President Peter Mutharika came into government in May 2014 amid the storm of systematic theft of public funds in a scandal dubbed Cashgate and general economic meltdown.
We have never been in denial because you don’t solve a problem by denying it. But the challenges of fighting corruption in Malawi are three-fold.
First, there came a point when corruption was becoming a culture, being accepted as the normal way of doing things. I came in at the climax of this growing culture.
This climax which was symbolized by the infamous Cashgate – the worst plunder of any African country known, sanctioned by the highest authorities.
When you fight a culture, it is your own people that you fight. And it takes a process to reverse a culture while our citizens demand conclusive solutions now or never.
The second challenge is that when you fight corruption, corruption fights back. You fight people who have stolen money enough to sponsor a war against you. In our case, the most vicious PR machinery was unleashed to make my Government look like more corrupt than the most corrupt of them all.
The third challenge is politicization of corruption. While Government accepts the presence of the problem, many institutions, including the church, the media and the Opposition are in denial. Some people believe that corruption is for politicians and Government officials.
They believe they are not part of the problem. The Opposition makes it a political agenda for fighting Government. They exaggerate the perception of corruption to make the people believe that they are holier than us. What follows is finger-pointing. In short, politicization of corruption defeats the very collective acceptance needed for a collective fight.
The full speech can be found here
Due to Cashgate donors had withdrawn budgetary support.
Inflation rate was at around 30 percent and the highest in the region.
The policy rate of the Reserve Bank was at 25.00 percent while commercial banks’ deposit and savings rates were at 37.13 percent.
Economic growth was sluggish, averaging 2.8 percent.
There was very low confidence in the economy.
FLOODS IN 2015
While still suffering the effects of Cashgate which occurred in 2013, in January 2015, just 7 months into Mutharika’s administration, Malawi suffered the most devastating floods in decades.
More than 1.1 million people were affected by the disaster that affected 15 of the country’s 28 districts.
The floods exacted heavy damage to housing, education, health, road and energy infrastructure and agriculture.
Malawi’s economy is agriculture based and the sector registered biggest economic losses due to losses in crop production.
The floods led to a general deterioration of government’s fiscal position. It threatened to push many households in the affected districts further into poverty as a result of loss of assets and livelihoods.
The total damage and loss was valued at US$335 million while the total cost of recovery and reconstruction was at US$494 million.
On the back of the 2015 floods, Malawi’s agricultural season for the 2015/2016 suffered from a prolonged drought.
Up to 23 of Malawi’s 28 districts were badly affected by the dry spell. Agriculture production suffered significantly.
Maize production fell below the national food requirement. Up 8 million out of the 18 million population needed food relief between August 2016 and April 2017.
Over the period of the two years of the disasters, the economy only attained a real GDP growth rate of 2.7 percent.
REFORMS AND RECOVERY
Amid all these crises President Mutharika has been single-minded on fixing the economy as the best way to foster socio-economic development and eradicating poverty in Malawi.
To begin with he instituted Public Finance Management Reforms to prevent systematic abuse of public funds as it happened with Cashgate in 2013.
Under the reforms, government has managed to strengthen the Integrated Finance Management Information System (IFMIS) by introducing a number of controls which have contributed to reclaiming public and donor confidence.
Government has procured a new IFMIS software which is top of the range and more robust. It comes with network infrastructure that will reach all public offices across the country.
Processing of all government transactions will be real-time.
From July 2018, government will no longer be using cheques for payment; it will be using electronic funds transfer, a big step towards ending abuse of public resources.
From July 2018, major government information systems will be interfaced. This will include IFMIS, Human Resource Management Information System (HRMIS) and Reserve Bank’s System. All ghost workers will be flushed out of the public service systems.
Under this reform measure, Malawi is the first country in the region to institutionalize a fully-fledged Information Security Department within IFMIS. This is after learning it the hard way from the Cashgate experience.
One of the areas government had not been doing well in is that of bank reconciliation for government accounts. This is now history. All accounts were comprehensively reconciled and now government is doing daily reconciliation.
In commitment to the implementation of prudent fiscal and monetary policies, government has ensured control in public expenditure through a number of sustained austerity measures.
Implementation of tax reforms and improvements in tax administration system has resulted in good performance in domestic revenue mobilization.
To control public debt, government has been strengthening debt management practices through adherence to public debt policies and medium term debt strategies.
