The business challenges

The Malawi economy remains extremely dependent on international aid, as relations with donors have become complicated following the embezzlement scandal in which the government was embroiled in October 2013, warns credit insurer Coface. In providing a look at the market earlier this year, it said the country is still dogged by past problems including the drought of 2015-2016 and the corruption scandal in 2013. It also faces a high cost of living, and the inadequacies of governance and public services have led to discontentment and fears of the permanency of the political and social fragility. Coface warned: “This latter, combined with the lack of a parliamentary majority for the ruling coalition, will continue to hinder the implementation of major economic reforms. In addition, the scale of the food insecurity linked with the droughts of the last two years represents a new risk factor for social disturbances.” Political risk across the continent is high and Malawi is no exception. “The dialogue between the president and the leading international partners does not always run smoothly. Corruption scandals have increased worries at the International Monetary Fund (IMF) concerning the management of the public finances and it froze its budget aid programme in 2015,” reported Coface. However, in the last month the World Bank has approved $166m to transform Malawi’s agricultural productivity through irrigation, lay the foundations for commercialisation and improve management of natural resources in the Shire Valley. The financing is for the first phase of the Shire Valley Transformation Program (SVTP-I). The whole programme, which will cover the Chikwawa – Nsanje areas of the Shire Valley, is scheduled to have three phases over a 14-year period (2017-2031). It will provide irrigation to more than 40,000 hectares by gravity water delivery, eliminating the need for electricity for pumping water from the Shire River. The programme will boost agricultural production, provide drinking water services, improve sustainable management of natural resources including wetlands and protected areas, while enhancing tourism potential. Coface also warned: “Relations with Tanzania remain tense because of the disagreement over the Lake Malawi borders. Tensions along the border with Mozambique also re-emerged in 2016. The clashes in Mozambique between the Mozambican army and RENAMO rebel movement have led to a mass exodus of the local population into Malawi.” On the more positive side, the government is working to attract private investors. “This,” said Coface, “includes reforms to the electricity sector. In June 2016, parliament approved an amendment, the final objective of which is to restrict the publicly-owned electricity company to a power distribution role, with the generation being hived off to new entities. “In addition, progress has also been made in terms of obtaining loans and in setting up companies. The business climate will however remain weak: the country is in 133rd place out of 190 countries in World Bank’s 2017 Doing Business Index,” Coface added.

The business challenges

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