By Farai Chigaru
Malawi’s economy can be fragmented based on the endowments it has — from the fresh waters that habours the tasty fish to the natural resources such as minerals among others.
The beautiful weather that beckons good harvests every year can be another advantage for agricultural success.
Apart from the natural resources and the pleasant weather, the country is labour abundant — thus from unskilled to skilled labour with the former being in multitude.
For a country like Malawi to develop, it has to go through three stages of development endogenous to its factor endowment.
New Structural Economics (NSE) provides an explanation to this lack of economic growth in most developing countries. NSE explains that countries failed to develop because they adopted industries that were against their comparative advantage.
NSE therefore prescribes countries to adopt industries that align to their comparative advantage, which is endogenous to their factor endowment.
A comparative advantage is determined by looking at a country’s factor endowment, which then determines which factor the country has in abundance — depicting which industries the countries should adopt: labour intensive industries; capital intensive industries; or resource intensive industries.
The following are examples of countries that followed their comparative advantage based on their factor endowment:
1) Qatar, Luxemburg and Singapore followed their comparative advantage and selected and developed industries that reflected their evolving factor endowments. They started their development by exploiting their geographic location (Luxemburg and Singapore) or their natural resources (Qatar);
2) United States, Great Britain and Japan exploited their labour intensive industries.
An economy is based firstly on labour intensive industries; secondly on capital intensive industries and finally based on knowledge based industries.
Several economic reports including the World Bank indicate that Malawi is a labour abundant country and this requires labour intensive industries. Malawi’s economy is largely driven by agriculture which is labour intensive (requires more labour relative to capital).
It is imperative therefore to humble ourselves as a country and focus on the industries contingent to our level of development and slowly climb up the ladder.
From 1949 to 2008, the countries that managed to move from low income to high income levels, were the ones that focused on industries that followed their comparative advantage.
Such countries are South Korea, Taiwan and the mainland China. From World War II, however, many countries were overly ambitious and adopted capital intensive industries which were nonviable on the international market and required government support through subsidies.
In the 1980’s however, with the incoming in of the Washington consensus, which emphasized liberalization and no government intervention (no more subsidies), these firms died a natural death; we threw away the baby together with the water.
These firms died because they were capital intensive and which is against Malawi’s factor endowment.
On the contrary, these industries do survive in developed countries because these countries are capital abundant and are suitable for capital intensive industries.
Thus to say, one size does not fit all, and every country requires a comprehensive analysis of its factor endowment to be able to determine which industries align with their comparative advantage.
As established that Malawi is capital poor, laws of supply and demand imply that capital is relatively expensive and therefore our firms cannot be viable on international market competing with firms from countries with relatively higher capital.
Malawi can, however, compete internationally if we follow labour intensive industries — as our labour is high in supply, and according to basic demand and supply laws, the labour is relatively cheap. This is the only way we can viably compete internationally.
An analogy to this would be individuals adopting a lifestyle dependent on their income levels. Adopting a lifestyle of an individual that is extremely richer, will misguide your path to success.
However, selecting a realistic benchmark lifestyle dependent on your income will provide pragmatic guidance to success, seeing as you are in a similar tax bracket.
Malawi as a country needs to avoid living like the Joneses, we need to identify our factor endowment and what we are good at; and therefore consume and adopt a strategy that is consistent to our “income levels” which in economics is our GDP; level of development.
Since post WWII, Malawi adopted a lifestyle of developed economies where through import substitution, tried to develop firms that could ‘substitute’ the imports and make us produce goods locally.
However, this ‘lifestyle’ was not within our ‘means’, and therefore have failed to develop and these firms have died. However, the countries we copied from are still surviving; as explained, this is because at that time, Malawi was labour abundant (capital poor) but we followed strategies of capital abundant countries.
New Structural Economics prescribes countries to align their firms in industries that follow their comparative advantage, and to avoid industries that are against their comparative advantage.
Malawi is labour intensive and thus we have a comparative advantage in labour intensive industries. As a country therefore, for the growth of our economy and job creation, we need to focus on labour intensive industries; while avoiding capital intensive and resource intensive industries.
In conclusion, with labor abundance therefore, it is imperative for Malawi to align its resources to labor intensive industries; which will develop quick wins and increase the country’s chances of catching up with the developed countries, following the ‘flying geese’ pattern of development.—The author is a PhD candidate at Peking University, China (Feedback: email@example.com)