Malawi awaits early investors
Having suffered both natural disasters and political corruption in recent years, Malawi is fighting back. It has improved its ease of doing business – boasting Commonwealth links and an English-speaking workforce – and offers investors willing to take the plunge plenty of potential. Sebastian Shehadi reports.
Already one of the world’s poorest countries, weather-related disasters – in the form of both droughts and floods – have seriously damaged the economy of Malawi and its all-important agriculture sector in recent years.
GDP growth fell from 5.7% in 2014 to 2.8% in 2015, according to the World Bank. The organisation’s data also shows FDI plummeting from $715m in 2014 to $142m in 2015. Investment monitor fDi Markets reports only one greenfield investment for 2015 and none thus far in 2016.
Despite all this, Malawi has major investment opportunities “in energy, infrastructure, manufacturing, agriculture, tourism and services”, says Kena Mphonda, the Malawi high commissioner to the UK. It is already home to more than 50 foreign companies, he adds.
Furthermore, Malawi is among Africa’s most peaceful countries and the government “is very open to FDI”, according to Oliver Everett, CEO of the Commonwealth Enterprise and Investment Council. He cites the “flexibility and commerciality of the government. It will tailor incentives to each investor and, unlike most countries, its ministers quickly enter into direct talks.”
Being part of the Commonwealth is another advantage. “[The Commonwealth's] financial and legal system is based on the UK’s and there’s a 19% cost advantage in doing business between Commonwealth countries,” says Mr Everett. He adds that investors also benefit from Malawi’s “inexpensive, competent and English-speaking” workforce.
Malawi has also improved its standing in the World Bank’s Ease of Doing Business index, jumping from 163rd in 2014 to 133rd in 2016. However, numerous government corruption scandals, such as 2013’s so-called 'Cashgate', have cost Malawi millions in foreign donations. Cholo Mvula, an economic commentator on Malawi, says confidence “has not been [won] back” because the current president, Peter Mutharika, and his predecessor, Joyce Banda, are implicated in Cashgate.
Additionally, climate disasters have exacerbated Malawi’s perennial electricity and water shortages. Blackouts are common, and back-up generators are essential for any business operating in the country. Since all of the country's petroleum has to be imported, the government knows that renewable energy, especially hydro and solar, is the solution and a primary area for FDI.
Indeed, at Malawi’s 2016 Investment Forum, water and electricity supply projects – from new dams to waste-to-energy facilities – dominated the agenda and there were seven memoranda of understanding related to this area, according to Mr Mphonda.
Most promising sectors
Malawi’s biggest opportunity for FDI is, some contend, in agriculture and tourism. “It’s very fertile land. [Business must] diversify crops, create added value, and better comply with international production norms," says Mr Everett, while Mr Mvula believes that with the proper machinery and irrigation, agribusiness would both counter droughts and reward investors.
Tourism is also important to the country, growing at 4.2% and accounting for roughly 7% of employment and GDP over the past four years, according to the World Travel & Tourism Council. However, considering Malawi’s beauty and peaceful environment, there is plenty of scope to expand.
Although high-end ecotourism is being developed, Mr Mvula laments that it lacks Kenya’s “proper planning and safari parks”. Ageing airport infrastructure and poor marketing are other problems. Indeed, figures on the Malawi Investment and Trade Centre website have not been updated since 2013, which is a disincentive for potential investors in all sectors.
Regarding natural resources, Mr Mvula says that Malawi has large uranium and coal deposits, “and that Lake Malawi had [unexplored] potential for minerals”. He adds that great opportunities exist for investment in ICT, since mobile and internet use is growing and there are currently very few operators.
Mr Everett believes minimal competition – and not only in ICT – should be an incentive to invest in Malawi. “If you’re willing to wait 10 years and [invest from a strong currency, such as sterling], then your rate of return could be phenomenal,” he says.
The fDi Report 2016
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