Reflecting on Malawi’s economy since 1964

Malawi cerebrates 53 years of independence from Great Britain on Thursday July 6, 2017. Prior to attaining independence in 1964, economists taunted that the country would economically collapse, for it would have no funds to develop. Though a quiet colonial backwater serving as a labour reservoir for the more industrialised Zambia, Zimbabwe and South Africa, there was hope for the future as Malawi seemed set for economic development.

Economic strategies

Against all odds, Dr. Hastings Kamuzu Banda, being neither an economist by trade nor an economist by education, put in place economic strategies to save Malawi from the alleged economic collapse. It all started with the first development plan mooted in 1961 covering the period from 1962 to 1965 with a series on unrelated targets.

A second plan followed in 1964 covering the period from 1965 to 1969 detailing individual projects. Policies were adopted in which production determined what the country would produce; how it is going to be produced; and how it would be made available in the country. Social welfare was a priority. Free market economy ideas were infused in which supply and demand determined what workers would receive for their services. That encouraged innovation and change. The combination of these economic ideas did not compromise efficiency.

After few years, his [Banda’s] leadership demonstrated sheer prowess in economic development that proved critics wrong. The results were exceptionally successful as they were consistent in pursuance of a capitalist path to development. Number of people employment in various fields increased; agriculture which became the mainstay of the country’s economy registered a rapid output; dependence on aid from Great Britain gradually decreased; and the rate of economic growth accelerated asillustrated from the period from 1967 to 1979 when monetary Gross Domestic Product (GDP) grew at the rate of 7.4 percent annually. Euphoric observers described the economic performance not only as the highest for a non mineral country in Africa but also a miracle.

Diversification of the economy

To a certain degree, the adopted policies expanded the economic role of the state through state owned enterprises such as Agricultural Development and Marketing Corporation (Admarc), Press Corporation Ltd and Malawi Development Corporation (MDC) which were formed with an aim to operate according to investment and market principles. As a visionary leader, Banda was actively involved in market interventions as the government pursued import substitution polices. The objective was to diversify the economy away from the agriculture sector through the increase of import– substitution industrialisation because the country was spending more on consumption than it earned on production.

The period was characterised with the government’s involvement in economic activities through investments in Admarc and Press Corporation Ltd, which in turn invested in many sectors of the economy including agriculture, manufacturing and financial sectors. The former played a crucial role in the agricultural development strategy as a buyer and a supplier of agriculture inputs. Markets and depots were opened in rural areas with a view to meet the needs of the rural masses whose livelihood was dependent on subsistence farming.

Several major agricultural projects were undertaken in Lilongwe, Salima and Karonga and smaller projects in Kasungu and Mzimba. These projects were characterised by land improvement; land consolidation; irrigation; conservation; strengthening of agricultural extension workers; marketing; research; public staffing; and establishment of credit facilities for agricultural inputs such as seeds, fertilisers, insecticides and farm implements whose objective was that the rural poor should earn an economic return at least equal to the cost of the capital.

High growth performance and transport policies

Since there was an emphasis on economic growth, exporting agricultural commodities such as tobacco, tea, cotton, coffee, sugar, pulses and rice were virtually sources of export earnings and foreign exchange for the country’s economy. Sugar started being exported in 1966 which contributed to export earnings increase of 65 percent. That generated a positive Balance of Payments (BOP) which improved in 1967, and it remained so for the next five years. High growth performance in the economy contributed to a period of healthy BOP.

That enabled government to embark on prestigious projects such as the construction of The Polytechnic in 1966; the new Capital City under the auspices of Capital City Development Corporation (CCDC); in 1966 first phase of Nkula Hydro–Electric Power Station; the upgrading of Zomba–Lilongwe Road, whose construction costs were within appraisal estimates as confirmed by the World Bank report of 1975; the construction in 1977 of Kamuzu International Airport which was completed in 1983; and between 1974 and 1979 the construction of Salima–Lilongwe–Mchinji railway track with financial support from the Canadian International Development Agency (CIDA).

Policies that contributed to high growth performance include continual stable macroeconomic policies, relatively high public sector savings, inflation rates were moderate, real interest rates were stable and positive, and that black market exchange rate was very small.

With an average fiscal deficit being low, it limited the need for inflationary finance. These played a positive role in capital accumulation and productivity gains. Demand and supply were also other contributory factors. As for demand, it increased in foreign demand for the export of tea, tobacco and sugar. Since import prices were not rising rapidly, trade terms gradually improved. This contributed to the value of the country’s exports to increase, and it necessitated the introduction of three broad transport policies.

Between 1971 and 1980, about 30 percent was allocated to the improvement of transportation. The objectives, as noted by the World Bank in 1988, were firstly to improve the administrative, social and economic integration of the country by linking the three regions with reliable all weather road connections; secondly, to support rural development by improving access to rural areas; and thirdly to provide efficient links with external transport routes to the Indian Ocean seaports for exports and imports.

Structural adjustment programmes

In the late 1970s and early 1980s the economy went into a slump because of oil and debt crisis.