How loans get wasted
- Shoddy infrastructure built
- Project delays lead to cost escalation, multiple borrowing
- Taxpayers burdened, as MPs sleep on the job
Inefficiencies in project management—shoddy procurement and infrastructure, cost overruns due to delays and multiple borrowing for the same projects—have contributed to Malawi’s near-crisis public debt and shrinking fiscal space, our analysis shows.
Consequently, while debt continues to rise, poverty remains high, says economist Milward Tobias, who is also director of Centre for Research and Consultancy.
This, Tobias adds, implies that debt proceeds are not effectively used to finance projects that could transform the economy, reduce poverty and enable government to repay easily.
As of December 2021, total public debt (TBD) stood at K5.8 trillion, which is more than double the current national budget and at the time it represented 54 percent of Malawi’s gross domestic product (GDP).
Latest projections show that TBD now accounts for 56 percent of national economic output, just four percentage points below the 60 percent regional benchmark for sustainable debt.
Our analysis—focusing on the last 12 years which involved reviewing financial and selected project reports, observations and interviews—reveals wastefulness of loans.
Examples abound.
Cancer Centre
Malawians hoped that the first-of-its-kind Cancer Centre in Lilongwe, constructed with a $13 million loan from the Opec Fund for International Development, would give them easy access to specialised medical treatment.
But that structure is woefully lacking, according to an assurance report (2020) from Construction Sector Transparency Initiative (CoST).
The report claims that the hired architects from South Africa did not have the capacity to design the highly specialised cancer treatment blocks.
“Specifically, the Brachytherapy Bunker, and the External Beam Radiotherapy Bunker required specialist design knowledge to accommodate the specialised radiotherapy equipment,” reads the report, which further reveals that even with this clinic, Malawians will still depend on other countries for specialised treatment.
“The investment made, therefore, is not justified unless the facility has the specialist equipment that will fulfill the objective of reducing foreign travel for cancer treatment by citizens of Malawi.”
According to financial records we have seen, the project also had a cost overrun of up to 28 percent due to delays and variations. The contract sum was $8 107 695.05, but government ended up paying $10 355 669.11.
The Ministry of Health was yet to respond to our questionnaire on how they intend to fix these problems.
But a well-placed source said the ministry is working on fresh designs to include the missing specialised treatment blocks and fix purlins, which will bring extra costs.
Roads to death…
In the 2018-19 fiscal year, Capital Hill rehabilitated a 46-kilometre road from Karonga Boma to Songwe border (M1) at a cost of K19.4 billion with funding from the World Bank. But in April last year, a bridge, which was part of the road project, was washed away and claimed three lives.
While Roads Authority (RA) claimed that the bridge was not part of the rehabilitation exercise, our source at the authority said the Kyungu Bridge was part of the project.
“The bridge was as bad as the road; hence, the rehabilitation exercise included the bridge. What would be the use of having an improved road with a life-threatening bridge? It was an act of substandard work done on the bridge, full stop,” said an RA senior engineer, who spoke on condition of anonymity.
The road’s Resettlement Action Plan, available on World Bank website, confirms that the construction of this section of the road included “maintenance of bridges and culverts”.
Shoddy construction of road infrastructure is widespread and this case is reminiscent of the Chitipa–Karonga Road, which begun to develop cracks within three years of its launch.
Today, the $70 million Chinese-funded road is in bad shape in most sections with broken edges and life-threatening potholes.
In an interview, Malawi Institution of Engineers president Alfonso Chikuni said they have noted with concern the proliferation of substandard infrastructure such that they are engaging government to involve them in supervising public infrastructure projects.
Another death-trap is the M1, which accounts for 90 percent of road accidents in Malawi, according to statistics from the Department of Road Traffic and Safety Services (DRTSS).
But as the M1 continues to claim lives estimated at over 1 000 every year due to accidents, the road’s rehabilitation has not started despite resources being available.
In November 2019, the Malawi Government and the European Union (EU) signed a financial agreement for 139 million euro (about K129 billion) as contribution towards the rehabilitation of over 347km of the M1.
