Malawi needs radical solutions to the perennial economic problems

Let me start by a disclaimer; I am not an economist. This article is aimed at stimulating more debate on our perennial economic problems. Recently, at the labour day celebrations, Voice Mhone of CONGOMA criticized the Joyce Banda government on the economic policies that it is implementing.

This earned him an invitation to state house by Joyce Banda. President Banda defended herself and told Mhone to meet her ‘experts’ at the state house and offer the solutions to the problems that Malawi is facing. Joyce Banda insinuated what some Malawians say; ‘many people just criticize without offering solutions.’ Although this article is not a typical criticism of the Banda government policies, I hope to get an invitation too! In preparation for this invitation, I will point out the problems and offer solutions outright. In this case, at the state house, I will just be expanding on my suggested solutions.

Firstly, it is important to note that Malawi is in the global village. Our economy depends on both internal and external factors. These factors are economical, social, political and many others. Some internal factors have evolved because of the external factors. Malawians (career politicians up to the common man) are mainly involved in the internal factors. The external factors include prices of fuel on the world market. We also depend on donors and international lenders who literally make our policies. Big culprits are the IMF and World Bank.

Charles Chuka: RBM governor
Charles Chuka: RBM governor serving political master

Internally, some common men and the politicians are to blame. We are corrupt and lack any sense of direction. Obviously politicians are involved in corruption that involves large sums of money. They swim in luxury while most common men suffer. They then spend more money to woo votes from the common man. We loose one third of our budgeted money to corruption. We lose more from irresponsible spending like what the current government is doing. In a country where politicians do not respect voters but curse them at any given opportunity, it is unrealistic to think the systems can just change through complaints and dialogue. History shows that it takes a complete revolution to change systems. That is subject for another day.

At the moment, we are following IMF policies 100%. That is wrong,very wrong. These free market approaches will not take us anywhere. No country, I repeat no country has ever developed using these free market policies. We are not about to be the first country. We need a leader who is courageous to stand by what we believe is the best way forward for Malawi. The current leadership is wavering too much. That is why we are using pure free market policies.

Statements like; ‘ma donor anandiuza kuti nditere’ (Donors told me to do this and that) are not supposed to come from a leader of a country like Malawi. Malawi belongs to Malawians and Malawians only. What the current government has done is to sell the country at a very cheap price. The benefit only accrues to them and their families. For the common man, it is all bad news. Maybe you have never seen people dying from treatable diseases.

It is painful! People are being transferred from Queen Elizabeth referral hospital in Blantyre to the private Korean hospital in Lilongwe just because the referral hospital does not have a certain equipment which can be bought using the funds that have been deducted from the hospital budgets in the name of austerity. It can also be bought with the money spent elevating a chief. This is unacceptable. When we complain, government’s apologists are quick to tell us off on Facebook, in newspapers and at political rallies. Somehow they think they own this country.

I believe in a holistic approach to solving our problems. We should define our goals and work across all sectors to achieve those goals. I believe our common goal is to develop Malawi and move as much as possible away from donor dependence. How do we achieve this? First we have to ensure that we use the resources that we already have efficiently. While generating Forex is one of the key issues, it is useless if we can not manage the Forex that we are generating now. The Forex that we have now is key in attaining a status that will enable us to generate more Forex. We lose Forex easily in Malawi. I will summarize here some ways; Illegal externalization of Forex , too much appetite for foreign goods and not just foreign goods but expensive ones like clothes, electronics, cars, building materials e.t.c. We import too much.

However, as a start we cannot immediately demand that we stop importing goods because some of the things that we import are not available in Malawi. The first thing would be to encourage buying of local products that we have if they are genuine alternatives to what we are importing now. The second would be to substitute our expensive imports to cheaper and reasonable imports. The government is one of the sectors that needs to do this immediately. Government vehicles are too luxurious for a poor country like Malawi. There are many other examples of the goods that we import but we can do without in the short period of time that we need to preserve our Forex.

Government officials who like globe trotting should also minimize this habit. The biggest culprit in this area is the President whose entourage would make several football teams. We also need strong regulations to deter illegal Forex externalization. This is only possible with a govt that has a vision and not just enriching themselves as we have seen in the past and currently. I have to emphasize that good Forex management alone is not enough. There are many other policies that need to go along with this. This include responsible spending on things that are important not elevating chiefs and distributing maize floor by using the entire cabinet.

Let me illustrate how we can move from preserving the little that we have to industrialization or manufacturing of goods that can be happily consumed within Malawi and compete on the world market. I will use the South Korean example. The Korean government had absolute control over scarce foreign exchange (violation of foreign exchange controls could be punished with the death penalty!). When combined with a carefully designed list of priorities in the use of foreign exchange, it ensured that hard-earned foreign currencies were used for importing vital machinery and industrial inputs. The Korean government heavily controlled foreign investment as well, welcoming it with open arms in certain sectors while shutting it out completely in others, according to the evolving, national development plan. It also had a lax attitude towards foreign patents, encouraging ‘reverse engineering’ and overlooking ‘pirating’ of patented products.The popular impression of Korea as a free-trade economy was created by its export success.

