Business climate hostile to small businesses—AfDB

The African Development Bank (AfDB) says although Malawi’s business environment is improving, it remains highly unfavourable to the growth of micro, small and medium enterprises (MSMEs).

In its recent country analysis, AfDB observes that the private sector has a large base of micro and small enterprises and a few large multinational enterprises, resulting in the  ‘missing middle’.

Reads the analysis in part: “Transformation of the MSME sector, therefore, holds great potential for moving into high value-added production, creating decent jobs and increasing public revenues.

“Informal sector MSMEs cite the costs of registering a company, transaction costs for tax compliance and no benefits to accessing bank credit as major factors that dissuade them from formalising their operations.”

There are an estimated 1.1 million MSMEs that contribute about 40 percent to the country’s gross domestic product, according to the FinScope study of 2021, and about 90 percent of them operate informally.

The overarching policies and regulations for private sector development include the National Trade Policy, National Export Strategy, National Industry Policy, Public Private Partnerships Act, Investment and Promotion Act and the MSME Policy.

Chamber for Small and Medium Enterprises Association executive secretary James Chiutsi said more businesses are closing shop as their margins are being wiped out due to rising operational costs.

He said while import substitution is key to empowering small businesses, “promoting small-scale industrialisation entails putting in place deliberate policies to improve access to finance”.

The 2022 Global Competitiveness Index ranked Malawi on position 128 out of 140 countries, an improvement by one rank compared to 2021.

Major challenges to doing business and requiring attention include the high cost of infrastructure services, limited access to credit, skills shortages and high taxation, all of which constrain investments in high-value products and reduce the country’s competitiveness, according to AfDB.