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Access to finance, corruption affects doing business

 

The World Economic Forum’s (WEF) Global Competitiveness Report has cited lack of access to finance, high inflation rate and rampant corruption as obstacles to doing business in Malawi.

The report, which assesses the landscape of 138 economies, ranks Malawi at 134 and has pointed out that foreign currency regulations, inefficient bureaucracy, tax rates and policy instability are also problematic factors to doing business in the country.

It shows that access to finance, high inflation rate and corruption scored 14.2 percent, 12.6 percent and 11.2 percent, respectively.

The competitiveness report, which asses the landscape of 138 economies, has indicated that foreign currency regulations, inefficient bureaucracy, tax rates and policy instability are other problematic factors to doing business in the country.

Ministry of Industry, Trade and Tourism spokesperson Wiskes Nkombezi said last week while he cannot comment on inflation rate and worsening levels of corruption, increasing access to finance has always been one of the ministry’s priorities.

He said: “We acknowledge that access to finance is a problem in the country, not only to big businesses, but

even to small and medium enterprises. It is our wish that we get rid of this problem. We are trying our best to ensure that we increase access to finance by deliberately pushing for deliberate policies.”

Most businesses are unable to borrow due to high interest rates
Most businesses are unable to borrow due to high interest rates

Malawi’s cost of borowing has been  high since the liberalisation of the local currency, blamed on the country’s tight monetary policy, poor competition among banks and risky borrowers.

Malawi has one of the highest inflation rates in the Common Market for Eastern and Southern Africa (Comesa) trade bloc, at 22.8 percent as of August This is mainly on account of a 12.4 percent maize deficit, a staple crop that has huge weight at 50.1 percent in the consumer price index (CPI), which measures changes in the price level of a market basket of consumer goods and services purchased by households.

Transparency International’s (TI) Corruption Perception Index (CPI) shows that Malawi scored 31 points out of 100 in 2015 and has averaged 32.5 points from 1998 to 2015, reaching an all time high of points in 1999 and a record low of 27 points in 2006.

In a statement in August, Reserve Bank of Malawi (RBM) Governor Charles Chuka said while the central bank will focus on containing second round effects from food inflation, inflation rate is expected to trend upwards due to the rising food prices and expected depreciation of the kwacha.

Currently, inflation rate is at 22.8 percent as of August 2016, according to the National Statistical Office (NSO).

In an interview last week, Minister of Finance, Economic Planning and Development Goodall Gondwe admitted that the 2013 Cashgate, in which K24 billion could not be accounted for, has had a long-lasting impact on the country’s economy, saying government has put in place right conditions for recovery.

The obstacles to doing business are the same as those outlined in the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) Malawi Business Climate Survey 2015.

The survey rated corruption as one of the major obstacles to doing business while the 2014 report on governance and corruption by the Centre for Social Research indicated that 20 percent of all procurement contracts that businesses have with government involved gratification pegged at an average of 10 percent of contracts value.

MCCCI said access to finance has been greatly affected by the high cost of borrowing. n

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