Malawi

Politics:

• Analysis

  Malawi politics: Quick View - Fertiliser subsidy programme hits a rough pat

  Event

  There has been a renewed focus on the merits of Malawi's farm input subsidy programme (FISP) following a spate of recent problems, including the theft of subsidised fertiliser and other instances of lax management and malpractice.

  Analysis

  The fertiliser subsidy programme was launched during the tenure of the former president, Bingu wa Mutharika, as a way of stimulating agricultural production in a country that has historically suffered from recurrent food shortages. The programme was initially very successful and is cited as one of the main factors behind a rapid acceleration in Malawi's economic growth rate (which saw real GDP expand by an annual average of more than 8% in 2006-11), although the boom in production also corresponded with a number of years of favourable weather.

  Not surprisingly, FISP has proved hugely popular with small farmers, who would otherwise have been unable to meet the rising cost of fertilisers. However, the scheme has come under increasing scrutiny in recent months. In September the government was criticised for the way in which new fertiliser supply contracts were awarded to companies making exorbitant bids. This has been seized upon by those who argue that the allocation of such contracts is an important tool of political patronage.

  In addition, a number of irregularities have come to light. In early December the police confirmed that 5,900 bags of fertiliser, worth around MK75m (US$200,000), had been stolen from a warehouse in Blantyre. This brings the number of thefts since the start of this year to nearly 10,000 bags. Two weeks earlier the authorities discovered that 87% of the sacks held in a depot in Mzimba had been filled with sand. Meanwhile, farmers have been complaining about lengthy delays in the distribution of the vouchers for cheap fertilliser.

  Against this backdrop, government critics are increasingly starting to question the overall value of the programme. With MK40bn (US$122m) set aside for FISP in this year's budget, they argue that the money could be used more effectively in other projects (irrigation, for example). Nonetheless, with elections due in May 2014, it is doubtful that the president, Joyce Banda, would consider any significant scaling back of FISP, given its importance in terms of the rural vote.

  December 11, 2012

• Background

  Malawi: Constitution and institutions

  A new constitution in 1994

  The new multiparty parliament promulgated a fresh constitution in 1994. The constitution curtails the absolute powers that had previously been vested in the president. Based largely on the US constitution, it enshrines multiparty democracy and an independent judiciary. It features a bill of rights and retains the death penalty, although there have been no executions since the constitution was drafted. The constitution provides for a single legislative body, the National Assembly, consisting of 177 seats elected by a direct vote from constituencies. Before the 1999 elections the number of seats in the National Assembly was increased to 193. Local elections were finally held in November 2000 after a six-year hiatus. The local authorities (mayors, city councils and rural district councils) have the power to levy taxes, spend money at their own discretion and run social services. In general, judges lack resources and are subject to pressure from the legislature. Besides encroaching on judicial independence, the activities of politicians have undermined the population's faith in the parliamentary process. Furthermore, politicians from all parties continue to be embroiled in high-profile corruption scandals.

  February 22, 2008

• Structure

  Malawi: Political structure

  Official name

  Republic of Malawi

  Form of state

  Unitary republic

  Legal system

  Based on English common law; constitution promulgated in May 1995

  National legislature

  National Assembly of 193 seats, elected by direct universal suffrage for a five-year term

  National elections

  May 19th 2009 (presidential and legislative); next elections due by May 2014 (presidential and legislative)

  Head of state

  President, elected by direct universal suffrage for a term of five years; Joyce Banda succeeded Bingu wa Mutharika following his death in April 2012

  National government

  Cabinet, chaired by the president

  Political parties

  The People's Party (PP) has become the largest party in the National Assembly after up to 35 members of the former ruling party, the Democratic Progressive Party (DPP), and other opposition parties joined the PP; the largest opposition party is now the DPP, followed by the Malawi Congress Party (MCP) and the United Democratic Front (UDF); smaller parties include the People's Progressive Movement, the Congress for National Unity, the People's Transformation Party, the Republican Party, the Alliance for Democracy (Aford), the Malawi Forum for Unity and Development (Mafunde), the National Democratic Alliance (NDA) and the Movement for Genuine Democratic Change (Mgode); independent members of parliament currently form the second-largest bloc in the legislature

