Where the international firm will go
This is the age of globalisation on an unprecedented scale. We are exposed to global forces both friendly and hostile. How do we or should we respond to them?
In the history of internationalisation when isolated tribes were visited by foreigners of higher civilisation some coiled in dark forests or inaccessible geographical features. They perched because of refusing to learn the technology and culture of the foreigners.
Other tribes adjusted their cultures, sought to find out the source of the foreigners superiority. In the course of the time, they caught up, avoided extinction.
Are we responding correctly to the major events taking place around us? Time and time again, we learn if discoveries of oil, gas and other elements that buttress modern industrialisation. These are taking place in Mozambique, Tanzania and Zambia. Even beyond such breath-taking discoveries are still eluding our geologists.
There are two ways of positioning ourselves. We may explore our neighbouring countries for the product that we already have or produce and make new products that the surrounding markets might welcome.
We should also position ourselves for competition with regard ti enticing foreign direct investment. Because these countries are growing faster, prima facie they will be more attractive to foreign businesses which want to relocate their manufacturing plants.
What do international firms look for when they want to relocate or expand their businesses? They examine various foreign countries to find out those which have the right factors. A foreign country must be politically stable , it must be friendly to foreign business ventures. These countries which have highly skilled but low labour are most attractive.
For a long time India has been attracting American and European business because of its skilled workers who were accepting wages and salaries a mere fraction of those in the west.
Malawi belongs to two trading blocs: The Southern African Development Community (Sadc) and the Common Market for Eastern and Southern Africa (Comesa). Firms in Europe and America that wish to manufacture goods locally for these economic blocs will look at the various member State and say let us locate in this country, try and sell to the rest of the region. The country in which the factory will be located will experience a boost in employment and income multipliers.
What are we as a country doing to compete for foreign direct investment (FDI) that wants to serve the regional market? Is our labour skilled and not over-priced?
From time to time, we read that it takes too much time for a potential investor in Malawi to conclude terms with officials, why can we not have a one-stop investment bureau. We must identify bottlenecks. As one man observed sometimes bottlenecks are found not at the bottom but the top of the bottle.
Movement of the exchange rate is one of the factors that international firms take into account. Flexible exchange rates can deter or attract investors. Investors do not want their earnings in foreign currency to swing like pendulums. A currency must be fairly steady even if it is flexible.
A currency that is low in value helps exports to expand. During the period 1950 to 1980, the Japanese currency, the yen, was under-valued as a result Japanese exports were cheaper than those of industrial countries. Japan conquered the world market where General Tojo had failed with his guns and kamikaze soldiers.
That Malawi is smaller and less endowed with natural resources need not be a prohibitive barrier to those international firms which are looking for suitable locations for their overseas factories. Singapore and Taiwan have been able to attract such world famous corporations such as Hewlett-Packard. High quality human factors can make up for shortfalls in natural resources.
We need an institution that is staffed by technocrats that are ever vigilant and cognisant of what is happening in the economics and technologies of other countries. Developmental countries behave like corporations, they watch their rivals in order not to be caught dosing.
Thanks for this article on globalisation and investment. It is fair to say that as a nation we remain spectators instead of being participants in the global economy. You make valid points across board that we should be debating as a country. What is keeping us down? After 50 years of peaceful existence, why is Malawi not on “the move” on economic ladder? My personal assessment is that in Africa as the whole and Malawi in particular, we are subsumed with farming and the primary resources sector as a basis of our national competitiveness. News about new resources being discovered in other countries to me is simply “here we go again”. It is not the way forward for development, as we have discovered with our one uranium mining experience. Zambia or Tanzania still need the real solution to develop if they are to avoid resource curse or the Dutch disease.
Without getting our economic house in order, belonging to SADC/COMESA just exposes us to import more duty free thereby worsening our current account deficit (CAD). The consequence of which is more poverty through high inflation and currency devaluations due to worsening CAD position. Let me eliminate one topic of debate, The current state of the economy in Malawi is sound in that it is where it should be given its premises of being an agrarian economy. Let us agree this point once and for all and move on to more serious issues of long term sustainable economic growth and development of the country given where we are. Yes devaluations will occur but that is to be expected given the CAD level.
Attracting FDI is the right direction but is there enough understanding in the country as to how that can be achieved by the civil society, government and private sector? One of the most important subtle point about attracting FDI has been misunderstood in the country i.e tax incentives. Many civ socs jump up and down about how the country is losing income on low corporate taxes. They do not quantify benefits. Corporation tax is simply one of the most critical baits in FDI. Investment is about wealth creation for the investor. Corporation tax is paid on net profits. For Malawi to attract investors within the region it must offer the lowest corporation tax otherwise why would anyone invest in a landlocked country when they can invest in Mozambique or Tanzania? Little Ireland upset many big EU countries by cutting its corporation tax to 12%. Global corporations such as Dell, Intel, Google etc seeking to invest in Europe, immediately chose Ireland as their EU H/Q. When a company invests in Malawi, we gain on several fronts: jobs, infrastructure, technology transfer, import/export, personal taxes 70% (Paye, withholding and even VAT since consumers pay that) and multiplier effects to stimulate other investments in our economy. Fixation with corporate tax must be relaxed. For heaven’s sake, it is only around 8% of government tax revenue in UK and US. For MW it is around 11%. Investment incentives work in attracting FDI and we must encourage the govt to use them. This is a give and take exercise not AID. I would rather have investment in Malawi employing our people than worry about corporate taxes that politicians might misuse anyway. My only wishlist is that reduction in corporation tax must be done transparently, consistently as a matter of policy.
Having said all that, Malawi is not yet on a development ladder. The country is not expanding its productive capacity. All of the above discussion is superficial and superfluous if we do not put the country on the right economic growth ladder. The real solution remains hidden to Malawians on how to really fix our production frontier to increase production input factors. The real solution, the “holy grail” of development that will unleash untold wealth creation, rapid economic boom, and boost standards of living is unknown to Malawians at this point, unfortunately! Good news is we have acquired it.