The paradox that is Malawi is this: Malawi has so much potential, so much international support, so much potential for economic and political growth, and yet it is the poorest of nations, one of the more corrupt nations and one of the most oppressed peoples. I call it a paradox, others call it a puzzle. Whatever you call it, it is a frustrating situation which can and ought to be remedied immediately. Once fixed, Malawians can be assured of a bright and prosperous future.
Let us stand back and take a look at what Malawi has going for it. First off, Malawi is not North Korea. Malawians have the power to elect their own government. The choice is in their own hands. Many countries still lack this. And in many countries, the population is so large that the majority can easily ignore the interests of tens of millions of people without need to worry about the next election cycle. Malawi is small by comparison and that gives it the potential to be more democratic than most.
Second, Malawi is not the USA, nor is it Switzerland. The cost of living in many countries render the products of those countries too expensive to be competitive exporters. Typical, a low cost of living translates into a competitive edge in the international marketplace. That is why Chinese products are inevitably ubiquitous. As a nation moves from under-developed to developed, the cost of living will inevitably rise. This results in higher production costs and impeded ability to compete internationally. Japan, after the Second World War, was able to produce cheap cars domestically; now much of that manufacturing has been moved to less developed nations with lower costs of living. China, after 30 years of booming, is now a comparatively expensive place to manufacture; this means more business for less developed economies like India.
This equation perfectly situates Malawi at the top of list of low cost manufacturing and/or outsourcing destinations. Yes, poorest nation status has a silver lining. It makes Malawi attractive to foreign capital investment. Except for one thing – the government, which impedes trade both by act and by corruption. Which we will discuss later.
The third thing that Malawi has going for it is the good will of the international community. Americans hate some Middle Eastern nations; some Middle Eastern nations hate America. But everybody loves Malawi. And this is evident is the massive amounts of international aid which flows into Malawi every year.
So, with all these pluses and upsides of doing business with Malawi, why is Malawi still poor? The other half of the paradox is explained by one thing: The government. Its intentionally placed obstacles to trade; its corruption; and its serving the interests of the wealthy over the poor.
When I speak of intentionally placed obstacles, I am referring to both the tariff and non-tariff obstacles to trade. Protectionism belongs in the past. In today’s international marketplace, governments need to be comfortable with importing what cannot be, or is not, produced domestically. Japan, for instance, imports petroleum without any attempt at protectionism. Free trade allows Japan to export electric circuits and autos worldwide. This is the beauty of free trade You can sell what you do have, and buy what you don’t have. Remember when the government deported the officials of the world’s biggest tobacco buying companies? That is an example of how to sabotage foreign trade and investment.
Another barrier to trade and to the improvement of lives is Malawi’s perverse taxes on used cars, the end result of which is that the poor are subsiding the rich. Let’s say a wealthy Malawian wants to buy a car; he will no doubt be able to afford a newer model car and (for the sake of this illustration) the engine will be between 1,500 and 1,999cc’s. He will pay a measly 15% import excise on his newer model car, along with 25% import duty and 16.5% VAT.
A budding entrepreneur, who is just starting out, cannot afford a newer model. So he is forced to buy an older model. But according to the Malawi Revenue Authority, if his imported car is 12 year old or older, he is forced to pay 75% import excise on a car with the same size engine as his rich counterpart, on top of the 25% import duty and 16.5% VAT. This law is obviously the rich rewarding themselves for being rich, and the poor being punished for being poor.
Of course, the Revenue Authority states its intentions in the framework of reducing pollution and greenhouse gases. But let’s be realistic here. People need cars, and especially the poor need cars to enable them to move up the economic ladder. Car ownership enables people. Prohibitive excises taxes keep the poor down. And Malawi is not Tokyo. Tokyo can afford to lose some cars; even without a car, the mass transit system enables people to get where they need to go pretty much immediately. Malawi does not have Tokyo’s extensive mass transit system.
Over and beyond the scope of intentional obstacles to trade is the spectre of corruption which haunts Malawi and repels much-needed foreign capital investment. In December 2000, the IMF stopped aid disbursements due to corruption concerns, and many individual donors followed suit, resulting in an almost 80% drop in Malawi’s development budget.
However, in 2005, Malawi was the recipient of over US$575 million in aid. That is just one year. Report after report
after report cites corruption as the main reason for lack of foreign capital investment and consequently the leading cause of Malawi’s poverty. Where did all that aid money go? Corruptgovernment officials. I am not just referring to Cashgate; that was peanuts compared to the wholesale and widespread corruption which eats up tens of millions of dollars every year and repels potentially hundreds of millions of dollars in foreign investment.
So you have intentional obstacles and unintentional obstacles to prosperity placed in the middle of the highway by the government. You would think that would be enough. But look further. The modern ideal of government is one of an institution which is government by the people and for the people. When you read the news about a student being killed by a police officer does it stand out as un-represtative of the government as a whole? It seems to be the norm. The mentality of government officials is clearly one which favours the rich and disenfranchises the poor. No government has ever suffered because it was too compassionate, too caring for its citizens. The government of Malawi, like many a government, is a government for the government and by the government.
The good news is that this can all change. Malawi is a least developed nation, ranked at 174 out of 187 countries. It can only get better from here. Compare Malawi to Tanzania’s booming industry and you will see the results of untold millions in foreign investment.
The BBC hailed Dar es Salaam as Africa’s next megacity. That is the power of international commerce, the power that enables people to feed themselves and climb the economic ladder with minimal government intrusion. Sure, the police still solicit bribes, but corruption is down and prosperity is up. Most importantly, the people of Tanzania are reporting corruption and fighting it. It is no longer accepted as the norm.
In Malawi, there exists a huge potential for positive action from the government. An American citizen is just one voice in a pool of 318 million; in Malawi, each citizen yields much, much more power because he or she is one in a small pool of just 16 million. Typically, we expect to see a more responsive, a more accessible governments in countries with smaller populations. Sweden with ten million people and New Zealand with 4.4 million are shining examples of transparent, responsive and uncorrupt governments by the people and for the people. The conditions are ripe for a new era in Malawi. The mistakes have been made; the causes of poverty are known and the remedy is easily available to the people.
Free up the economy, eradicate corruption and institute a more needs-responsive and stable government that both Malawian and foreigners can trust. The problem is the government. And the solution is in a different government. One that only the Malawians can elect.
- About the Author: John Scott is a market analyst for Enhance Auto Japan a leading exporter of second hand Japanese cars. He has spent time speaking to countless Malawians about their daily struggles for a better life.
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