Counting costs of electricity cuts

If you followed Malawians on the social media, it is apparent events in Zimbabwe generated a lot of interest. It drew comparisons with 1993, the excitement, hope and prospects of a bright future. Some even went to caution that our brothers in Zimbabwe need not get too excited because change is sometimes no change.

Things remain the same.  What I found interesting about events in Zimbabwe is that it was good distraction from the issue affecting most Malawians. Electricity.

Who loves bad news by the way? On a lighter note, the major beneficiary of the events in Zimbabwe could not be Zimbabweans themselves. There is a school of thought that reckons our own Escom was a major beneficiary of the “political change” in Zimbabwe. Because it became s across the world with the Malawi social media at it, cries about black outs were temporarily off the radar. Who could blame them? Comrade Bob is no ordinary man, and besides some theories contend that he has roots in Nkhotakota, a place known for various organic herbs and fish. But we cannot ignore the costs that these power cuts have brought to the country.

For starters sake, over 55 percent of Malawians live below the national poverty line. The poor come in different forms and exhibit different characteristics. Most are informally employed and run small businesses. These include barbershops in the suburbs. Small grocery stores, butcheries, meat sellers. Some are welders while others are farmers selling fresh produce. Others are dairy farmers selling fresh milk.

If you visit the outskirts of our cities, there are lot of these mobile markets selling all kinds of fresh produce. People from urban areas often flock to these places to get a bargain. It is rational consumer decision.

While putting an exact monetary value, it is very clear that many hours without electricity has a huge cost. The barber cannot work. Similarly, the welder cannot work. Then the butcher cannot sell meat that is going bad because the consumer with a fridge is also unwilling to buy. Dairy farmers have their milk go bad. So goes the equation. So one can see that such a loss of energy has serious consequences on the very small businesses that often serve the poorest of our society.  This sounds simplistic, but if we look at the wider picture, it is not only a recipe for macroeconomic dysfunction, but it actually catalyses it.

So, when I walked into a service station a few months ago, I could not do any transaction because there was no electricity. Yet a few years ago we applauded MRA to have installed value added tax (VAT) collection devices to stop tax cheats in their tracts. But this case of a business failing to sell because there is no electricity means     that potential tax that I could have paid was lost. To some extent a VAT reflects the level of production. Any under collection is generally linked to an economy that is growing or very shaky, or for lack of a better word, fragile.

So one can actually argue that power cuts are   also affecting VAT collection because business close or reduce the number of trading hours. While this is a case of a single business, if we add up them up, it does not look that good.  It is a vicious cycle considering the fact taxes fund the budget and any shortfalls have to be financed through borrowing that pushes taxes up.

Nonetheless, I like the optimism of the president as he laid another foundation for a hotel in Lilongwe. Media reports cite that he acknowledge the role of foreign direct investment in job creation. Malawi needs foreign capital to grow.

However, as a country we need to do our part in providing a climate that is conducive for foreign capital to generate returns, create jobs with minimal costs. One such route is ensuring that we generate enough electricity, not through diesel powered generators. That, now we should be planning generation capacity to cater for a population of over 80 million, well beyond election terms. It is a trait of all great and progressive nations that think well ahead of their time. Piecemeal solutions are often   very expensive.