The State and economy
President Peter Mutharika’s address to the nation through Malawi Broadcasting Corporation (MBC) on November 21 2016 has raised hopes and curiosity. The gist of the address is not extraordinary. Previous presidents have made similar public statements. Thereafter, less has been achieved that was envisaged.
The statement that the country is still maintaining high foreign exchange reserves, the highest in its history since independence, is most assuring though it also sounds miraculous.
The technocrats no doubt have done thorough research on the trajectory of foreign reserves in Malawi since 1964 and it is on the basis of that research the president has made this welcome statement.
Sometime in 1970s president Hastings Kamuzu Banda publicly stated that Malawi had been declared a star performer among African countries by one of the Bretton Woods institutions. Its reserves were abundant, inflation was low and its exports were buoyant. Wealthy people from neighbouring countries would travel to Lilongwe or Blantyre to purchase goods in shops which were not found in their shops because of foreign exchange reserves shortages.
Five years or so after Dr Banda had told the nation about Malawi’s stellar performance, I was doing research in publications of either the World Bank or International Monetary Fund (IMF) and I came across the statement. Yet before that time, Malawi was a country other African countries could envy, but by this time, the reverse had taken place and Malawi was once more facing deficits on current (imports and exports) and government budget. What had caused the reversal?
An American business tycoon, W. Clement Stone, in his book The Success System that Never Fails says that some businesspeople do not reduce facts to a formula when they achieve success and when they suffer losses. If they recognised the elements of success in one year, they would make use of the methods that had brought them success. Similarly, if they knew the causes of their failures, they would in future avoid the mistakes they had made.
The years Malawi received the accolades from either the World Bank or the IMF coincided with the year when world tobacco buyers were boycotting Southern Rhodesia tobacco because Ian Smith had declared unilateral independence. Some Rhodesian tobacco managers came to Malawi to manage tobacco estates which influential politicians had set up with loans from commercial banks.
As the anti-smoking lobby was not yet active those days, Malawi was able to sell all the tobacco it produced at good prices. This is how it built up big reserves. On top of that, Malawi readily received assistance from western countries because in the days of the Cold War, Dr Banda was pro-West.
Days of buoyant reserves came to an end at least for two reasons. When Southern Rhodesia became an independent State of Zimbabwe, international tobacco buyers now went back to Zimbabwe tobacco which in some respect, they found to be better than that of Malawi. The second reason was that the Organisation of Petroleum Importing Countries (Opec) had raised petroleum prices to dizzying heights and this caused inflation first in developed countries and then in developing countries such as Malawi.
The question is: Do we know why Malawi has achieved an unprecedented foreign exchange reserves? Tobacco growers for the past three years or more have been complaining of poor sales. If our tobacco exports have not been doing well while the Kayelekera Mine has been closed for several years, one wonders how the country has accumulated the reserves. The capitalist system is subject to booms and busts. Let us keep awake for the ups and downs ahead.
Some writers on capitalism say there are two types; that of the West which emphasises that business is not government business, but that of the private sector. The State intervenes in the economy.
The other type of capitalism is the one that was originated by Japan and which has been embraced by the Tigers of the Far East; Taiwan, Singapore, South Korea and Malaysia.
For too long in Malawi, we have been extra pragmatic in trying to develop the country. It is time we made up our mind that we are going to have an interventionist State. Western Europe and North America underwent industrialisation when the international economy was operating differently.
We must decide that while we look to the private sector to be the engine of economic and social development, the State will be the senior partner and do for the private sector what the latter cannot do. n
