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| Features |
| Should Malawi bank on exports? |
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by
Fanwell Kenala Bokosi, 09 February 2006
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06:58:59
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The Bingu wa Mutharika administration has a vision of turning Malawi from a predominantly importing and consuming country to a producing and exporting country. How achievable is this? What needs to be done both at micro and macro level if Malawi is to achieve this? Should Malawi even try to be an exporting country in the next 10-15 years? Fanwell Kenala Bokosi looks at these issues and more in this analysis:
Should Malawi bank on exports?
Of course, Malawi will have to import what it cannot manufacture and as such, I think the whole vision is on the wrong premise. The only way for Malawi to achieve economic growth is through a broad-based agricultural growth strategy than an export-led growth strategy. This is the time for Malawi to stop peddling what is fashionable and focus on what is realistic.
A country like Malawi—with no major mineral deposits, landlocked and with a relatively large rural population, should stop having utopian dreams and come down to earth with realistic and possible solutions, however small, and unfashionable they may seem.
We can only use what we have to develop and what we have is a large smallholder agricultural sector that will not disappear in the foreseeable future. In the past 15 years, there has been the mistaken belief that the only way Malawi is going to develop is for it to become and industrialised country (manufacturing and exporting goods). However, the hard truth is that the only way Malawi is going to grow is put money in agriculture. Not simply agriculture but small-scale agriculture.
So my answers to Malawi’s economic development are two: first, stop talking and start doing. Secondly, only the small village farmer can change Malawi’s economic fortune. While Malawi is constrained by unfavourable geographic position and fluctuating climatic conditions, its poor agricultural performance is due to underinvestment in physical, institutional, and human capital, as well as by attempts to bypass agriculture through isolated industrialisation. Given its size and composition in Malawi, agriculture is important not only for generating growth but also for reducing poverty and inequality.
Neoclassical theorists argue and promote export led growth as a means of getting out of our poverty stricken situation. The only problem with such an approach is that it is suitable to some African countries and not Malawi.
Resource rich African countries can pursue an export led growth based on their abundant non-agricultural natural resources, such as oil and minerals, and import agricultural goods to meet their domestic demand. Exports of natural resources can only become an engine of growth if the income generated from exports is channelled into productivity growth in non natural resource sectors and help develop the broader economy.
Unfortunately, it is impossible for any country to achieve sustainable growth by following trade theory and fully specialising in the exports of natural resource products. I know that there is a new impetus in Malawi as regards to the discovery of some mineral deposits and the prospects for investment in such a sector.
However, this sector is so small to effectively turn around Malawi’s fortune. If we are to base our economic growth on exports of such “newly discovered” minerals (uranium in Chitipa, Bauxite in Mulanje as examples) we could actually end up with what in economics is termed as the “Dutch Disease” where growth in the mineral export sector leads to an appreciation of the real exchange rate that penalises other traded goods sectors, including agriculture.
The additional problem for Malawi if we went for export led growth is that of income distribution. The rents in these lucrative sectors are often captured by a small group of the population in the country or benefit an elite interest group through government intervention.
Further, these export sectors are often capital intensive with little demand for labour and weak links to the domestic economy through production and consumption. The common fad in international global poverty reduction forums is that globalisation and trade liberalisation will provide more export opportunities to reduce poverty.
There has been a concerted effort to let the West open up its markets to goods from the third world. While this is good, how on earth do we expect Malawi to take advantage of such opportunities if it can feed itself? For the past 15 years, Malawi has not received food aid or indeed imported maize only in three years out of the 15. What an impressive effort for a country with a very large subsistence agricultural sector!
Malawi has a small and inefficient industrial base with an unimpressive growth performance. Turning this performance around in an open trade environment is a daunting task. Not only do we expect these fledgling industries to compete with the world’s best in export markets, but also on the domestic market.
Trade liberalisation is a two-edged sword that also opens domestic markets to imports that can decimate whole swaths of industry before they have a chance to adjust and compete. Coupled with this, there is a scaling-up problem. Industry currently employs less than 15 percent of the labour force in Malawi and its employment elasticity remains low compared to agriculture.
So even if the performance of the industrial sector were to improve dramatically and grew at the astronomical rates, it would still take decades before a large enough share of the labour force could be pulled out of agriculture to seriously reduce poverty. Despite low world food prices, food costs remain high for many Malawians because of high transport costs within the continent and even within Malawi.
Growing food where it is needed is still the least expensive option for Malawi. Moreover, while fixed exchange rates are largely a thing of the past, growing food imports still pressure Malawi’s foreign exchange markets, leading to currency depreciation and higher food costs in local currency (what more evidence do we need than the current upward movement of maize prices this agricultural year?).
So what is the solution in terms of growth strategy for Malawi? If I had the power, I would throw away the so called “Export-Led Growth Strategy” now. What Malawi needs is a simple but effective “Agricultural-Led Growth Strategy.” There is a difference between the two.
The first puts emphasis on exports, which in the case of Malawi may not include food production. While the second one is more realistic because it captures the whole agricultural sector and, therefore, puts food at the heart of the economy, because agriculture contributes a large share to national GDP, and many households (around 90 percent of the population) live in rural areas that are dominated by agriculture.
