Creating Large State owned corporations

They have them in most developed countries, and there is no reason why Malawi shouldn’t have a few.

For example did you know that Parpública, the Portuguese behemoth founded in 2000 and with assets worth US$13 billion, and which owns Air Portugal is a state-owned enterprise?

In the quest to find alternative solutions of economic development, the very first thing our country needs, maybe besides a mindset change, is to raise significant amounts of Capital.

This can be done in a number of ways, but probably one of the best ways is by issuing Sovereign Bonds. Using Sovereign bonds can lessen the debt burden on Malawi, and prevent the country ending up in the debt mess spiral that countries like Zambia and Angola have found themselves in.

This is because aside from the fact that the government would set the terms and conditions of the Sovereign Bonds issuance, it would also allow domestic Investors to invest and would not disproportionately make the country beholden to a foreign financier, private or public.

The reason we need such Capital is to make large strategic investments into infrastructure and equipment, which with proper planning and execution can enable Malawi to manufacture certain products which our people need most (domestic market),  but also for foreign markets, and for which we have a steady and affordable supply of raw materials.

So for example, we can use such Capital to buy a refinery to manufacture Ethanol for use in the Pharmaceutical industry and in alcoholic beverages, and for use as an additive in Vehicle fuels, by expanding and starting one or two additional sugar plantations and processing plants as the ones they have in Dwangwa and Nchalo, in a similar rural area. The ethanol product can also be exported to neighbouring countries cheaply undercutting their current supply chains, but creating a new revenue stream for the Government.

The waste products from the sugar plantations (bagasse https://www.sciencedirect.com/topics/agricultural-and-biological-sciences/bagasse ) can be used as a biofuel, reducing our country’s over-reliance on firewood – which is worsening deforestation situation in Malawi, and is responsible for the numerous floods we experience almost every year.

Similarly, a large Sheet Metal Fabrication factory could be established to manufacture Iron sheets for roof houses (malata) to be used to supply hardware stores across the country.

Both the Sheet Metal Factory and the new Sugar Processing Plant would create employment for thousands of Malawians, and can be scaled intonmuch bigger operations if required. New and organised dwellings and townships can then be created around them. 

This is one way of creating large state owned corporations that can give jobs to thousands of citizens, creating employment across the country.

There would be other added benefits, such as more equitable spreading of the prosperity of the cities into the rural areas, decongesting the cities of traffic, and reducing migration to cities – as more working-age people would choose to live closer to these rural factories – where they can find jobs.

Finally, it would accelerate the provision of decent housing, water, sanitation, communications, energy and transportation infrastructure to the rural areas – factors which would contribute to the fight against poverty.

The Secret to successful state-owned enterprises is how they’re run (The Conversation)

More interesting posts at

http://malawiace.com

Jeremy Corbyn – Socialism DOES Work

Jeremy Corbyn could become leader of the Labour Party, the main opposition party in the House of Commons (UK Parliament), after he received the most nominations from Constituency Labour Parties and unions.

If Corbyn does emerge as winner, after a final ballot that will begin on August 14, then it could represent a fundamental shift towards the left of the political spectrum for the Labour Party.

Listening to Corbyn’s address to the Oxford Union (video below), I get the sense that he talks a lot of sense.

And yet many people (including senior members of his own party) don’t want him to become leader. They say he is ‘too left-wing’ and that such can ‘scare-off voters’.

Lately politicians have been saying some very insensitive things in the media, and it’s not surprising that some are being alarmist about Corbyn.

But how can a person who says there is too much inequality in the UK (and in the world in general), and that something needs to be done to address it (not just empty rhetoric) possibly be wrong by stating what is clearly a fact?

How can someone who calls for workers rights, an end to poverty, re-nationalisation of key industries, increased taxes on the very wealthy, and the scrapping of Britain’s Trident be the devil?

Are you saying you really want corporations to continue evading tax? For utilities to be controlled by profit-driven corporations? For £100 billion to be spent on a nuclear deterrent which will never be used? For the likes of Rupert Murdoch to continue hijacking the media agenda, influencing politics to the detriment of state power? Is that what you want?

In my view, if we had more politicians like Jeremy Corbyn, more leaders like Elizabeth Warren, conscientious politicians like Bernie Sanders  … who are capable of identifying the real issues, communicating effectively how those issues need to be addressed; issues such as corporate tax evasion, unnecessary foreign wars, inequality and poverty… if we had more leaders who are incorruptible and not part of some revolving door,  I think the world would be a better place. Minimally, there would be enough oversight to ensure that corporations pay their fair dues and behave responsibly even when conducting their affairs abroad. Public institutions would be protected, developing countries would not be preyed upon, and there would probably be greater respect for human life.

These are the kinds of  Leaders Abraham Lincoln if he were alive today would count as true friends. And it’s because there are many leaders who are out of touch with ordinary people, whereas a few can see what is happening on the ground, how actions of corporations are affecting ordinary people, how actions of leaders are endangering people, and are rightly concerned.

Why do I say this?

Giving a few examples, since when has it been known that inequality is the real cause of poverty across the world? Since when has it been known that the actions of corporations, including in paying bribes to officials, deprive developing countries of resources which they desperately need to effect development? Since when has it been known that the structural adjustment policies of the likes of IMF and World Bank are counterproductive against the narrative of poverty eradication? Since when has it been known that tax havens and secret accounts facilitate if not encourage corruption?

When all these have been known, why is it easier to start wars, than to fix these things which would do so much towards helping the poorest countries?

WS-pigsReferring to a point Corbyn made about the IMF in the above video, many people underestimate the damage structural adjustment programs (SAP’s) do to developing countries. They take for granted that the conditions the likes of the IMF prescribe put countries in a very difficult position – with no money to spend on the weakest in their societies.

And as you would expect, most of these people who attack socialist policies have never lived or spent any considerable length of time in developing countries, let alone had personal hardship that threatened their existence. They don’t know what poverty is, or what it means to have no money. It’s a bit like Ian Duncan Smith (British Conservative Party Politician who is Secretary of State for Work and Pensions ) calling for people to live on £53 a week, when he’s never had to live on £53 a week, and flatly refusing to do so when challenged.

They just talk because they think they know, when the truth it they don’t really know.

For once, I must say it is refreshing to hear a prospective political party leader of a big economy describe the likes of the IMF for who they really are. Architects of destruction.

On a practical note, it would be helpful if some of the people advocating for SAP’s spent some time period in the countries which borrow from the IMF/ World Bank. Let them go and  spend say 3 – 4 years (not just a couple of days where they pretend to blend into the culture) in Malawi , or in Cameroon, or in Senegal, not living in expensive hotels or exclusive suburbs where all the rich expats are having a dip in their swimming pools. No, but living amongst the people, ku ma line kwenikweni, in the districts where working people such as bus drivers, nurses, teachers and civil servants live. There they will begin to see the effects of SAP’s. There they will find the hatched eggs of the serpent.

This week, a lot has happened. There was the story of Cecil the Lion, then a few days ago,  David Cameron used an animate term (‘swarm’), to describe migrants; describing humans who are fleeing terrible living conditions, using a term which he couldn’t possibly use to describe Europeans, or Americans.

No wonder in the past some activists have hit back with images such as these:-

nhs

Being left-wing is not a bad thing. Being left-wing amidst other things means you care about other human beings, and you are not so narrow-minded, so self-absorbed and selfish, so brainwashed by individualistic ideas (‘trickle down economics’ , ‘survival of the fittest’ and other nonsense) which are senseless, do more damage than good to society, and do not have practical application in the real world. I’m not saying that those who do not identify as being left-wing are these things, but in my view, on the bare minimum, on the surface, thats what being left-wing must be.

I’d like to think many left wingers have a greater appreciation of inequality than their detractors;  that they get it when circumstances beyond people’s control push them to the brink. And these circumstances vary from corrupt African politicians (who receive bribes from unscrupulous investors, in exchange for favourable investment agreements which do nothing for the people of that African country) to selling off a public hospital to a private company (which then lays off staff as a cost-cutting exercise – leaving vulnerable families with no income – purely for profit).

I’ll end with a story I once read of a South African woman. Her parent’s two storey house was confiscated during the apartheid regime, when she was just a little girl. Subsequently her parents couldn’t pay for her education, so she was forced to work as a cleaner. Today she’s still unable to rebuild her life, with no qualifications, living in a country where she can’t earn enough to put herself through school, as well as look after her own family. With little prospects to advance in life other than to continue working, she is stuck in poverty.

