Manufacturing sector growth under pressure

Malawi’s manufacturing sector is facing significant challenges due to a combination of factors, including restrictive tax regimes and contractionary monetary policies, local entrepreneurs and industry experts have said.

The policies are said to be stifling innovation and making it difficult for local manufacturers to compete on the global market.

National Working Group on Trade Policy chairperson Frederick Changaya, in an interview on Friday, blamed tight monetary policy for raising the cost of borrowing while National Planning Commission (NPC) director general Thomas Chataghalala Munthali argues that it hinders investment due to underutilised production factors.

He said: “We have factors of production such as land that is lying idle.

“If the government reduced interest rates and made borrowing cheaper, people would borrow to complete those projects. We will be getting closer to our goal of industrialisation.”

The Reserve Bank of Malawi has raised the policy rate as a lender of last resort, the rate at which commercial banks borrow from the central bank, by 1 400 basis points from 12 percent in 2020 to 26 percent this year.

During the same period, commercial bank interest rates have gone up by 12 percent to 25.1 percent .

Investment banker and strategist Misheck Esau said in an interview on Friday that high interest rates discourage investment in manufacturing facilities while limited access to finance, particularly for small and medium enterprises, further restricts growth.

He also faulted the government procurement policies that favour imported goods over locally produced ones.

Said Esau: “Government’s own procurement policiesare to blame because they favour imports over locally produced goods.

“This is prevalent in the education, health and agriculture sectors just to name a few.”

Malawi Confederation of Chambers of Commerce and Industry and Sparc Systems Limited founder Wisely Phiri said that tax laws are hindering innovation.

He said: “We also have taxes that are barring innovation.

“For example, on computer parts, there is a 25 percent duty which is removed when you buy a fully assembled computer. This is making the cost of innovation expensive.”

In a separate interview, Mtalimanja Holdings founder and investor Napoleon Dzombe said high production costs have an impact on local production.

“The high interest rates and utility bills drive up our production costs. If the production costs are high, it makes our products much more expensive than those of our competitors,” he said.

Dzombe said the challenges collectively threaten to cripple Malawi’s manufacturing sector, hindering its potential to contribute to the country’s economic transformation.

The manufacturing sector experienced a contraction in 2022, with a growth estimated at negative 1.4 percent from a growth of 4.1 percent in 2021, according to the Malawi Government Annual Economic Report 2024. In 2023, the industry’s growth was estimated at 0.4 percent in 2024 and 2025, the sector is projected to grow at 4.4 percent and 4.6 percent, respectively.