Which way Malawi economy?

Each passing day, Malawians are feeling the pinch of hard times economically worsened by rising cost of consumer goods and services that sharply contradict the rosy world they imagined under the Tonse Alliance administration.

President Lazarus Chakwera has admitted that the country’s economy is in the intensive care unit and will require enduring painful prescriptions to cure it.

In his address to the Economics Association of Malawi 2021 Annual Lakeshore Conference, the President said the economy was severely damaged by what he called “three decades of bad governance, cycles of natural disasters, months of political instability and waves of Covid-19 pandemic”.

Chakwera said: “The bottom line is that our economic sickness is not going to be cured by painkillers. We must remain resolute in administering real treatment however bitter the pill.”

Talk is cheap, so they say. What does it take to revive an economy? What will it take to put Malawi’s economy on the recovery path?

In response to the above questions, economists, civil society leaders and opposition Democratic Progressive Party (DPP) cite the need for government to come up with a clear roadmap as the first step. The policies, they argue, should induce meaningful income generating activities by the citizenry while limiting imports.

In an interview on Monday, Malawi Confederation of Chambers of Commerce and Industry president James Chimwaza attributed the rising cost of basic necessities to lack of control on prices as the country’s economy is liberalised and hugely dependent on imports.

He suggested import substitution as the best option towards controlling the country’s destiny in terms of prices.

Chimwaza said: “But for this to happen, government should first focus on creating a conducive environment for business. This will lead to the growth of the economy and eventually higher standards of living.

“We need to have the right infrastructure for local production.”

He said the three main pillars of food security, job creation and wealth creation in Malawi 2063, the country’s long-term development strategy, if followed to the letter can change the course of the national and individual economy.

Said Chimwaza: “When I employ people in my farm, that is job creation and these employees are paid which improves their wealth. People are discouraged, but they need to be encouraged.

“We will be lobbying for good processes and aggregators like Admarc should be able to buy from producers at a good price.”

Economists state that to achieve meaningful growth and reduce poverty levels, a country must consistently grow its economy by a minimum of six percent.

But in the past six years, Malawi’s gross domestic product (GDP) growth has averaged 4.5 percent.

The economy grew by 2.3 percent in 2016 while in 2017 it was four percent, 4.4 percent in 2018 and 5.4 percent in 2019 before growing by a paltry 0.91 percent in 2020, largely worsened by the Covid-19 pandemic. In 2021, it is projected to grow by 2.2 percent amid the pandemic.

In contrast, the country’s average population growth stands at 2.7 percent, meaning that the little growth registered is eaten up by the rising population.

Chipping in, Catholic University of Malawi head of Economics Hopkins Kawaye said Chakwera and Tonse Alliance promised tax relief and other pledges which gave people some hope, but noted that new tax measures have consumed the envisaged gains.

He said it is important for government to provide clear policy direction on how to get people out of the crisis, adding that in the absence of such a plan, Malawians will continue to suffer. He said prolonged suffering may spark protests.

Kawaye said: “If you look at the percentage of VAT [value-added tax calculated at 16.5 percent] and the price increase on cooking oil, you will find that they don’t match, so let’s run away from introducing such taxes. But the Tonse promises were premised on reliefs and with new tax measures it is not working.

“Government should ensure steady exchange rate, that means making sure that we have enough forex. If they don’t, the exchange rate will get out of hand and all imports will experience huge rising prices. Even the prices of fuel will rise. They also need to remove some levies on fuel.”

On his part, University of Malawi economics Department professor Ben Kaluwa said over-reliance on imports is hurting the country.

He said: “We need to jack up on technology and capital intensity. We had the National Export Strategy, with lots of things that could have grown the economy through diversification of agriculture production, but it is not taking place.

“Recently we also heard of expanding production and processing, but where is that now? There is nothing!”

Social Accountability and Transparency executive director Willy Kambwandira said the current situation does not demonstrate a sense and a spirit of responsibility and accountability.

He said he does not see a bold policy direction by government on the challenges facing Malawians, but believes that there is room to consult for solutions.

In his reaction, Centre for Human Rights and Rehabilitation executive director Michael Kaiyatsa condemned the tension between the current regime and its predecessor, saying, it is not inspiring.

He said the crisis calls for collaboration between government and opposition political parties to come up with robust, innovative and urgent solutions to lessen the burden instead of engaging in endless blame-games.

In a separate interview, Human Right Defenders Coalition chairperson Gift Trapence also claimed that the Tonse Alliance, having made a myriad of promises, appears to be on a steady course to make the lives of Malawians more miserable.

He said without a clear-cut plan, the country will be just moving in circles as the quality of life continues to deteriorate each passing day.

Chakwera is on record as having said that upon winning the court-sanctioned Fresh Presidential Election on June 23 2020, his administration inherited a broken down tax system that failed the economy, a ruined public infrastructure network that now needs funding to shape up and a crippling national debt to be repaid.

Reacting to Chakwera’s accusations, DPP spokesperson Shadric Namalomba, speaking from the United States of America, said the Tonse Alliance administration has failed and needs to be honest enough on the economy.

He said: “That’s incorrect. Him [Chakwera] and Tonse Alliance have failed to run the government.

“He must just honorably resign or face disgrace. The suffering Malawians are enduring is just too much. It has never happened before. Not even when DPP was in government.”

In recent months, pump prices of fuel have gone up by an average 22 percent as have prices of fertiliser, cooking oil, water tariffs and there is a pending electricity tariff adjustment.

Meanwhile, inflation, the rate of the general rise in prices of goods and services in an economy, is expected to close the year 2021 at nine percent in 2021 from 8.6 percent, largely driven by increases in prices of fuel, fertiliser and food.

The International Monetary Fund has since called for the need to address the humanitarian situation, strengthening public sector governance, restoring debt sustainability and rebuilding fiscal and external buffers, which Chakwera last Tuesday said his administration is on course.