Courtesy of UK Parliament, we reproduce an assessment of the development situation in Malawi by Mark Miller in June 2012. Malawi's former president Bingu wa Mutharika died in April this year.
1. The second term of the wa Mutharikha regime have highlighted the continued vulnerability of the Malawi economy. Despite the feted ‘development’ that took place in the first term, the chronic foreign exchange shortages have highlighted Malawi’s ongoing chronic dependence on foreign aid. 2. Recent events have given an opportunity to rebuild relationships with the Malawi government; however, the fragility of the Malawian state means that at the some point in the future, relationships are likely to deteriorate again. The UK government should think how could Malawi’s resilience be built over the next 5-10 years so that if foreign aid were to be withdrawn again, the economy would be better placed to deal with lower tobacco prices and a sudden withdrawal of aid.
3. Despite Malawi’s stated development goals under wa Mutharika to become an exporting nation, this was not an agenda that donors engaged with as fully as social development and protection, where impressive progress was made between 2004-2009. Health, education and food security are clearly important, but without the dollars to buy drugs, fuel and fertilizer, progress on the MDGs will quickly go into reverse.
4. The focus of donors with regard to economic policy has typically been on macro-economic stability. The UK’s support for an adviser from the Bank of England on devaluation is in keeping with this. Macroeconomic stability is a necessary condition for development, but it is not on its own sufficient. There is an urgent need to engage more with policies to improve the competitiveness of Malawi’s exports. The UK Government could play a useful role in encouraging high-level buy-in of the National Export Strategy at the Office of President and Cabinet and the Ministry of Finance and Planning to move it from being a ‘trade-paper’ to being at the heart of the development agenda.
5. Economic development in Malawi is not something that a UK Parliamentary Committee will solve, but it is something the UK government urgently needs to be able to provide informed support to the Malawi government. DFID economists are well versed in evaluation of DFID projects, but what is the UK government’s vision for improving Malawi’s woeful economic performance in the last 50 years?
6. The ideas below are not thoroughly researched, but give a flavour of the type of innovative thinking that may be required to address these issues:
a. Donors and government have known that power generation and distribution is a significant constraint on the economy for a number of years. Aid passed through government has led to a growing government, but not significantly greater public capital investment. A proportion of UK aid may be better routed through infrastructure banks, either multilateral or Malawian to provide capital for these much needed projects.
b. In the agricultural sector, the Input Subsidy Program has been focused on food security: less attention has been given to boosting productivity in the cash crops sector. The UK’s budget support could be utilized to alleviate taxation on diesel to lower the transport costs of all crops.
c. Malawi farmers need to be better protected from fluctuating international market prices if there is to be a shift over time away from tobacco towards a more diversified crop base. Malawi smallholders do respond to prices, but often in such numbers that you have fluctuating over-supply and under-supply of cash crops. Supporting contract farming
d. Subsidizing irrigation technologies, such as groundwater pumps, may be considered in tandem with agricultural inputs.
e. Malawi’s land-locked status is also widely documented, but its isolation is exacerbated by its poor international flight connections. There has in the past been some interest shown by European airlines of introducing direct flights. While the UK government may not be able to directly influence that decision, it can reopen dialogue with the airlines and support the Malawi government in putting in place a strategy that boosts visitor numbers to a point where such a flight becomes a commercially attractive proposition.
f. As a tourism destination, Malawi and the neighbouring South Luangwa National Park in Zambia have enormous potential. At present, poor lake transportation and Bilharzia deter tourists: international verification of ‘Bilharzia free-zones’, and support of lake infrastructure could improve costs of transporting goods and tourists on the lake.
7. For the Malawi government to lead such an economic transformation will require policy leadership from the Ministry of Finance and Planning. This Ministry has been in a perpetual reform process for the past 20 years with experimentation in a large number of big-ticket initiatives (program based-budgeting, medium term expenditure frameworks, complex econometric modelling) designed to modernize the Ministry. These reforms have been developed despite the fact that senior official still lack basic, timely and accurate management reports on government’s fiscal and economic performance.
8. Renewed support in making the government integrated financial management account system work and increased donor usage of the system with their own resources would be a step forward in terms of monitoring fiscal performance.
9. National statistics have also lost all credibility and need to be rebuilt and independently verified if the economy is to be better understood.
10. More generally, in public financial management reform the UK government should place less focus on the reform process and greater emphasis on the quality of analytical output produced by the Ministry.
11. As a final point, governance reform has in the past often been used to support punishment of previous political enemies, rather than holding existing regimes to account. On a couple of points, the new President has gone outside of the constitution and there hasn’t been any explicit donor criticism of this (though perhaps there is behind closed doors). This includes firing people from key positions (which she doesn't technically have the power to do) and section 65 (which says MPs can't change parties without a by-election). Whilst ignoring these rules has led to good outcomes in the short-term, if the UK government donors want checks and balances to constrain bad presidents, they should also encourage them to constrain good presidents.