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The Structure of the Economy

Malawi has an agro-based economy with the agriculture sector accounting for over 35.5 percent of GDP, employing about 84.5 percent of labour force and accounting for 82.5 percent of foreign exchange earnings. Agriculture is characterized by a dual structure consisting of commercial estates that grow cash crops and a large smallholder sub-sector that is mainly engaged in mixed subsistence farming. Maize, the staple food, accounts for 80 percent of cultivated land in the small-holder sub-sector. The main agricultural export crop is tobacco, followed by tea, sugar and coffee.

The manufacturing sector accounts for 11 percent of GDP and comprises of mainly agro-processing activities in the tobacco, tea and sugar industries. Distribution and services represent about 22 percent of GDP.

While Malawi is not endowed with mineral resources on the scale of its neighbouring countries, there is significant potential for natural resource extraction. Minerals that can be found include uranium, coal, bauxite, phosphates, graphite, granite, black granite, vermilite, aquamarine, tourmaline, rubies, sapphire and rare earths.

The Malawi Growth and Development Strategy

The Malawi Government's economic program is set out in the Malawi Growth and Development Strategy (MGDS). It is the overarching strategy for Malawi for the five years between 2006 and 2011. The overriding philosophy of the MGDS is poverty reduction through sustainable economic growth and infrastructure development. It identifies six key priority areas which define the direction Malawi intends to take in order to achieve economic growth and wealth creation which are critical for immediate improvement in the economic well-being of Malawians. These are:

1. Agriculture and Food Security: The goal is to increase agriculture's contribution to economic growth, by not only increasing production for food security, but also for agro-processing and manufacturing for both domestic and export markets.
   
   

2. Irrigation and Water Development: Irrigation and water development is key to Malawi due to its direct linkages with agriculture and energy. Irrigation will contribute towards reduction of the over dependence on rain-fed agriculture while proper conservation of water will also contribute towards the generation of electricity. Key strategies include construction and promotion of small and medium scale irrigation schemes to schemes to enhance food and cash crop production.
   
   

3. Transport Infrastructure Development: The state of Malawi's transport infrastructure is characterized by poor road network, poor and limited access to ports, limited air links, inadequate freight and rail capacity. The inadequacy of the transportation infrastructure results in high costs of production, where transportation represents 55 percent of costs, compared to 17 percent in other developing countries. Efforts will be on improving mobility and accessibility of the population to key road corridors within Malawi and out of Malawi while facilitating the improved mobility and accessibility of rural communities to goods and services at low cost. Effort will also be made to improve inland shipping network that is active in local and international shipping, trade and tourism in a safe manner while protecting the environment. Plans are underway to navigate the Shire River so that the country could have direct access by water to the ports along the Indian Ocean through the Shire-Zambezi Waterway.
   
   

4. Energy Generation and Supply: The provision of energy in Malawi is inadequate, unreliable and inaccessible to all who need it largely on account of lack of competition in the sector, non-functioning power plants and inability to generate sufficient amounts of energy. The goal is to reduce the number and duration of blackouts, increase access to reliable, affordable electricity in rural areas and other targeted areas, and improve coordination and the balance between the needs for energy and those of other high growth sectors such as tourism and mining.
   
   

5. Integrated Rural Development: The Government of Malawi recognizes that broad based economic growth and development cannot be achieved if rural areas with potential for growth are sidelined. In this context, it will strive to promote the growth of rural growth centres. The objective is to re-distribute wealth to all citizens while also mitigating the negative consequences of rural-urban migration.
   
   

6. Prevention and Management of Nutrition Disorders, HIV and AIDS: The MGDS incorporates strategies of the National Action Framework on AIDS and the UNAIDS 'three-ones' principles - one agreed action framework, one national AIDS coordinating authority, and one agreed country level monitoring and evaluation system. It seeks to not only halt and reverse the spread of HIV and AIDS but also to decrease the negative impact of the epidemic on people living with AIDS and reduce the economic and social consequences for those who care for people living with HIV and AIDS.

The MGDS also includes other focus areas, including the creation of an enabling environment for the private sector to increase domestic and foreign investment. To achieve this goal, Government will support, encourage and engage the private sector and all relevant stakeholders in result oriented dialogue to ensure tangible improvement in the business environment.

Government also intends to increase productivity, diversify the economy and achieve export led growth. To attain this, potential growth sectors will be positioned to realize the targeted economic growth and increase employment. These sectors include tourism, mining, and manufacturing. The Government will also put effort into turning Malawi from being a net importer to a net exporter and effectively integrate it into regional and international markets.

Conservation of the natural resources base is an important factor that will contribute to the achievement of sustained economic growth and development objectives of the MGDS. The goal is to improve management of fish species, forestry and wildlife biodiversity and reduce environmental degradation and conserve the natural resource base, while contributing to economic growth.

Other long-term goals include creation of wealth for all people through economic empowerment, especially for women, and to ensure tenure security ad equitable access to land for the attainment of broad-based social and economic development through optimum and ecologically balanced use of land and land-based resources.

Recent Economic Growth Performance

The Government of Malawi has invested significant political capital in restoring macro-economic stability. Fiscal discipline has been maintained since 2004, and has established uninterrupted three-year track record of good macro-economic management which has translated into improved macro-economic indicators. Real GDP growth was 7.9 percent in 2006 and 7.5 percent in 2007. Inflation reached 9.2 percent in January 2007, the first time it has hit a single digit in four years. As of December, 2007, inflation was at 7.5 percent. The Bank Rate also fell to 17.5 percent in August 2007 after reaching a record high of 45 percent in 2003/04.

This progress has been rewarded by the restoration of the Poverty Reduction and Growth Facility support from the International Monetary Fund (IMF) in August 2005 and the attainment of debt relief under the Heavily Indebted Poor Countries (HIPC) initiative in September 2006 and further debt relief from the IMF under the Multilateral Debt Relief Initiative (MDRI). Malawi is also the only country that qualified for a compact under Millennium Challenge Account (MCA) in financial year 2007/2008. The MCA is a U.S. development assistance program that rewards countries based on their performance in governing justly, investing in their citizens and encouraging economic freedom. (see Malawi's score http://www.mcc.gov/documents/score-fy08-malawi.pdf)

Download/View June 2008 - Standard Chartered Bank, ResearchEconomics newsletter on Malawi: New risk-management tool to enhance food security strategy.