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Economics and Business in Malawi

According to countryaah, Malawi is one of Africa's least economically developed countries, with widespread poverty and major social and economic problems, due in part to a weak business structure with high import needs in most areas and the consequences of the HIV/AIDS epidemic. In 2010, the country was ranked 153 out of 169 countries on the UN index for "human development". The London-based Legatum Prosperity Index placed Malawi in 118th place in the fall of 2014, down twelve places from the previous year. The index measures, among other things, economic growth, inflation, unemployment, degree of good governance, educational level and health services. According to the World Bank, Malawi's gross national income was US $ 300 in 2016 - among the lowest in Africa, and just under 0.4 percent of Norway's GNI that year.

Business and Economy of Malawi

The country is located on the African continent and has suffered from the colonial period from costly transport linked to its foreign trade. As a result, the established plantation operation does not have the same profitability and scale as in other settler colonies such as Kenya and Rhodesia. At the same time, Malawi has fertile soil and has at times been able to increase exports from agriculture, especially in the 1970s and partly in the 1980s when the country was portrayed as an economic success under the conservative regime of President Hastings Banda. The country's economy is to a large extent based on rain-dependent and uniform agriculture, vulnerable to both climate fluctuations, loss of labor and price fluctuations on export products. The latter is particularly true of tobacco which alone accounts for over half of total export revenue.

The international financial crisis helped cut tobacco prices from 2010 to 2011, which has tightened the relationship between the country's authorities and foreign purchasers, who in many cases have been expelled from Malawi after being accused of using the financial crisis as a pretext to offer unreasonably low prices prices of tobacco.

A key feature of Malawian agriculture has been the skewed distribution of land that originated from the colonial era - and furthermore an equally uneven social and economic development among the population. Lake Malawi provides the basis for extensive fishing and tourism. Malawi has several well-known mineral deposits, but few are suitable for commercial recovery. Few export goods contribute to a significant trade deficit that nearly doubled from 2009 to 2010. Significant agricultural performance since 2006 has halved inflation, which has stabilized around eight per cent in recent years. The authorities' main challenge is to strengthen the export volume, which accounts for only about 60 percent of imports, but this is no small task in a situation where the export potential is limited. Especially for the many people who gradually move to the cities, the situation becomes difficult when they cannot feed within the framework of an agricultural economy.

With the introduction of a multiparty system in the early 1990s, the economy has also been reformed - partly through a reduction in the state's strong ownership and commitment to economic life; much of the economy was directly or indirectly controlled by former President Banda and his associates. Prior to this, in the 1980s, Malawi, following instructions from the World Bank, implemented a so-called structural adjustment program- after an economic crisis in the late 1970s. A new economic strategy was launched from 1999. Malawi has not been directly involved in the wars in the region and pledged links with the Portuguese colonial power in neighboring Mozambique rather than supporting the liberation movement. In the 1980s, the civil war in Mozambique threatened to close Malawi's main transport route to the outside world, the Nacala railway. In the 1980s and 1990s, Malawi was repeatedly hit by severe drought, and again in 2005.

Malawi relies on foreign aid, which is mainly received through multilateral channels as well as bilaterally, mainly from the United Kingdom, the United States, Germany, Norway, Japan, Ireland and - increasingly - from China. Iceland and Finland also provide assistance to Malawi, while Denmark towards the end of the 1990s ended a significant and long-standing partnership with the country. Malawi was made the main partner country for Norwegian aid in 1996, and from that time Norway established an embassy in the capital Lilongwe. The concept of "main partner country" has been gradually phased out, and in the state budget for 2015 the term has been replaced by "focus country". The government has included Malawi among the 12 countries made into so-called focus countries.

Since 2011, various countries' assistance to Malawi has been significantly reduced as a result of extensive corruption and the misappropriation of public funds, commonly referred to as the "cashgate". This development, together with the international recession and major devastation in Malawian agriculture as a result of flooding southeast of the country in the New Year 2015, has worsened living conditions for large population groups.

