Malawi’s economic prospects remain positive as recovery is taking hold in the aftermath of the 2011/2012 economic and governance crisis, which saw a slowdown in real Gross Domestic Product (GDP) growth to 1.9% in 2012, from a relatively strong growth registered between 2006 and 2010, averaging 7% annually. The economy is on a rebound with a projected real GDP growth of 5.7% in 2014, from a 5.2% growth in 2013, inspite of the fiscal scandal revealed in the first quarter of the FY 2013/14, which exposed serious weaknesses in governance and public financial management. Growth in 2014 is projected to remain broad based on account of the anticipated increase in industrial productivity, stronger agriculture production as well as stronger performance in the services sector, wholesale and retail trade. However, the mining and quarrying sector is estimated to contract following the suspension of production at the Kayelekera Uranium mine which has been placed on care and maintenance until uranium prices recover. Preliminary estimates project uranium exports to decline from US$ 169.9 million in 2013 to about US$ 8.1 million in 2014 with a declining share to GDP from 4.4% to 0.2%.
Inflation is projected to remain in double digits in 2014. The year-on-year increase in the overall consumer inflation has been edging downwards from 36.4% in March 2013 to 21.7% in September 2013, albeit at a slower disinflation pace than projected. Inflationary pressures, however, reemerged in October 2013 marking the onset of the traditional lean season for both food and foreign exchange. The acceleration in the year-on-year headline inflation to 25.9% in January 2014 was partly attributed to the sharp Kwacha depreciation (compounded with the withheld budget support in the wake of the fiscal scandal) and a spike in maize prices. The year-on-year headline inflation has however decelerated in February 2014 to 24.6%, on account of a slowdown in food inflation to 20.4%, from 24.1% in January 2014. Non-food inflation remains high at 29.3% in February 2014, from 27.7% in January 2014. The annual average inflation is projected at 21.5% in 2014, down from 28.3% in 2013.
Over the past two years, the authorities have been pursuing prudent fiscal policy anchored on a zero net domestic financing. This has in turn contributed to the narrowing of the fiscal deficit from 6.9% of GDP in 2011/12, to 1.3% of GDP in 2012/13. Fiscal conditions however deteriorated during the first quarter of 2013/14 with huge overruns in primary expenditure, in the wake of the fiscal scandal, where the Malawi Government had to borrow heavily from the banking system to finance these overruns some of which related to fraudulent transactions carried out using the Integrated Financial Management Information System (IFMIS). With the suspension of budget support and cuts in dedicated grants, the overall fiscal conditions have been tight over the two quarters and will remain so for the remainder of FY2013/14 with the fiscal deficit projected to widen to 4.1% in FY2013/14. Over the medium term, the focus on fiscal consolidation through revenue rising and expenditure reducing measures is expected to generate a positive primary fiscal surplus during 2014-2017.
Malawi is a low income country ranked 170 out of 186 countries surveyed in the 2013 Human Development Index with a GNI per capita (Atlas Method) of US$ 320 in 2012. Despite high rates of economic growth, poverty in Malawi remains widespread. The third Integrated Household Survey (IHS3 2010/11) reports that over half of the population remains poor and one quarter is estimated to live in extreme poverty, with total expenditure below the food poverty line level (an income of MK 22,956 (US$ 146) or below per person per year). Furthermore, poverty declined only marginally from 52.4% in 2004/05 to 50.7% in 2010/11 – an insignificant reduction. The depth (how far off households are from the poverty line) and severity (how distant are the poor from the poverty line and how unequal is consumption shared among the poor) of poverty have also increased. Almost half (47%) of the children under age 5 in Malawi are short for their age due to long-term effects of malnutrition (stunted) and 20% are severely stunted.