  Key ministers

  President & commander-in-chief of the armed forces: Joyce Banda

  Vice-president & minister of health: Khumbo Kachali

  Agriculture & food security: Peter Mwanza

  Attorney-general, justice & constitutional affairs: Ralph Kasambara

  Defence: Ken Kandodo

  Disability & elderly affairs: Reen Kachere

  Economic planning & development: Vacant

  Education, science & technology: Eunice Kazembe

  Energy & mining: Cassim Chilumpha

  Environment & climate change: Catherine Hara

  Finance: Ken Lipenga

  Foreign affairs & international co-operation: Ephraim Chiume

  Gender, children & social welfare: Anita Kalinde

  Industry & trade: John Bande

  Information & civic education: Moses Kunkuyu

  Internal affairs & public security: Uladi Mussa

  Labour: Eunice Makangala

  Lands, housing & urban development: Henry Phoya

  Local government & rural development: Grace Maseko

  Tourism, wildlife & culture: Daniel Liwimbi

  Transport & public works: Sidik Mia

  Water development & irrigation: Ritchie Muheya

  Youth, culture & sports: Enoch Chihana

  Central bank governor

  Charles Chuka

  December 10, 2012

• Outlook

  Malawi: Key developments

  Outlook for 2013-17

  • Political bickering will increase in the run-up to the 2014 polls, and this could undermine effective policymaking and weaken political stability.
  • The president, Joyce Banda, will continue with her ambitious reform programme, which carries the prospect of improving macroeconomic stability, but could trigger unrest if the government fails to mitigate the effects of price rises.
  • The IMF's support of the government's reform programme will serve to improve the economic policy outlook. Nevertheless, progress in diversifying the economy will be slow, and it will remain vulnerable to external shocks.
  • Real GDP growth is forecast to rise to 4.6% in 2013 as tobacco production recovers. In 2014-17 growth will quicken to an average of 5.7% as investment levels rise and economic stability improves.
  • Inflation is forecast to rise to 23.3% in 2013 as the kwacha continues to depreciate. From 2014 onwards it will moderate as commodity prices stay fairly stable, currency depreciation slows and domestic productivity rises.
  • As import growth moderates, aid inflows rise and exports pick up gradually, the current account deficit is expected to narrow from an estimated 11.6% of GDP in 2012 to 10.8% of GDP in 2013 and further, to 8.4% of GDP, in 2017.

  Review

  • The leader of the United Democratic Front, Atupele Muluzi, has left the government in preparation for his 2014 presidential bid. His resignation leaves the government with an uncertain support base in the legislature.
  • The former ruling party, the Democratic Progressive Party, has been hit by a series of resignations of senior officials and could struggle to regain the confidence of voters ahead of the May 2014 polls.
  • Pressure on the government to mitigate the effects of rising prices increased as inflation reached an 11-year high and it was announced that nearly 2m people are facing food shortages in the southern region in the coming months.
  • The IMF and Malawi reached initial agreement on the first review of the country's economic programme with the Fund. The backing from the IMF will support economic stability and spur a rise in aid inflows.
  • On the back of a sharp decline in tobacco production, the government admitted that economic growth in 2012 would fall short of its original objective of 4.3%.
  • Fuel shortages have re-emerged in several cities as the government struggles with foreign-exchange shortages following the sharp fall in tobacco exports in 2012, but the authorities have promised that fuel stocks will be adequate.

  December 10, 2012

Economy:

• Background

  Malawi: Economic background

  Main economic indicators, 2007
  (Economist Intelligence Unit estimates unless otherwise indicated)
  Real GDP growth (%)	5.7
  Consumer price inflation (av; %)	8.0
  Current-account balance (US$ m)	-312.6
  Exchange rate (av; MK:US$)	141.03(a)
  Population (m)	13.9
  External debt (year-end; US$ m)	620.9
  (a) Actual.
  Source: Economist Intelligence Unit, CountryData.

  Download text file (csv format)

  February 22, 2008

• Structure

  Malawi: Economic structure

  Data and charts: Annual trends charts

  
  

  

  December 10, 2012

• Outlook

  Malawi: Country outlook

  Malawi: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY : Political stability has improved following the assumption of the presidency by the former vice-president, Joyce Banda. Under the previous president, Bingu wa Mutharika, the regime's credibility and urban popularity had plummeted because of worsening fuel and electricity shortages, rising unemployment and a clampdown on political freedoms. Ms Banda has moved swiftly to reverse previous policies, re-establish relations with international donors and replace several of Mr Mutharika's key allies. Political freedoms are expected to increase, and Ms Banda will seek to rebuild popular trust in state institutions. Nevertheless, she will face significant challenges. Section 65 of the constitution--which states that any legislator who won a parliamentary seat for one party at a national election must give up that seat if they switch to another party before the next election--could cause a drawn-out legal controversy that risks diverting attention from the new regime's ambitious reform efforts and could trigger an early legislative election.

