Thinking about Balaka

For some time now, Balaka has been on our minds. No town is slated for such a diverse range of investments as Balaka is in the near future. First and foremost there is US$220 million which is fast tracked by the French cement giant LaFrage so it can begin producing cement this year. . African Cotton Ginning and Textile Manufacturing Company plans to enhance the country’s integrated cotton industry through a US$12 million project that will employ 500 people. Another textile industry investment will come from the Chinese Textile Industry Company which plans to invest US$25 million and create expected to create 1,100 jobs and provide contract farming support to 100,000 cotton farmers in Balaka and parts of Ntcheu areas. And then there is Kangunkunde monazite mine, which is being held up by legal wrangling

Heavy Mineral Sands has earmarked US22 million for Malawi to employ 200 people. All in all we talking about 3000 new jobs. That is likely to change Balaka from what sometimes looks like a sleepy town that lost its direction into a vibrant crossroad town.

All these are private initiatives. What should government do? The recent response to private investment in Kayalekera does not speak well of governments prepapredness in dealing with large investments. The government failed to provide electricity to the mine, to complete road infrastructure in time, to provide rentable housing to the miners etc. In the case of Balaka the Basic infrastructure is there. Balaka is the meeting point of and near to all Malawi’s major transport means. And the first optic fibre ring linking Blantyre and Lilongwe will go via Balaka (and Zomba, Salima, Dedza ). In addition Balaka is connected to the national electricity grid. However, there is still a lot the government can do. Malawi Housing Corporation should consider providing additional housing. The Malawi government could encourage clusters around the textile industry by opening a textile school, encouraging small textile producers in textile manufacture etc attracting other textile related investors to Balaka. But this requires housing, schooling, adequate water and sanitary facilities etc.

NGOs and "sitting allowance" culture

In his blog Dr. Khumbo Kalua recounts a story that is so depressingly familiar. It is an account of the corrupting influences of the aid establishment on many aspects of society. One of the tasks of Dr. Kalua is training Health Surveillance Assistants (HSA’s) in health projects in Malawi. He seems to have vast experience in this kind of work. Apparently the norm in such training courses is to pay participants $7 to cover lunch expenses. Dr. Kalua was to conduct such training in Mangoche where things went awry and turned into what he calls a "disaster".

Everywhere in Africa the donors, especially the NGOs, have nourished the culture of “sitting allowance” paid to induce Africans to attend the endless “workshops” that have become the staple of NGOs. This is supposed to ensure “participation” by the locals. In Malawi people along the lake are more aware of this dark side of “participation” trumpeted by NGOs. So Dr. Kalua was shocked that after carefully explaining to the 20 or so HSAs in Mangochi the importance of training in eye care and after apparently convincing them of the importance of this training, he was confronted with the question: What would be the allowance? He said $7 and all hell broke loose. In his words: “... the whole workshop turned into chaos with the HSA’s threatening to boycott the training and forfeit the highly needed skills if they did not get all their monies .”

The savvy Mangochi HSAs claimed that in order to “ win their favours and loyalty some NGOs pay them an allowance of up to USD 50 per day despite the government lunch allowance being USD 7.” And so they wanted more than the $7 offered.

For most NGOs these lakeshore “Participatory” exercises are ritually included in their budgets and they simply must hold them and have the usual photograph opportunities for the fund-raising exercises.

This debilitating “sitting allowance” culture must be stopped either through self-regulation among NGOs themselves or by law.

A nation of importers and consumers or producers and exporters?

A recent headline in Malawi Times reads: Air Malawi joins S.A shopping festival
The paper reports that Air Malawi, has joined other national careers in the region to ferry their nationals to the Johannesburg Shopping Festival in South Africa at reduced prices. READ MORE

This is a weird role for a national career. Malawi now needs to reduce its importation of consumpion and expand and diversify its export. Air Malawi ought to be flying potentai Malawil exporters to trade fairs or plant and equipment exports or bring in traders to buy Malawian..

Bingu has called for the country to move from a nation of importers and consumers to one of producers and exporters. It is important that this message is understood by all our economic agents. Air Malawi simply doesn't get it.

Third terms

Imagine a country with rich Uranium reserves in the Northern part of the country. It’s growth during the last two decades has been around a remarkable 10 percent under a President who is now serving his second term. He also renegotiated the licence for the uranium mine in his country-s favour. The greater beneficiaries of his development strategy are the peasants among whom he enjoys enormous popularity. His country has enjoyed unparalleled political stability.

The President want to change the consitutional to allow for than two term. He declares a state of emerge, dissolves the constitutional court for ruling three times against his plan and also dissolves parliament, which also opposed him.. This should prepare the way for referendum to change the constitution to him a third a Third term.

The Country is “poverty stricken” and ranked the poorest in the world. Malawi Right? Wrong! Our leaders couldn’t sink to that level of stupidity. This is the sad story about Niger.

