Country Economics: A Case Study of Malawi
Basic Facts and Information on Malawi
Malawi, initially called Nyasaland, is a landlocked sub-Saharan developing country located in the South Eastern part of the Continental Africa, bordering Tanzania to the northeast, Mozambique to the east and Zambia to the northwest with a capital at Lilongwe. It is primarily an agricultural country but this is mainly done on small scale basis and, coupled with its warm and hot climate, it is considered as among the least developed and poorest countries in the world according to the latest World Bank and IMF figures (Chin, 2010). Moreover, with a population density of roughly 16 million people, Malawi has one of the lowest life expectancy and highest infant mortality rates in the world with the high HIV/AIDS prevalence in the country taking a huge toll on its population growth and numbers due to poor health facilities (Matchaya, 2007; Doctor 2013). The primary crops in Malawi include cassava, maize, and rice, bananas, and sorghum, sweet and Irish potatoes while the major industries are mainly agricultural in nature, processing agricultural products. These primary industries include tea, tobacco, timber, and sugar industries. The industrial growth rate in this country is also considered to be the slowest globally. Further afield, according to a recent report by the World Bank (2015), the country has one of the lowest per capital income or gross national income levels in the world, with a majority of rural Malawians living below the poverty line of $13 dollars a day and the gross domestic product income annually being less than $5000 atlas income. Thus, as this report indicates, Malawi also has one of the highest dependency rates, with most low income poor families mainly consisting of orphaned children depending on the working few thus leading to very poor standards of living in the country. According to the World Bank figures, the country’s GDP by then stood at $4.258 billion, representing a low income level. Moreover, another report by the Oxfam (2015) shows that there is poor distribution of national income, leading to very high income inequalities. Yet another report by the International Monetary Fund (IMF) reveals serious deficits in the country’s annual budget, standing at close to 4 percent of its GDP.
Political History
Akin to most other African countries, Malawi has a dark political history, beginning from the precolonial to colonial and post-colonial periods. Before independence and colonialism, the individual tribes had in formal political structures and kingdoms such as the Malavi Empire or chiefdoms. During colonialism by the British, all political power was vested in Whites while Blacks were suppressed and other elites like Hastings Kamuzu Banda, a doctor, forced into exile. In 1958, however, he came back from exile and assumed the leadership of Malawi Congress Party, formerly NAC. The country held its first political elections in 1961 in which the MCP won and formed the Legislative Council and finally, in 1964, the country obtained full independence with Hastings Banda as the Prime Minister. However, the period immediately after independence saw constant political upheavals, with differences arising between Hastings and his appointed Ministers to the cabinet. Things would later get even worse with the 1970 declaration of Hastings Banda as being President for life, sending the country into an authoritarian one party military rule and leadership (Power, 2013). Banda was considered by many as a worst dictator than even the Whites, amassing all the Malawian wealth and natural resources to himself, his family and close confidants thus impoverishing a country that was already reeling from effects of poverty and economic subservience. However, things changed much later in 1993 when a referendum was held after pressure from the international community in which Malawians overwhelmingly voted for a multi-party democracy. Later, in 1994, fresh democratic elections were held, with United Democratic Front’s leader, Bakili Muluzi, emerging the winner and declared President. Since then, the country has had a rather democratic political leadership with the 2004 election of Bingu wa Mutharika and his reelection in 2009. Thus, the major dominant political parties have been UDF, MCP and AFORD. In 2014, Peter Mutharika was elected to replace Joyce Banda who took power following her husband, Bingyu Wa Mutharika’s death.