  ELECTION WATCH: Although not part of the Economist Intelligence Unit's core scenario, there is a possibility that early legislative elections will be called, particularly if the controversy over Section 65 intensifies or Ms Banda falls out with her current allies in parliament. She has already lost the parliamentary support of some of her allies in recent months and could find it increasingly hard to pass legislation as the 2014 polls draw closer and other parties seek to distance themselves from the PP. Recent elections have been largely free and fair, and the risk of major irregularities in the upcoming elections has decreased as continued donor support will depend on the holding of free and transparent elections. Local government elections, initially scheduled for 2005, have been postponed again, to 2014. Malawi has had no local councillors or mayors since 2005, when their terms expired; these posts look set to remain vacant until 2014.

  INTERNATIONAL RELATIONS: Following the regime change, Malawi's relations with its major international donors, including the US, the EU and the former colonial power, the UK, have improved considerably. This will lead to a significant increase in aid inflows, which will help to sustain the government's reform efforts, although lingering concerns about public finance management could cause some aid disbursements to be delayed. Relations with Tanzania will be strained by the dispute over the countries' border in Lake Malawi. While the issue will be complicated by ongoing oil exploration activity in the lake, it is expected to be resolved diplomatically. Malawi is expected to stay on good terms with the other countries in Southern Africa. China's economic presence in Malawi is expected to grow, albeit from a very low base.

  POLICY TRENDS: Malawi's currency was devalued in mid-2012, marking a departure from the previous government's refusal to allow a market-determined exchange rate, and a new three-year IMF agreement worth US$157m was approved shortly afterwards. Although it has led to short-term hardships, the liberalisation of the exchange-rate regime was inevitable and will strengthen investor sentiment and encourage renewed aid inflows. It will also help to boost industrial production, which suffered as a result of the overvalued currency and the resultant foreign-exchange shortages (which, in turn, caused shortages of fuel and other imported goods). The new IMF programme will, in the short term, focus on mitigating the effects of the kwacha's flotation on prices of food and other essential goods. In the longer term it will support the government's efforts to improve fiscal discipline and public finance management, while seeking to increase the country's resilience to external shocks by diversifying the economy and improving the business climate.

  ECONOMIC GROWTH: Real GDP growth will slow to an estimated 1.6% in 2012, as agricultural performance, particularly in the tobacco sector, is weaker than in the previous year. Although power supply continues to be intermittent and costly economic adjustments will damage productivity, growth will pick up to 4.6% in 2013, supported by the recovery in aid, the expansion of agricultural subsidies and improved investor sentiment as well as an increase in uranium production. Increased capital spending by the government will sustain growth in 2014, despite uncertainties over the elections affecting overall investment levels. Unless major new foreign direct investment (FDI) deals are secured, growth will not reach the levels seen during Mr Mutharika's first term as president, when real GDP growth reached over 10%.

  INFLATION: Inflation accelerated to an estimated 21.4% in 2012 as a result of the liberalisation of the exchange-rate regime, which raised the price of the US dollar by 50% and stoked imported inflation. The introduction of an automatic fuel pricing mechanism, together with the continued depreciation of the currency, will continue to push up prices. Inflation is expected to be moderated by aid-funded subsidies for poor households, falling global food prices and, once the current lean season ends in March, sufficient overall domestic production of the staple food, maize (food accounts for more than one-half of the consumption basket). Nevertheless, despite falling global commodity prices and improved domestic agricultural production, average inflation is forecast to rise slightly to 23.3% in 2013 owing to currency depreciation and the base effects of the relatively low inflation in early 2012. Inflation is expected to moderate thereafter from 12.9% in 2014 to 9.2% in 2015 as the currency depreciates more gradually, productivity continues to increase and a slight rise in international oil prices is offset by falling food prices. Increasing commodity prices and rising domestic demand, including for capital goods to support the public investment programme, together with the continued currency depreciation, will generate upward price pressures towards the end of the outlook period. As a result we forecast inflation to rise to an average of 9.7% in 2016-17. A major risk to the inflation forecast is the possibility of severe drought, which would reduce maize production (agriculture is largely rain-fed) and boost food prices.