For the majority of Malawians, participation in agricultural activities (not necessarily export agriculture or indeed industrial export sector) is often the major source of income, and hence they are likely to benefit more from agriculture-led growth than any other growth strategy.
Of course, there is a section of Malawians with greater opportunities to work in the urban sector or who can take advantage of nearby city markets to produce higher-value agricultural products. It is right, therefore, for these to concentrate closer to urban centres and be better positioned to benefit from non-agriculture or export agriculture.
But to rely on this sector to push Malawi’s economic growth is simply “wrong”, since most of these are usually less poor than people in rural Malawi. Economic growth driven by non-agriculture or agricultural exports will, therefore, have less of an impact on poverty reduction and, at most, will be a waste of our meagre resources.
According to the Integrated Household Survey of 1997/1998, agriculture accounts for over 60 percent of household income at the national level and 80 percent for the average poor household. The importance of agricultural incomes is even higher in poorer regions of the country. Under these circumstances, agricultural growth is expected to be more pro-poor than non-agricultural growth since it is a more important income source for the poor.
Malawi should, without any hesitation, revitalise the smallholder sector. The smallholder farmer has in the past proven that given the same support services and inputs (seeds, fertiliser and credit) they as efficient as the large holding farmer. Malawi needs to put in place policies that improve marketing and servicing arrangements, to reverse the disadvantage faced by smallholder farmers when it comes to access to markets, technologies, credit and inputs.
Farmers should organise themselves better in order to purchase inputs in larger volumes and, therefore, gain access to markets for their products. Raising smallholder productivity will not only increase their incomes but also food security. It is also possible that with increased productivity (not production) national food prices could also go down and stimulate the rest of the economy.
There has been inadequate investment in rural development in the past 20 years in Malawi. I know we have drilled more boreholes in the last 10 years than the first 20 years since independence, but boreholes, while important for provision of clean water, are not enough to stimulate and facilitate the rural economy.
Efforts by organisations like Masaf in improving the rural road system will improve mobility and cut down transaction costs, which would enhance productivity of the rural sector. My only problem is that the rural road network has not been based on a planned network but rather as payment for food, since most of these activities are in return for food (food for work).
We need the government to have a discretionary system of improving the rural road network based on its economic stimulation potential than the political affiliation of the Member of Parliament in that area. The lack of access through viable rural road network has meant that many rural farmers can neither procure fertilisers and other inputs at affordable prices nor market their own produce effectively due to this structural constraint.
There is no need to construct expensive infrastructure systems that might be difficult to maintain. In Malawi, sustained heavy rains come only between December and February (three months out of 12). Thus, construction of roads that would be passable during the rest of the nine months would stimulate the economy.
In any case, the rains come at the time when farmers are busy working in their fields, so they do not need to travel a lot. It is at the time of harvest and just before the rains that farmers need to travel to sell produce or purchase inputs. It is impossible to connect each and every village in Malawi by tarmac roads, but a gravel road that is passable for nine months in a year would be very important in some areas.
For the past 10 years, we have talked about the potential of irrigation in solving our food problems. I will not add to the endless talk. It is time for Malawi to act and act soon. If we are serious as a country then now is time to walk the talk in establishing viable small-scale irrigation projects.
This does not need be on a grand scale only; there is more that can be done on a micro-watershed level. We can achieve a lot by building on local knowledge and effort like the farmers who have over decades used the banks of Shire River in Chikwawa to provide green maize for Blantyre all year round.
There is an enormous pool of intelligent researchers in Malawi who have been reduced to clerks and just sit in offices because there is not enough funding from government to do research. Most of the scientific research in Malawi is funded by donors who have done a lot in this area. However, they fund what they think is important to them as opposed to what is needed by Malawi.
That is why people like Dr. Timothy Gondwe of Bunda College of Agriculture are having difficulty to get funding to improve the genetic performance of our local chickens, but they would not have problems if they proposed to research the adaptability of Norwegian chickens in Malawi.
It is frustrating for people like my own brother Dr. James Bokosi who has spent time honing their skills in plant genetics, yet there is no funding from Malawi government to fund research in developing drought tolerant varieties of local crops. We cannot leave such an important element of research at the mercy of donors.
No wonder we are encouraging farmers to plant hybrid varieties that have been developed outside Malawi. Research in crops that utilise nutrients more efficiently, that improve the nutrition contents of food crops grown in Malawi and indeed pest and disease resistant crops, would be a worthwhile investment in Malawi.
Government should increase its investment in agricultural research. On a similar note, this has led to unresponsive research agendas by our agricultural research institutions. There is need to reform these institutions. The research agenda should be driven by the needs of the country and not intellectual advancement of individuals. This can only be possible if there is greater links to the smallholder farmers and other stakeholders and if agricultural research is linked more effectively with the grassroots.
Finally, I should encourage government and other organisations that are already doing a lot that could help Malawi to develop. Efforts by NGOs, faith organisations and government in strengthening producer and community based organisations would fill the gap left by the retreat of government in certain agricultural and social services.
There is already a lot of work being done in developing human capital, perhaps now it is time to focus more on the quality rather than the quantity of trained personnel. There is already a lot that has been discussed in relation to the quality of our education system and I need not add anything in this area. This is also true in the areas of health (especially HIV/AIDS), gender and environment.––Fanwell Kenala Bokosi is a PhD candidate (Business and Economics) at Britain’s University of Kent.
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