Malawi and Millinium Challenge Account

Malawi is poised to finally qualify for the Millennium Challenge Account (MCA), a rather innovative aid format from the Bush regime that provides substantial funding over five year periods or so,. A country meets certain governance/policy/accountability standards and then submits a request for funding based on its own priorities. The key documents submitted by Malawi are now on the on the governments' own website for the MCA. They not only contain vast amounts of well-illustrated information on key aspects of the economy but also indicate what Malawi policy makers consider as major constraints on development.

The approach is based on a methodology pushed by economists at Harvard which is premised on the view that “different countries do not necessarily face the same set of problems and, certainly, the relative severity of these problems varies widely”, consist of a “diagnosis” of what are a country’s major constraints and addressing those constraints rather doing everything at one go.

In its Executive Summary main document states, “The study comes with the conclusion that power, feeder roads and international corridors water and irrigation and access to capital represent the most binding constraints for economic growth at the moment. The study further identified other equally binding constraints, namely: an overvalued exchange rate, administrative barriers to trade and regular human capital”

The second document is the Concept Paper for the Energy Sector. The key argument is stated as follows: “

The conclusion of the constraints analysis conducted by the MCA‐M team is that the key to unlocking Malawi’s economic growth is to improve the competitiveness of Malawi’s exports, namely agricultural and manufactured products. This conclusion is widely supported by the Government of Malawi’s Growth and Development Strategy (MDGS) and other development partners such as the World Bank, African Development Bank and Department for International Development.

Whilst there are many underlying constraints to enhancing the competitiveness of Malawi’s exports, the investment case for the energy sector is compelling because poor power infrastructure is substantially limiting diversification of non‐traditional exports and investments in manufacturing. Malawi’s insufficient, unreliable and poor quality power supply has a substantial effect on return on investment1, adding cost and operational risk onto producers of exports which places Malawi as the country with the highest sales losses due to power outages and requires more than 40% of businesses to rely on costly‐generators. This is a burden to existing businesses, compounding other disadvantages2 of doing business in Malawi but also reduces the attractiveness of Malawi to external, new sources of investment

The government proposes US$246.8 million for the power sector.

The third document is the Project Concept Paper for the Transport Sector. Its main projects are:

i) Improved efficiency and reliability of exports and imports on rail transport to ports of Nacala and Beira:

1. Track renewal of 588 km railway tracks which comprise of:487 km from Mchinji-Lilongwe-Salima-Nkaya-Nayuchi railway; and

2. 101 km from Nkaya-Nayuchi railway towards the Mozambican border.

3. Acquisition of locomotives and rolling stock.

ii) Increased access of rural communities to major trading centers and national transport network:

1. Upgrading and construction of roads that will address a backlog of improvement works on key secondary roads linking to the primary network joining the five (5) corridors (main roads, rail and water transportation systems). The selected feeder and main roads include the following:

· Rehabilitation of the Mzuzu-Nkhatabay main road (47.0 km);

· Construction of the Lirangwe-Machinga rural feeder road (74.4 km) in the southern region

· linking to the Nacala and Durban Corridors;

· Construction of the Linthipe-Lobi Rural Feeder Road (27.0 km); and

· Construction of the Cape Maclear-Monkey bay rural feeder road (18.25 km).

iii) . Improved regulatory environment and enforcement of regulations in the transport sector:

One problem with this Harvard approach is its narrow focus on constraints on economic growth and the absence of a long-term developmental vision that would spelt out not only economic growth but structural transformation, social development etc. One can also hope we will soon see the document addressing the serious human capital constraint to Malawi economic development. But that is another matter. In the meantime, read the documents.