JB, forget IMF; think FDI, instead

For all the days IMF chief Christine Largade was in the country enjoying massive media coverage, as if a hero returned from a pyrrhic victory, I was busy reading over and over again a story published on page 3 of The Nation of April 1 1998, written by Gabriel Kamlomo—now with Zodiak.

The story was titled ‘Bingu wa Mutharika says structures have collapsed: Economic woes decried.’ In the article, Mutharika—then president of United Party (UP)—decried the escalation of commodity prices due to the effects of IMF demands on Bakili Muluzi’s government to devalue and float the kwacha.

Mutharika argued that Malawi’s fiscal and monetary structures “have collapsed” and no mechanisms were put in place to protect peasant farmers and the poor.

“It is a scandal that the retail price of cooking oil, for instance, has increased from K35 per litre to a whooping K55 in a period of two weeks in January this year. The same is true with bread….Is there economic justification for this price increase?” he queried.

I got interested in this story because the economic pain it paints of 1998 is nothing different from the one we are struggling with today.

In fact, it is pain manufactured by the same IMF whose boss was in the country last week to talk and talk and talk. Quite cyclic pains! Of course, as part of getting the economy back on track, Mutharika called on Muluzi government to ‘regulate the market’ and also to ask IMF to review the price structures and agree to implement a price stabilisation programme.

He added that government should invest more in internal and external trade, instead of IMF driven-aid. Well, it is one thing, especially when you are not in government, to propose a great idea and it is another, when you are in government, to implement it.

When he had his chance to rule, Mutharika, after IMF pushed him to devalue the kwacha, he moved in to regulate the currency. I think we all know the consequences of his decisions.

The question, then, is: which way Malawi?

I think, and this is my opinion, it is high time we began to say bye to the IMF. I think their ways are not our ways. As a way forward, it is important to listen to Zambian economist Dambisa Moyo who radically rejects aid and calls on Africa countries to invest in trade.

And one powerful aspect of trade is through investing in what economists call foreign direct investment (FDI). This is where large multi-national companies invest in the country. I am told FDI helps to create jobs, generate forex and boost government’s revenue.

But are we doing enough to attract FDI? Read abridged version of the response below from Greg Walker, Paladin’s general manager, after I put to him on his company experience in investing in Malawi.

“It is a fact that, despite the very large investment made in Kayelekera and the considerable efforts of the Company and our people, the project is not profitable. Mining is a risky business and Paladin accepts that fact.

While the challenges confronting Kayelekera Mine are very largely to do with the depressed price of the mine’s product, it is also a fact that Kayelekera Mine has one of the highest operating costs of any uranium mine operating in the world today. This is a function of operating in a landlocked country like Malawi, with no history of mining, remoteness, lack of electricity, road infrastructure, distance to ports, a high tax regime and so on.

It is a fact that, if Kayelekera had not been built when it was built, it would not be built today – not in this economic climate, not with today’s uranium price and with Malawi’s current governance reputation.

Paladin made the decision to invest here. We want to succeed and we want Malawi to succeed as well, but frankly I think people need “to consider the unhealthy suspicion and hostility exhibited towards foreigners investing in this country.

This is to be contrasted with the attitude displayed in other African countries competing for valuable foreign investment. This situation must change if Malawi is to successfully compete for future foreign direct investment inputs.

Potential investors look to the experience of those who have gone before – the “pathfinders” like Paladin. The way in which Paladin is treated influences to a degree how international investors make their investment decisions. It is part of the risk analysis process and the investment community listens to companies like Paladin.

Modern international companies care very much about their corporate reputations. Why invest in a country where your good name and corporate reputation will be routinely impugned for no good or valid reason? It is for that reason that I ask you to reflect on the effect you think these various attacks on Paladin, which I hope you may now conclude are very largely without foundation, will have on others who might consider investment in Malawi?

I hope that you have sufficient material to craft a reasoned response to the various criticisms leveled against the Company and that you may advance the cause of sensible debate in Malawi over the benefits of Direct Foreign Investment in the country.”

Are we doing enough then to attract FDI? Ask yourself.