Malawi elected its 5th President Prof. Arthur Peter Mutharika on May 20, 2014. Eleven parties contested for presidency. Prof. Mutharika emerged winner with 36.4% of the vote, defeating incumbent President Mrs. Joyce Banda of the People’s Party (PP) who came third with 20.2%. Dr. Lazarus Chakwera of the Malawi Congress Party (MCP) came second with 27.8%. Mutharika’s predecessors are Mrs Joyce Banda (2012-2014); Bingu wa Mutharika of the Democratic Progressive Party - DPP (2004-2012), Bakili Muluzi of the United Democratic Front - UDF (1994-2004), and Hastings Kamuzu Banda of MCP (1964-1994.) At party level, Prof Mutharika succeeded his late brother Bingu as president of the DPP. Bingu wa Mutharika succumbed to a cardiac arrest halfway through his second term of presidency.
Mutharika (74) was first elected Member of Parliament in 2009 and re-elected in 2014. Between 2009 and 2012 he held various portfolios in the Cabinet under the regime of President Bingu wa Mutharika: Minister of Justice and Constitutional Affairs; Minister of Education; and Minister of Foreign Affairs. Since 2004 he had been serving the President as an advisor, and more publicly on the review of the Constitution in 2007. A Charles Nagel Professor of International and Comparative Law Emeritus, Prof. Mutharika effectively retired from Washington University’s School of Law in 2011. He is an expert on international economic law, international law, and comparative constitutional law with an LL.B (1965) from London University, an LL.M (1966) and J.S.D (1969) from Yale. He has also served as a member of the Panel of Arbitrators and Panel of Conciliators for the International Centre for the Settlement of Investment Disputes, and is a past recipient of the International Jurist Award.
On May 20, 2014 Malawians also elected Members of Parliament and Councilors. In the Parliamentary results, in a house of 193 seats, the independent candidates scooped 52 seats (27%) an increase from 32 in 2009. The trend of independents has been increasing from zero at the 1994 election to an historic quarter of the house in 2014. Commentators have attributed this to the issues raised by individual candidates in their campaigns and deteriorating confidence in political parties. Some stood as independents after losing in party primaries or their parties did not allow primaries where the sitting MP was female. The DPP got 50 seats (26%), a big drop from 114 in 2009. The opposition MCP got 48 MPs (25%), an increase from only 26 (13%) in 2009. PP salvaged 26 seats (13%). UDF came out with 14 seats (7%), compared to 93 (48%) at the height of its popularity in 1999. AFORD got only 1 seat compared to 36 in 1994 when it swept the whole of the northern region. A new party called Chipani cha Pfuko also got one seat, won by its president. About 70% of the MPs are new in the house. About 16% are female MPs, about half of what was the case in 2009.
The May 2014 election campaign was issue-based. Most of the issues will be indicators of government performance. Key among the issues is the civil service reform program that the Mutharika regime has embarked on. The Vice President chairs the Civil Service and Public Service Reform Commission. Public financial management (PFM) is a problem area following revelation of the plunder of more than $30million of government resources last September, popularly known in the country as “cashgate,” which has had negative consequences on governments’ ability to provide social services and pay civil servants, and saw development partners who provide budget support suspended their support until the PFM issues are resolved. This government will be expected to be more transparent in its PFM, and upholding democratic governance. The Government’s development agenda and the progress it will make will also be under close watch from the electorate, especially after Malawi clocked 50 years of independence from British rule on July 6, 2014.
Malawi’s population was estimated at 15.9 million in 2012 with a poverty headcount which was at 53.9% in 2000 recording a marginal decline to 50.7% in 2011. Other key social indicators that have shown some improvements include increased life expectancy to 54.8 years in 2012 from 46 years at the turn of the century; adult HIV prevalence which reached 10.8% in 2012 down from 15.8% in 2000 and literacy levels (population aged 15 years and above) have increased albeit slowly from 68.1% in 2000 to 76.9% in 2013.
Despite mixed human development indicators, of the eight Millennium Development Goals (MDGs), only four are likely to be met (Reduce Child Mortality; Combat HIV and AIDS, Malaria and other diseases, Ensure Environmental Sustainability, Develop Global Partnership for Development). The other four (Eradicate Extreme Poverty and Hunger; Achieve Universal Primary Education; Promote Gender Equality and Empower Women; and Improve Maternal Health) will require extra effort if they are to be met.
