Malawi's Economic Development History

Malawi is one of the poorest countries in the world. Poverty in Malawi remains considerably high and pervasive and millions of Malawians continue to live lives of deprivation and hardship. It is important to know at the outset that Malawi is a landlocked country with a few natural resources other than its 15 million people. This means that the prospects and opportunities for economic development in Malawi are limited. However, of surprising to note is that Malawi has managed to sail through and one can narrate a few success stories on Malawi. It seems now that the economy of Malawi has turned the corner. Malawi’s economic growth is slightly over 8 per cent, making it the world’s second fastest growing economy after Qatar and the inflation rate stands at 9.5 per cent as of March this year ( Kandiero 2009:8).

This essay examines the economic history of Malawi from the period the colonial masters lay the economic foundations of Malawi up to the present period. It is important here to appreciate the fact that any attempt to grasp the current economic problems that are dogging Malawi, has to be situated and analysed within the overall history of the country’s economy since independence and even beyond. This is important because, for us to come up with relevant economic policies, we must firstly understand how Malawi arrived at its present situation.

The economic history of Malawi has passed through peaks and troughs of performance and effectiveness since the dawn of colonialism and provides an interesting case history for the Southern African region. The economic history of Malawi dates back to the dark ages of colonialism when Malawi was under the British protectorate. When the missionaries from Britain came to Malawi in the nineteenth century, they saw Malawi’s economic potential but they feared the influence and the invasion of the Portuguese in the east hence they requested the British government to protect Malawi and that was the beginning of colonialism in Malawi. The colonial government had no immediate economic development plans for Malawi and this can be attributed to several factors. First, as already alluded to in the introduction, the geographical position of Malawi posed a serious challenge for economic development and second, it was because of the fact that Malawi lacked natural resources such as minerals and oil. As Chipeta (2004:3) notes, “during the colonial period Malawi, then Nyasaland, had been relegated to a ‘colonial slum’ and it was used as an exporter of cheap migrant labour to other Southern African Counties such South Africa and Rhodesia.”
Another point worth noting is that during this period of colonialism, local industrialization was limited and the cash economy of Malawi depended much on agriculture (Jackson 1965:353). Coffee cultivation was important in the early years of the protectorate rule and then we saw the coming in of other cash crops such as tea, tobacco and cotton. However, as noted by Chipeta (2004:3), “the export of these cash crops was very minimal and they could not have contributed much to the country’s economy.” Further to this point, the colonial government did not put policies and measures for it to modernize agriculture. It should also be noted here that the colonial government faced numerous challenges in its economic administration. First, the two world wars negatively affected the country’s political economic position and second, the labour migration also affected the economy and finally Malawi experienced several disasters such as droughts and famines. All these challenges prevented Malawi to flourish to greatest levels possible. As Lwanda (1992:52) points out that “no dramatic change in the pattern of the economy had taken place up to the independence period in 1964 and the formation of the federation from 1953-1963 further worsened the country’s role as the supplier of cheap migrant labour.”

After the fall of the colonial government and the break of the federation in 1963, Malawi gained her independence from Britain in 1964 with Dr. Hastings Kamuzu Banda as her first president. Kamuzu’s government inherited a country that was among the poorest in the Africa if not the poorest. Malawi’s only asserts were land and labour both of which were either “ruthlessly exploited for colonial settler benefit or were underdeveloped” (Chipeta 1992:9). The economy depended much on subsistence farming and the country lacked proper communications both internally and externally.

Cognizant of all these challenges, Kamuzu embarked on several initiatives that were aimed at realizing an instant economic growth. Kamuzu believed that neither the capitalist nor the socialist models could be appropriate to Malawi’s economic needs and that Malawi required a unique solution to her development problems (Short 1974:175). What Kamuzu practiced can therefore be described as “a mixed economy approach” (Harrigan 2001:32). In his efforts to spur the economy, Kamuzu made diplomatic relations with any country with which “grounds for common advantage” could be found (Roberts 1970:62). To this effect, he made diplomatic ties with Apartheid South Africa, the white government of Southern Rhodesia and the Portuguese in Mozambique despite strong opposition from other African counties. He used to argue that “the geographical position of this country made it impossible to sever all ties whether diplomatic, economic and cultural” (Short 1974:195). Thanks to these diplomatic relations, the South African government sponsored to construct the new capital city in Lilongwe and the Portuguese government in Mozambique assisted in the construction of a railway line from Malawi to Nacala Port in Mozambique. These two major projects assisted Malawi to transform and stimulate economic development in Malawi. Furthermore, it should also be noted that Kamuzu’s government put much emphasis on agriculture as an engine of economic growth and development. Kamuzu believed that agriculture was the potential source of revenue that would eventually lead to the financial autonomy in other sectors of the economy (Chinsinga 2002:25). It is for this reason that the agriculture sector was given preferential treatment at the expense of other sectors of the economy. Kamuzu embarked on several projects to modernize agriculture. Kamuzu used to say that:

…in my view, if we are to develop Nyasaland in the way it should be developed, we must
think in first place in terms of modernizing agriculture, rather than in terms of developing
industries… (Kamuzu, speaking at the end of the Nyasaland Symposium on 28 July
1962 in Blantyre quoted in Jackson 1965:361)

In order to modernize agriculture, Kamuzu established public agricultural cooperations such as ADMARC, which was created in 1969 to help in transforming the agricultural sector.