From the amount, 95.5 million euro was a loan from the European Investment Bank (EIB) while 43.1 million euro was a grant from the EU, project documents show.
Over two years after the signing the loan documents, RA is yet to identify contractors and an inside source claimed that the delay has significantly increased the cost of the project from the estimated K125 billion in 2018 at the time of the negotiation of the loan.
Treasury spokesperson Taurai Banda said commencement of construction awaits final approval from the funder, EIB.
Banda indicated: “We are optimistic that by July 2022 we will have the contractors on the ground”.
The rehabilitation project of the M1 is divided into four sections; from Kamuzu International Airport to Kasungu, Kasungu to Jenda, Jenda to Mzimba Turn-Off and Kacheche to Chiweta.
Another similar case of delayed implementation of loan-funded project involves a $90 million loan (about K70 billion) from World Bank. With this facility government is implementing a project called Equals (Equity with Quality and Learning at Secondary) aimed at, among others, constructing infrastructure in Community Day Secondary Schools (CDSSs) such as blocks and equipping laboratories to improve the quality of learning science and mathematics.
The project is expected to run from 2019 to 2025. The World Bank board approved the loan in March 2019 and government begun to access the funds in December 2019, according to the project status report dated April 30 2022.
Over two years now, the actual construction of the infrastructure, which is the main component of this project, is yet to begin.
A World Bank source blamed the delay on “bureaucracy and inefficiency” at the Ministry of Education, which is yet to identify contractors.
With passage of time, there is obviously cost escalation such that this project may not have the same impact if it were implemented a year ago.
In an earlier interview, the ministry’s spokesperson Chikondi Chimala indicated that contracts would be given out soon to start construction without really indicating the cause of the delay.
Recently, President Lazarus Chakwera expressed frustration over delays in construction of the 72-kilometre (km) Bangula-Marka Railway project, which has missed its completion deadline and has not even started.
The project was mooted in October 2020 after Chakwera met his Mozambican counterpart Felipe Nyusi and agreed to revive the Sena Corridor to link the two countries by rail and help connect Beira Port in Mozambique with landlocked Malawi.
Mozambique completed its 44-km section from Mutarara to Marka while Malawi is yet to start works on the project.
Procurement processes such as evaluation of bids were completed in December 2020 and in May last year the two countries signed a memorandum of understanding to have the rehabilitation works of the railway line completed by March 2022.
Last year, Portuguese multidisciplinary and construction conglomerate Mota-Engil emerged as the successful lowest bidder for the contract with an offer of K48 billion, but the ACB nullified the tender, citing procurement irregularities.
Ministry of Transport and Public Works retendered the project and last month settled for a Chinese firm, China 20, at a cost of about K68 billion.
Multiple borrowing for same projects
With so many competing priorities, some projects have been going on for years without completion. They have been mentioned in several presidential addresses and budget statements as priority projects—but still could not just be completed even where government sets clear deadlines.
A 2018 Centre for Social Concern (CSC) report titled: Malawi indebtedness: Keeping an eye on the national domestic and foreign debt has listed several projects that have befitted from multiple loans due to delayed implementation.
According to the report, in 2010, government signed a loan agreement with Opec Fund for $7 million to construct Phalombe District Hospital, which was scheduled to be completed in 2015.
In 2013, another loan was obtained from Saudi Fund amounting to $12 million and extended the completion of the project to 2018. This deadline too was missed as the project was only completed last year—three years after.
The 2019 CoST Assurance report shows that the solicited funds from donors, due to delays, were not enough to complete construction of the hospital such that government had to inject in an extra $5 million.
The Thyolo Makwasa Bangula Road is another long-standing project highlighted in the CSC report, which the current administration has promised to focus on for completion. It has been going on for nearly 15 years—across four regimes. This project was expected to run between 2008 and 2011, according to a project brief on RA’s official website.
