Economic Recovery Plan: Dead flies in the ointment
About 18 months after the Economic Recovery Plan (ERP) kicked off there are still doubts on the achievements of the blueprint and whether it is on track.
The ERP which brought some painful measures including the liberalisation of the exchange rate and removal of fuel and utility subsidies was, nevertheless, hailed by the some because it was hoped that it would bring the ailing economy back on track.
Today, over 18 months after its introduction, authorities, experts and indicators give mixed indications on the success of the largely hailed economic blueprint.
Promises, hopes
The ERP spans five years, but it has some critical targets within 18 months that is by December 2013. The targets include 100 percent food security, a single digit inflation rate, and one power station, all to be achieved by December 2013.
The ERP officially launched in September 2012 saw President Joyce Banda and her deputy announcing that they would cut their salaries by 30 percent to show commitment to controlling expenditure.
The 2012/13 budget, dubbed an austerity budget, also showed commitment to enhance economic growth by ensuring that government spends within its means.
In the budget statement, government promised that it would develop the economy by consolidating macro-economic stability, reinforcing resilience to shocks, improve governance in public financial management, strengthen financial oversight and support private-sector led growth and export diversification.
But as time went by, the future looked gloomy with rising inflation while the kwacha nosedived, rose and nosedived again as the Reserve Bank of Malawi (RBM) implemented a tight monetary policy to bring the situation under control.
Experts also described the austerity budget botched as expenditures rose beyond our revenues.
But although sceptics pointed to an exchange rate that had overshot and inflation that had surged as reasons to abandon the reforms, the government argued it would still maintain the course.
According to a budget statement by the former minister of finance Ken Lipenga, government marched on although there were some resistance and criticism. He later argued there were signs that the ERP was bearing fruits.
Not good enough
An analysis of the real sector under the ERP which has five key areas including agriculture, energy, tourism, mining and transport and information technology communications (ICT) show a murky picture.
Recent estimates indicate that Malawi will achieve a gross domestic product (GDP) growth of about five percent, marginally below the December 2013 target of 5.7 percent.
According to RBM data, mining and quarrying is estimated to expand by about 10 percent from 15 percent in 2012 and the central bank has explained that growth for agriculture, lime, gemstones and phosphates have been revised downwards. Uranium growth is projected at 19.4 per cent in 2013.
The RBM also indicates that growth in information and communication services—another key sector—will rise in 2013. The sector will grow by 9.1 percent in 2013, up from 6.8 percent growth in 2012 due to an increase in mobile phone and internet services.
Transport and storage services are also expected to grow by 5.3 percent in 2013 compared to 4.7 percent growth registered in 2012 thanks to an increase in haulage following the bumper agricultural yield and the rebound in wholesale and retail activities.
The central bank also indicates that agriculture—Malawi’s mainstay—is estimated to grow by 6.1 percent in 2013 after contracting by 2.3 percent in 2012. Tobacco production grew by over 100 percent from 79.8 million kilogrammes (kg) to 168.7 million kg.
Although electricity is still the number one problem to businesses, according to a recent survey done by the Malawi Confederation of Chambers of Commerce and Industry (MCCCI), Malawi has added 64 megawatts to the grid.
According to Escom, Kapichira Phase II has been commissioned bringing the power station’s generation to a total 128 megawatts. According to the power supplier, Malawi now has a generation capacity of 351 megawatts against a peak demand of 350 megawatts.
Although the real sector has generally achieved some success, people that will require food assistance between January and March is estimated at 1.9 million, far off from the 100 percent target in the ERP.
Inflation, cashgate
Although the ERP targeted single digit inflation by December 2013, in November 2013 National Statistical Office (NSO) available figures indicate that the consumer price index rose to 22.9 percent—two times above the target. Experts have projected a further rise in inflation due to the current food situation and the depreciating kwacha.
Although the RBM has been implementing a tight monetary policy, inflation has been high in comparison to Malawi’s neighbours. The rising inflation has been blamed in part due to the falling kwacha
To rein in inflation, and control the kwacha the RBM has introduced a number of policies including raising the bank rate to 25 percent and increasing the Liquidity Reserve Requirement (LRR) that has however prompted an increase in interest rates.
Experts have so far argued the central bank is using a wrong approach to rein in inflation.
Chancellor College professor of economics Ben Kaluwa recently argued that RBM’s obsession in controlling money supply is not effective in developing economies where inflation is high.
Kaluwa argued that because the food basket influences inflation in Malawi authorities should focus on producing more food and not controlling money supply.
And recently in the wake of revelations of Capital Hill looting and the consequent donor aid freeze, the RBM said it would tighten its monetary policy.
But the Minister of Economic Planning and Development Ralph Jooma said the implementation of the ERP is on course and has not been derailed by the cashgate.
He argued that to cushion against adverse effects of donor aid freeze, government has modified the budget in a careful manner to avoid affecting substantial ERP projects.
But why have people lost optimism in the ERP, an economic plan which was to bring the economy on track?
MCCCI in its recent statement co-signed by its president Matthews Chikankheni, deputy president Eddie Kaluwa and chief executive Chancellor Kaferapanjira says despite the optimism generated in 2012, the year 2013 turned out to be a year of disappointments characterised by poor economic governance, greed, gross abuse of public resources and lack of direction.
“Unfortunately uncertainty is the enemy of business and therefore no investor with sizeable resources, who does not want to pay bribes, will waste their time considering Malawi as an investment location yet Malawi desperately needs investment to create much needed jobs for its jobless millions,” reads the statement in part.
