Economists have said small and medium enterprises (SMEs) are key to Malawi’s economy, but their formalisation should balance benefits and costs to unlock growth, jobs and resilience.
They said SMEs employ thousands and drive innovation across different sectors, yet most of them continue to operate informally, limiting growth potential and government revenue.
University of Malawi macroeconomics lecturer Edward Leman said in an interview on Wednesday that proper registration allows the government to collect taxes, an essential revenue source in a country facing persistent budget deficits.
“Beyond that, formalisation opens doors for SMEs to access finance, enter contracts legally and participate in larger markets, making them more resilient and growth-oriented,” he said.
Leman said Malawi’s large informal sector suppresses gross domestic product growth (GDP) estimates, keeps firms small and less productive and hinders overall economic growth.
On his part, economist Levison Chiwaula said formalisation can benefit small businesses by enabling access to markets and services unavailable to informal businesses.
However, he said that despite the benefits, formalisation of informal SMEs will mean additional expenses, which will reduce their profits.
Said Chiwala: “The disadvantage is that they will also start paying some regulatory payments such as taxes, which eat into their profits.
“A working SME formalisation is the one that will add to their profits despite the introduction of regulatory payments.”
The 2024 Finscope MSME Survey indicated that there are about 1.6 million small businesses, employing about 1.8 million people and contributing about 40 percent to the country’s GDP.
