Finance, corruption taint Malawi’s doing business

Doing business in Malawi has been tainted by access to finance and corruption. These are the two most problematic factors, according to the latest World Economic Forum (WEF) 2014-15 competitiveness report.

The report released on Wednesday shows that access to financing and corruption scored 19.1 percent and 16.8 percent respectively.

The competitiveness report, which assesses the landscape of 144 economies, has also cited inadequate supply of infrastructure, inflation and tax rates as the other problematic factors to doing business in the country.

Malawi has been experiencing high interest rates since the liberalisation of the local currency with the problem being blamed on the country’s tight monetary policy, poor competition among banks and risky borrowers.

According to the Economist Intelligence Unit (EIU), Malawi’s lending rate will average 37.8 percent this year—one of the highest in the region.

Last year, Malawi was hit by financial mismanagement at Capital Hill dubbed Cashgate in which about K13 billion was swindled leading to donor aid withdrawal, pressure on the kwacha and high inflation rate.

Apart from high interest rates and corruption, Malawi has one of the highest inflation rates in the region with the country’s figures peaking at 37.9 percent in February last year but expected to drop to 20.5 percent by December this year.

But presenting the 2014/15 budget on Tuesday, Minister of Finance, Planning and Economic Development Goodall Gondwe said government hopes that inflation and interest rates would improve during the current fiscal year.

“It is expected that at the end of [2014/15] financial year, the rate of inflation will have decelerated to less than 15 percent and interest rates will also decline sharply. It is also assumed that in view of this robust growth rate and deceleration in interest rates, economic activity would pick up and the economy will begin to function normally in the course of the financial year,” he said.

Regardless of the problematic factors, Malawi has this year improved to 132 out of 144 economies from 136 out of 148 economies in the previous report.

Although the country has apparently improved on the ranking, the economy has worsened on the index from 3.3 out of a possible seven last year to 3.2 this year.

Last year, Malawi tumbled both on the competitiveness index ranking and the World Bank doing business report.

In 2013, the country crashed seven steps to 136 out of 148 economies on the competitiveness index with foreign currency regulations, access to financing, tax rates, corruption and theft and crime as problematic factors.

According to the 2014 World Bank Doing Business Report, Malawi tumbled 10 steps to 171 out of 189 economies.