And the house? She still remembers it, it’s still there, but up until now her family has not been able to get it back.

Not everyone who is poor is poor because they are lazy and don’t want to work. Someone please ask Jeremy Corbyn ‘s detractors to go and witness with their own eyes these types of scenarios.

Why I’m not excited about Roger Federer’s investment into Education in Malawi

Early this week, many people in Malawi were excited by the news that Roger Federer (ranked world number 2 best tennis player by the Association of Tennis Professionals), had launched a childcare centre at Lundu village, about 10 Kilometres outside Lilongwe, the Capital of Malawi.

While there is good reason to be happy about such news, whereby a big sports star has decided to use his time and resources to help Malawi in this area, a part of me thinks otherwise.

A part of me thinks that Malawi not only needs help in terms of pre-schools and child development centres, but also over the whole educational system – which is archaic, and needs to be revamped.

And here’s why:

Firstly, whats the point of giving children a great pre-school start only to disappoint them later on in primary and secondary education? How so? Well, according to Ripple Africa, a charity with a base in Nkhata Bay district:

… The government of Malawi recognises the importance of pre-school education, and encourages communities to set up their own pre-schools, but does not support pre-schools financially. With no funds to support pre-schools, most of them are run on a voluntary basis and are unregistered. Most teachers work for free, and have no resources to help them teach, lacking the very basics including blackboards and chalk, let alone books and toys which might commonly be associated with pre-school education in the West. It is rare that pre-schools have their own school buildings, and many pre-schools share facilities with local churches or other buildings built for a different purpose

It goes on to say

Although primary education in Malawi is free, students are required to purchase their own school uniform, pens, and notebooks, which many families find difficult. Rates for drop-outs are high, and, according to UNESCO, only 58% of children will complete a full course of primary school, and 20% of children repeat one or more school years, often several times, if they have had to take significant time out of school and have fallen behind. It is very common for children in Malawi to come in and out of school depending on their family situation, employment responsibilities, pregnancy and marriage at a young age, sickness, and more. By the time students leave primary school, many of them are far older than primary age, having repeated several years, and many lose interest and drop out all together.

If you read further, you’ll find the usual problems across the whole education board: poor infrastructure, lack of materials, unpaid untrained teachers even at pre-school level…  the usual.

How can you help children learn if schools have little or no study materials, and teachers are not properly trained? Before you do anything for the children shouldn’t you first make sure that their teachers have the right qualifications, and there are suitable facilities available for them to use in teaching.

So, in addition to improving pre-school education, I think the initiative should go hand in hand with improving the standard of education across the board, and not just in pre-school education.

In any case, we know from reports from employers that many people who come out of form four (or even Universities) in Malawi lack the basic skills needed by most employers. A scenario that probably is a result of dysfunction within Universities themselves. This dysfunction was summarised by The Nation News paper a few years ago:

In some public universities, for example, there is acute shortage of books or even chairs in classrooms, leading to students standing throughout lectures. Some of the faculty members also need to upgrade their qualifications; so, too, do catering and accommodation need improvement, among other facilities.

The above article by Ripple Africa also mentions the lack of buildings.

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image from typicalmalawian.wordpress.com

 

Malawi needs more school buildings, more resources such as desks, black boards and stationery in both primary and secondary education (including properly resourced dormitories in boarding schools). This will cost money, but the government needs to upgrade these facilities across the whole country. It cannot be piecemeal or random, because then it will not be effective. It has to be planned and transformative and must be made a top priority.

This is important because a child who undertakes their pre-school in a well-furnished nursery (complete with chairs and tables) is not going to be assisted if they then have to be downgraded and sit on the floor during primary school.

Never mind early education, primary and secondary school, what about tertiary education? Should the government be doing more to invest in tertiary education?

Recently in June 2015, Grant Shapps, UK International Development Minister, at the announcement that the UK would pump £11.6 million into Malawi education sector said:

“Malawi’s future doctors, nurses, IT experts, teachers and entrepreneurs will help build a nation eventually independent of foreign aid and with our own historic links to Malawi, particularly those of Scotland, this is also in the UK’s interest, because creating a more prosperous world will benefit us all in the long run”

The question is where will they be trained, and who will foot the bill? Is £11.6 million enough to train doctors, nurses, IT experts, teachers and entrepreneurs for a country with a population of 13 million people? Adequate training that will help Malawi compete on the global stage…? And not only provide Doctors and Nurses for Europe…?

There are other factors other than pre-school education that must be addressed if the education sector in Malawi is to be improved.

tfac-teacher-stats

Factors such as the effect H.I.V has on teachers. These need to be looked at, in collaboration with charities such as Theatre for a Change. It’s important that resources are dedicated to address them.

Aside from the education front, the other question politicians and stakeholders should be asking is after these children become young adults who have been ‘educated’, where will they work? No point training them when at the end of it all, you have no jobs to give them. A youth unemployment crisis which many western countries including the UK, Spain, Portugal and Greece are currently facing. Does Malawi have enough jobs and an economy that can support its young people of working age? How can the country create more jobs and assist its citizens to be resourceful?

Looking at the statistics of youth unemployment across Malawi, I can tell you that the country definitely doesn’t have enough good jobs, and this is a situation which could become a crisis if not addressed urgently.

Furthermore, Malawians must not rely solely on donors or foreign companies who have their own interests to come into Malawi and create jobs. This also extends to our educational system.

We must stop relying on foreigners to come in and sort out our problems.

When for example will Malawian corporations emerge that are owned by Malawian nationals, and employ thousands of Malawians?

quote2-malawi

I’ll end with a personal story. A few months ago, a cousin-nephew who lives in the city of Blantyre in Malawi told me he wanted to study IT, in particular he wanted to work in Software or web related technologies. I told him to learn programming, and referred him to the City Library in Blantyre to find a book on the ‘C programming language’ which he could use as a starting point, since being trained as an Electronic and communications engineer I know that my education in programming began with C programming (as has been for many other people working in software and IT). So I was keen to get him down a similar path in this sense.

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A few days later he told me he had gone to the library but was told that they didn’t have any book on C programming. Further, he doesn’t have a computer, so even if he did have a book, there’s no where to practice how to code. Also he wasn’t sure whether he could install educational software on some of the public computers he has used in Internet Cafe’s. I wondered how it was possible for a library of a major city of a country to not even have a single book on C Programming, let alone computers for the public to use…In this digital era.

If things are like this outside the classroom, in a city, in 2015, I could see how easy it was for teachers to be frustrated.
Today, my thoughts are punctuated by an article I remembered, written by Steve Sharra titled Malawi at fifty One: the education legacies of Malawi’s presidents hitherto in which he argues that the failure to utilise the higher educational system to improve the quality of teaching and the teaching professions has negatively affected the country’s developmental process. In the article, Sharra writes :

However at primary and secondary school levels the problem of teacher morale, the most significant of the problems afflicting Malawi’s education system is getting worse. Today, anger amongst Malawian teachers has become so pervasive it severely corrodes the education system. In the first of 2015, salary delays took a turn for the worse. With communication from the ministry not forthcoming, teachers resorted to asking fellow teachers on Facebook groups for updates. It is frightening to imagine how these angry, bitter, frustrated and demoralised teachers are treating children under their care.

So here I am seated in a central city library in Nottingham (East Midlands), which has recent issues of magazines published in India, several copies of Der Spiegel, (including a May 2015 copy), and even an East Midlands Polish publication, let alone books on computer coding;

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I’m surrounded by both young and older people – all oblivious of my observations, getting on with their lives ; and I’m thinking how I can send a netbook with a compiler pre-installed on it, and a book on C programming to Malawi. I’m also thinking about all those young people who want to study IT related subjects across Africa(some of whom are being taught under trees), who greatly desire to tap into similar knowledge as is scripted in the pages of these books on the shelves next to me, but who can’t find a book anywhere to help them … who don’t have anyone to send a computer to them.

That is why I’m not excited about Roger Federer’s investment into pre-school Education in Malawi

Why Elizabeth Warren Strikes Such A Chord | Crooks and Liars

http://crooksandliars.com/2015/01/why-elizabeth-warren-strikes-such-chord

I admire her approach to politics. Hopefully we’ll see more of her in US politics in the coming years, and I think politicians everywhere, not only in Africa can learn something from the way this woman is doing her job.

Economic Empowerment

mg2I hate to be the bearer of bad news but I’m not sorry to be the one that spoils the party. Especially this particular party…because while Malawi is currently heated with election campaign fervour, some of the events happening on the ground have caused one part of me to doubt whether much substance will in fact come out of the leadership that will be appointed after the 20 May elections.