Based on the above, it has been important events for Malawi to enter into financial agreements with three key international organizations in 2015. In March this year, the International Monetary Fund (IMF) resumed its credit to Malawi - with $ 20 million. In May 2015, Malawi and the EU signed a € 560 million aid agreement, linked to the National Indicative Program (NIP), and lasting until 2020. Priority sectors for EU support are good governance, sustainable agriculture and higher education/vocational training. The EU contribution is funded by the member countries of the European Development Fund (EDF), which is earmarked for development cooperation with countries in Africa, the Caribbean and the Pacific.

The above support has been important, but did not prevent Malawi's finance minister in September 2016 declaring the country's financial situation as "catastrophic". The backdrop that the government's target for the country's economic growth to increase from 3.1 per cent in 2015 to 5.1 per cent in 2016 seems to have failed. Growth for 2016 is hardly above three per cent, and the situation becomes dramatic when inflation for the same year is likely to be in the order of 20 per cent due to food shortages, increased prices for maize and the effects of El Nino. The authorities are seeking to mitigate the effects of the latter by importing more than one million tonnes of maize from Ukraine, but this in turn will weaken the country's supply of foreign capital.

In the financially stressed situation, it was of great importance to Malawi that in May 2017, the World Bank, citing economic reforms in the country, announced that in the 2017/18 financial year, the bank will resume its budget support for the country. This type of support has been frozen for four years after extensive corruption was discovered in several ministries (Ref. Cashgate), and the World Bank and several donors, including Norway, have had significant negative consequences for health, agriculture and education. In the first instance, the World Bank's budget support will be about NOK 680 million, and will mainly benefit agriculture, Malawi's most important economic sector. The Malawi authorities are hopeful that the bank's initiative will help the ordinary,

Agriculture, forestry, fishing

Malawi is, above all, an agricultural country and one of the few African countries that are normally self-sufficient in foodstuffs and which have at times had surpluses for exports - in addition to export goods such as tobacco and sugar. Malawi has good natural conditions for agriculture and forestry - as well as for fishing. About a quarter of the country's land is cultivated or arable land, while about a fifth is used for grazing. About 80 per cent of the arable land is divided into small farms, while only a small proportion are large farms (plantations), partly run by Europeans. About 40 per cent of GDP is created in agriculture, which employs three out of four within the working population. Over four fifths of production comes from small users. While widespread drought in 2004-2005 contributed to GDP growth of more than two per cent, political interventions together with subsidized fertilizers have in recent years contributed to a growth rate in the order of 6–8 per cent.

The most important food crops are maize, millet, cassava and beans grown by traditional methods, often without fertilization.

In the highland plantations, especially tea, refined tobacco varieties and some coffee are grown, while other tobacco is mostly grown on small farms in the plains of the central and southern regions. Here cotton and peanuts (peanut) are also grown for sale. Sugarcane is grown, among other things, in the lower lying parts of the Shire valley.

Animal husbandry, especially goat, cattle, pig and sheep, is run in several parts of the country, and the country is self-sufficient with meat and milk. Nevertheless, from a nutritional point of view, there is a desire to increase the population's consumption of milk. The country's approximately 10,000 dairy cows (as of 2012), are not able to meet such a target, and increased aid from the US after the change of power in the country in the spring of 2012 was therefore earmarked for increased milk production. By far, the most important commercial product is tobacco, which accounts for about three-quarters of Malawi's total export revenue. Sugar, tea and coffee are exported; in good years also corn - as well as some cassava, rice, cotton and sunflower seeds. The production of high quality peanuts is another export item, and the focus is on export-oriented production of fruits, vegetables and flowers. Malawi is also affected by drought for years, which not least reduces the crops of the most important corn crop, and the country then relies on food aid from outside.

