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Malawi Overview
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Malawi
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Malawi Overview
Find out what the Bank Group's branches are doing in Malawi. IFC MIGA

Malawi Economy 2012

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In the last two years, Malawis economic growth has been slowing down from a peak of 9.7% in 2008 to a projection of less than three percent in 2012, way below Africas average projected growth of 4.8%. Foreign exchange shortages, fuel and electricity supply shortages continue to be constraints to the business environment, and the cost of living keeps going up. Headline inflation has been on the rise since the turn of the year, up to 25% in August 2012 from 10.3% in January 2012 compared to single digit figures in 2010. Since 2005, Malawi had enjoyed uninterrupted solid growth for five consecutive years averaging about seven percent, backed by sound economic policies and a supportive donor environment. But since 2010 the policy environment began to deteriorate resulting in acute economic problems. Poverty in Malawi continues to be above 50%, with a quarter of the population still ultra-poor. The 2010/11 Integrated Household Survey - which provides an update

Country Partnership Strategy Country Economic Memorandum Poverty Reduction Strategy Paper The World Bank in Africa Trade in Africa Report

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of the country's socio-economic situation, including indicators on poverty, education, health, and household enterprise - shows that the incidence of poverty as measured through the Headcount Index has declined slightly from 52.4% (in IHS 2 conducted in 2005) to 50.7% in IHS3 . The poverty levels for urban and rural areas declined from 25.4% to 17.3% and 55.9% to 56.6% respectively. In terms of ultra poverty, 24.5% of the population is in this category at the national level, and the corresponding proportions are 4.3% and 28.1% for urban and rural areas respectively. Income distribution, as measured through the Gini coefficient, has deteriorated from 0.39 in 2005 to 0.45 in 2011. Since May 2012, the government has been implementing tough but critical macro and structural reforms aimed at turning around the economy. These include devaluation of the local currency by close to 50 percent then allowing it to float. The economy however remains fragile, with further depreciation of the Kwacha triggering fluctuations in the prices of fuel. In addition to the reforms, the government has launched an 18 month Economic Recovery Plan (ERP) that focuses on a few priorities that are pro-growth, represent quick wins, and are highly effective. This plan stresses need for social protection programs (Farmer Input Support Program (FISP) and other assistance to small farmers, public works, school feeding, scholarships for girls, cash transfers) and identifies diversified commercial agriculture, tourism, energy, mining and infrastructure/Information Technology and

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Malawi Overview
Communications (ITC) as sectors that can help turn around the economy and provide the initial building blocks towards structural transformation, needed to successfully implement the Second Malawi Growth and Development Strategy (MDGSII.) The World Bank has provided urgent support to the economic recovery program through its Rapid Response Program for both social protection and budget support. Other development partners are also on schedule to provide budget support after the resumption of the International Monetary Fund (IMF) program that had gone off track in 2010. Although the role of the mineral sector in the economy is increasing with the Kayelekera uranium mine opened in 2009, agriculture still remains an important source of growth, and it can continue to be a significant driver of growth through regional exports and import substitution. While services contribute 33% to gross domestic product (GDP), these are services linked to the agriculture sector which contributes 28% of GDP and manufacturing and mining at 10 and two percent of GDP respectively. The country's export trade is dominated by tobacco, tea, cotton, coffee, and sugar. In 2012 tobacco production significantly decreased by more than 75% compared to 2011 (237,000 tons). Political Context President Mrs. Joyce Mtila Banda is Malawis 4th president since Malawi re-introduced the multiparty system in 1993.She replaced President Bingu wa Mutharika who succumbed to a cardiac arrest on April 5, 2012. The late Mutharika died in his second term of office. President Banda was the Vice President of Malawi having won as Mutharikas running mate in May 2009 under the Democratic Progressive Party (DPP). But in In 2010, she was fired from DPP for refusing to endorse the late presidents brother as successor to Mutharika. She subsequently formed her own party the Peoples Party (PP) in 2011. In April 2012, President Banda formed a Cabinet largely dominated by members who have previously served in a Mutharika cabinet. She also included all major opposition parties in her Cabinet. This move resulted in her getting overwhelming support in Parliament from the opposition. Her PP does not have an MP elected under the Partys ticket, but they were either fired from DPP or chose to support her when she became president. There has been a public outcry for the Speaker to invoke Section 65 of the Constitution that requires MPs who cross the floor to vacate their seats. In the last parliamentary poll held in May 2009, DPP scooped 60% of the 193 seats. About 17% went to independent candidates, leaving six political parties sharing the remaining 23%. A number of concerns over democratic governance issues have been resolved under the Banda administration. These include repealing laws that were disrespecting human rights and freedoms enshrined in the Constitution as detailed in a 20-point petition presented to the Mutharika administration in July 2011. Malawi is due to hold elections in 2014 and the plan is to have tripartite elections (presidential, parliamentary, and local government.)The country has operated without local councilors since 2005. Development Challenges Malawis population is estimated at 15 million, with a