It should also be appreciated that Kamuzu created a favourable economic climate as evidenced by “the creation of parastatals that were confined to a few key sectors, the introduction of low tariffs, in addition to minimal use of qualitative restrictions on imports in order to discourage uneconomic import substitution” (Kandoole and Phiri 1990:69). Kamuzu also improved transport and communications in the country to enable Malawi’s imports and exports to flow easily. This is evidenced by the construction of the Lakeshore road from the southern region to northern region of Malawi and the construction of a railway line including the construction of other important and strategic state buildings. This healthy economic situation led the country to grow rapidly and statistics of the first half of Kamuzu’s rule were indeed impressive. The real Gross Domestic Product (GDP) rose by 5 % annually during the 1969-1973 period and by 6% annually during the 1973-1979 period (Lwanda 1993:138). However, of saddening to note is the painful fact that the economy dwindled from 1980 up to 1994 and this can be attributed to a series of factors. First, there was a drought during the 1980/81 season in several parts of the country and second there was also a deteriorating terms of trade and disruption of Malawi’s external transport routes mainly due to the civil war in Mozambique, which led to the destruction of the railway line to Beira. Another factor worth appreciating is the fact that there was a sharp decline in public investment, which could be attributed to the political climate at that time (Kandoole and Phiri 1990:69). It is important to note here that this was a period of political metamorphosis in the country when the country was changing from dictatorship to democracy. Therefore, during this period Kamuzu lost grip on leadership (Mkandawire 2005:24). However, perhaps, the economy also nosedived because Kamuzu age was quite advanced and this therefore made other members of the ruling class to run the affairs of the state using Kamuzu’s name. Therefore, what was to happen after Kamuzu are was becoming more and more unclear, thus creating uncertainty among investors, donors and other stakeholders. It should also be known that the oil crisis that occurred in 1979 also contributed to the downfall of the economy.

When it became clear that the growth of the economy was becoming lower and more erratic than ever before, the Kamuzu government in consultation with the World Bank and the International Monetary Fund (IMF) formulated a programme for dealing with the structural problems (GOM 2000:15). The programme was supported by a series of Structural Adjustment Loans (SALS) from the World Bank. According to Kandoole and Phiri (1990:69), “the objectives of these programmes were to reduce balance of payments deficit, reduce government fiscal burden, improve financial performance of public enterprises, improve efficiency and resource allocation in agriculture and ensure transport links to coastal ports.”

After the ousting of Kamuzu Banda’s one party regime and with the advent of multiparty democracy in 1993, the new government of UDF with Bakili Muluzi as its president shifted the hub of economic growth and development from agriculture to commerce (Chinsinga 2002:25). The new government of UDF put much emphasis on small–scale businesses and the promotion of the informal sector of the economy. The UDF-led government also put poverty alleviation at the center of its economic and social agenda. There were a number of economic reforms that the UDF-led government put in place in order to realise economic and development. First, there was trade liberalisation and privatisation of many state-owned companies in order to remove inefficiency, Create employment and increase investment (Nkhanda 1999:12). Second, the UDF regime introduced several agricultural programmes such as the Starter Park Programme, drought mitigation programmes like irrigation and the encouragement of non-maize food crops were also advocated (Harrigan 2001:428).

Efforts were also being made to diversify the economy, both by widening the range of agricultural products and by promoting industrial development. On social sector policies, the UDF-led government began to implement several policies such as the introduction of universal primary education in 1994 and the establishment of a social action fund that saw a number of rural projects being constructed. The UDF government also implemented and started numerous poverty reduction documents such as the Vision 2020 document in 1998, the Malawi Poverty Reduction Strategy Paper in 2002, the Malawi Economic Policy Framework Paper and the much publicized and the hitherto Millennium Development Goals, which were initiated in September 2000. However, of significance to note here is that during this period of democracy from 1994 to around 2000, there was poor economic growth and frequent macroeconomic instability (Mkandawire 2005:24). This was mainly due to massive corruption that was practiced in public offices and other private institutions. There was also lack of fiscal as well as monetary prudence by the UDF government and this negatively affected the country’s economy.

However, when Bingu wa Mutharika replaced Muluzi in 2004, the economy seemed to have turned the corner. Currently, the economy seems to be performing well thanks to the sound economic policies of the current president, Bingu wa Mutharika, who came to power in 2004. There have also been many structural changes in the economy since 2004. Noticeable to mention is the implementation of the targeted fertilizer subsidy that has improved food security at household and national levels in the country. During Mutharika’s reign, the Economic Intelligence Unit (EIU) has rated Malawi as the world’s second fastest growing economy (Mzale 2009:9). Mention must now be made that the country’s economy continues to enjoy major unprecedented economic achievements including single-digit inflation rates, a phenomenal economic growth rate of 9.7% in 2008 and the stability in the exchange rate, largely owing to sustained government fiscal discipline and prudence that has set the foundation for a healthier macroeconomic environment. Due to macroeconomic stability in the economy, in August 2006 Malawi reached the completion point under the Highly Indebted Poor Countries (Hipc) initiative, a situation that resulted in a debt relief from the multilateral and Paris Club Creditors who wrote off $2 billion (about K280 billion), thereby enabling government to increase expenditures for development (ibid). It is because of this healthier economic environment that the Bingu wa Mutharika led government has embarked on several economic development initiatives such as the construction of roads, bridges, girls’ hostels and the renovation of old and run down secondary schools, including the much-touted Shire Zambezi Water Way Project, which when completed will ease the transportation of goods and other exports that would bring good economic value.

In conclusion, this paper has offered a plausible and a detailed critical analysis of the economic history of Malawi and has ultimately addressed some among the plenty open questions regarding the economic history of Malawi. A certain editor, Jon Woronoff, of a book published in 1980 called the Historical Dictionary of Malawi, was intrigued with the unusual pattern of development that Malawi follows and this paper has critically addressed some of the intriguing questions that this editor had and it has also looked at the current economic status of this country.