Malawi’s economy is showing signs of unde-investment with the share of capital formation in gross domestic product (GDP) falling sharply over the past six years, latest National Statistical Office (NSO) data show.
The data show that gross fixed capital formation, which includes spending on infrastructure, machinery and other long-term productive assets, fell from 20.3 percent of GDP in 2017 to 11.2 percent in 2023.
Analysts say the consistent decline in capital spending as a share of GDP suggests a deeper structural challenge and warn that the trend could jeopardise the country’s long-term growth and job creation prospects.
Economist Paul Kwengwere, who is also International Trade Council board member, attributed the fall in gross fixed capital formation to both macroeconomic and structural challenges.
He said: “Exchange rate volatility also played a role, with the 44 percent devaluation of the kwacha in November 2023. This kind of uncertainty discourages long-term investment.”
Kwengwere recommended several policy interventions to reverse the trend, including restoring macroeconomic stability by reducing the fiscal deficit, maintaining a tight monetary policy, and stabilising the exchange rate.
University of Malawi macroeconomics lecturer Edward Lemani said the economic instability and worsening macroeconomic indicators have been the main drivers of the country’s underinvestment.
“We have experienced higher inflation, volatile exchange rates and depreciation. These have resulted in declining domestic and foreign direct investment,” he said.
The report indicates that capital investment in dwellings, buildings and machinery showed mixed trends.
The findings of the report are based on newly rebased GDP estimates, using 2017 as the base year, to better reflect current economic realities.
