Background
The private sector, represented by MCCCI, SOCAM, ECAMA and representatives
from the eight prioritised sub-sectors in the Malawi Economic Growth Strategy, has come together to develop a ten point priority agenda for change in support of the Government’s efforts to improve the climate for doing business in Malawi.
All stakeholders recognise that growth in the economy and impact on poverty can only come from through the development of the private sector. However, the private sector is constrained by a range of domestic and international factors highlighted by numerous studies and articulated as 28 constraints facing the private sector (see annex A). Many of these constraints and recommendations on how to tackle them were articulated in the Malawi Economic Growth Strategy that was developed through collaboration between public and private sectors.
This collaboration between public and private sectors has been improving in recent years, particularly over the last few months with supportive statements for change being made in the Government’s manifesto, His Excellency the President of the Republic of Malawi’s inauguration speech and subsequent meetings with the private sector.
The task of improving the investment climate is daunting and there have been many different prescriptions on where to start and how to progress. Private sector has in the past given a range of prescriptions for change that have not always been consistent between the different representative organisations, nor with a single set of priorities nor necessarily always coherently articulated in a way that GoM is able to implement. The private sector recognises that the lack of a coherent prioritised and shared private sector agenda has not assisted GoM in its difficult task of promoting
investment.
Therefore, this document presents a coherent, prioritised and shared agenda for change that will start the process of improving the investment climate in Malawi for both domestic and international investors. It has been endorsed by the various stakeholder bodies that speak for the private sector and circulated widely for input and agreement. It represents a single private sector agenda, which we would request Government to consider, discuss and most importantly implement in the coming months as an indication of the seriousness with which GoM is seeking to improve the economy.
Three key points need to be made. Firstly, this document is based on the views of current investors in Malawi, be they small or large investors, indigenous or foreign. Its focus is on the climate for domestic investment and re-investment as international investors always see whether current investors are thriving, surviving or diving before deciding whether to invest rather than rely on what formal agencies say. If the current investors can be encouraged to show confidence by increasing their investment or reinvesting in Malawi, then we can also encourage international investors to seriously consider our country. The most likely source of investment in Malawi is by far the existing investors who already invest, be they Malawians or non-Malawians.
Secondly, we recognise that the current Government is facing a major task to bring the macro-economy back on track by tackling the budget deficit that is probably the single most important task over the coming 6-12 months. Therefore we have deliberately avoided measures that reduce GoM revenues in the short term or incur significant costs. Whilst there are necessary changes required to the way revenue is collected and the need for ongoing tight control of GoM expenditure, we offer an agenda for change that focuses on changes within the current means. In addition, the simple fact is that if we are to build medium- and long-term revenues for national development, these will have to come from developing the private sector if we are not to increase our reliance on our international development partners even further. Whilst the pressure to meet the budget gap in the short term is driving decision making, we must be very careful not to mortgage the future by further weakening the private sector base, particularly the formal tax paying businesses. The proposals made below are all intended to be revenue neutral in the short term. In the mediumterm,
the proposals will lead to additional government revenue, as they will improve
the business climate and lead to additional investment, employment, and tax
revenue.
Thirdly, it is encouraging to note that the Ministry of Finance is carrying out a study of tax rates in neighbouring countries. However, the headline rates of tax such as corporate and personal income tax rates, dividend tax rates and so on, often conceal important differences in the details of the tax regime. In addition, although the taxation regime is important, there are also many other factors that determine the attractiveness of an investment opportunity, not least the way in which investors are treated by governmental implementing agencies. The tax system is only one of a number of important factors that potential investors consider when deciding whether or not to invest or re-invest, often after they have weighed up all the other factors. Given that Malawi starts with several structural disadvantages, such as being landlocked,
having a limited domestic market and very poor neighbours, compounded by weak infrastructure and our need to focus on export markets beyond our immediate
locality (in the main) then we have a major task to persuade potential domestic and international investors of the merits of Malawi relative to countries with direct access to ports. It is not sufficient to be match what our neighbours have to offer – we have to be better and more attractive to offset the structural disadvantages we face.
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