‘Government intervention failsto ignite business growth’

Overseas Development Institute (ODI) research fellow Sherillyn Raga says despite the Malawi Government promoting the business and investment environment in the country, persistent challenges still remain.

In a policy brief on Malawi’s macro-economic and trade profile by the London-based global affairs think-tank, she said poor economic policies and management, a high level of informality where about 60 of businesses are microenterprises and a shallow financial sector, limit Malawi’s private sector competitiveness and economic diversification.

Raga said: “Poor economic policies and management like frequent expenditure overruns, high risk of debt distress are contributing to overall macroeconomic instability risks, affecting businesses.

“For instance, foreign exchange shortages and high inflation are increasing input costs and straining enterprises.”

She said deficits in electricity, with only 14.9 percent of the population having access to electricity in 2020, has been a major deterrent to growth as businesses are forced to pay higher charges to maintain stable supply.

Raga said it is estimated that 90 percent of banking loans are channelled to a handful of large corporates.

“As of 2018, domestic credit to the private sector was equivalent to 10 percent of gross domestic product compared with 28.4 percent in Sub-Saharan Africa,” she said.

To address urgent foreign exchange and debt servicing needs and support critical imports and ease growing food insecurity, the government accessed an $88.3 million financing under the new Food Shock Window of the International Monetary Fund (IMF) Rapid Credit Facility last  year.

To restore overall macroeconomic stability, the government has developed a debt strategy and has initiated negotiations with its creditor in which creditor assurances that can be secured will help unlock higher IMF financing.

Commenting on the observation in an interview yesterday, Chamber for Small and Medium Businesses Association executive secretary James Chiutsi said small businesses have been thriving in recent years, with the situation worsened by power challenges, forex shortages and lack of access to finance.

He said: “Small firms are operating in a difficult environment as their production capacity has gone back several years.