The initiatives are aimed at reducing the deficit to levels below internationally acceptable thresholds. Government expects that this will reduce pressure on domestic borrowing and interest rates.
The Mutharika administration has also implemented financial sector reforms. It has enacted legislation that is aimed at strengthening the legal and regulatory framework as well as the infrastructure of the financial system.
These include the enactment of the Payment Systems Act, 2016 and the Financial Crimes Act, 2017.
REFORMS PAYING OFF
These reforms are helping Malawi to regain donor confidence.
The World Bank was first to return with budgetary support for the 2017/18 financial year.
The International Monetary Fund has consistently given Malawi positive reviews over the past three years.
There is a flurry of donor support in areas of social and economic infrastructure development.
The macro-economic indicators are responding. The economy is projected to grow by not less than 5 percent in 2018, although this could be threatened by food shortage as a result of a prolonged dry spell and crop invasion by fall armyworms.
Inflation has been progressively declining and closed the year 2017 at 7.7 percent. It was at 20 percent in December 2016.
The December 2017 inflation rate beat expectations as earlier projections indicated Malawi could only achieve single digit inflation by end of 2018.
In December 2017, the Reserve Bank of Malawi announced a reduction in policy rate from 18 percent to 16 percent
The value of the local currency has been stable against major trading currencies for more than two years now.
Malawi’s forex reserves have risen to a historical 5 months of import cover, above the international requirement of 3 months.
The private sector is also reaping the rewards.
For the first time in its history, the Malawi stock market registered a double turnover in 2017 over 2016 turnover, citing a stable exchange rate, the declining inflation rate and decreasing interest rate as having created ‘a favourable environment for business prosperity and sound performance of the stock market
Most of the companies listed on the stock market indicated good performance in their end of 2017 trading statements.
For instance, profit for conglomerate Press Corporation Limited grew by 90 percent in 2017 over their profit in 2016.
Malawi Property Investment Company (MPICO) registered a 100 per cent profit growth in 2017.
Mobile phone service provider Telekom Networks Malawi (TNM) registered a 60 per cent profit growth.
Malawi has a serious challenge with energy. Persistent power shortages are retrogressive to private sector investment and economic growth.
With only 361 megawatts of total installed capacity, there is huge deficit for power in Malawi.
President Mutharika is undertaking defining measures to reform a sector that has suffered neglect for more than 50 years.
Among the steps, government has liberalised the energy sector allowing Independent Power Producers to invest. This is aimed at diversifying sources of power. Currently 95 percent of electricity in Malawi is hydro-based.
The Millenium Challenge Corporation is assisting Malawi to rehabilitate and modernize Malawi’s aged hydro-power stations and increasing the carrying capacity of the transmisson lines.
In the power sector reform plan, within five years, Malawi will be generating over 1400 megawatts of coal fired power; about 700 megawatts of hydropower; and 70 megawatts of solar energy.
Malawi is also connecting to the SADC power pool.
GREEN BELT INITIATIVE
To avert recurrent food shortages and unleash industrial agricultural production in Malawi, government is implementing the Green Belt Initiative.
Under the initiative, government will utilize its vast water resources and embark on large scale irrigation agriculture.
In 2017, government established the
Green Belt Initiative Authority Bill to champion commercial irrigation farming in Malawi.
The authority has been established to change the pace, the direction and strengthen strategic oversight and coordination of commercial irrigation farming across the country.
Already, some Green Belt Initiative activities have gone into production and export. These include Malawi Mangoes and Salima Sugar Company in Salima.
With support from the World Bank and the African Development Bank, government has started implementing the Shire Valley Irrigation Project which aims at developing 43, 000 hectares of irrigable land in the Lower Shire valley.
More than 100,000 households will directly benefit from the project by growing high value crops in keeping with the country’s export strategy.
In his State of the Nation Address in 2017, Mutharika explained why Malawi has remained in poverty:
The structure of the economy has not been ready for growth;
Malawi did not invest in expanding and diversifying energy production to serve the growing population and meet the demand of a growing industry;
There has been no investment to expand water systems;
Road network was confined to connecting towns and cities instead of rural areas where 85 percent of the country’ population lives; and
Malawi has not invested in skills for youths.
President Mutharika’s dream is to make Malawi a big and vibrant economy that creates jobs, make Malawi a producing and exporting nation and improve lives of Malawians.