MCCCI argues that business environment will get worse in early 2014 in light of the 2014 general elections, pointing out that inflation is likely to be out of control when cashgate money starts vote buying, donations and gifts.
Thanks Innocent good article! It is very sad that after 50 years the country is worse than at independence, as the president has recently confirmed. You have now heard the official assessment of the dire current state of the economy. The simplistic view is just to blame the current govt or the previous. Unfortunately, economic transforming is very hard. Someone said to me, “economic transformation is not rocket science”, to which I retorted, “it is more than rocket science, otherwise Malawi and Africa would already be there!”
The problem is that Kamuzu, heroic in some ways, made a mistake to commit the country to a vision of agriculture. By the way, the country was already practising agriculture at the time! The subsequent govts have also repeated the mistake to continue with agriculture policy instead of diversifying the economy. Today, after years of reflections, you would think new ideas would flare up but no in 2014 politicians are committed to more agriculture, mining and tourism. I even read about a row about ideas have been stolen on economic development council. In 1999, under UDF with Chikaonda, Malawi had a National Economic Council. It resulted in a 2000 plan on paper of poverty reduction growth strategy (PRGS) with primary focus on 3 things a) Super sector (population and HIV), Social sector (education and health, SWAPS), decentralisation of power to districts c) Economic growth focused on i) agriculture. The policy of agriculture commercialisation and liberalised was instituted. ii) Private sector policies included integrated trade and industry, SME policy, Cooperative society Act, fair trading and privatisation since FDI was the best way forward.iii) infrastructure. iv) natural resources management and v)other including mining and tourism. That was in 2000 when CABS was also born. Today in 2014, listen to all campaign policies and compare them to the above themes; exactly the same, word for word! How can Malawi be transformed if the same policies are just being recycled over and over. Agriculture never developed a country in the whole wide world!
As evidence, here is the score to sum it all up. In 1964 Malawi had a GDP of $0.2bn, Zambia ($0.7bn) and Singapore ($0.8bn); all more or less the same level. All three musketeers were getting their independence from Britain at the time. Singapore president came to visit Malawi to learn and to make friendship with other newly independent states. The strategies they each chose to move forward their countries made a difference and must put beyond any doubt as to which is superior. Malawi chose to compete on agriculture, Zambia chose to compete on mining and Singapore chose to compete on manufacturing. Fast forward to 2012 what are their GDP scores? a) Malawi GDP $4.2 bn b) Zambia GDP $20 bn c) Singapore GDP $275 bn. Some narrow-minded people argue, you cannot compare Singapore with Malawi, but why not? Malawi is not an island; excuse the pun. The two countries started the development race at the same time. The leaders even had a little “tête-à-tête” chat before the race began. In 48 years, Malawi has grown an average of $0.08 bn a year while Singapore has grown $6 bn a year because of manufacturing. There will always be agriculture in Malawi and everyone knows how important that is but it is not what the national development strategy must be anchored on. Not even mining for export as Zambia has done neither. The alternative is not to encourage investment in simple agri industries nor petty industries (minibuses, handcrafts, maize milling etc) neither. Malawi needs world-class manufacturing industries to create employment of between 5-10 million jobs. I am aware that to any untrained eye this sounds like an impossible vision but that is what is possible.
So now that there is a national consensus about the need for transformation, I would like to offer a solution and a strategic thrust for transforming the Malawi economy using an integrated development strategy that will put Malawi on unprecedented growth path of development with rapid job creation, economic growth and stability. Everyone will benefit and old young, all professional backgrounds including politicians!
Fifty years of foreign aid and there is nothing to show for. I am aware, there is no country in the world that will reveal their development secretes to Malawi but I will. If only people knew how the Malawi economy is being damaged by donors aid freeze they would not be cheering on and dancing in the streets. This fragile issue must be handled with care and sophistication to avoid conflict with the international community but it must be done! It needs to be addressed! Knowing what I know now, I am completely frustrated with the current status. If left unchecked, Malawi has another 100 years of languishing. The situation must be confronted with facts not brute force. Therefore, as you can see the problems that Malawi faces are multifaceted, both internally as well as externally. The good news is that they can be addressed successfully so young and grown up Malawians can start living life to the full and fulfilling their god given potentials.
The president is finding out that being president and, running a country, is not the same as being vice president and tugging along the cocktails. She should have gotten a rude awakening by now. Giving up part of your wages doesn’t cut it; anybody can do it! Cutting one’s wages may even be a disincentive to work harder. In any case, where is the proof that the overall income package was not even increased by allowances and pilferage? KODI MUKUTIONA NGATI IFE NDIOPUS ETI? ( WE ARE NOT FOOLS). There are many smart people in this country who can design a better sustainable economic plan than this so-called ERP. Many parts of the ERP I have seen would not even pass a first year MBA course! Just like “location” is the underpinning of any business, “food security” has to be number one concern in a country like Malawi. Without that we are doomed. The current ERP is a failure in every respect: just measure it against the asserted targets! The economy and governance pretty well trump everything in the modern world; and this government has failed us miserably in both areas. For a starter, the current president thought changing the course of the second Ngwazi’s direction was a big achievement. Again, anyone can reverse a course of action wholesale; but the challenge is to figure out where that takes you. Instead of advancing over the past two years, we have regressed by five, when one considers the opportunity costs. The current government has no credible economic ideas (eg. there is no infrastructure they can call their own); they really didn’t know where to start, and they do not know where they are taking us. Time’s up!