Economic stagnation: Malawi’s case

Almost four years ago, Malawi was said to be one of the fastest growing economies in the world. Simply put, a country’s economy grows when there is an increase in the production of goods and services, and basically, economic growth is manifested in the ability of a country’s citizenry in satisfying their wants—things that one would like to have like travel, fancy cars and so on.

However, for the last two years or so, our economy has struggled to provide its citizens not only with wants, but with needs as well—things that people cannot live without—like running water, electricity, medicine, fuel, and forex.

At this point, one can safely state that our economy is no longer growing, but rather stagnating.

Where have we gone wrong?

First, we have not been creating enough business and employment opportunities which could have sustained the said economic growth.

Basically, an environment allowing for higher employment for the citizenry and flourishing business ventures would empower people economically. This in turn could have brought about two issues; empowered customers, i.e. people with money to spend, and motivated producers, i.e. producers who are assured of a ready market for their products.

The scenario above could have seen an ever-increasing production of goods and services, and hence some continued economic growth.

However, Malawi has witnessed rising unemployment levels and scaling down of business ventures (a classic example being what is happening with PTC now) in the last two years or so due to government policies that are stifling business activity – with the latest being the hostile tax regime brought about with the introduction of the zero-deficit budget.

Second, we have not been putting to good use, or worse still, misusing government resources.

Common sense has it that sustainable economic growth requires prudence in the use of government resources/ income. Basically, in times of economic growth a country ought to engage in capital expenditure in order to support future (and continued) production.

In our case for instance, this would have meant investing in irrigation facilities and technologies in order to see the Greenbelt Initiative materialising­—it was such a great idea taking into consideration the fact the Malawi is an agro-based economy.

By investing in such projects, rather than being wasteful, we would not only have created extra capacity to support the said economic growth, but we would also have seen ourselves being self-sufficient, with the possibility of earning extra income (forex) from the sale (export) of the surplus output.

In contrast, we have been spending a lot of money on questionable projects—the unnecessary modifying of the national flag, conducting feasibility studies on Nsanje Inland Port without consulting Mozambique and so on.

In his article which appeared in The Nation of December 4 2009 titled Reflection on what is Happening in the Economy, D.D. Phiri adds flesh to the point above by noting ‘we are not earning a lot or we are misusing it’.

Third, we could have developed a learning economy, i.e. one in which knowledge and learning are central to economic policy-making.

By doing this, we could have established trends that would affect the sustainability of the said economic growth. For instance, the gradual decline in our agricultural sector, the inevitable effects of the credit crunch of 2008 on our economy, and forex shortages that started in 2009 all contributed to the downfall of our economy.

Being the same factors that had contributed to the downfall of Zimbabwe’s economy, once the breadbasket of southern Africa, one would wonder… couldn’t we have learned from Zimbabwe?

A learning economy would have taught us three things; diversify the economy (look, commodity prices are going down – haven’t we seen this happening to our tobacco year in year out?), have strict and priorities-based national budgets (look, donors will eventually be mean in a drive to fix their own ailing economies – and the first sign was their hostile approach towards the Farm Inputs Subsidy Programme back in 2008), and lastly, devalue the kwacha gradually.

From this brief discussion, therefore, one can conclude that we missed some basic economic and management principles, a product of which is the poor economic situation that we are in today.