But export success does not require free trade, as Japan and China have also shown. Korean exports in the earlier period – things like simple garments and cheap electronics – were all means to earn the hard currencies needed to pay for the advanced technologies and expensive machines that were necessary for the new, more difficult industries, which were protected through tariffs and subsidies. At the same time, tariff protection and subsidies were not there to shield industries from international competition forever, but to give them the time to absorb new technologies and establish new organizational capabilities until they could compete in the world market00.

The Korean economic miracle was the result of a clever and pragmatic mixture of market incentives and state direction. The Korean government did not vanquish the market as the communist states did. However, it did not have blind faith in the free market either. While it took markets seriously, the Korean strategy recognized that they often need to be corrected through policy intervention. As in the Korean example, this is the way we should use our hard earned Forex. Of course the death penalty on Forex is an extreme but it just shows how serious the Koreans were with their passion to move to manufacturing.

Now, how does the private sector establish the necessary industries that can generate Forex? What can one get his brilliant idea of ensuring that we don’t loose the fresh mangoes and tomatoes as we do now by producing exportable juice, dried mango packs e.t.c? I have a layman’s idea of what one can do. The assumption here is that you are a trained businessman. Firstly, you would have do a thorough business research to develop a successful business plan. One of the objectives of your business plan would be to raise finances by borrowing from banks and other lenders. This is where the current central bank monitory policy and exchange management comes in. It will be very tough for you to plan your business effectively because the Kwacha has gone mad.

The inflation and bank lending rates are just too high. One therefore can not blame anybody for not generating Forex because the business environment is just too harsh. There is no hope that things will normalize anytime soon. Those who are saying things will work like Malawi Confederation of Chambers and Commerce Chairman, Chancellor Kaferapanjira and the Reserve Bank of Malawi Governor Charles Chuka(this guy has been proven wrong many times) are just serving their political interests. The President and her Finance Minister are simply clueless. I believe Joyce Banda does not understand these things. Therefore, she is just listening to the so called experts. The President needs to understand the issues and form a competent opinion. After that she can separate the garbage and real stuff from her advisers.To make Forex, the conditions should be right.

I have said above and I repeat, we need a holistic approach to solving our problems. The whole talk of manufacturing assumes we have educated and healthy people. In short, our goal to become a predominantly exporting nation needs educated and healthy people. Our life expectancy is now about 54 years. Our education standards are very poor. We can not effectively achieve our national goals with such a status. Our priorities are wrong. The money that we use for useless things like poshy cars, elevating chiefs, distributing maize by the entire cabinet as well as corruption can go along way to improve education infrastructure, improving teacher’s remuneration and training. The money can also be used to buy state of the art hospital equipment and improve doctors salaries.

We have one of the highest brain drains because of low salaries. We can not develop like that. Only politicians get the best salaries on top of the lucrative contracts shared among themselves and their cronies. The current government has even reduced funding to the hospitals and education under the instructions from the IMF. A nation whose people are dying young from treatable diseases cannot develop.

Malawi’s tobacco demand and it’s price are determined by cartels. We have no say on what we get from tobacco. So when we say we devalue the Kwacha to increase exports, which exports will respond to this? For other lesser forex earners like tea, groundnuts e.t.c, the competition on the world market is also great. Malawi has time and again devalued its currency anticipating that it will boost its exports and will make the exportable goods of the country more competitive in the world market.

But these wishes have failed to materialize by far. Our goods failed to compete with other countries despite the fact that their currencies were stronger than ours. This may be so because our domestic input cost of production is quite higher than other countries. The quality of some of our few exportable products also leaves a lot to be desired.

Devaluation decreases the prices of our exportable goods and simultaneously increases prices of goods we are importing from abroad as well as increases domestic price level of goods and commodities, thus reducing the purchasing power of the people of the country. It creates high inflation which is now at about 35%. Our long experience has shown us that devaluation is not the proper remedy for economic growth of the country.

It has resulted in increasing our debt burden to the extent that nowadays it is not possible to obtain easily any loans from world lending agencies. It may be realized that for whatever reason we devalue our currency it results in manifestation of weakness of our economy to the other countries.

Further, excessive devaluation of the past has adversely affected our credit rating. Foreign investors are now more conscious or reluctant to make any investment in the country. Many economic researchers have reported that currency devaluations in less developed countries do make exports cheaper, but they also make imports-which usually include machinery, energy resources, medicines and food–more expensive, thereby squeezing import-reliant domestic industries and causing severe social ills.

Higher interest rates, which are supposed to encourage savings, deter the investment needed to create jobs. Cuts in government spending, designed to eliminate waste and save money, create further unemployment and devastate vital social services, including healthcare and education.

The only logical path available to us is to use the little Forex we get and other means to reduce the cost of production of our exportable goods and increase the productivity of the goods, which will enable us to compete in the world market. Participation of everyone concerned towards the above goal will make a difference, but we should do it now not later.

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