Are we really going to see the transformation being excitedly predicted by each party’s honchos? What kind of transformation will we see? Are the parties really going to deliver what they have promised in their manifestos? Weren’t similar promises made during the election campaigns of 1994, 1999, 2004 and 2009? To what extent were those promises honoured? So then, what major transformation came out of the administrations who won those elections?

I think no matter who you choose to vote for, it would be wise to be cautious, and carefully examine each candidate on their merits, and what their track records in terms of actual achievements the last 5 – 10 years (not just the last year or two) have been…

Many a times I have waxed lyrical as if on a soapbox about economic empowerment of Africans, and many a time, I have not exactly got through to the right people. Which is okay. The right people are rarely in the right jobs, they are rarely listening.

But this is an issue that has to be addressed sooner or later, otherwise African countries will continue to struggle with poverty and other ills. Donors and foreign corporations will not tackle the issue of empowerment because it’s not always in their best interests, and they are not good at doing so [See this: Between the Elusive and the Illusionary: Donors’ Empowerment Agendas in the Middle East in Perspective – Mariz Tadros].

In Malawi most NGO’s do not have the power, nor are they sufficiently well resourced to influence the establishment of a nationwide empowerment initiatives that have a real chance to make a big enough impact. It’s all down to the government and MP’s, and for what it’s worth one part of me can’t see enough progress being done after the elections. Maybe I’m being unfair and prematurely judgemental, but I’m yet to be convinced whether any of the major parties truly can deliver what they promise. And this is not only because the practicality of what they promise in their manifestos is questionable but also because the vagueness of some of the promises render them useless.

But for those voters who are listening, and concerned, the important questions every Malawian should ask the candidates of the 20 May elections, before voting, are these:

What will they do differently to ensure that Malawians are economically empowered, and not taken advantage of? And why should we trust you?

This is important especially because it is clear to most Malawians that the tenures of the MCP, UDF, DPP and PP governments in the past have established very little for Malawians to show for. While countries like Kenya, Zambia, Rwanda, Ethiopia and Mozambique (where there was a debilitating 15 year long civil war) have powered forward with impressive results, Malawi, despite unsustainable blips of progress, is still languishing in the doldrums.

So, what will the candidates who vie for election to Parliament do which hasn’t been done already in the country’s 50-year-old history?

The reason that this question must be answered is that economic empowerment will not occur if the policies the new government institute turn out to be mediocre (like distributing cattle, chickens, houses or shoes) or the same as what has not worked in the past, and if corruption continues to be tolerated. In a country with 15 million people, the presidency would be best advised to think on a much larger scale, than wasting resources on mediocre projects.

Taking a simplistic general view, for people to be innovative and industrious they require one or more of the following:- an income, education, inspiration, tools/ building blocks (trucks, implements & equipment), and power (literally electricity). So, one would think that when a government articulates how they will provide these as part of a wider national transformation strategy, there will be a much higher chance of transforming Malawi than say distributing a million cows to villagers.

But that alone is not enough. Empowerment essentially means giving one power or authority to do something. So I’d like to see factories built, where young people can work, earn an income and develop transferable skills. And those factories, must be majority owned by Malawians, so that the profits made from Malawi stay within Malawi. Further, instead of giving a mining contract or power generation contract to a foreign corporation – which has its own interests, I’d like a government that promises, and implements a national  mining company, or power generation company, which is government owned, and whose profits are reinvested into Malawi.

That is precisely the kind of visionary leadership Malawians should seek and vote for.

Similar

Rich Warm Heart

A Vision and Organisational Template for creating Sustainable Economic Growth in Malawi [Part 1]

(c) European Union
Image (c) European Union

When injustice becomes law, resistance becomes duty.

– Thomas Jefferson

 

“Consume less; share better.”

― Hervé Kempf

[This article is written in a non-academic accessible format primarily to provide as much information as possible. It is the writer’s personal opinion. A ‘cleaner’ peer-reviewed version with standard citation format, references and supplementary resources will be posted on this website at some point]

aid

Almost every Malawian I know agrees that Malawi’s economy cannot continue to rely on foreign aid for much longer. That by expecting others to help us run our country, we had effectively given up our sovereignty, and any incentive to make our own choices. But it’s much harder to find consensus on what the country must actually do to wean itself of developmental aid.  Some Malawians think the answer is in Agriculture. Others think Manufacturing is the way while another group think Information Technology and the next Facebook. Scores more think exporting Sugar, Kachasu, Chibukhu or even Nkhotakota Gold may be the way.

With tobacco exports declining in industrialised countries (see extensive report here – via Time Magazine) and a determined anti-smoking lobby, tobacco will soon (if it hasn’t already) cease to be to a reliable export crop which Malawi can lean on.

Presently, around 40% of Malawi’s annual budget comes from donors including the African Development Bank, Britain, Germany, Norway, the European Union and the World Bank. A greater proportion of the rest is raised from tax revenue.  Such monies are primarily spent on general government expenditure including salaries of civil servants, food, fuel and “fire fighting” one crisis or another, with few resources allocated to creating developmental projects with a potential to generate large Forex for the government.

Inevitably, this has created a situation where some donors have used this state of affairs to exercise influence over public policy, including erecting somewhat unreasonable demands like devaluation of the local currency.

When their demands have been challenged or are not fully met, they have threatened to withdraw, or have actually withdrawn budgetary support, which has led to economic instability.

The recent example of this came when former president late Bingu Wa Mutharika probably with good reason refused to devalue the Malawian Kwacha, citing the cataclysmic effect such an action would have on the fledgling Malawian economy, and the suffering it would cause. The donors pulled out, pushing the Malawian economy to the brink of collapse and causing a massive fuel and Forex shortages, and exponential rise in prices and commodities. There were sugar and water shortages, crippling businesses, including some well-established companies. Some businesses threatened to leave Malawi, thousands of jobs were lost, and at least one international airline suspended flights. In a comical twist, hundreds of motorists began leaving their cars parked in queues at gas stations for days on end, walking home instead, to wait for when petrol would arrive. Even the police force, having been unpaid for months, was allegedly charged to fend for itself, with disastrous consequences.

Since then, a lot has changed. Malawi has a new president, Her Excellency Joyce Banda, who is Malawi’s first female president and only second female president in the history of Africa. The local currency, the kwacha has been devalued by around 40%, donors have returned and emergency funds pumped into the economy. But numerous problems remain; The economy has not responded as expected and the cost of living has risen sharply. Many commodities are now twice as expensive as they were a year ago, and nobody can say for sure whether given similar circumstances in the future such a scenario would not repeat itself, causing further suffering.

With sudden changes has come an increasing number of Malawians who are justifiably unhappy with what is being viewed as unreasonable, insensitive, intrusive and somewhat tyrannical carrot and stick demands. In social media and online articles, there have been references to “economic slavery”, “neo-colonialism”, “donor dictatorship”, “and predatory aid” and the new president has been called a “donor puppet”.

Others have taken a more pragmatic view, seeing the government’s acceptance of donor funding conditions as a choice between a rock and a hard place and not necessarily a punishment to poor Malawians. But one couldn’t help sense a grudging acquiescence, fuelled perhaps by desperation.

child-labour-South Carolina 1908
Child Labour, South Carolina, 1908

It has been correctly pointed out that most countries from which the donors originate have had their own uncertain histories where extreme violence and repressive policies/conditions (like fiefdoms, child / orphan labour, forced annexation of land, ban on alcohol, slavery, etc.) by monarchies, land owners, industrialists and other leaders, were implemented, adversely affecting minorities and millions others; that it has taken a painstakingly slow process and hundreds of years of activism and mistakes for desirable change to happen. That in some donor countries, age old problems (racism, social inequality and sexism) are still widespread. Yet certain donors appeared to be putting excessive pressure on countries such as Malawi to effect similar types of changes overnight, in a country that was barely fifty years old.

Some of those enraged also correctly point out that most donors do not fully appreciate Malawian culture and most will never be adversely affected (in some cases – they would in fact benefit) by the negative effects their demands have (or are likely to have) on the Malawian economy.

Naturally, one conclusion to draw from this is that Malawi could probably be governed much more effectively if it was neither influenced by donors nor their financial support; if it generated its own income and acted in the interests of Malawians. In any case, how does one justify implementing unpopular policies when it is the people who elect you to office (not the donors) who will suffer disproportionately as a result?