  EXCHANGE RATES: The exchange-rate regime was liberalised in 2012, following heavy overvaluation and foreign-exchange shortages during the previous regime, and the exchange rate is now determined by the market. The flotation caused the kwacha to depreciate overnight from MK167:US$1 to MK250:1US$1. Despite higher aid inflows and tobacco exports, the kwacha is expected to continue to depreciate in 2013, largely because of the base effects of the currency adjustment in mid-2012, but also owing to the large current-account deficit and weak investment inflows, giving an average exchange rate in 2013 of MK372:US$1, down from an estimated MK248:US$1 in 2012. From 2014 onwards the currency is expected to continue to weaken, albeit more gradually, and to depreciate by an average of 4.2% per year to MK441:US$1 in 2017, as the current-account deficit remains wide and FDI inflows stay fairly weak.

  EXTERNAL SECTOR: Exports are forecast to rise in 2013 as tobacco production recovers following a sharp decline in 2012 and prices remain buoyant. The increase will also be supported by growth in uranium exports as production is optimised at the Kayelekera mine in northern Malawi. Export growth will be robust in 2014-17, underpinned by favourable tobacco prices, strengthening uranium prices and a pick-up in economic activity. Imports are expected to increase in 2013, reflecting a boost to food and fuel imports by measures to cover essential imports in the wake of the currency adjustment. In 2014 imports will rise slightly owing to election-related spending, although a weaker currency will constrain demand. Thereafter imports will continue to pick up on the back of increased economic activity and slightly higher global commodity prices.

  December 07, 2012

• Forecast

  Malawi: 5-year forecast summary

  Outlook for 2012-16: Forecast summary

  Forecast summary
  (% unless otherwise indicated)
  	2011a	2012b	2013b	2014b	2015b	2016b
  Real GDP growth	4.3	4.1	5.3	5.2	6.0	6.5
  Gross industrial growth	5.5	6.1	4.3	4.0	5.2	4.8
  Gross agricultural production growth	3.8	2.9	7.0	5.8	6.5	6.8
  Consumer price inflation (av)	7.6c	18.4	16.6	11.4	9.1	9.3
  Consumer price inflation (end-period)	9.8c	22.9	12.0	10.2	8.8	8.9
  Lending rate (av)	23.8	24.1	23.6	23.3	22.9	22.5
  Government balance (% of GDP)	-2.8	-6.9	-3.3	-3.4	-1.6	-1.2
  Exports of goods fob (US$ m)	945	860	1,038	1,136	1,225	1,326
  Imports of goods fob (US$ m)	-1,722	-1,752	-1,787	-1,843	-1,911	-1,979
  Current-account balance (US$ m)	-758.5	-683.4	-591.3	-583.7	-586.0	-570.5
  Current-account balance (% of GDP)	-13.2	-14.9	-13.6	-12.2	-11.1	-9.7
  External debt (year-end; US$ bn)	1.1	1.2	1.4	1.5	1.6	1.7
  Exchange rate MK:US$ (av)	156.93c	239.00	305.04	321.54	333.35	345.58
  Exchange rate MK:US$ (end-period)	163.75c	290.98	315.31	326.88	338.88	351.32
  Exchange rate MK:¥100 (av)	196.65c	301.11	369.51	370.47	374.58	374.65
  Exchange rate MK:€ (av)	218.40c	304.34	385.11	402.73	412.51	435.43
  a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Actual.

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  September 12, 2012

View detailed map

Country Briefing

Land area

118,484 sq km, with five inland lakes accounting for 24,208 sq km

Population

14.27m (2012; World Gazetteer estimate)

Main towns

Population in '000, (2012; World Gazetteer estimates)

Lilongwe (capital): 782

Blantyre: 728

Mzuzu: 149

Zomba: 96

Climate

Tropical, cooler in highlands

Weather in Lilongwe (altitude 1,000 metres)

Hottest month, November, 17-29°C (average daily minimum and maximum); coldest month, July, 7-23°C; driest months, June and July, 1 mm average rainfall; wettest month, February, 218 mm average rainfall

Languages

Chichewa (national language), English (official language); Chichewa is increasingly understood throughout the country, but Chitumbuka is the lingua franca in Northern region

Measures

Metric system

Currency

Malawi kwacha (MK) = 100 tambala

Time

2 hours ahead of GMT

Public holidays

January 1st, January 15th (John Chilembwe Day), March 3rd (Martyrs' Day), Good Friday, Easter Monday, May 6th (Labour Day), June 14th (Freedom Day), July 6th (Republic Day), October 14th (Mothers' Day), December 25th, 26th (Christmas)

March 14, 2012