* Yes, all things being equal that’s the way to move if we want to develop—Kapito
* While it might have worked in South Africa, it’s quite hard to think that such a model can work successfully in a different country
* With different economic systems and challenges — especially the financing part
* During Dr. Banda’s rule, the economic model was completely different than what we have today
* Dr. Banda was subsidizing every industry — education, transportation, telecommunication — almost everything
By Duncan Mlanjira
Consumer Association of Malawi (CAMA) Executive Director, John Kapito agrees to the suggestion made by South Africa-based seasoned economist, Chifipa Mhango who proposes that Malawi Government should revive the defunct Malawi Development Corporation (MDC) as a vehicle for industrial financing through direct lending and equity participation with international partners.
“Yes, all things being equal that’s the way to move if we want to develop,” Kapito said, while agreeing with Mhango that the revived government corporation should be completely independent of government interference.
In his proposal to the Office of the President and Vice-President — copied to Principal Secretary to the Office of the President and Cabinet; Minister of Finance; Minister of Trade and Industry and the Malawi media — Mhango gave an example of his host country when it was under economic sanctions during the apartheid era, in which it was forced to create an local industrialisation as a substitute to importation of goods.
He said during the period under sanctions, the government created the Industrial Development Corporation (IDC) to support the creation of industries in South Africa for self reliance against sanctions.
Mhango, who is revered in his host country for his economic contributions there, offers these thoughts following the current mess on what is now named Fertilizer Gate scandal — saying Malawi’s model of importing fertilizer should be replaced by a key massive investment locally through participation of MDC and international partners.
Mhango has worked for the IDC of South Africa for over 10 years and maintains that the MDC model “is a perfect link to addressing the mess that is occurring in Malawi and how we can have a long-term solution”.
In an interview, Kapito — while agreeing with the suggestion as the way forward — says Malawi might struggle to create such an economic environment.
“While it might have worked in South Africa, it’s quite hard to think that such a model can work successfully in a different country with different economic systems and challenges — especially the financing part.
“During Dr. Banda’s rule, the economic model was completely different than what we have today. Dr. Banda was subsidizing every industry — education, transportation, telecommunication — almost everything.
“The model of the economy at that time would manage to do that, I doubt if that can be replicated today. But let’s wait and see how it develops by involving the general public in reviving MDC.”
Kapito said one other challenge is that during the old MDC, their was “cheap money available to use, unlike today where the cost of money is very expensive for investments to take — hoping that such a model will have cheap money with low interest and longer repayment period”.
He, however, was of the belief that such a model should have secure governance away from government interference and to be independently audited, whose end of year financial results to be shared to the public.
In his proposal, Mhango maintains that with the right personnel managing it, and no political cohorts involvement — even at Board level — the revival of MDC can be “a key Government vehicle to support the industrialisation and infrastructure development as a direct local lender and also equity participant in some key projects — with international private or public sector corporation”.
He stressed that current scandal around the Fertilizer Gate and the challenges around the entire fertilizer subsidy should be an eye opener to the whole country, saying Malawi cannot continue under the current path in its fertilizer importation.
He also proposes that Malawi should “as a matter of urgency have a short term implementation for the attraction of investment for fertilizer manufacturing plants, where MDC should be an equity partner, as that will soften the approach and willingness of an international partner, being a strategic raw material investment for the agriculture sector”.
“The process to identifying the investment partner should also never be politicised, with preference being an already African established producer.
“Malawi is losing a lot of forex annually through the importation of fertilizer, and if current scandals in the procurement are to go by, then this is a matter of urgency as a strategic investment for the country.
“Although Malawi is classified as an agricultural based economy, some products within this sector are still being imported from countries such as South Africa, and these include potatoes, eggs among others.
“To make it worse, Malawi has not even developed the capacity to support even its own key sector of the economy i.e. agriculture with the creation of enough capacity to supply the nation with its own fertilizer, and situation that is worsening.”
Mhango stresses that “no country can have political stability under an environment of food insecurity. The reliance on importation of fertilizer is no longer a conducive model, especially with the politicisation of its distribution and inefficiencies in procurement and the governance model around identification of suppliers as the recent cases have exposed.”
Based on daily media stories and activities being reported through social media, and also based on economic data around Government spending patterns, Mhango believes that “it is very clear that if the country can deal with these elements drastically, inroads can be made towards progressing the industrial development of Malawi, through the mobilisation of the limited currently wasted financial resources”.
Minister of Finance & Economic Affairs, Sosten Gwengwe told the media last August that the Government has plans to revive MDC to promote what he said was its interventions in businesses and promote production.
MDC was a fully government-owned and controlled profit-oriented entity, that was established in 1964 but became defunct in 2000 during President Bakili Muluzi’s administration and Gwengwe said the death of corporations such as the MDC has exposed the economy to myriad shocks and disruptions in the production and supply chains — citing closure of Peoples Trading Centre (PTC) as an example of an entity in which the state cannot directly intervene as does not have such mandate.
He is quoted by Times Group as saying: “A government must be able to intervene and if a government cannot intervene, it is a weak government but you would know that since the dawn of multiparty, we moved from intervention to liberalisation — which has failed our country.”
He further said revival of MDC “can be a carrier of equity into various companies that if we need to intervene, government must be able to intervene especially when our people are in an awkward situation”.
MDC was being financed by Agricultural Development and Marketing Corporation (Admarc), which was mobilising resources and channelling them to MDC towards investments.
The investments of the corporation saw the birth of many companies including the Commercial Bank of Malawi, Sugar Corporation of Malawi, United Transport of Malawi (UTM), which died due to privatisation under Bakili Muluzi administration.
Last week, National Planning Commission (NPC) said the prevailing multiple challenges of forex shortages, fiscal deficit and unsustainable debt are a result of inadequate levels of entrepreneurship to generate the forex and taxes with which government can retire its debt and support the social services sustainably.
At the fiscal incentives for entrepreneurship workshop, which the NPC organized in collaboration with the Reserve Bank of Malawi (RBM), Director General, Thomas Chataghalala Munthali challenged the youth in Malawi to take entrepreneurship seriously, assuring that government will trail-braze investments in the economic sectors and open up opportunities for the youth.
He had said without a vibrant and meaningful entrepreneurship base that can generate forex or save the forex reserves, Malawi will continue having government relying on debts – which are unsustainable.
“One important area for entrepreneurship is mega farms and maximizing productivity on small pieces of land,” he said. “We need to have our irrigable land increase to 60% from current 29% while share of agriculture exports other than tobacco move from below 40% to 60%, and land under commercial agriculture move from 16% to 40% by 2030,” he said.