Economic development and political challenges in Malawi

This paper assesses the prospects and challenges for economic development in Malawi, a donor dependent landlocked east central African country.  Malawi receives 40% of its budget from aid agencies.  It has been subject to widespread corruption and a divisive and often violent presidential election.  With the new regime headed by President Peter A. Mutharika, many see the prospects for transforming Malawi from donor dependency through sound economic principles based on markets and the rule of law.

Malawi was ranked as the 124th freest economy of the 178 countries ranked in the Heritage Foundation’s 2014 Economic Freedom index.  Most African countries are in the “moderately free” category (50 -59.9).  Egypt is 135th with 52.9.  Malawi economic freedom at 55.4 making it mid-range for African countries.  The US is 12th with a score on the index of 75.5 while Ireland and Denmark are 9th and 10th respectively. 

Malawi has financial and regulatory problems which affect three main interconnected economic development challenges:  energy, exports, and logistics. To address the energy and export problem, Malawi needs diversification.  It should invest in water resources, energy, biomass energy development, wind, and solar to reduce the import of energy resources. With regard to exports it relies primarily on tobacco and tea.  Malawi should produce different goods that sell better in international markets.  The demand for tobacco and tea is static while many countries are better organized on the supply side.  Malawi could specialize in forestry, agriculture and minerals. An additional aspect is to develop better ways to preserve crops such as silos, better communication and improved transportation facilities both domestically and internationally. The primary solution consists in opening the country to foreign direct investment, with friendly countries and stable institutions such as the World Bank and International Monetary Fund. Clearly foreign investors can find new resources in Malawi to be profitably exported. 

*The author is formerly senior economist at the U.S. Senate Joint Economic Committee.  Communication should be sent to gbrady6430@aol.com.