Government hitting itself below the belt

The Executive arm of government should not be too excited about the one-stop investment agency as if it is the magic wand that will make prospective investors come running to Malawi.

Granted, the facility is a good thing to have. But if truth be told, it should have been here yesterday. The agency is just one of the many things a country with its sight set on growing foreign direct investment ought to have. The other equally important thing that government needs to do to make the country attractive as an investment destination is to keep operating costs such as transport low.

There can be no debate that low operating expenses such as on transport is the beginning of improving revenue streams for any organisation on the move. And fuel, in particular diesel, constitutes a huge percentage of transport costs for many organisations.

So, government is shooting itself in the foot by making diesel very expensive through the many huge levies on the fuel. This is more so for a country where power outages are the order of the day. Raising the price of diesel to the roof at a time there are long power outages—thanks to the reduced power generation to 66 percent by the Electricity Corporation of Malawi (Escom)—is actually taking away all the incentives for potential investors.

In July this year, driven by its bid to raise revenue, government increased the levy rate on diesel from K32 per litre to K74.82—a whopping 133 percent—jumping that of petrol by 70 percent. My gut feeling was that the reasoning for raising diesel above that of petrol is that most machines and big vehicles are diesel powered. But that is precisely the downside of the decision because the manufacturing sector is largely run on diesel. Naturally, the sector would push the higher diesel costs to the consumer. In short, high fuel prices are inflationary because of their ripple effect.

And to return to the prospective foreign direct investors the government is trying to woo. Investors look at various incentives before making the all-important decision about where and whether or not to take their money to a certain country. The ease of doing business is one. Then there is the profitability rating. If transport costs are more expensive in Malawi than in Zambia or Mozambique or Tanzania, investors will opt to go to the neighbours where operating costs are cheaper. Mind you every country is wooing investors.

For example, the retail price for diesel in Zambia as of December 9 2015 was $0.78 litre, Tanzania ($0.80 litre), Mozambique ($0.82 litre ), South Africa ($0.69 litre). Compare that with Malawi’s diesel at $1.18 litre. It is only cheaper than Zimbabwe’s ($1.30 litre), Mauritania ($1.26 litre) and Somalia ($1.51 litre).

Surely, we should not pride in being better off than war-ravaged Somalia. As for Zimbabwe, it is a more appealing destination in many aspects—better road network, power supply, its proximity to the continent’s economic giant South Africa whose economic advantages rub off on that country, to name but a few. These more than make up for its higher diesel prices. So when considering investment destinations, Malawi is already disadvantaged when compared to all its neighbours in all other aspects.

The only advantage we have—the unexploited tourism sector because of the lake—as a potential investment sector has lately been a victim of incessant armed robberies. And talking about armed robberies in the lakeshore areas, that is a story for another day.

As I have said above, the country’s hydro-power system is already down on its knees having reduced generation capacity to 66 percent during peak hours. This has been blamed on the low water levels in the Shire.

But my worry is not investors. Malawi already lost out in this sector. We will always feed on crumbs when compared with neighbours. My real worry is the general public’s muted reaction to the hike after the misdemeanour came to light thanks to a Nation story last week. Somehow Malawians seem to be resigned to the problem. Since the publication of that story in The Nation, there has only been one other time that anyone has talked about the high fuel levy on diesel. That was in last week’s ‘Cut the Chaff’ in this paper by Ephraim Munthali. Everybody else is quiet. Consumer rights activists who are supposed to take the lead in speaking against such decisions have been conspicuous by their silence on the matter. We seem to be resigned to government’s irrational reasoning that every time the Malawi Revenue Authority under collects fuel should make up for the deficit. Government is hitting itself below the belt. n