Economic History
Malawi is considered one of the poorest nations on earth and according to a report by the Organization for Economic Cooperation and Development (OECD, 2006), a 2005 UN Human Development Index ranked it 165th out of 177 countries and it had the lowest per capita income in the world. According to Kayuni (2011), in the period between 1964 and 1980, Malawi recorded an imperative and progressive economic development due to the pragmatic economic policies by the then President, Dr. Banda. Some of the economic improvements during this period according to this author included an accelerated economic growth rate, high investment levels, high employment levels, rising agricultural output and decreasing dependence on foreign grants. The economic policy during this period, the author notes, was one of consolidation and restructuring. However, the period after 1980 up to early 1990s witnessed poor economic growth and development due to what Kayuni (2011) calls the bureaucratic economic policies and the poor political climate that discouraged any meaningful local and foreign investments in the country. Malawi’s currency is the Malawi Kwacha. Moreover, as a study by Tchereni, Sekhampu and Sekhampu (2013) indicates, foreign debt has had negative impacts on Malawi’s economic progress and development. The exchange rates soared, public and private investments deteriorated and inflation rates went up due to pressure to pay off huge government loans from the public coffers, meaning high taxes on basic commodities. Further, as a report by the Overseas Development Institute (2011) shows, Malawi being a predominantly agricultural economy, agricultural exports’ contribution to its national economy or GDP was 32.6 per cent. According to this report, Malawi’s economic history may be explained from the three main republics, that is the 1964-1994 Banda republic and Mutharika republic from 2004 up to date. It is the Muthatika’s period that is considered to have significantly contributed to Malawi’s economic progress, however meagre while the Muluzi period is considered a failed republic. Over the past seven years, Malawi has experienced a steady economic growth, rising from2.3 to 7.1 percent, the report notes. One of the factors that have contributed to this impressive progress is President Mutharik’s intensive diversification programs from agricultural export to manufacturing, professions, and construction, transport and communications sector improvements. According to Chinigo (2016), constant land conflicts have also frustrated meaningful agricultural economic development. However, Chinigo (2015) notes that recent efforts towards land reclamation and reforms in Malawi now indicates an era of political and economic enfranchisement (p. 97).
Current State of Malawi’s Economy and Challenges
Under President Mutharika’s leadership, the country’s current economic state may be said to be relatively stable and progressive though at slow rates. According to the BBC (2016), Malawi is currently making impressive efforts in a bid to overcome long periods of corruption, high unemployment rates, HIV/AIDS pandemic problem and underdevelopment. Further, as Agbor (2012) observes, with low inflation rates at 35percent and economic growth rate of 6.5 percent between the 2004-2009 period, Malawi has been on an economic recovery path, with the accumulation of foreign reserves helping to minimize the volatility of the Kwacha currency. The country has also become a major exporter of food due to improved agricultural inputs, support and infrastructure. This impressive economic performance according to this writer led to improved foreign relations leading to foreign donations and debt reliefs such as the IMP/World Bank Heavily Indebted Poor Countries program. However, in spite of these positive gains, the major challenges to achieving full economic growth potential include corruption in government, poor regulatory efficiency and poor management of public finance. Other economic woes that still bedevil the country and threaten to dilute these economic development records include poor health and education standards, fuel and power shortage, rising costs of living and poor monetary or fiscal policies that have seen the national currency scoring poorly against the dollar and other local currencies in the region (African Development Bank & OECD, 2009).
Generally, it may be argued that though Malawi has made tremendous economic development efforts in the last one decade, it is still yet to achieve the desired global standards of economic performance improvements. As Dossani (2012) argues, while the country has made remarkable economic progress with regards to non-income human development, it has not made significant improvement in terms of raising or improving the living standards of Malawians and their incomes. Since economic progress is largely measured by the level of the living standards and in come in a country, I am of the opinion that Malawi has not yet been successful economically and that it will take more action than politics to transform the country’s economic future. The major reasons for this lack of economic success and notable economic development progress include lack of government or political will and initiative, high poverty and inflation levels, high graft levels and mal-administration or embezzlement of funds meant for development. Moreover, s Arndt, Schlosser, Strzepek and Thurlow (2014) argues, climate change has also had a toll on Malawi’s growth as it stifles its economic mainstay which is agriculture thus leading to endless poverty. And so is poor expenditure plans and policies as Musaba, Chilonda and Matchaya (2013) argue.
Thus, in order to ameliorate this dire economic situation in Malawi, I would recommend that the government aggressively fights corruption, comes up with strong fiscal policies, adopts irrigation-based agriculture using water from Lake Malawi, decrease expenditure on non-priority projects and salaries, and efficiently manage resources allocated to the various sources of the economy. It should also tighten its fiscal policies, implement public financial management reform s, and develop sound trade regulations and policies that promote private sector growth and competitiveness. The behavioral changes outside the government and multinational that would help Malawi in its economic growth and recovery path human capital empowerment and education include changes in people’s attitude towards economic improvement. Moreover, a greater diversification of the agricultural economy as suggested by Dropplemann, Makuwira and Kuwenda (2012), including movement away from rain fed agriculture to irrigation and also development of high valued products will help economically. This will ensure an enlightened and innovative citizenry that can create more jobs and reduce poverty levels in the villages. Finally, I hope that Malawi will continue to make economic progress in the future. This is because of the current stable political climate and democratic government that is likely to encourage investment in various sectors and also spur foreign donor funding from the World Bank and IMF to spur economic growth.