The project got its first funding in 2007, ($10 million) from Opec Fund. In 2008, the project benefited from two more loans—$10 million from Badea and SR 45,000,000 (MK9.5) from Saudi Fund in 2011. The completion date was moved to 2016. The road is still under construction, four years after its set deadline.
In his latest State of the nation address, in February this year, President Chakwera mentioned the road as one of the projects his administration will prioritise.
The Zomba-Jali–Chitakale-Phalombe Road is another project that did not only change names, but also benefitted from three foreign loans and government’s domestic borrowing.
Some of the funders, according to the CSC study, are Kuwait Fund, Opec Fund for International Development and Arab Bank for Economic Development in Africa. It took almost 10 years to complete.
The Rise of White Elephants
Another typical case of negligence concerns several houses meant for medical staff in Kasungu District, which have been abandoned following misunderstandings between the Ministry of Health and the contractor.
During our visit to three health centres; Bua, Chamwabvi and Lodjwa, we saw four uncompleted houses for each health centre. The houses are three-bedroomed each with proper roofing, but have no doors and windows and have been in this state for nearly a decade without being attended to.
“These houses were abandoned around 2013 and since then we have not heard anything from government yet our facility is desperate for staff houses” said one official from Bua Health Centre.
Kasungu district health officer Emmanuel Golombe said, in fact, such houses were spread across a number of health centres in the district, including the district hospital, but could not provide more details and he referred us to the ministry.
We have established that these houses were part of a multimillion Umoyo Housing Project funded under the Health Sector Joint Fund.
According to officials in the know from the Ministry of Health, the houses were poorly designed, leading to termination of contract and since then government is yet to act on the situation.
Another stalled project is the multi-million kwacha horticulture produce processing and marketing facility in Kanengo, Lilongwe. The Ministry of Agriculture is failing to operationalise it five years after its completion.
This structure is worth K500 million and is part of a five-year $23 million (about K18 billion) Africa Development Bank (AfDB)-funded Agriculture Infrastructure Support Project initiative. According to information on AfDB website, Malawi is expected to pay back this loan in 50 years’ time without interest.
In 2010 government obtained a $50 million loan from India to procure farm machinery, which included tractors and irrigation equipment to improve agricultural production with a focus on small-holder farmers.
While the procured equipment was meant for ordinary farmers—the tractors, for example, ended up being sold to politically-connected individuals at a much lower price, yet the funds cannot be accounted for, according to an investigative audit report from the National Audit Office dated November 6 2019.
The tractors, reads the audit report, had mechanical faults and could not be easily used by farmers largely because this was “an archaic technology built around 1970”. As for irrigation equipment (100 pumps) worth about $15 million, this has been left to rot at a warehouse in Lilongwe. The pumps are said to be faulty as well.
A confidential report from Ministry of Irrigation and Water Development to the Office of President and Cabinet (OPC), in 2020 asked for direction from Cabinet on how to handle the consignment of pumps dumped at Plant Vehicle Hire and Engineering Services (PVHES) warehouse in Lilongwe.
Reads the report: “The pumps are a burden to government; hence, the need to put them to use so as to defray the storage costs and avoid further deterioration,” reads the report in part written almost 10 years after the equipment was dumped.
But even after seeking direction from OPC, the pumps remain idle 11 years on.
In a written response, spokesperson for Ministry of Agriculture Gracian Lungu said the fresh direction on the matter is to have the pumps auctioned to commercial farmers.
An investigative audit report faults the Ministry of Finance for procuring this equipment without proper procedures and due diligence, and more importantly without consulting listed beneficiaries in the Loan Authorisation Bill, namely One Village One Product (OVOP) and Green Belt Initiative turned authority.
Even with this misuse of the loan, taxpayers are expected to pay back the loan with interest beginning 2035. The 2016 Ombudsman’s investigative report on this matter provides a compelling summary on the matter:
“In the end, the next generations will be repaying loans that neither they nor their ancestors benefitted from. The present generation is toiling on the farms while the future [will be] overburdened for nothing. This is not justice.”