This view is not unique to Malawi alone; others far afield have expressed similar concerns against some of the institutions that make up the donor bloc citing examples of countries like Botswana, that have made admirable progress in economic development by ignoring the very same Machiavellian advice they were prescribed.

But putting aside this causative and divisive rhetoric for a moment, the elephant in the room has always been what policies should the Malawian government urgently implement to generate its own money, which it can spend according to the needs of its population, since tax revenue isn’t currently raising enough income?

In my view, the difficult in answering such a question is partly because there are many forms developmental policies could take, making the job of policy maker slightly difficult, so much so that the question then becomes, which policies within the ‘pool of viable policies’, can be implemented in a relatively short space of time, at a reasonable cost, and to achieve a significant economic return? A return that will see hundreds of jobs created, that will perpetually generate sufficient foreign currency for the government and private enterprise, which will ensure the longevity of the policies and sustainability / environmental preservation

Answering such a question is the first step towards finding an answer to the donor aid dependency problem. A further problem is the constraints current donors have placed on the Malawian government. But surely, if such constraints are disproportionately negatively affecting people’s lives, and have been known to have produced negative or undesirable results elsewhere; surely their effectiveness must be questioned?

So, taking a simplistic view, in terms of job creation, obviously in a nutshell you will require a skilled or unskilled workforce performing certain functions that will ultimately lead to the development of a product (such as Chilli Sauce, Blankets or Electric Scooter), or provision of a service (such as a Call Centre, Security or Carpet Cleaning) which can be marketed. Both types of organisations will depend on how much capital investment is available, availability of raw materials, the skillset on the ground and the size of the target market itself. But generally, the bigger your investment budget and the available skills pool, the more likely you will be able to employ large numbers of people to fulfil your function.

However, classical capitalist theory dictates that for an investment opportunity (other than one for purely charitable purposes) to be beneficial, the profit, or potential profit must be attractive enough to justify the initial investment (which for big projects can run into millions of dollars). So even though you may want to employ hundreds of people, you are constrained in that essentially, there must be a return on investment(ROI), otherwise there’s little point in investing if you will only be losing money.

But how much profit is enough profit?

For a developing economy which currently relies heavily on donor support to function, I’m inclined to apply and translate this hypothesis such that when the government awards contracts to foreign investors, the underlying assumptions as to the opportunity (at least from the government’s point of view) is that it is

…attractive enough to provide a reasonable profit and incentive to the investor, while ensuring that the investor’s ethical obligations to the country in terms of paying adequate amounts of tax, creating employment amongst the local population and development of infrastructure, are proportional to the actual (not perceived /anticipated) profit they generate from their investment

But such a viewpoint may not be shared by investors, and in any case what is the definition of a proportional corporate social responsibility? Spending $1 million annually on the local population in developmental initiatives? $10 million annually? Or $100 million?

Furthermore, it is a common practice for many international companies to pursue tax efficiency schemes, declaring losses where perhaps a profit could have been made, or offsetting a loss in one region with a profit in another, and if you inquire from any accountant worth their salt, you will be surprised to learn how creatively a profit can be ‘converted’ into a loss.

Admittedly, it’s a tricky balance since when attracting investment, a government also has to take note of what its neighbours (in this case Zambia, Zimbabwe, Tanzania and Mozambique) are offering in comparison to its own offering, because if an offer is not as competitive, an investor may end up basking in the neighbour’s back garden, instead of yours.

This state of play concentrates the bargaining power squarely in the hands of investors, and has been known to lead to the signing of grossly unfair contracts which disproportionately and exponentially favour the investor far more than it benefits the local population.

But as you will see below, this is an artificial problem that can be rectified, especially when the attractant bringing the investor to your country happens to be a natural resource. But only if personal agendas are set aside and officials begin to act in the country’s best interests.

In terms of Forex and the closely related issue of raising venture capital, there are no easy answers because for a country such as Malawi, there’s not much money floating around and you have to give others a good reason to want to invest in your country. But some things are more obvious than others.

So, in an industry such as oil extraction or mining, and considering that Malawi has comparatively fewer resources than other larger African countries, and few Malawian industrialists have the capital to invest in large projects, then instead of granting a tender to a foreign based company to establish mining operations (which may well be the easy way out), a wiser decision (at least in the long term) would be for the Malawian government itself to enter the business of mining/ oil extraction. In the information age in which we live in where one can easily recruit skilled professionals from all around the world, in industries as diverse as nuclear physics and aeronautics to marine science and nanotechnology, Malawi wouldn’t be universally refused assistance/ technical support in creating and running its own heavy industry. Assistance sought from the Arab Countries, South America and Asia would not be refused.

Therefore, in my view, the government would be best advised to create a planned economy firstly, before ushering in measures that work only in a market economy. By forming and co-own an organisation they would be doing just that. The state would hold between 48 – 51% equity, and offer the remaining stock to the public through a venture capitalist funding round. It is important to stress that this organisation will differ from “parastatals” in that it will not be governed, managed nor influenced by government/ ministries in any way. To have a greater chance of success it will need to be run like a private company, with enough checks and balances to prevent abuse.

Suppose it did this, issuing 4,900,000 (four million nine hundred thousand) shares at say between US$10US$17 per share, in respect of 49% of the shares; that alone would have a potential to raise between US$49 million to US$83 million three hundred thousand for the undertaking, a decent amount of capital.

Depending on the subscription levels to the stock and in order to achieve some kind of spread on ownership, no single person /family or undertaking (other than Malawian registered cooperatives) would be allowed to own more than 15% of the stock. In addition, nine of the biggest shareholders would be invited to become members of the board of directors, together with eleven other non-political appointments, appointed by government as its representatives, from across the country.

Once the stock goes live, the public would be given a 2 – 3 weeks advantage window to purchase shares before corporate entities were invited to buy. In order to expand the reach of such a scheme, publicity could be generated using various methods including online, local and foreign radio and TV advertising. There would be fund raising events at all Malawian Consulates across the world; using Malawian Associations in the diaspora; in Malawian faith gatherings (for example Churches) and celebratory gatherings in the diaspora, events at which the virtues of the scheme would be triumphed, and details of the opportunity, growth plans, brokers would be communicated; Mining companies (in particular VALE), African Development organisations (i.e. African Development Bank, or pro African organisations such as the Mo Ibrahim Foundation) and others would all be invited to invest. So would Sovereign Wealth or Pensions Funds respectively such as the Fundo Soberano do Brasil, Investment Corporation of Dubai, Abu Dhabi Investment Authority, Hassanna Investment Company of Saudi Arabia, South Africa’s Public Investment Corporation (PIC), Norwegian Government Pension Fund, China’s Africa Development Fund, Russian National Wealth Fund, Korea Investment Corporation, National Development Fund of Iran, Khazanah Nasional Berhad, Kuwait Investment Authority, State Capital Investment Corporation of Vietnam, Government of Singapore Investment Corporation Private Limited, Qatar Investment Authority  and several such investment houses. Alternatively, or additionally, the organisation could issue a standard IPO, although the 15% stock rule would still have to be enforced.

Admittedly, setting up such an organisation would be a daunting task, requiring an experienced, dedicated, progressive, well-informed and energetic team that has had exposure to fresh ideas that have worked elsewhere around the world. However, as you will see below, the net benefit of such an organisation to Malawi (or indeed any African country struggling with the development aid problem) would far outweigh initial headaches (and costs), and would have a much higher chance of ending dependency on donor aid than most endeavours that are currently taking place.

There would be many concerns and hurdles, and setting up would not be easy. But by far the largest concern would probably be that of accountability, in that strict money controls would need to be implemented to ensure that the capital raised, and revenue generated would be used for growth of the organisation and social purposes such as revamping hospitals, buying essential medicines, building infrastructure developmental, and not for personal gain. To this effect, it would be mandatory for all senior officials, including those with access to the organisation’s finances to declare all their assets before taking up office, and to be independently audited bi-annually by external and independent auditors. No executive would be allowed to sign for transfer of funds of more than $15,000, as decisions on transfer of funds over $15,000 would be made collectively by the senior management team. Further, the government would need to issue a guarantee to secure against each investment in the event of fraud.

In addition, from the onset, an organisational culture of nurture (complete with an Environmental Preservation Programme and a Corporate Social Responsibility programme which would include volunteering to charities, schools, hospitals and suchlike) would need to be established to nail this message that employees of the organisation are hired to serve.