As a counter to the country's drought problems, floods and floods at times create major problems for the people of Malawi. Conditions became extreme in January 2015 when the authorities had to declare large parts of the southeastern parts of the country as disaster areas. About 170 people perished in the masses, and according to the UN, 350,000 residents had to leave their homelands and settle in tent camps that were established. The UN also determined that 1.2 million Malaysians were directly and indirectly affected by the agricultural collapse, of which 80 per cent of the country's population is dependent. At the end of 2015, the World Food Program (WFP) provided emergency relief, mainly in the form of food supplies, to nearly three million Malaysians.

In the fall of 2017, the World Bank Board approved a comprehensive aid program for the agricultural sector in Malawi. A total of $ 166 million will be invested in irrigation and other agricultural infrastructure through three phases until 2031. Particular emphasis will be placed on modernization and commercialization of small-scale farming in the potentially fertile Shire area south-east of the country. Besides increased crops, improved food security, improved economy and a more stable water supply, investments in wetland areas and physical infrastructure will promote tourism in the area.

Forestry has been developed from the 1970s, including eucalyptus plantations, but is of little commercial value - and goes largely to fuel, in the form of charcoal. Poor management and often poor security contribute to extensive illegal deforestation.

Fishing is of great nutritional importance and is also important for employment; an estimated 250,000 people are employed in the sector. About half of the large Malawi lake (formerly Nyasa Lake) is currently disposed of by Malawi, where most of the fishing takes place - essentially at the southern end. The Malawian authorities have long wanted to formalize ownership of the entire Lake Malawi, something Tanzania opposes. According to the government of Dar es Salam, half the lake belongs to Tanzania. After the conflict has been muted for a few years, the disagreement was sharpened in the New Year 2013 as the authorities in Malawi made a push to get their territorial claims legally legitimate once and for all. It was agreed that Mozambique's former president Joaquim Chissano will mediate between the two countries. If this does not lead to agreement, the dispute shall be decided by international judgment. When the disagreement over the delegation of the Malawi lake has flared again, this is partly because the Malawi government in 2012 allowed the British company Surestream Petroleum to conduct an environmental-related feasibility study that could lead to oil and gas exploration in the sea.

In addition, there is considerable fishing in the Malombe and Chilwa lakes as well as in the Shire River. There are over 500 different species of fish in Lake Malawi, but catches both there and in other lakes have declined since the mid-1990s, largely due to overfishing and pollution. Poor years in agriculture increase the pressure on fishery resources as a food source. The commercially most important fish species is tilapia, a fish that resembles bream.

Mining, energy

Malawi, like other countries in central/southern Africa, has deposits of several minerals, but unlike in several neighboring countries, these are not commercially exploited, especially due to the size of the deposits and the location of Malawi, with expensive transport. Occurrences of more than 20 minerals of commercial value have been identified, including coal, bauxite, uranium, phosphates, graphite, vermiculite (clay minerals), gold and gemstones, and asbestos. Of known occurrences, is limestone for use in the production of cement most utilized. The potentially most valuable mineral deposits are the bauxite reserves in the Mulanje area south of the country, but the recovery suffers from, among other things, expensive transport, both domestically and for export.

The Australian mining company Paladin Energy has been involved in the extraction of uranium north in Malawi since 2006. The company transports uranium from open mines in Malawi to its main plant in Namibia, from which uranium is transported to Canada, the United States and buyers in Asia. Paladin Energy has become one of the largest employers in Malawi in the short term, but the company has been given good terms, and as a result, the tax and tax revenues for the Malawian state have fallen short of what many had hoped for. In addition, the uranium business is environmentally contentious. Many fear that uranium dust and runoff will have a negative impact on the valuable Malawi lake, and when northern Malawi in December 2009 was hit by an earthquake, mining was blamed by many for the incident that cost three people's lives and caused great material damage to communities and the population.

