Development Investment Lazarus Chakwera Malawi Natural Resources Opinion Public Policy rural development

What does a Pro-Malawian Position on Foreign Direct Investment (FDI) into Malawi look like?

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Last week President Chakwera took part in a webinar hosted by Invest Africa. (https://investafrica.com/event/malawi-insights-for-investors-with-his-excellency-lazarus-chakwera-president-of-the-republic-of-malawi/ ). It was a good decision that minimally should show that he is proactive in attracting Foreign Direct Investment (FDI) into Malawi. However, there are some painful lessons from the past that must be learned.

I think as far as Malawians are concerned, one of the main concerns is how the Tonse Alliances policies of President Lazarus Chakwera in regards to attracting Investors will translate into tangibles that will positively benefit and impact people’s lives.

Specifically, people will be interested to know how The Government of Malawi’s (GOM) policy on FDI will affect them in terms of employment, environmental protection and a stake in the national wealth creation, not only for the short term, but in the long –term.

Besides these concerns, Malawians will want to know what level of transparency will be established to safeguard against and prevent the corrupt practices of past administrations whereby influential party cadres illegally benefitted from contracts awarded to foreign companies via backhanders and by charging investors “access fees”.

This means that President Chakwera would be best advised to structure his policies on FDI to focus on Inclusive Prosperity for all Malawians, as has been his theme in many of his speeches, especially now that with the COVID-19 pandemic there sadly are many people who have been laid off work, and whose livelihoods have been disrupted and are uncertain.

Thus, the Tonse Alliance Government must publish its position on FDI, including deliverables and should enshrine into Law Investor Responsibilities towards the Malawian people, including how such will be monitored, and the penalties for failing to abide by such laws. This is important to give confidence to Malawians that the Tonse Alliance, unlike previous administrations is truly serious about creating shared prosperity for all Malawians.

Let us put an end to the days when an investor would come to Malawi, invest a couple of hundred thousand dollars, use low-pay Malawian labour, utilise Malawian roads, and our weak labour laws, to extract raw materials (including minerals), export those raw materials abroad, refine and add value to those exports, then sell them at a large profit to reap tens of millions of dollars from their investment – while the people of Malawi do not benefit proportionally.

I am not against investors making money, far from it. But in a poor country such as Malawi, with so much want and poverty around, the benefit to Investor versus the benefit to Malawi should be proportional and acceptable. It is not right for an investor to walk away from their investment extremely rich, but pay little or no taxes, and critically, leave behind impoverished communities that have not benefitted or been empowered beyond the token gestures (bad roads that soon disintegrate, mediocre school blocks built hurriedly with little thought, no decent hospitals, no decent services, poor infrastructure, no pension plans for former employees, no facilities for children of former employees, etc.).

Another reason why things must change is that unfortunately some investors in Malawi have left behind problems including polluted rivers / lakes/ grounds, deforestation, environmental degradation including soil erosion, sick former employees and suchlike. This is simply unacceptable in the 21st Century and should not be allowed to happen.  

A well thought through legal framework will reduce the likelihood of such omissions happening in the future.

There are some lessons from what countries like Tanzania, Rwanda and Botswana are doing, which Malawi can learn from. There are even lessons from China! For example, Rwandair is owned 51% by the government of Rwanda and 49% by Qatar Airways (See this).   Similarly, Airtel Tanzania is owned 49% by the Government of Tanzania.

These companies contribute millions of dollars to the state coffers of these countries.

So how much more are such resources required for a country such as Malawi, where ~ 70% of the population live in relative poverty? I propose that as much as FDI is desired, and as much as it is needed, the deals that are signed can no longer be about only appeasing the investor with disproportionate ownership stakes, while the people of Malawi who are supposed to own the resources are left with next to nothing. This can’t possibly be right.

You can try and justify investor ownerships stakes of 80%+ or 70%+ of industry in poor countries whichever way you like, but with the current global levels of inequality, such type of disproportionate ownership stakes just don’t cut it.

FDI under the Tonse Alliance Government of President Lazarus Chakwera should be about how to ensure the Malawian people are stakeholders who actually benefit from investments into Malawi. Enough with the rhetoric of the past, right now show us how investment will actually pull people out of poverty.

So Government of Malawi FDI policy should be about protecting the people from the exploitative and corrupt practices of some companies, which leave far too few long-term positive benefits or sustainability in the areas they invest in.

Of course protection of Investor Rights and strong pro-Investor Laws are necessary, even essential to ensure that the private sector flourishes. But there has to be a balance in that equally Strong Labour Laws that protect workers should be established, complemented by Strong Environmental Laws and strong Consumer Protection Laws to ensure that Malawians are treated with dignity, and that there is fairness; to ensure that each investor receives written obligations / responsibilities towards consumers/ people living in the areas which will be affected by the FDI.

It’s not a zero sum game, so both groups can benefit from the investment.

Such a policy position is also important for social cohesion. For example if you go to any township in Malawi today, and ask people what they think about certain companies, you’ll find that some companies (and the senior people who work there) are disliked by large sections of the populations in those areas because those companies are perceived as exploitative and not doing enough to empower the local man on the street. Yet such companies benefit from locals – who buy their goods, or provide cheap labour. Clearly this is not a desirable situation.

So while Malawi is open for business, when an Investor comes to invest, be it into a resource, or to extract a raw material, it should be the Government’s clear position that the company will be expected to establish a development fund, where 10% of the profits must be invested, to develop schools, to build decent housing, hospitals, roads, transportation links, to provide electricity, high speed internet, & to provide scholarships & loans to children in the area including children of employees and former employees. All this must be in black and white, enshrined in the contracts which are signed with each investor. Otherwise there is a real danger, based on past experiences, that verbal promises some investors make will amout to nothing.

What everyone needs to understand is that historically, most investors who come to Malawi walk away having made a lot of money. Our weak laws, poor bargaining, corrupt officials and poor implementation of measures designed to protect against exploitation are the reasons why we have failed to benefit proportionally from the profits that FDI has generated the last 25 years or so.

Thus, if you really want to develop the county, then the state can no longer be a mere passive observer in terms of ownership stakes and management of major industries. Malawi should have a greater stake in industry, so that, as a developing poor country, the proceeds from these interests can help catapult us forward economically.

This means deals of 51% GOM ownership (like Ethiopia and Kenya are now doing), and Botswana has done for a long time, whereby the investor holds no more than 49% of the stake in each major interest / industry / company,  should be standard.

That can still translate into profitable returns of millions of dollars for the Investors. But the difference is that GOM, and Malawians will benefit proportionally than has been the case in the past.

Mind you, these are Malawian resources we are talking about, for Malawians to benefit from. So 51% ownership by GOM by 49% ownership to Investors is quite generous. In my view that is how you create a win-win position.

There will be criticisms to such policies, as has happened in other countries. But such criticism is levied by people who :-

  • are thinking only about themselves
  • do not understand where our country is coming from (and the level of poverty/ want in our villages)
  • believe incorrectly that Africans should be subservient or otherwise in deferment to what Western Capital dictates – including unfair geopolitical neoliberal policy positions on resources, agricultural produce & raw materials.

What the Tonse Alliance Government should do is to communicate to any interested investor that while Malawi is open for business, essentially they will be dealing with a deprived man, who has been taken advantage of and abused for a very long time; who has few resources and who needs every penny from those resources to move forward, to rebuild his ruins and to feed his young.

That deprived man will only do business on his own terms. And with investors who care beyond just about making profits.

Ultimately, there’s always another fairer, more ethical, more responsible, more empathetic and more compassionate investor down the road …

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