To safeguard the longevity of the organisation, it would also be essential that the company be run as a meritocracy, independently of the government or any other political institutions. This would call for a military style discipline in that while the organisation would be answerable only to its management board, it would also be answerable to a non-executive board of directors made up of officers from nine of the largest shareholders and eleven non-ministerial, non-political state representatives from across the country. Members of the non-executive board would have a fixed, non-extensible tenure of 2 years, and its management board would be contracted to a thrice renewable 4 year contract. Specialist advice would be sought from members of management boards of companies in other parts of the world, such as in Brazil for example, where their state run enterprises some of whom have now been nationalised, have proved to be commercially successful.

Addressing Red Tape

Ask any entrepreneur who has worked in Malawi and they’ll tell you that the bureaucracy is ridiculous. There are delays and lengthy procedures over everything. Delays in incorporation, delays in getting consent or a signature over one aspect or another, delays in getting import licenses, delays unless you pay a bribe, delays! In buying land and getting the purchase officiated, delays imbedded deep in the system.

The effect of red tape is that it tarnishes the country’s reputation, hampers business operations, repels investment and causes frustrations to investors who would otherwise help fix our economy.

So the government would be best advised to introduce a sui generis instrument that transformed the way businesses incorporate in Malawi by allowing an accelerated incorporation of a business within a week. Everything regarding incorporation, taxation and issues such as exemptions on capital equipment would be dealt with by a dedicated team occupying a central computerised system, firstly located in each of the major cities, and subsequently gradually rolled out across the country. The system would allow an entrepreneur to make an appointment, pay a fee, show all the required documents, get the incorporation documents and exemption certificates printed that same day, and if he needs land, show proof of purchase and get a bill of rights to the land by the end of the week. By the next week he can open a bank account, collect his machinery from customs and begin employing locals and commence operations for the building of his factory, having secured everything he required within a week.

The effect of such speedy processing times would be phenomenal and would greatly stimulate Malawi’s industry. In any case, if we look at the small country of Singapore (whose size is just larger than the size of Lilongwe), it’s no surprise that it is ranked as being the easiest place to do business in the world because according to a Report by the accountants Grant Thornton, it also has the least red-tape. In fact Singapore is so successful in this regard, it has been voted as the easiest country to do business in 7 times

To cement a culture of nurture, the organisation’s chief executive would be answerable to Parliament, and would be under an obligation to appear before a Parliamentary committee, once a year, to present an annual report on the organisations progress, direction, challenges and dealings.

Since the organisation’s aim would be primarily to develop Malawi’s economy, its structure, aims, functions, operations and investments and such like would need to be clearly articulated from the outset. It would have to maintain total impartiality in politics and there would be a need for strict checks and balances, and stringent hiring procedures, to safeguard for example against political influence, tribalism, regionalism, nepotism, ageism, or any other cancerous bias common in African countries.

A long–term management plan (at least > 10 years) that would include growth forecasts and a diversification plan to spread financial risk would be implemented, mapping the organisations goals and ambitions and providing a back-up plan. Fraud, mismanagement and corruption would be dealt with swiftly, uncompromisingly and decisively, and without political interference. In the event of a particularly acute crisis, or mismanagement, the CEO can be summoned and questioned before parliament, although he can only be forced to resign, if his position becomes untenable, by a two thirds majority vote of both its management board and Non-executive board of directors.

Such an approach would be crucial in terms of efficiency, transparency and would help establish investor confidence. It would also avoid some of the mistakes and problems documented elsewhere, for example those that have plagued Malawian parastatals or South African state owned enterprises [see here and here]

Further, if such an organisation does not lay a clean, responsible and credible example, and does not pre-emptively act against known inefficiencies common in parastatals, prospective investors are unlikely to purchase shares in any subsequent offerings under any similar state co-owned corporations. Already there are credible reports that suggest that the performance of State owned enterprises can be significantly improved, leading to profitable organisations [See Arief Budiman, Diaan-Yi Lin, and Seelan Singham , 2009, Mckinsey Quarterly here] In any case, with the benefit of hindsight, such organisations can be managed with the knowledge and expertise that will ensure that they steer clear of the ‘plagues‘ that thwarted State run companies of the 1970’s to 1990’s.

tractor

Thus, if Malawi had established four or five such corporations, then once the companies were on course to declare a profit, and while adopting a strict cost control strategy, the funds would be sufficient to purchase capital equipment (oil drilling equipment, mining equipment, agricultural equipment [ploughers, combine harvesters, planters, trucks, pumps, generators] , pharmaceutical equipment, manufacturing equipment [for industries including fertiliser making, cement making,  steel refinery, juice extraction, sugar processing, motor vehicle / railway carriage assembly, petroleum refinery] and any other necessary raw materials or equipment for industries the organisation was considering to diversify into.

The funds would be sufficient for the development and upgrade of infrastructure such as flats, houses, shops, a hospital, a police station, schools, a post office, banks, an airfield, libraries, markets, sporting and health facilities and roads to cater for the new workforce that would be required to work in the new mines / factories, all of which would create massive employment and would stimulate the Malawian economy like never before.

greenway_poultry

underwater

It would be sufficient to cover investment in alternative sources of energy such as wind, solar, tidal wave and novel hydro/ underwater turbines (here and here) power generation, to ensure that the new extraction / manufacturing facilities (and subsequently the new towns or settlements) are as environmentally friendly as possible, generating as much of their own energy as possible. It would be sufficient to cover employment costs for the organisation, including hundreds of miners and salaries of specialists from around the world to provide training and assistance in construction of the mines/ factories, conducting geological scans, using, servicing and maintenance of equipment, etc.

To aid in understanding the workings of such an organisation, say one focussed on mining/ oil extraction, a hypothetical picture of its staff and annual financial commitment may be most helpful. Thus, I’m inclined to include this rough, sketchy and extremely simplified draft of what the financial commitment at its very bare bones would look like. Obviously, the figures although lower in comparison to the levels in the developed world, can be adjusted accordingly in view of national salary levels / trends, performance targets, generated revenue, market forces (food / fuel prices and inflation, etc.) and to attract some of the best talent to the organisation [Click here: Annual Costs]

Note that in the subsequent years after the first, the capital equipment or buildings budget will be significantly lower, since funds for infrastructure will already have been allocated and costs such as heavy machinery or motor vehicles maintenance will be minimal in comparison. Thus, while the figures in the annual costs may at first sight appear indulgent for a small African economy, its structure would be designed with hindsight regarding diversification and future growth into other industries in national and international markets.

If the company generated US$300 million in sales of its ore in its first year of full operation (let’s assume this occurs after total sales at the end of the 2nd year from commencement), then deducting the operational costs [US$26,903,000(1st year); $8.9 million (2nd year: this is estimated by deducting first fiscal year costs minus the sum of contingency, infrastructure & capital equipment costs – giving $35.8 million) leaves US$264 million operating profit.  [Note that these calculations do not take into account any “losses” carried forward from the previous year(s) before full operation, nor does it fully consider that employees would not be hired all at once]. For the purposes of this article, for simplicity and assuming there are no tax incentives, if we levy a flat Corporation Tax rate of 30% (US$79.26 million), the net profit becomes be US$184.74million.

Thus, at 51% government ownership, and subject to other considerations/ deductions, the government % share of the profit would be a not insubstantial US$94.2 million, roughly about 7% of the 2012 Malawi National budget.

But even if the management board decided that only two thirds of this $184.74 million (~ $123.16 million) would be paid out to investors in dividends in the third year, while one third would be kept as reserves (a part of which would be re-invested into developmental programmes, acquisitions, growth / expansion, operating capital, shares buy-back programmes and other purposes), 51% of $123.15 million is still a substantial US$62.8 million, which would be a considerable contribution to the Malawian government over and above the US$79.26 million already paid in corporation tax.  There is then income tax paid by the employees, which would further generate tax revenue for the government.

And Investors would make a fortune. Since 4.9 million shares for 49% means that 1% stake in the business is equivalent to 100,000 shares, then at US$17 per share, it means that 1% stake is worth $1.7 million in investment. Thus, if $123.16 million of the profit will be paid in dividends, then 49% would be worth $60.34 million, valuing each percentage (1%) at $1.231million.  Theoretically, this means that if the company maintains or improves its performance for the next few years, then within 3 – 6 years of making an investment, an investor would have recouped or even doubled all of their initial investment in dividends.

But suppose instead of US$300 million in its first year of full operation, only half, or even a quarter is generated in sales. Even then, taking a similar approach, the organisation could still be managed to remain profitable.

