When South African fashion store Mr Price opened its first shop in Lilongwe about five years ago, someone openly said the prices were not Malawian.
The lady, who can comfortably be described as a middle class by our standards, argued that based on her income, she would rather buy from the second-hand clothes, kaunjika, where she could get clothes of equally the same fashion.
Five years after its opening, the South African fashion store recently closed shop, a few weeks after another international retailer Spar wound up its business.
In February Paladin Africa Limited (PAL) announced it was going to suspend their operations in Malawi due to declining global uranium prices consequently robbing the country huge prospects although it maintained its operations in Namibia.
Although the two retailers have not indicated their reason for closing shop while PAL has blamed low global uranium prices, there are a number of fronts that Malawi needs to stock-take on, spruce its image and do more reforms to attract investors or at least keep the existing ones.
Lacklustre investment performance
Malawi has so far proved to be a bad performer in attracting investments.
According to Malawi Investment and Trade Centre (Mitc), in 2013 Malawi investment levels dropped by 19 percent to $965 million.
The data which was compiled by the centre also indicated that Malawi earned foreign direct investment (FDI) inflows worth $1.2 billion.
Mitc, however, indicated that the total investment level in 2013 created over 36 thousand jobs, nine times more jobs than created in 2012.
A year earlier, in 2012 Malawi received $129 million worth of FDI according to the United Nations Conference on Trade and Investment (Unctad) World Investment Report 2013.
Trending backwards, in 2007, FDI inflows stood at $124 million, rose to $195 million in 2008, slumped to $49 million in 2009, picked to $97 million in 2010, before jumping to $129 in 2011 and 2012.
Compared to other economies in the region, according to the report, in 2012 Malawi raked in approximately 2.4 percent of all investments that flowed into southern Africa.
Comparatively, Malawi’s $129 million FDI pales against Botswana $293 million, Lesotho $172 million, Mozambique $5.2 billion, Namibia $357 million, South Africa $4.6 billion, Zambia $1.1 billion million and Zimbabwe’s $400 million FDI.
Although Chancellor College professor of Economics Ben Kalua recently noted that huge investments into some of the countries in the region were mainly in extractive industries—mining and oil—he noted that Malawi can do better.
He explained that Malawi has natural resources, but needs to improve its doing business environment to attract more investments.
But what exactly is wrong with Malawi?
Apparently, according to analysts, everything seems to be wrong in Malawi, from the economy—high inflation, low incomes, and unstable exchange rate—to business environment and high corruption levels.
Malawi has been suffering high inflation rates coupled with unstable exchange rate since the May 2012 devaluation and flotation of the local unit.
The country’s inflation rate peaked at 37.9 percent in February 2013 while the kwacha has been speculatively unpredictable.
Compared to other economies in the region Malawi’s Common Market for Eastern and Southern Africa (Comesa) harmonised inflation rate for January 2013 stood at 25 percent, the second highest in the region after Sudan’s 34.6 percent.
Malawi’s gross domestic product (GDP) per capita—often considered an indication of a country’s standard of living—dropped by over 20 percent in 2013 compared to last year’s average of $295.
CNN Money based on the International Monetary Fund (IMF) ranking said half of the country’s mostly rural population live on less than one dollar (K450) a day.
But Malawi’s problems do not end on the poor purchasing powers as reflected in the high inflation rates and low incomes, the country’s business environment requires total overhaul.
Last year, Euromoney country risk which is derived from a forum of over 400 international economists and analyses over 185 economies grouped Malawi in tier five—the worst among five categories.
The global investment and business survey describes tier five countries as those that have usually unstable political system whose workings can be difficult to understand and changes in the administrative government will often cause significant changes in the nature of political governance.
Euromoney further describes tier five economies as often economically unstable and underdeveloped, and that their major indicators of economic health show persistent negative characteristics.
Other reports including the World Bank Doing Business and the World Economic Forum (WEF) indicate that Malawi continues to tumble on both ease of doing business and competitiveness.
According to the 2014 World Bank Doing Business Report, Malawi tumbled 10 steps to 171 out of 189 economies.
And in 2013, Malawi crashed seven steps to 144 out of 148 economies on the World Economic Forum (WEF) Global Competitiveness Index with foreign currency regulations, access to financing, tax rates, corruption, and theft and crime as problematic indicators.
And international credit rating agency Fitch rated Malawi as B minus—non investment highly speculative grade—in both long-term local and foreign currency.
Fitch, however, rated neighbouring Zambia, Uganda, Rwanda and Seychelles ‘B’, a notch above Malawi while Lesotho and Angola got BB minus. Top rated economies in the region include Namibia with ‘BBB minus’ and South Africa with ‘BBB’.
Business reforms, strategies to sell Malawi
After reviewing Malawi’s troubled economic and business landscape, it is obvious the country needs to implement serious business reforms and sell economy to investors.
According to authorities, Malawi has implemented business reforms and the government has promised to do more, something that it argues will see the environment improve and investment levels increase.
To reduce the country’s intermittent power supply, in December 2013 Malawi commissioned Kapichira Phase II, adding about 64 megawatts to the national grid hence increasing Escom’s power supply capacity to 351 compared to the country’s demand of 350 megawatts.
The Ministry of Industry and Trade spokesperson Wiskes Nkombezi has always argued that Malawi has implemented a number of reforms aimed at changing the doing business landscape.
He notes that Malawi has liberalised its foreign exchange regime, cross-border trade, seeking approval for international payments, and tobacco auction floors foreign exchange.
Recently, Mitc public relations manager Deliby Nyale said an investment mission left this week for China to sell the country to prospective investors and identify their needs.
According to Nyale, the investment mission will promote Malawi’s projects in sectors including mining, energy, infrastructural development and agro-processing.
According to Mitc, the investment missions will be undertaken on an annual basis as one way of marketing the country to the global market.
The investment and trade centre also adds that in 2013, Malawi has been preparing for an in-surge of transforming investments including the streamlining of the investment coordination and processing environment under the doing business reforms.
Mitc notes that government has been very proactive in opening up to the private sector in 2013 including Public-Private Dialogue forums that government has initiated in 2013 which have facilitated a renewed public- private sector relationship.