References
Agbor, J. (2012, April 19). The economic challenges facing Malawi’s new President. Massachusetts Ave, NW, Washington, DC: Brookings Institute. Retrieved May 13, 2016, from http://www.brookings.edu/research/opinions/2012/04/19-malawi-economic-challenges-agbor
BBC. (2016, January 19). Malawi country profile. BBC NEWS. Retrieved May 13, 2016, from http://www.bbc.com/news/world-africa-13864367
African Development Bank and OECD. (2009). African Economic Outlook 2009. Paris: OECD.
Arndt, C., Schlosser, A., K. S., & Thurlow, J. (2014). Climate change and economic growth prospects for Malawi: An uncertainty approach. Journal of African Economics, 23(2), 83-107. doi:10.1093/jae/eju013
Chin, B. (2010). Income, health and well-being in rural Malawi. Journal of Demograophic Research, 23(35), 997-1030.
Chinigo, D. (2015). Re-peasantization and land reforms. Journal of African Affairs, 115(458), 97-118. doi:10.1093/afraf/adv057
Chinigo, D. (2016, March). Rural radicalization and th historical land conflict in the Malawian tea economy. Journal of Southern African Studies, 42(2), 283-297. doi:10.1080/03057070.2016.1141514
Doctor, H. V. (2013, January). Layers of socioeconomic vulnerability in Malawi in the context of the milenium development goals. International Scholarly Research Notices, 2013(2013), 1-7. Retrieved May 13, 2016, from http://www.hindawi.com/journals/isrn/2013/346750/
Dossani, S. (2012, June). Malawi: A development puzzle? Global Majority E-Journal, 3(1), 20-32.
Dropplemann, K., Makuwira, J., & Kumwenda, I. (2012, Fall). All eggs in one basket: A critical reflection on Malawi's development strategies. Journal of African development, 14(2), 79-99.
Kayuni, H. M. (2011). Malawi's economic and development policy choices from 1964 to 1980: An epitome of 'pragmatic unilateral capitalism. Nordic Journal of African Studies, 20(2), 112-131.
Matchaya, G. (2007, December). Trends in life expectancy and macroeconomy in Malawi. Malawi Medical Journal, 19(4), 154-158.
Musaba, E. C., Chilonda, P., & Matchaya, G. (2013). Impact of government sectoral expenditure on economic growth in Malawi, 1980-2007. Journal of Economics and Sustainable Development, 4(2), 71-78.
Organizations for Economic Cooperation and Development. (2006). African Economic Outlook: Malawi. London: OECD. Retrieved May 13, 2016, from http://dx.doi.org/10.1787/425135245341
Oxfam. (2010) A dangerous divide: The state of inequality in Malawi. London: Oxfam. Retrieved May 13, 2016, from https://www.oxfam.org//rr-inequality-in-malawi-261115-en.pdf
Overseas Development Institute. (2011). Progress in economic conditions: A recent example of progress in Malawi. Westminster Bridge Road, London: Overseas Development Institute. Retrieved May 13, 2016, from www.developmentprogress.org/sites//malawi_report_-_master_0_0.pd
Power, J. (2013). Project MUSE - A History of Malawi. Africa: The Journl of the International African Institute, 83(3), 1-10. Retrieved May 13, 2016, from https://muse.jhu.edu/article/518215
Tchereni, B., Sekhampu, T., & Ndovi, R. (2013). The impact of foreign debt on economic growth in Malawi. African Development Review Journal, 25(1), 85-90.
World Bank. (2015, April 14). Malawi economic monitor: Inaugural economic report provides economic analysis, recommendations. Retrieved May 13, 2016, from http://www.worldbank.org/en/news/feature/2015/04/14/malawi-economic-monitor-inaugural- economic-report-provides-economic-analysis-recommendations