Despite progress on social issues, Malawi’s development path has several challenges:
- Sustainability of policy reforms remains a challenge. The country’s history of policy implementation has been largely characterized by periods of good policy implementation with episodes of policy reversals associated largely with different political cycles. Macroeconomic stability following the actions taken by the new administration is still fragile and would critically depend upon the continuance of the policy measures instituted.
- Public spending is inefficient and poorly targeted. Fundamental weaknesses in the PFM system have been brought to light by the fiscal scandal (famously known as ‘cash-gate’ scandal), which further points to the urgency of a comprehensive public finance and economic management reform. Malawi needs a sound PFM system and spending that is growth-enhancing and poverty-reducing, which depends on more credible budgets. It is essential that the country reduce variations in the recurrent budget while containing its growth, ensuring better linkage with policy priorities by budgeting within a medium-term expenditure framework (MTEF), more focused and more carefully appraised public investment, and managing domestic debt so as to ensure that it is not only sustainable but also adheres to the guiding principles stipulated in the debt management strategy.
- Weak governance. The ‘Cash-gate scandal’ has brought fundamental, underlying governance issues and weaknesses to the surface, and pointed to the futility of attempting to stimulate economic growth, eradicate extreme poverty and promote shared prosperity without tackling these “wicked” problems. There is need to undertake in-depth analysis of public service management issues that hamper sustainable development in Malawi and negatively impact on service delivery to citizens.
- Investment climate constraints hinder private investment. The business environment in Malawi has deteriorated in recent years resulting in a slowdown in foreign direct investment and reduced competitiveness. The Doing Business 2014 report ranks Malawi at 171 out of 189 countries. Main obstacles to doing business in Malawi include poor support infrastructure and services (e.g. electricity, water, transport), uncertain economic environment, poor legal and regulatory framework, lack of access to long-term finance and limited skill base. Whilst Government has made commendable efforts on the macroeconomic stability, improving the business environment needs establishing policy certainty and predictability.
- Agriculture, the main source of growth and exports in Malawi, is central to reducing poverty. The country’s dependence on a single agricultural export, tobacco, is now threatened by the enforcement of the Framework Convention on Tobacco and the EU directive on tobacco products. These would restrict, and possibly ban, the use of flavorants, which are essential ingredients for burley-filled tobacco products. Burley tobacco accounts for about 80% of Malawi’s agricultural exports and 60% of national export value. Sugar and tea are important alternatives, particularly for larger agricultural estates (and their smallholder subcontractors), and a broader range of commercial opportunities is needed for smallholders. Other potentially viable products include legumes, cotton, pepper, coffee, horticultural crops, dairy and poultry production. The success of agricultural diversification, however, will also depend on adequate road access and marketing infrastructure.
- High population density and poverty have led to significant human pressure on the environment and degradation of Malawi’s natural resource base, notably land and forests. The growing population increases the land area under cultivation and exploits forests and woodlands for firewood and charcoal production. Land degradation, deforestation, inappropriate farming methods, and limited incentives to promote land and water conservation techniques have increased the incidence of erosion, run-off and flash floods in Malawi, carrying high loads of sediment that are deposited in reservoirs and flood-plains. Together, these factors reduce agricultural productivity, fisheries, and hydropower generation, damage infrastructure, and adversely affect human health and critical ecosystems.
- Malawi is prone to natural disasters primarily related to climate variability and change. Improved resilience to climate risks is extremely important for the majority of rural households who depend on the fragile natural resource base for their livelihoods. Forest cover is reported to decrease at an alarming rate, and the energy balance has not changed away from biomass at all. Rural roads and the rail network are particularly vulnerable to the effects of climate change due to increased run-off rates.
Last Updated: Apr 09, 2014