After a period of low uranium prices and corresponding losses for Paladin Energy's mine north of Malawi, production was replaced by repair work and maintenance in May 2015. The company's management has announced that future uranium prices will decide if, and when, production will resume. At the same time, rumors have been rejected that the mine will be sold to Chinese interests.

The battle between the economy and the environment is also central when the Malawian authorities recently opened for oil and gas extraction in Lake Malawi, Africa's third largest lake. Fisheries and ecotourism advocates, along with environmentalists and others, have long warned about the government's plans for the sea, which are of great importance not only to nearby communities but to Malawi more generally. Both the government and the British oil company Surestream Petroleum, which have received the first licenses, emphasize that any exploration will be based on solid investigations of environmental consequences associated with oil and gas extraction.

The Malawian authorities announced in mid-December 2015 that oil and gas extraction will start in Lake Malawi "in a couple of months." The sea has been divided into six blocks for oil and gas exploration and since 2011 the government has given blocks to four companies; the British Surestream Petroleum, Sac Oil from South Africa, Pacific Oil Ghana and RAK Gas, a state-owned Cayman Island registered company from the United Arab Emirates. The latter allocation (of two blocks) took place just before the 2014 presidential election, and significant donations from the company to projects under the leadership of then-President Banda have triggered scrutiny of possible corruption.

The growing involvement in Lake Malawi is disputed, but the Ministry of Energy has assured the UN and environmental activists protesting the development that great emphasis will be placed on Malawi's obligations under international environmental conventions. At the same time, the above mentioned price drop on the country's uranium deposits, along with Malawi's urgent need for foreign investment and energy, has split domestic opinion. Many environmental activists have shown increasing understanding of the government's plans for Lake Malawi.

Another infrastructural limitation for the exploitation of mineral deposits and industrial development is the lack of electrical power. Installed capacity was around 300 MW in the early 2000s, increased to 351 MW as of January 2016, mostly from hydropower, some thermal and some from diesel-powered aggregates, including the north of the country. 75 per cent of the production comes from three power stations at the Shire River. Only about nine percent of the population in Malawi is connected to electrical power. Intention agreements have been signed with Mozambique on imports from the Cahora Bassa power plant in Zambezi, but poor political tone between Malawi and Mozambique has over the last couple of years stopped the implementation of energy plans that would benefit both countries greatly.

In the fall of 2016, China has expressed its willingness to assist Malawi in the energy sector as well, and so has the African Development Bank (AfDB). Profitability studies are underway in several Malawian rivers.

Another bright spot for business in Malawi is that in 2011, the country signed a cooperation agreement with a Brazilian company to improve and expand a fallow railway network east of the country. The aim is initially to transport coal from the Moatize mines in the Tete province of Mozambique through Malawi to the coastal town of Nacala in Mozambique. Of the more than 900 kilometers long train line, 136 kilometers pass through Malawi. The work on infrastructure was completed in 2014, and the plan was to approve the operating agreement for the company and start using the train line in early 2015 when other formalities would also be in place.

Transport by sea has also given Malawi problems. The country's only inland port, at Nsanje in the Shire River, received a grand inauguration in October 2010, but is still not in use. The port is intended to give Malawi a long-awaited connection to the Indian Ocean, while at the same time the port is expected to contribute to increased trade and other economic relations between Malawi, Mozambique, Rwanda, Tanzania and Zambia. The Government of Malawi has relied on support from the SADC, AU, EU and World Bank for the project, which will reduce Malawi's transport costs abroad by about 60 per cent.

But the use of the port requires permission to pass through Mozambican territory, and the authorities of Mozambique, which boycotted the formal inauguration of the port in the fall of 2010, have demanded that an impact assessment be carried out before they may allow boat traffic on the route.

