K7bn allocated to cement subsidies: Malawi zero-aid budget

Malawi government has allocated MK7 billion in the zero-aid budget in order to introduce a pilot scheme in subsidising iron sheets and cement, Finance Minister Goodall Gondwe told parliament on Tuesday.

Gondwe revealed that Government in order to improve living conditions through improved housing in rural and urban areas, the Ministry of Lands, Urban Development and Housing has been allocated an extra amount of MK7 billion in order to introduce a pilot scheme in subsidising iron sheets and cement.

“The Ministry will soon publish the mode of administering the programme and the public is being strongly advised not to initiate any action under this programme before this announcement,” said Gondwe.

Building costs in Malawi are said to be the highest in the southern African region and it is estimated that it costs 55 percent higher to construct any building in the country compared to other countries within the region, according to a recent study by the University of Malawi.

The study, conducted in 2012 by  Rodrick Chipunde  and his colleague Patrick Khombeza, shows that the high costs of construction in Malawi are to blame for the astronomical costs of construction in the country.

Chilipunde:New subsidies on cement and iron sheets not a welcome economic idea
Chipunde:New subsidies on cement and iron sheets not a welcome economic idea

However,  Chipunde who is the Head in the Department of Land Economics and Quantity Surveying, has argued that reducing the cement price is a welcome idea but should be done through inviting more players into the cement manufacturing business,  stressing that the proposed subsidy programme is not good for the country’s economy.

He suggested that the DPP government is “trying to gain political mileage at the expense of economic gains.”

Chipunde  argued that the best way to reduce cement prices is “to invite more players into the cement manufacturing business in the country who can install integrated cement manufacturing plants so that there should bemore supply of cement on the market that will drive the cost down in line with other Sadc countries based on the rule of supply and demand.”

University of Malawi’s  Chancellor College political analyst Blessings Chinsinga—who has published studies on subsidies in Malawi—is on record saying that subsidies on their own are not bad but, he explained, it is the design of the subsidised projects that is problematic.

Chancellor College  political science lecturer Boniface Dulani is also on record arguing that subsidies have not helped Malawi over the past years and that it has deprived government of money that should have been used to provide essential services in sections such as health and education.

According to Dulani, other than promoting subsidies, “the best way is to create jobs so that people can earn enough to buy food, iron sheets and cement.”

In his budget statement, Gondwe also said Farm Input Subsidy Programme (FISP) – whose cost to the economy has ranged from six percent of gross domestic product (GDP) to 16 percent between 2006 and 2013 – also gets a good share.

He said FISP is estimated at MK50.8 billion targeting 1.5 million beneficiaries.

The amount of MK2 billion has also been allocated  for promotion of legume production.

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