And what if instead of the 4.9 million shares, only 2 million shares are issued at $17 – $19 per share in the funding round, raising between $34 million – $38 million. I believe with some creative adjustments and a lean approach (for example, ‘thirding’ / halving the salaries of the top quartile, reducing size of middle management, and salaries of middle management by say $4k -$7k; reducing the expenditure on capital goods & buildings), the venture would arguably still be commercially viable, more so because after the first year, the capital expenditure (buildings, infrastructure, Plant) would be much less.

Obviously, in practice there would be far many more considerations, and the figures would probably not look as optimistic, but the above provides a plausible and realistic picture of the financial commitment and nature of such an organisation. With such a framework, and depending on the amount of ore deposits, the miner workforce can be increased, short-term internships provided to hundreds or even thousands of low income earners from across the country, know-how sought from international experts and the company could still generate a profit, meet its tax obligations, and issue an attractive dividend.

Contrast this to the common arrangement where the government only owns few or no shares in its country’s largest heavy industry, what you will find is that corporation tax revenues or dividends are often miniscule in comparison; disproportionate by any scale, and the government loses out on hundreds of millions of dollars, just another repetition, dare I say, of the age old adage that everybody except Africans themselves benefit from Africa’s mineral wealth.

And you see it everywhere; recently a Fortune Global 500 Italian oil company, ENI (which is the largest industrial company in Italy with 30% government ownership) has acquired a 70% shareholding for Natural Gas reserves off the coast of Mozambique, one of the biggest finds of its kind with potential for over $15 billion. 

Think about it, with the expertise Mozambique and Southern Africa currently has, was it necessary to give away such a large stake to a rich European company when your own country is littered with massive problems caused by poverty? Doesn’t this clearly add to the imbalance of trade between Africa and Europe? And even if the companies that will develop the reserves are to invest $1 billion.  Yet if $10 billion (which is 70% of $15 billion) is the net benefit to the Italian company, say over 15 years, clearly Mozambique will not have gained proportionally?

Or would it have done so? How?

In any case, when was the last time you heard an African based mining company had been awarded a 70% interest /contract in North America or off the coast of Italy?

In my view such decision making from African leaders showed incompetence and left much to be desired. When European legislators had used every trick in the book to protect their markets, it was wasteful, short-sighted and negligent and couldn’t possibly represent the true position of the majority of Mozambicans. Mozambique, which faces similar problems as Malawi needed the benefit of such resources a lot more than ENI, whose 2012 3rd quarter profits (4th Quarter to be announced in February 2013) stood at €14.80 billion, a 13.9% increase from 2011.[See source here]

The Younger generation ought to take note of such crippling anomalies and rectify them when their turn in public office arrives because this trend where the net movement of resources is only from South to North, or South to West, is precisely what got Africa into a mess in the first place. In particular, according to British historian Dr. Hakim Adi,

 “From the middle of the 15th century, Africa entered into a unique relationship with Europe that led to the devastation and depopulation of Africa, but contributed to the wealth and development of Europe…..”

He follows to state that:-

“The forced removal of up to 25 million people from the continent obviously had a major effect on the growth of the population in Africa. It is now estimated that in the period from 1500 to 1900, the population of Africa remained stagnant or declined. Africa was the only continent to be affected in this way….was a major factor leading to its economic underdevelopment.”

[See here]

So, if things have indeed changed since the exploitative days of slavery, wouldn’t you think that the economic imbalances that currently exist would be squarely addressed, decisively? That not only would African leaders  be alert in negotiations and minimally demand a proportional shares of their resources, but western business leaders would have policies in place to ensure that a larger, or atleast equal benefit of natural resources go to the country that owns them?

This is probably one of the drivers which influenced South Africa to finally open its first state owned mine. The implications of such must never be understated. For a start, how much potential revenue in taxes and dividends has the South Africa’s government lost in income from diamonds and gold since the end of apartheid as a result of lack of ownership of a proportional share of the country’s mining industry?  Funds which because of private ownership were wired out of the country, or concentrated in the control of a small rich minority, instead of being used for developmental purposes within the country, lifting millions of ordinary South Africans out of poverty, building quality hospitals, developing medicines and raising the standard of the poorest and such like.

By owning a majority stake in most of its country’s major industry, and having an informed management strategy, the net benefit from the proceeds of its natural resources can be significantly increased.

This is what Park Chung-hee (the South Korean general who is credited with the industrialisation and rapid economic growth of South Korea) practiced [see Export-oriented Industrialization here]. While he had a darker side to him, and while there were other contributory factors at play (for example American money – Chung-hee’s support of the US in the Vietnam war is said to have attracted substantial financial rewards to the tune of $3 billion, between 1964 to 1972, in exchange for sending 300,000 Korean soldiers to Vietnam), his policies including creation of economic agencies, ownership of banks, soliciting technology and investment from Japan, encouraging the creation of efficient but cheap products and expanding Korean exports helped create and strengthen the industry that now defines South Korea.

It’s what Botswana has done, whereby Debswana, their sole mining company is 50% owned by Botswana and 50% by DeBeers. [See recent Debswana revenues here]

These types of policies are especially important where private individuals struggle to tap into capital markets, and while there has been criticisms against them, even countries such as the US, and the UK developed partly on the back of such policies.

In discussions with scores of western trained colleagues (most of whom are African – many now working in Africa, including Malawi), there were many different views exchanged. Among them were concerns that certain donor officials (not only in Malawi) were discouraging African governments from ownership of industry (in one instance advising the Malawian government not to buy tractors for agriculture “because it was bad for the soil”). Such thinking was unhelpful, as highlighted by one Rick Rowden on Foreign Policy.com where he states that:

Today many African countries need to use industrial policies, such as temporary trade protection, subsidized credit, and publically supported R&D with technology and innovation policies, if they are ever to get their manufacturing sectors off the ground. This is true for all the same reasons that it was true for the U.K. and other nations that have industrialized successfully. According to today’s ideology of free trade and free markets, however, many of these key policies are condemned as “bad government intervention.” Bilateral and multilateral aid donors advise against them (and structure loan conditions accordingly). WTO agreements and new regional free trade agreements (FTAs), as well as bilateral investment treaties (BITs) between rich and poor countries, frequently outlaw them.

[See here]

When most western countries (from whom the donors originate) had phases of Planned Economies before adopting Market Economies, how honest was advice against a planned economy? In any case which industrialised country still uses hoes or cattle ploughers for agriculture? If private industry is generally unable to raise sufficient capital for purchasing of equipment which would provide benefits and efficiencies in farming, how can farming methods improve and the quality and quantity of the yield increase?

This point is worth exploring in a bit more detail. If it is the case that such advice was provided, how honest was it when it was clearly the case that raising capital for large projects which would involve outsourcing technical functions, buying expensive machinery or consulting a considerable number of foreign specialists, was beyond even the wealthiest entrepreneur in Malawi? And when no entrepreneur was willing to risk putting their own money into such a venture, without an assurance from the government that they would be awarded at least a contract that would ensure that they recouped their money back?

Further, in terms of credibility and securing against an investment, the government can create credibility with relative ease and would be able to secure against an investment, whereas private entities can sometimes be viewed more circumspectly, and wouldn’t always be able to secure against an investment.

So, it was again left to foreign investors to develop heavy industries, marginalising local entrepreneurs, who must settle for employee. And as most people already know, many corporations are masters at “legal” tax avoidance, using tax incentives, off shore companies, tax-free zones and other sophisticated schemes to deprive their government coffers of millions or even billions of dollars. It happens everywhere, even in the UK [see here and here]

But unlike the UK, where there are hundreds upon hundreds of multimillion pound revenue generating companies, such that even in the presence of widespread tax avoidance schemes, Her Majesty’s Revenue and Customs (HMRC) is still able to collect hundreds of billions of pounds in Tax every year [see this source, in particular page 7] that lists 2010 -2011 collections to be £468.9 billion, most poor countries such as Malawi had no such luxuries. With few multinationals, advice against government co-owned industry was unhelpful, discriminatory and suppressive to say the least.

And if you look at the US, similar patterns emerge in that the state collects huge chunks of incomes from big business -simply because there is a lot of large industry!

Image source: Washington Post
Image source: Washington Post

Therefore, if the Malawian government was reluctant or under duress not to own industry, yet Malawian businessmen were unable to overcome financial barriers to entry, and foreign owned corporations paid miniscule taxes, what hope of creating sustainable economies was there? Wouldn’t this create or perpetuate the rather familiar situation in which resources of very poor countries were developed predominantly by foreign corporations most of whom paid very little taxes, and did very little towards lifting the standards of life of the locals? Doesn’t that fact in itself perpetuate a donor aid dependency?

