Covid-19 threatens investment deals
The World Bank has cast doubt on Malawi’s chances of concluding investment deals in the wake of Covid-19 despite having a promising Foreign Direct Investment (FDI) uptick prior to the pandemic.
In its Country Private Sector Diagnostic Report launched by Vice-President Saulos Chilima in Lilongwe last week, the Bretton Woods institution said the entire African region has, thus, far weathered the global decline in FDI, but Malawi needs new and replacement capital goods to continue to boost productivity across sectors.
The report says an uptick in FDI announcements prior to the Covid-19 crisis was a promising sign of confidence in Malawi’s investment climate, but concluding these and new deals will be a tough task.
Reads the report in part: “In the few years before Covid-19, a small number of fairly large deals seemed to suggest Malawi was becoming a more attractive location to invest, promising sign for an infusion in productivity-enhancing technology, know-how, and capital goods.”
FDI has become an important source of private external finance for developing countries, including Malawi.
FDI is different from other major types of external private capital flows in that it is motivated largely by the investors’ long-term prospects for making profits in production activities that they directly control.
The United Kingdom’s Financial Times FDI markets database show that in the few years prior to Covid-19, the deals included China’s continued interest in the real estate sector and a joint venture with European partners for green building and manufacturing.
In the agriculture sector, the Malawi Government also signed a major Public Private Partnership with an Israeli firm to invest in one of the region’s largest greenhouses for horticulture production.
Figures from the United Nations Conference on Trade and Development (Unctad) show that last year, Malawi’s FDI registered an 88 percent decline to $98 million (about K82.1 billion), generating $822 million (about K677 billion) in FDI, down from the previous year’s $959 million (about K790 billion).
Unctad attributed the decline to the economic turmoil caused by the Covid-19 pandemic, policy uncertainty for investors and elevated geopolitical risks.
University of Malawi economics professor Ben Kaluwa observed that in the face of the Covid-19 pandemic, Malawi’s quest to attract investments are dealt a big blow as global businesses have been disrupted.
“FDI to Malawi will indeed not be easy in view of the Covid-19 pandemic,” he said.
Malawi Investment and Trade Centre (Mitc) investment promotion manager Modie Chanza admitted in an interview that Covid-19 has led to a downward trend of investors coming into Malawi to register their investments.
She said some companies that were already operating in the country have also been heavily affected by Covid-19 as “they cannot secure funding from foreign partners who have now been affected by Covid-19”.
But Chanza was upbeat that with the Covid-19 vaccine, the different reform agendas and the strategies government is putting in place, investors will gain confidence and return to business soon.
Over the past five years, leading sources FDI have been Australia, China, India, the Republic of Korea, South Africa, the United Arab Emirates and the United Kingdom.