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show some improvements: Life expectancy has

Malawi Overview
poverty headcount of 50.7% (IHS3). Social indicators improved to 52.2 years in 2009 from less than 40 at the turn of the century; adult HIV prevalence is now at 10.9 percent down from 14%. Food security has significantly improved. According to the government of Malawi, the country is likely to achieve four out of eight MDGS -- with poverty, gender inequality, universal primary education and maternal mortality unlikely to be met. Despite progress on social issues, Malawis development path has several challenges:

Sustainability of policy reforms remains as a challenge. The countrys history of policy implementation has been largely characterized by periods of good policy implementation with episodes of policy reversals associated largely with different political cycles. Macroeconomic stability following the actions taken by the new administration is still fragile and would critically depend upon the continuance of the policy measures instituted. Investment climate constraints hinder private investment. The business environment in Malawi has deteriorated in recent years resulting in a slowdown in FDI and reduced competitiveness. The 2009 Enterprise Survey for Malawi listed the top five main obstacles as access to finance, transportation, informal practices, electricity, and tax rates. While the new Government has made commendable efforts on the macroeconomic stability, improving the business environment needs establishing policy certainty and predictability. Adequate skilled labor is a constraint to a private sector-led growth. While private returns to higher education in Malawi are relatively high, Malawi continues to rank very low on knowledge, innovation, and technology. The World Bank Knowledge Economy Index (KEI), a broad measure of the overall level of preparedness of a country or region for the knowledge economy, ranks Malawi as the lowest in the region. Transitioning countries like Malawi are at risk of being further marginalized in a highly competitive world economy because their tertiary and other post basic education/training programs are not adequately prepared to capitalize on the creation and use of knowledge. In addition, Malawi faces a serious human capacity problem with its labor market that is characterized by large number of unskilled workers with low productivity. Despite investments in womens empowerment resulting in notable progress in some key areas, women in Malawi are still disadvantaged in numerous ways. The Malawi Poverty and Vulnerability Assessment (2007) indicates that female-headed households constitute 23% of all households. The maternal mortality rate continued its downward trend from 984 in 2004, and 807 in 2006 to 675 per thousand live births in 2010, but remains high. High population density and poverty have led to significant human pressure on the environment and degradation of Malawis natural resource base, notably land and forests.The growing population increases the land area under cultivation and exploits forests and woodlands for firewood and charcoal production. Land degradation, deforestation, inappropriate farming methods, and limited incentives to promote land and water conservation techniques have increased the incidence of erosion, run-off and flash floods in Malawi, carrying high loads of sediment

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Together, these factors reduce agricultural

Malawi Overview
that are deposited in reservoirs and flood-plains. productivity, fisheries, and hydropower generation, damage infrastructure, and adversely affect human health and critical ecosystems. Malawi is prone to natural disasters primarily related to climate variability and change.Improved resilience to climate risks is extremely important for the majority of rural households who depend on the fragile natural resource base for their livelihoods. Forest cover is reported to decrease at an alarming rate, and the energy balance has not changed away from biomass at all. Rural roads and the rail network are particularly vulnerable to the effects of climate change due to increased run-off rates. Last updated October 2012

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