In my view, the Malawian government, and other Africans states would be best advised to ignore such misleading advice and begin to invest into heavy industry that will create an export economy, as other countries have done in the past because a planned economy would greatly benefit Malawi.

Sustainability

Malawi, like many African countries, gets plenty of sunlight, more so by virtue of its equatorial proximity. So, imagine if every roof, whether iron sheets, tiled or thatched had a solar panel on it.  Would there be power cuts or shortages every other week? Further, how much fuel would that save? And how many trees would be saved as a result? And on a similar theme, what if every household planted one tree a year, for example in the fashion of say the Youth Week programme of the Hastings Banda days, and following lightly in the footsteps of the Nobel Peace Prize laureate Wangari Maathai’s greenbelt movement. Having the benefit of a fresh water lake, if Malawi can strive to become the greenest country in Africa, literally and in terms of greenhouse gases emissions, that factor in itself would inevitably stimulate biodiversity within our wildlife ecosystems and would most certainly improve our tourist industry, bringing in much more Forex into the country [See lessons from Costa Rica here]. It would also carve unity and create a sense of togetherness towards a common purpose.

In my view, a government owned corporation such as suggested here would be the perfect opportunity to implement environmentally friendly projects that have worked elsewhere [one example here], including an extensive national tree planting programme, creation of additional forests and wildlife reserves, importing additional species of animals from other countries(e.g. the Congo basin and Madagascar) to increase our biodiversity and such like. In building infrastructure, and pending cost-benefit analyses, the organisation would adopt measures, practices and technology adopted by “green cities” in other parts of the world such as in Brazil, Sweden, Canada and Qatar. [See Turning Deserts into Forests here]. In any case, doing so would likely help combat the challenges brought about by climate change. In fact according to a World Bank Report tackling climate change is linked to ending global poverty.

A further point worth mentioning and that is somewhat linked to the dependency problem is the role of Education. There are many educated people in Malawi, loads! Every single day, whether in the newspaper, on the radio, or amongst friends, you will hear a reference to some Dr. or Professor, or somebody who has a Masters degree in some field. Many of them are foreign educated but if you investigate further, you quickly find that very few of these “intellectuals” have been given a real challenge that will stretch them mentally and utilise their many skills. Many settle within the boisterous frustrations of working as university lecturers, going months on end without pay; Or receiving breadcrumbs in one NGO or another, undertaking dead roles, and led by unresponsive, short-sighted, fat-cat bosses. If not they are in regressive government departments doing clerical jobs for which they are overqualified; or they are working as consultants, underutilised. Else, they are in farming or in some other function, but because of lack of sufficient capital, still heavily underutilised. In contrast, and as if a mockery, the old guard (or neopatrimonials known respectfully as Achikulire) despite having little formal education, and who achieved notoriety in business or politics under the one party system or as a result of their affiliation/relation to a minister or president, are still doing relatively better, and dominate some industries. Yet the Malawian government appears powerless to help these educated individuals, and in the words of a friend, “they are left to slowly rot away and become irrelevant”. What then was the purpose of all the highly advanced training, the PhD’s and Masters? Is this not waste? How will Malawi develop if those who have the skills are not utilised and supported to practice their vocations? Most of these people have years of experience, and their activities and contacts both on the ground in Malawi and abroad have given them a unique depth of understanding as to why countries develop and the root problems plaguing Malawi’s economy. Yet the furthest they vent their knowledge is at parties, amongst friends, or at the bottle store, amongst strangers.

In my vision for Malawi, foreign educational institutions such as Universities will play a pivotal role in assisting to end aid dependency. So, if 100 Universities across the world were “compelled” to loan to 200 of the entrepreneurial of these professionals $35,000 each in Venture Capital funding, I find it extremely difficult to accept that, with the knowledge, exposure to progressive ideas, with their experience and contacts (be it other Africans in Ghana, Kenya, etc., or with former classmates in Europe, the US, Asia or Australasia, etc.) that such capital wouldn’t enable a majority of the recipients to create sustainable business models on the ground.

It wouldn’t be a free lunch. There would be a need to comply with Financial Services regulations regarding lending by Educational Institutions. For each applicant, a business plan would need to be submitted for vetting and fraud checks including credit checks to ensure that only the genuine applicants were assisted. There would be a need for training and business management support to ensure that the entrepreneurs are constantly being equipped with skills that could be of use in their businesses. Minimally, it would allow those ideas which had the best potential, low entry barriers, possibly a successful pilot run, and a big enough market for a viable sustainable model to be created, to be funded.

To make things a bit more interesting, suppose those universities included a clause in its loan agreements that stipulated that if the initial investment is doubled, excluding costs, then as soon as the initial loan is repaid, say within a space of 3-5 years, the borrower would be entitled to another loan, this time twice the amount ($70,000) and so on.  In my view, such a scheme would be a huge incentive to innovation that would challenge Malawi’s underutilised entrepreneurs and would have a tangible and measurable impact within a short period of time because the entrepreneurs would have access to essential capital and Forex, which most currently struggle to find. Such resources which would enable them to buy equipment and employ a couple of people to assist them roll-out their business ideas.

The Universities would also benefit in other non-obvious ways, for example, Business School students would have an opportunity to be seconded on short term internships (a couple of weeks to several months) in these ventures to gain experience, transfer additional skills and arguably contribute to these companies.  And those that prove to be commercial successes could even offer these students full-time employment.

Could wind turbines be an alternative source of power?
Could wind turbines be an alternative source of power?

Diversification

Because of the resources at its disposal, a national corporation can seamlessly diversify into other industries and branch out to create other companies. For example it could invest in Tourism, partnering with local tourism providers to establish high quality standards and / or cooperatives; it could invest in Commercial Farming (everything from Soya beans, Poultry, Bee keeping to fish, cattle / pig farming, all on a large scale); It could dive into Telecommunications; Information Technology outsourcing(from graphic design and call centres to cloud networks + unified systems); Manufacturing (foodstuffs, alcohol, furniture, fertilizer, cement, glass, plastics products, cosmetics and such like.); Assembly (computers & electronics, bus & rail carriages, motorcycles and such like.); Pharmaceuticals; Education (creation of new learning institutions/ universities with research specialisations in medicine, engineering, agricultural technology, business, etc.); Recycling (metal, plastics, wood,  paper, carbon-composites, etc.); Shipping – an International Import and Export / Logistics business; Banking & Insurance; or even investing in the development of Real Estate (flats and houses, hotels and world class business centres).

Much of the systems and machinery would already be in place, as would be staff and a management. In essence the first corporations would act as a training ground to equip employees with transferrable skills that are essential in the subsequent corporations. Once issues such as demand, market/ viability analyses, type of crop / animal, vets and vaccinations, pesticides, nature and cost of new machinery, logistics, profit margins, import / export tariffs, procedures and legal compliance, specialists, etc. in each of the identified opportunities had been determined, “satellite” management boards would be hired to independently run the spin-offs as independent national corporations in their own right. This also means that shares would be issued in a similar manner as above and the whole cycle repeated all over again.

So as an example, Blueberries cultivated on a commercial scale in South America (notably Argentina + Chile) find their way to England, and are subsequently used in everything from fruit and desserts to juices and pet food. In the UK alone combined retail sales value for strawberries, raspberries, blueberries and blackberries are close to £700 million [see here]

Similarly, the US imports Meat and poultry from New Zealand. According to this source ( Office of the US Trade Representative):

The five largest import categories in 2011 were: Meat (frozen beef) ($906 million), Albumins, Modified Starch and Glue (mostly caseins) ($312 million), Dairy, Eggs, and Honey (milk protein concentrate) ($286 million), Beverages (wine) ($224 million), and Machinery ($182 million)…”

According to a ACDI/VOCA report (source: Value Chain Assessment: Indonesia Cocoa , by Henry Panlibuton & Maggie Meyer, June 2004), Cocoa Beans exports from Indonesia are currently valued at approximately $600-700 million per year, however there have been concerns regarding the quality of the beans and a much documented fall in production in recent years which could mean an opportunity for a savvy new entrant??