The President argues that the referendum is not about the third term but about the appropriateness of the constitution itself. He points out that there is something wrong that has allow him to constitutionally declare a state of emergency! Asked whether he is worried that the AU will be unhappy with his government’s decision, the Prime Minister responds that no one in the AU can teach Niger about democracy and definitely not Nigeria who President’s election was dubious.

Mr. Omar, the communications minister, said Tandja wants to "re-establish full democracy...the people must chose, thank their leaders and also keep in power for long a president of the republic that meets their aspirations."

Mr. Tandja himself has said that the constitutional project would allow him to ensure a three-year transition during which no elections would be held. At the end of the transition, he could seek as many mandates as he wanted.

Already the EU has suspended all aid to Niger.

The country’s fragile stability is threatened.

"The Secretary-General is deeply concerned about the ongoing political and constitutional crisis in Niger, which threatens to destabilize the country and undermine the progress made in recent years to consolidate democratic governance and the rule of law," a spokesman for Ban Ki-moon said in a statement.

The World Bank and this year's budget

One new feature of World Bank involvement in local affairs or what they themselves like to call “openness’s” or “transparency” is the running comments on government policy. A recent example of the this new approach are the comments on the budget. The World Bank country economist Khwima Nthara, while describing the budget as a “bold one”, informs us that the increase of duty on agricultural products may not augur well with principles of liberalisation. At a time when neoliberalism is being buried in the developed countries and at a time when many governments are nationalising banks and industries, subsidising national industries, insisting onthe  reservation of certain large scale projects to national institutions etc Mr. Nthara informs us “The era of protectionism is long gone” . He does not us tell whether the measure is good or bad or will serve the intended purposes of encouraging certain industrial activities but that it does not augur well for an ideology. He then adds that the budget has ignored the consumer: “I would rather buy cheap tea from outside the country than expensive local tea”. It does not occur to Mr. Nthara that most consumers in Malawi are also producers and that more productive farmers (due to subsidies) would rather work and buy the more expensive local tea than be unproductive and rely on crumbs of cheap imported tea. But even more depressing is that Mr. Nthara seems completely unaware that his masters in Washington DC have moved away from their dogmatic opposition to any industrial policy. In World Bank doublespeak one does not, of course, talk about “industrial policy” (that is still off limits) but, as John Page (of the World Bank) now calls it “policies for industrialisation”.

Mr. Nthara praises the budget for not adopting “populist” policies in light of the fact that DPP run a populist campaign. That is a weird observation. Were DPP inclined towards populist policies they would have pursued them BEFORE the election when they needed to woo voters. If any praise must go to DPP it is precisely that they did not go on a "populist" spending binge in the run up to the elections.

To devalue or not devalue: that is the question.

To devalue or not to devalue: that is the question. For years the World Bank and the IMF have simply pushed devaluation to solve balance of payment problems. That has often been too easy an one-size-fits all solution to a complex question. There are often two conflicting objectives around the exchange rate. On the one hand there is the concern for economic stability to encourage investment to ensure economic growth. Devaluations can inject an element of uncertainty in the economy that often discourages investors. This hurts the long term growth prospects of the economy. On the other hand there is the need for flexibility and competitiveness. A stable but overvalued currency will discourage exports while encouraging imports. This may lead to serious balance of payments problems that would, in turn, undermine confidence in the economy and eventually undermine investment.

The President has evoked the “economic stability/investment” argument and we believe he has his priorities right. Experience with the massive devaluations of the 1980s is that they did not lead to the expected export booms and instead simply contributed to great volatility. This undermined investment and destroyed export capacity. Competitiveness based on devaluations is not sustainable and too much focus on manipulating the exchange rate to promote exports may detract attention from the more useful path of gaining competitiveness through improved productivity.

In all this there is the unresolved question in the direction of causation. Is it investment that leads to greater export or is export that stimulates investment? If the former is the case, then Bingu’s point stands and if the latter is true than those arguing for devaluation have a point. Economists are not agreed on this. The best one can say is that the policy makers will have to decide on the basis of what they know to be the causal direction in their respective countries. There does seem, however, to be a strong case for the invest-growth-export sequence. In any case the many drivers of Malawi’s current growth – investment in mining, infrastructure and technology-driven telecoms are not desperately in need of devaluations.

Where Bingu is wrong is in his swearing that he will never devalue the Kwacha. That is a little disingenuous and not credible. He would be better advised to state that the government’s reading of the current situation is that the stability argument is the more appropriate one for the economy and that the government will make the necessary correction when needed. He could argue that the government is doing everything to promote exports by improving communication to reduce transaction costs and providing seeds and fertilisers that are making Malawi a bread basket.. He will however have to contend with the fact that the country’s reserve are dangerously low and that may discourage investors.

Ultimately the smart policy is one that ensures a stable but “realistic” and competitive exchange rate that assures investors and facilitates exports. In other words the government should strive to achieve and then maintain a stable real exchange rate that is sufficient to promote a high export growth rate and cushion the country’s reserve.