Export-led growth is feasible
Countries that export heavily have managed to weather the global meltdown relatively easier. In Europe, Germany almost escaped the malaise owing to its strong export-driven economy. The same can be said about China and Australia that never saw any recession. Strong and diverse exports of goods and services in different markets across the world meant they could mitigate all possible shocks. Some parallels can be made with Malawi, even though some of these countries are quite advanced. What is clear, however, is that most of their businesses do not thrive on government contracts. If anything, government provides an enabling environment for private business to export all over the world.
Our most recent strategies have recognised the importance of export-driven growth. Its benefits rely much on a constant flow of foreign exchange. Readily available foreign exchange coupled with ease to repatriate proceeds naturally attracts foreign investors whose capital this country seriously needs. Such message is appears on the Malawi High Commission to the United Kingdom website. The reality, however, is exemplified in how Kenya and Ethiopian airlines opted to ticket their business in US dollars. We can go deeper and possibly link foreign exchange shortages to economic growth that is focused on domestic consumption instead of the foreign market.
Track down the numbers, sometimes often ignored. Much of Malawi’s economy is driven by growing maize for subsistence. And we hit supermarkets to buy cornflakes or other cereals imported from across the border, from countries with similar climate, but with a different mentality in developing their export base. Just a little different mindset in how we view the future. While the social responsibilities of fighting hunger, a key Millennium Development Goal, over 1.6 million Malawians need food assistance despite billions poured into the fertiliser subsidies.
With the fertiliser subsidy, a bunch of government contract-minded entrepreneurs have emerged. Some of their track record is questionable and has brought with it corruption and conflict of interests among public officials, a critical governance issue with some development partners. A candid examination shows wastage of public resources, particularly foreign reserves without any exports to show for. The main exports still remain tobacco, tea and sugar that do not benefit from the subsidy.
While it is normal for business groups to lobby government for contracts, a win-win situation must be put in place. It is not enough to conceive business ideas crafted around getting government contracts through backdoor funding of political activities. The current bunch of entrepreneurs that has emerged must be encouraged to venture into exports.
Politicians, unfortunately, love to consolidate power and will support businesses that fund personal ambitions without regard to the wider picture of making Malawi an export-minded country. The risk we have seen and continue to observe is business winding up simply because of a change in government. A strategy directly linked to getting a government contract is not in the general economic interest of the country, a responsibility voters mandate government with. Such is the reason most of indigenous businesses fail to grow or collapse and cannot dare venture into exports.
Incentives to export can come in various forms such as tax credits for any export invoice or duty free imports on capital equipment for businesses that demonstrate undoubted ability to export. Such an approach, while it may have a short-term impact on tax revenues, has many long-term benefits. We can have a shift away from subsistence production towards export-led industries and make more efficient use of foreign exchange. Increased export earnings from a wide array of industries will lead us to close the trade gap with some of our trading partners. Tax revenues can be increased over the long-term through increased earnings.
Such steps are in good interest of local entrepreneurs to venture in the foreign market instead of lobbying government for contracts or protection when all they can do is simply import for resell. On attracting investment, it is common wisdom that we step up its key roles strategically. Providing an enabling environment for businesses to flourish must underpin overall government economic strategy. Areas such as energy, transport infrastructure, education, health and a robust financial system are critical. Getting rid of corruption often associated with public contracts, non-discretionary incentives to encourage exports need be taken seriously.
We simply cannot afford to focus on businesses whose strategies remain quick bucks from government contracts at the expense of exports. Export-oriented walk will reap in more goodies beyond the patron-client that we see these days.
