Malawi’s dual economy—the existence of two separate economic sectors in one economy—has not helped to improve income inequality, economists have said.
In economics, dual economies are common in less developed countries such as Malawi where one sector is geared to local needs and another to the global export market.
Economists were reacting to a recent report on the Income Inequality Trends in Sub-Saharan Africa in which the United Nations Development Programme (UNDP) highlighted that income inequality in the region stems from high dualistic economic structure where high income sectors offer limited capacity to generate employment.
This is in contrast to the informal sector where most of the workforce earns far lower incomes, a high concentration of physical capital, human capital and land.
According to the report, this has not been enough to significantly lift people out of poverty; hence, the gap between the rich and the poor (gini coefficient) has been on the increase.
In an interview, Chancellor College economics professor Ben Kaluwa agreed with the findings of the report, saying the widening income gap is glaring.
He said this has largely stemmed from the country’s neglect of the education sector which is essential in promoting human capital.
“We have the formal sector and the micro sector. The middle is invisible and we need to have a continuum. The micro enterprises with one person offers low investments with low income and this is the major problem,” said Kalua.
Commenting on the same, Catholic University dean of social sciences Gilbert Kachamba said while the informal sector requires a lot of physical capital, its productivity is low and cannot pull many people out of the vicious cycle of poverty.
He said the lack of extensive value addition activities in the economy has also exacerbated income inequality as exporting raw products means exporting jobs, raising the unemployment rates.
In the recommendations, the report highlighted the need to improve the distribution of human capital, increase direct taxation and efficiency of tax administration, enhancing productivity in the agricultural sector and implementing structural transformation.
In Malawi, however, the informal sector has not been organised and has lacked financial and policy support despite it being the largest subsector.
The majority of the labour force is in the informal sector and do not contribute significantly to economic growth.
A dualistic economy is characterised by a capitalistic based manufacturing sector and a labour intensive agricultural sector.