Malawi not doing enough to attract Foreign Direct Investment

There have been a lot of talk and criticism of Malawi President Joyce Banda and many of her overseas trips. It is indeed true that in the year she has been in office she has travelled abroad so many times. One can understand the criticism, as this is one of the things that made former heads of states Bingu wa Mutharika and Bakili Muluzi unpopular, and many were hoping that the new president will bring change. Joyce Banda defense on the other issue, says the overseas trips are worthy because the she is trying to get donors donate more to Malawi and also to attract potential investors to invest in Malawi.

This blogger however, despite the President’s efforts feels Malawi as a country is not doing enough to attract foreign direct investment (FDI). Investment is critical to alleviate poverty in the long run because it is the mechanism that creates and sustains productive jobs . FDI can complement local development efforts by increasing financial resources for development, boosting export competitiveness and generating employment and strengthening the skills base.

Malawi offer investment opportunities mainly in the areas of manufacturing, mining, forestry, tourism and agriculture. According to economy watch Malawi ranks No. 92 in world rankings according to Investment (% of GDP) in year 2013. The world’s average Investment (% of GDP) value is 22.20 %; Malawi is 0.75 less than the average.fdi

Infrastructure remain poor

While the obvious story would be Malawi has poor road and technological infrastructures-in a way that would be a general problem for most of the African Countries. However it is when you look at the situation of Escom, Malawi’s only electricity supplier, that you realize we have a bigger problem. Malawi experiences constant blackouts almost every day and this has been happening for the past 10 years. Will it be attractive for a manufacturing investor to come to Malawi, and instead of manufacturing spend days without power? Not really. And in these days when cost cutting is a necessity , should investors really put additional capital buying generators for use- not a simple thing to do when there are alternative countries they can go to in Africa.

As if the electricity problem is not enough, we have the water problems. Water keeps stopping for longer periods of the day. No investor will be happy to run a manufacturing plant without water. It is unpractical and not right, health and safety wise. What is amazing is that these problems have been going on for some time and one wonders why the government doesn’t prioritize these things in their yearly budgets.

Not so attractive investor’s incentives.

Countries have and will increasingly compete with each other to attract FDI by offering a number of incentives and other concessionary measures. Apart from fiscal or tax incentives, defined as “policies that are designed to reduce the tax burden of a firm” (including loss write-offs and accelerated depreciation), countries could offer financial incentives, defined as “direct contributions to the firm from the government” (including direct capital subsidies, subsidised loans or dedicated infrastructure).In 1991, the Malawi Government passed an Investment Promotion Act, which provides for tax benefits to exporters and pioneering industries in agriculture, agro-processing, manufacturing, tourism etc.

Some of the incentives include, 100 % investment allowance on qualifying expenditure for new building and machinery; Allowance up to 40 % for used buildings and machinery 50 % allowance for qualifyingtraining costs; Allowance for manufacturing companies to deduct all operating expenses incurred up to 25 months prior to the start of operations; Loss carry forward of up to seven years, enabling companies to take advantage of allowances; Additional 15 % allowance for investment in designated areas of the country such as Kanengo, Chirimba and Luwinga Industrial sites and Free repatriation of dividends, profits, and royalties.

However the realization that the percentage of investors has been going down should over the years should raise an alarm that we need to do something to change our incentives and make them attractive. Where competition for investors is intense as it is now, give away or simple incentives will not be effective enough, but also the readiness of economic infrastructure, the quality of manufacturing factors and the environment that is conducive to quality investment.

Levels of corruption

The anti- corruption bureau is there but it’s not biting enough. High profile cases that could have sent a strong message have gone to court and are taking years to come to conclusion.  And there is the growing speculation of top government politicians getting involved in dodgy deals or offering contracts for money.

To attract investors, the government of the day needs to be seen putting measures to combat high levels of corruption and that those measures are working. There needs to be transparency in government dealings and that should start from top leadership. It doesn’t help when even the president refuses to declare her assets, while her predecessor is alleged to have amassed wealth of MK61. Malawi has to be proactive in implementing measures that will give potential investors confidence to invest in Malawi.

Not marketing itself enough

Malawi should realize that it is in a competition. A lot of African countries are trying to attract investors to their countries. Malawi has got this organization Malawi investment promotion agency (MIPA), whose aim is to be at the forefront of promoting the country to potential domestic and foreign investors. I visited their website http://www.malawi-invest.net/ And I was shocked. While there is some vital information there but the website seems, is not regularly updated. The last of promotional events on the site is dated way back in 2011.

In the modern world where investors prefer to do most of their secondary research on the web, having a not up to date website is not a better way to market Malawi.

The Government should facilitate the creation of awareness of investment opportunities, by using the diplomatic relations it has with investor countries, improve its web presence, and utilise president’s overseas trips to have meetings with investors rather than focusing on asking for aid.

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