A German consulting company, in collaboration with Afrikabanken, has investigated the economic, environmental and other consequences of planned boat traffic to Nsanje. The passage from the Indian Ocean towards Nsanje was on a smaller scale in use in the 1970s, but was discontinued as a result of the civil war in Mozambique. The consultancy report available late 2015 concluded that excavation of the river as well as the establishment and operation of the necessary infrastructure for some time in the future will require more than USD 100 million annually. In parallel with the investigative work, the authorities in Mozambique have given many signals that they will prioritize the development of the port of Beira rather than spending large funds on the upgrading of the road to Nsanje. Part of their justification has been estimates that show that the river road towards Nsanje in just five of the twelve months of the year can be used for commercial operation.

Industry

Malawi has a small industrial sector, which accounted for around 10 per cent of GDP in 2004, and is largely related to agriculture, with further processing of agricultural products such as tea and tobacco. Otherwise, there is some production of consumer goods for the domestic market such as cotton textiles, clothing, wood products, radios and food products. Blantyre and Lilongwe are the most important industrial centers. Many of the state-run industrial enterprises were privatized from the mid-1990s. A separate zone for export-oriented production was established in 1995, but Malawi has not succeeded in attracting investments of importance to the development of the industrial sector. This is partly due to a small domestic market and expensive transport for export.

Foreign Trade

The weak industrial scale, with an overweight on expensive exports of raw materials, together with underdeveloped tourism, contributes to Malawi's annual large trade deficit vis--vis abroad. The country therefore relies on international assistance, above all from the UK and the EU, besides the World Bank and the International Monetary Fund (IMF).. In recent years, Ireland and Germany have increased their assistance to Malawi, and after the Malawian authorities in 1997 broke off partner cooperation with Taiwan and allowed the People's Republic to take Taiwan's place, economic relations with China have greatly increased. China has completed road projects, (loaned) financed a new parliament building as well as a five-star hotel and a new football stadium in the capital. The formal inauguration of the latter took a tragic cut in 2017 when six people were trampled to death on the nation's national day, July 6. China will finance the coming years, among other things. new airport and a power plant, and here as with the aforementioned projects, it is expected that the investor will mainly employ Chinese workers. Some of the projects are gift-funded, in other cases these are long-term loans and significant debt obligations for Malawi. China's commitment to Malawi is part of the People's huge commitment to the continent in recent years. According to the UN organization UNCTAD, in 2015 China became the fourth most important investor country in Africa, after the US, the UK and France, and the extensive investment in Malawi has highlighted the potential China sees in Africa.

In 1996, Malawi became the main partner country for Norwegian development aid, and Norway established an embassy in Lilongwe from the same year. Until the late 1990s, Denmark was an important partner for Malawi.

The most important export items are tobacco, which for many years has accounted for around 75 per cent of export revenue, as well as tea and sugar. Findings of uranium north of the country are increasingly providing Malawi tax and export revenue. Imports include goods such as oil and fuel, transport equipment, pharmaceuticals, mineral fertilizers, machinery and finished goods. The EU is Malawi's largest trading partner, with almost a quarter of exports going to countries within the European Community. At the same time, the EU, including bilateral agreements, is the largest donor of aid to Malawi. In 2013, the assistance amounted to 80 million euros. Expected aid from the EU and its member countries is € 800 million for the years 2014-2020. Other important trading partners are South Africa, China, the United States, Zambia and Zimbabwe.

Transport and Communications

Malawi has a rail link with the port cities of Beira and Nacala in Mozambique. These handle most of the country's foreign trade. In the period 1982–1989, both of these lanes were closed due to sabotage and acts of war in Mozambique. The domestic rail network of 790 kilometers links, among other things, Blantyre and the capital Lilongwe and extends to the border with Zambia in the west. The state railway company was privatized in 1999, with subsequent upgrading of equipment. The road network is relatively well developed, approximately 28,500 kilometers away, with connection to Harare in Zimbabwe and Lusaka in Zambia. A 480 kilometer long main road follows the west bank of Lake Malawi. There is Lilongwe International Airport and three domestic airports; the former international airport in Blantyre is also used for regional departures. The most important port city is Chipoka on Lake Malawi.

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