Of confusing numbers, Air Malawi

There were no surprises on Friday as the International Monetary Fund (IMF) officially concluded its review of Malawi’s implementation of the Extended Credit Facility (ECF) during the first quarter (July to September) of the 2012/13 financial year.

It was interesting though to note that three major players in the country’s macroeconomic programme—the Reserve Bank of Malawi (RBM), the Ministry of Finance (MoF) and the IMF have issued conflicting projections on economic growth rate as measured by gross domestic product (GDP).

Last month, RBM cut the official GDP estimate from 4.3 to 1.6 percent. Then two weeks ago, MoF announced that the economy would grow by a tepid 1.4 percent.

Yesterday, the IMF said growth would be a slightly optimistic (compared to the other two projections) 1.9 percent. The differences maybe a few percentage points, but the gaps are statistically significant.

Of the three, which one is the official estimate that investors and analysts can plan around? These three institutions always plan together, why didn’t they harmonise their figures and give us one position?

On the broader policy front, the take home message from yesterday’s press conference in Lilongwe was that the Joyce Banda administration should stay the course with the belief that the painful free market policies currently under execution will bear fruits. Good luck with that.

But I thought that the most interesting news came out of Blantyre where the Privatisation Commission (PC), following the administration’s policy direction to find a strategic equity partner for Air Malawi, announced that 11 companies, including six Malawian firms, have expressed interest to snap up 49 percent equity in the national flag carrier, with the rest remaining in government hands.

The most interesting element is the restructuring process that, among other things, includes appointment of a liquidator to facilitate the airline’s speedy settlement of debts and liabilities.

Apparently, the restructuring also involves the ‘orderly’ transfer of assets from the company to a new investment vehicle, Air Malawi (2012) Limited in a move to attract investors who may otherwise be turned off by the mountains of debts the parastatal has accumulated over the years largely through inefficient investment decisions.

“Investors will scarcely agree to invest in an entity that is technically insolvent due to indebtedness. The assets of Air Malawi Limited will, therefore, be hived off and will be transferred into Air Malawi [2012] Limited,” said PC chief executive officer Jimmy Lipunga at the press conference announcing the move.

The last time I checked, Air Malawi had debts of around K5 billion, with current assets higher than current liabilities by wide margins, making the firm technically insolvent.

By trying to wipe out the debts so that new investors start from a clean slate, government—or rather taxpayers—will have to take over the liabilities.

The question is: Where will the fiscally crippled Capital Hill get the K5 billion to pay off Air Malawi creditors? In fact, this figure may be on the conservative side as I am sure that during due diligence, more rot will be found in Air Malawi that taxpayers will have to clean up.

That is the high price, we as a country, will pay for the indecision of the previous administrations, including the Bakili Muluzi and Bingu wa Mutharika regimes.

Air Malawi should have been privatised long time ago, but politics and ridiculous nostalgia delayed the move to a point where the company is now worse than a scrap.

For a long time, the airline has operated well below its capacity largely due to financial problems. Most of its equipment could not function most of the time, forcing it to lease aircraft, which is an expensive and strange business model.

As a result, by 2011, the company’s turnover fell from K2.6 billion to K1.6 billion. Losses, in excess of K1 billion per year, proved to be unsustainable while the return on operating assets is almost embarrassing.

I hope that this time, the decision made on Air Malawi is for real this time around. Otherwise, taxpayers are tired of bailing out inefficient parastatals that bring no value to their lives and the country.