Forget IMF, JB; think FDI

For all the days IMF chief Christine Largade was in the country last month, enjoying massive media coverage, as if a hero returned from a pyrrhic victory, I was busy reading over and over again a story published on page 3 of The Nation of April 1 1998, written by Gabriel Kamlomo—now with Daily Times.

The story was titled ‘Bingu wa Mutharika says structures have collapsed: Economic woes decried.’ In the article, Mutharika—then president of United Party (UP)—decried the escalation of commodity prices due to the effects of IMF demands on Bakili Muluzi’s government to devalue and float the kwacha.

Mutharika argued that Malawi’s fiscal and monetary structures “have collapsed” and no mechanisms were put in place to protect peasant farmers and the poor.

“It is a scandal that the retail price of cooking oil, for instance, has increased from K35 per litre to a whooping K55 in a period of two weeks in January this year. The same is true for bread….Is there economic justification for this price increase?” he queried.

I became interested in this story because the economic pain it paints of 1998 is not different from the one we are struggling with today.

In fact, it is pain manufactured by the same IMF whose boss was in the country to talk and talk and talk. Quite cyclic pains! Of course, as part of getting the economy back on track, Mutharika called on Muluzi government to regulate the market and also to ask IMF to review the price structures and agree to implement a price stabilisation programme.

He added that government should invest more in internal and external trade, instead of IMF-driven aid. Well, it is one thing, especially when you are not in government, to propose a great idea and it is another, when you are in government, to implement it.

When he had his chance to rule, Mutharika, after IMF pushed him to devalue the kwacha, moved in to regulate the currency. I think we all know the consequences of his decisions.

The question, then, is: which way Malawi?

It is my opinion that it is high time we began to say bye to the IMF. I think their ways are not our ways. As a way forward, it is important to listen to Zambian economist Dambisa Moyo who radically rejects aid and calls on African countries to invest in trade.

And one powerful aspect of trade is through investing in what economists call foreign direct investment (FDI). This is where large multi-national companies invest in the country. I am told FDI helps to create jobs, generate forex and boost government’s revenue.

But are we doing enough to attract FDI? Recently, Japanese ambassador to Malawi Fujio Samukawa said Malawi is a difficult country to sell to investors because of the energy crisis and high cost of transportation.

Well, if Samukawa is lying, read the response below from Greg Walker, Paladin’s general manger, after I put to him on his company’s experience in investing in Malawi.

It is a fact that, despite the very large investment made in Kayelekera and the considerable efforts of the company and our people, the project is not profitable. Mining is a risky business – and Paladin accepts that fact.

When the Kayelekera project was conceived, the price of uranium oxide $US 75/lb and expected to increase. In the aftermath of the Japanese earthquake in March last year and subsequent suspension of Japanese nuclear power production, the spot price of uranium oxide dropped to a low of $US47.50/lb last year. It hovered between US$51/lb and $US52/lb for the first half of this year, but has now trended down to $US 43.50/lb.

This price is below the current cost of production at Kayelekera. In response, Paladin did not mothball Kayelekera, but brought in $US 145 million to support the operation and to keep Malawians employed.

The Paladin Group recorded a net loss after tax of US$172.8M for the year, mainly as a result of the US$133M (post-tax) impairment associated with the write down of the Kayelekera assets in the quarter ended September 2011.

While the challenges confronting Kayelekera Mine are very largely to do with the depressed price of the mine’s product, it is also a fact that Kayelekera Mine has one of the highest operating costs of any uranium mine operating in the world today. This is a function of operating in a landlocked country like Malawi, with no history of mining, remoteness, lack of electricity, road infrastructure, distance to ports, a high tax regime and so on.

It is a fact that, if Kayelekera had not been built when it was built, it would not be built today – not in this economic climate, not with today’s uranium price and with Malawi’s current governance reputation.

Paladin made the decision to invest here. We want to succeed and we want Malawi to succeed as well, but frankly I think people need to consider the unhealthy suspicion and hostility exhibited towards foreigners investing in this country. This is to be contrasted with the attitude displayed in other African countries competing for valuable foreign investment. This situation must change if Malawi is to successfully compete for future foreign direct investment inputs.

Are we doing enough then to attract FDI?

Ask yourself.