Page 6 - DMA Malawi Report 2013

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4
Investing In Malawi
2013
A
fter years of economic
turmoil,
Malawi’s
prospects have changed for
the better. The unexpected
transition of power in the capital
Lilongwe in April 2012 offers real
hope for the country and its 16 million
citizens. The new government led by
President Joyce Banda has embarked
on an ambitious programme of reform
that has the potential to reset the
country’s economic outlook. The
reform programme seeks to address
macroeconomic and structural challenges
in order to facilitate a rebalancing of the
Malawian economy – a major task but
the signs are promising. The devaluation
of the local currency, transition to market
based foreign exchange system, lifting of
price controls and effor ts to diversify
are star ting to bear fruit. Following a
rocky couple of years, the International
Monetary Fund (IMF) now predicts real
GDP growth will reach 5.7% in 2013 and
maintain average per annum growth of
6.7% through to 2017 – both above the
average for sub-Saharan African.
A Vulnerable
Starting Point
On the surface, Malawi’s economic
performance over the last decade
has also been encouraging. Growth
averaged 6% per annum over the
period from 2004 to 2011. Agriculture
has performed well and new mining
projects have come online to boost GDP.
Indeed, Malawi outstripped sub-Saharan
African growth in the four years
between 2008 and 2011. While the
country’s recent performance has been
impressive, growth has not been broad
based and has been built on vulnerable
sectors. In fact, growth was, in par t,
predicated on debt relief through
the Heavily Indebted Poor Countries
(HIPC) initiative.
Furthermore, despite growth, Malawi
remains in a vulnerable position. Overly
reliant on agriculture and foreign aid,
the landlocked country is susceptible
to the whim of mother nature, global
commodity prices and international
donors. Agriculture has long been the
backbone of the Malawian economy.
80% of the population are engaged in
the agricultural sector, which accounts for
82.5% of export earnings but less than
40% of GDP.Tobacco is the country’s main
export commodity, accounting for a half of
export earnings on its own. And this has
its risks – take 2010 and 2011; growth fell
sharply in 2010 to 6.5% from 9% in 2009
after a poor harvest. In 2011, growth was
estimated to have fallen further to 4.3%. In
2011 Malawi was hit by problems with the
IMF Extended Credit Facility programme
that led to reduced donor inflows, foreign
exchange difficulties and shortages of
essential commodities such as fuel and
inputs for manufacturing.The situation was
E
conomic
O
verview
Economic Overview
by Jonathan Levack