Is latest State corporation dead on arrival?

I don’t doubt that the launch of the Malawi Agricultural and Industrial Investment Corporation (Maiic) is a great idea that could help turnaround the country’s economy and put it on a solid path towards sustainably high growth rates, broader human development and create jobs for the millions of young men and women who are either unemployed or underemployed.

Given that most employment opportunities in Malawi come from the agricultural sector and—in general terms—the Micro, Small and Medium Enterprise (MSME) area, I want to believe that Maiic will focus more on this sector.

Thus, President Peter Mutharika and his administration deserve a pat on the back for this initiative that is also targeting a sector that commercial lending institutions consider too much of a risk and thus commit much less capital to it despite that agriculture is Malawi’s major source of economic growth—accounting for at least a third of total output and accounting for roughly two thirds of our export revenue. But there are two things that are worrying me. First is the structure of this corporation.

The second is problem of politicisation of such initiatives that have historically seen their written mandates torn up and get instead to be guided by agendas that have not been written, let alone, thought through.

Let me start with the first concern.

During the launch on Wednesday, it was mentioned that the corporation is a Public-Private Sector Partnership (PPP) deal in which the Malawi Government has a 20 percent stake and expects private players to take up the remaining 80 percent. Government has so far mobilized K35 billion—with K13 billion realized from the sale of Malawi Savings Bank (MSB) and Inde Bank while Treasury has provided K22 billion.

Assuming that the K35 billion is government’s 20 percent contribution, it means that the private sector would have to push in K140 billion to meet its 80 percent participation.

Total capitalization, therefore, for the new entity would be K175 billion based on the current K35 billion government commitment.

That is just below half the size of Malawi’s biggest bank by asset—National Bank of Malawi, which is valued around K315 billion give or take a few billions.

So far—and despite the hurried launch of the corporation—none of the hoped-for private investors such as pension fund administrators and commercial banks have put in any cash.

Oh, some of the key players that government is pining for as partners said all the nice things, but reading between the lines, it was clear that they will not be getting involved anytime soon; certainly not before they are shown a clear business model and a corporate governance architecture they can have confidence.

For example, while Old Mutual Malawi Plc Group CEO Edith Jiya, whose institution also manages pension funds, hailed the launch of the corporation, she made it clear that her institution will first study the entity’s business model before investing in it. On his part, National Bank Plc CEO Macfussy Kawawa had this to say: “It’s good to see that the idea has been sustained and from what we have seen, it seems the intentions are good. But it will be even better to see it implemented. Going forward, how it is implemented and really integrates with institutions that are already providing financing will be very important; we will be watching closely and we will support them in any way, so long as we have the shared values and interest as we move forward in providing financing that is needed.”

Clearly, these two of Malawi’s leading financial market titans aren’t very excited suitors.

My second worry is in the history of politically-driven development financing bodies that the country has had and failed miserably to sustain.

I have in mind the Malawi Development Corporation that choked to death under political podium-driven adventures that made no business sense. It granted loans to politicians and politically-connected people that never repaid.

It is the same ills that doomed MSB—loans to politically-connected folks and State-pioneered initiatives that crippled its operations.

Once upon a time there were the Small Enterprises Development Organisation of Malawi and the Malawian Enterprise Trust that politicians ransacked so shamelessly that they had no capital to lend to any small entrepreneur. They had to be merged with Malawi Enterprise Development Institute to form the Small Enterprise Development Institute, which is not much of anything, really. As for the Malawi Rural Development Fund and its sister the Youth Enterprise Development Fund are struggling heavily under the York of political expediency.

The point is that when all the chaff is cut, the reality is as follows: this Maiic might just be dead on arrival because investors’ due diligence into its potential partner—the Malawi Government—may not give confidence that their money will be safe.