Malawi’s Investment and Export Promotion Act of 2012 which governs investments in Malawi promotes foreign investments in most sectors of the economy without limitations on ownership, investment size and source of funds. Further, the law does not restrict competitions and discriminate against foreign investors at any stage of investment. However, in doing so, one can argue that the investment regime in Malawi discriminates against indigenous investors. While the foreign investor will enjoy 100 percent investment allowance on qualifying expenditure for new building and machinery; allowance up to 40 percent for used building and machinery; allowance of manufacturing companies to deduct all operating expenses incurred up to 25 percent prior to the start of operations and free repatriation of dividends, profits and royalties, the Malawian citizen who invests in the same venture will enjoy none of these benefits. In addition if the investor decides to invest under the Export Processing Zones Act will enjoy 100 percent exemption of corporate income tax; no withholding tax on dividends; no duty on capital equipment, machinery and raw materials and zero percent value added tax.

It is important to note that FDI is an important part of economic growth but it is not the panacea of Malawi’s financial problems of industrialisation. Indeed, in 2016, Malawi was one of the two countries that registered an increase in FDI when compared to 2015. However, if Malawi has to move forward in its development path, it needs to use a variety of tools to intervene in several key areas. Beyond more active macroeconomic management, a stronger focus on developing domestic industrialists is needed. The industrialisation policy launched recently is a move in the right direction because industrialisation is a major target of any development strategy but more needs to be done.

It is common knowledge that in Malawi, the financial sector is not sufficiently developed and diversified to undertake major investment activities, hence the need for FDI. The financial sector tends to be bank-dominated. While there are active markets for government bonds, markets for corporate bonds are most often absent.

On the other hand, the typical commercial bank is most unsuited to financing big investment projects. Would a National Development Bank whose aim would include providing credit at terms that render industrial and infrastructure investment viable for all including Malawians be an option?

Perhaps instead of allowing every type and form of FDI, Malawi should rethink its FDI strategies. Could targeted incentives tied to specific sector be an option? Would a focus on the growth sectors, agriculture, infrastructure and energy be taken as a target where FDIs should be oriented? Is it time to encourage the option of joint venture between local and foreign investors in order to constitute, in medium term, a class of Malawian industrials? Perhaps when these questions have been adequately debated will Malawi stop importing zipande, mithiko and zigwenembe.

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