The recent 40 percent wage increase imposed on small and medium enterprises (SMEs) has sparked concern among business leaders and economic analysts, who warn of mounting pressure on already fragile operations.
While the government says the adjustment aims to cushion workers against rising living costs, industry stakeholders argue the abrupt hike has strained SMEs, many of which are grappling with inflation, high production costs and infrastructural challenges.
President of the Union of SMEs, James Chiutsi, said the wage increase has further squeezed profit margins, threatening the survival of many businesses.
“Production costs are already high in Malawi. An increase in salaries inevitably leads to higher costs, which reduces SMEs’ profit margins. Many are just managing to break even, so adding more expenses is a disservice to them,” he said.
Chiutsi acknowledged the need to improve worker welfare but said SMEs are victims of a tough macroeconomic environment. He cited fuel shortages, frequent power outages and limited foreign exchange as compounding factors.
“SMEs want a productive workforce, but the economic environment makes it hard to survive. These external shocks have created a perfect storm,” he said.
In response, many SMEs are adopting risky cost-cutting measures. Chiutsi said businesses are merging roles such as sales, administration and book-keeping to reduce labour costs, with owners taking on more responsibilities themselves.
“Instead of employing multiple specialists, SMEs are consolidating responsibilities into fewer roles,” he said.
The lack of consultation prior to the wage hike has further fuelled frustrations. Chiutsi said the government did not engage stakeholders, despite encouraging the formation of the Malawi Union of SMEs under the EU-supported Zantchito project.
“We see ourselves as partners to the government, yet decisions are made unilaterally. We urge the government to consult before implementing such measures,” he said.
He called for increased access to affordable business development services through institutions such as the Small and Medium Enterprises Development Institute (Smedi), Malawi Bureau of Standards (MBS) and Malawi Investment and Trade Centre (MITC).
Smedi spokesperson Patrick Zgambo clarified that the institute only implements policies set by the government.
“Smedi does not make laws. This is the work of the line ministry—in this case, the Ministry of Labour. We are only an implementation agency,” he said.
His remarks highlighted the institutional limitations faced by SME support agencies, which often adopt policies without direct input in their formulation.
Economic policy expert Veli Nyirongo warned that the wage hike, if not carefully managed, could deepen Malawi’s economic woes.
“The decision was ill-timed and inconsiderate of employers. Many SMEs operate on thin margins. A sudden wage hike could push them into financial distress or force layoffs,” he said.
Nyirongo proposed a phased adjustment, coupled with targeted fiscal measures such as tax incentives, subsidies and utility relief.
“Government could consider tax relief for innovation-driven firms or low-interest credit facilities to help SMEs adapt,” he said.
He also called for robust consultation mechanisms involving policymakers, business associations and labour groups to develop balanced solutions.
On the operational front, Nyirongo urged SMEs to innovate and leverage technology to offset higher labour costs.
“Businesses should explore automation, diversify markets and adopt cost-saving practices. Flexible employment arrangements could help retain skills and reduce risks,” he said.