Similarly, the US imports raw materials, foodstuff, fish and food grains from Thailand, and in 2011 they included Prepared Meat, Fish (shrimp and tuna) (worth $1.4 billion), … Agricultural products from Thailand to the US totalled $2.6 billion in 2011, the 8th largest supplier of Agricultural imports, and included: rubber and allied products ($1.0 billion), processed fruit and vegetables ($468 million), and rice ($419 million) [See here]

According to 2009 statistics from Economy Watch, the Netherlands imported a total volume of $358.9 billion worth of goods. This may be a market worth exploring, in terms of what do they need, where are they currently buying it and why, what can we supply them, what are they short of which we can grow, what are we already supplying, etc. In any case, South Africa exported over $700 million worth of goods to the Netherlands [Source Mail & Guardian] and in 2009 the Netherlands imported $290 million worth of Cocoa from Nigeria [See The Observatory of Economic Complexity] all of which may be indicative of opportunities worth exploring in greater detail?

According to this source, the US imported over $1.4 billion worth of fruit and vegetable juices from the world in 2010. The global market for fruit and vegetable juices is forecast to reach 64.46 billion litres by the year 2015 [See here].

With all the fruit trees (notably mango trees) in Malawi, and considering that Zimbabwe is no longer a big producer of fruit that it were in the eighties and nineties, Malawi should be churning out hundreds of millions of litres of fruit juice each year.

In addition, Sugar exports from Australia are worth between $1.5 billion to $2.5 billion [See here]

Think, Dwangwa Sugar Corporation, which is only 8% government owned. An investment into two or three large government co-owned Sugar plantations in which the government held a majority stake was the most obvious thing to do. If availability of land were a problem, the corporation could “rent” unused land south of the border and develop such large plantations in Mozambique, Angola, Botswana, Zimbabwe, or even across the Mozambique Channel in Madagascar, and negotiate fee sharing arrangements with the governments of those countries.

Further, it could do a lot more; the Dangote Group for example was built partly on sugar products, which probably shows that there is still a large market for processed sugar products across Africa. As a sugar producer, Malawi shouldn’t have to import processed sugar, coffee or tea products from abroad, let alone have shortages in times of crisis. These must be processed in Malawi, marketed extensively and exported. And in austere times such as is currently the case, the buyer is more likely to buy on price.

According to the Bureau of International Recycling, the global recycling industry is worth at least $200 billion. In 2010 alone, the US generated $30 billion from export of commodity grade scrap products. [see here] Surely, this has got to be a market worth exploring in more detail?

According to Vinexpo Chairman Xavier de Eizaguirre, the global Wine industry is worth at least $170 billion. And is growing rapidly, largely driven by consumption in China [See here] Such is the growth that not only have South American countries like Chile and Argentina become prominent grape growers, even the South of England which previously wasn’t considered to have the ideal climate is becoming a vineyard region. [For more information see here].

According to this link, in 2008, footwear industry exports from Vietnam were worth $3.16 billion.

With a government co-owned corporation, it will be possible to bid for projects internationally, and possibly even acquire other potentially profitable opportunities elsewhere. You see it with Vale which began as government owned and has grown from a national mining company into a behemoth which is now the second largest mining company in the world, with acquisitions in Canada, Japan and other parts of the world. Surely, there are some practical lessons Malawian industry can learn from such companies?

A further point is that Malawians must learn to reject deals or proposals that are bad for Malawi in the long run. In the case of mining, this is metal ore we are dealing with so if someone doesn’t want to buy it or if the price they are offering is too little (or insulting) – you can always refuse to sell it to them. And store the ore. Tomorrow another customer will show up, and in the case of Uranium, there are many customers: Iran, India, Brazil, China, the US, and many others, all with huge energy needs. So, as an example, if Iran wanted to buy our uranium in exchange for petroleum, you couldn’t get a better deal. In any case, many countries including the EU are still trading with Iran, despite trade sanctions, with EU imports from Iran in 2011 amounting to ~€15.8 billion.

In conclusion, the above presents only a tiny picture of the global opportunities such an organisation could target.  However, I believe that with a considered vision, fresh thinking, extremely careful planning, a deliberate and calculated risk, a progressive and sacrificial team, and with a stringent management strategy, and an organisational culture focussing on integrity, service and nurture, and by referencing to what has borne positive fruits elsewhere, it is possible to create and harness three or four such home grown brands into remarkable and profitable multi-billion dollar conglomerates.

If run responsibly, such national corporations would be the pride of Malawi, and would most definitely propel our country’s economy into the 21st Century, helping Malawians enjoy the sort of financial freedom enjoyed by countries such as Botswana, Mexico, Brazil, Kenya, Ghana, Malaysia, South Korea, Venezuela, Thailand and China respectively, some of whose industry began as state owned, and many of whom still have state owned industry. It would help bridge income disparities and would raise the standards of living of hundreds of thousands of low income families, equipping workers with transferrable skills in the process. Its environmental credentials would be attractive to foreign investors and its social policies would help with healthcare initiatives, tertiary training and be a model for responsible corporate governance.  Most importantly, it would provide ordinary Malawians with a means of realising a proportional benefit in their resources.

For Malawi and several other African countries facing this aid dilemma, the resources, expertise and answers are arguably already available; the only ingredient yet to be added to this equation is the exercise of a determined, concerted, well-informed and independent political will. But in the event that such highly desirable political will was not forthcoming, for whatsoever reason, individuals and Malawian businesses must act quickly to organise themselves and pool resources together to form ‘cooperatives’, for example as was the case with the group that in 2012 bought biodiesel equipment from the US.

The collective pooling together of resources would arguably allow the cooperatives to begin targeting national and international opportunities such as those outlined above, because unless the Malawian economy can become self-sufficient and industrialised, we will forever struggle to maintain true independence on the global arena.

And it’s not about embarking on some heroic stunt. It’s the things that matter: – where our medicines and consumables come from and whether we can save money by manufacturing a few ourselves? Whether we can create savings on the source of our electricity? The quality of healthcare(access to a clean hospital bed + medicines; family planning being standard); if every child has an access to a good level of education, if the homeless and hungry can be housed and fed, and the jobless provided with training and a job(even if it meant part time job, so long as they can be resourceful), if our lakes, national parks and game reserves are protected and enhanced; corruption thwarted mercilessly, if our industry is developed so that (i) it caters for most of our basic needs (ii) generates sufficient Forex (for fuel and more sustainable + eco-friendly industry, etc.) to enable us to tap into the global economy, if Malawi can strive to construct world class facilities to attract international business, reduce crime and increase security (to say 1970’s levels) across the country for international visitors to feel safe; if civil society  is resourced to educate against deforestation and offer alternative and sustainable sources of energy, if the priorities of a majority of our politicians’ can shift from being archetypically self-centred, to being servants of the state, paid similar salaries as doctors, if our mentality can change from what J F Kennedy referred to as what my country will do for me, to what I will do for my country, the pillars of economic development will have been laid.

Chinese propaganda poster, April 1965, it reads: “Fully engage in the movement to increase production and to practice economy to set off a new upsurge in industrial production” via http://chineseposters.net
Chinese propaganda poster, April 1965, it reads: “Fully engage in the movement to increase production and to practice economy to set off a new upsurge in industrial production” via chineseposters.net

In any case, if countries like China, Brazil or South Korea stuck to inefficient and archaic agricultural methods or core industries by which they were defined 60 years ago, do you think they would have developed at the pace they have? Taking the example of China, despite the controversy with an artificially maintained currency, cheap labour and poor working conditions [which is not unique to China as even industrialised countries had a phase of poor working conditions], has their sacrificial spirit and hard work not paid off, benefitting millions of Chinese?

I urge every Malawian who reads this to carefully consider these observations and other inspirational works ( for exa ple Henry Kachaje’s Imagine an economically Independent Malawi). Each one of us needs to play a part in terminating this toxic debt cycle that has enslaved our country for decades.

                                  “You cannot pick up a pebble with one finger.” – Malawian proverb

Let us graft together and transform Malawi for the better. We may not be able to do it as individuals, it will not be easy, some people will be against it, but together, united, irrespective of tribe, religion, customs, colour of skin, irrespective of language, irrespective of social status, it is possible to make real progress; Malawians shouldn’t accept mediocrity, hand-outs and unending hardship as standard.

Not every problem can be solved overnight, and while mistakes WILL be made, yet in seeking to develop Malawi (in substance, not rhetoric), if we collectively, sacrificially and selflessly begin structured meaningful projects, hand in hand with willing trade partners, we can achieve progress that has never been seen previously. Progress mapped not by foreign aid organisations or vested interests that have neither sympathy for nor responsibility towards the poorest Malawians; instead, progress which terminates aid dependency once and for all.

[In the next and final part, I will outline examples as to how other countries and businesses have specifically implemented planned and strategic Economic policies, and lived to reap the benefits]

(C) 2012 -2013 Sangwani Nkhwazi