A firm has warned that the recent positive developments in the economy could be watered down by the persistent power outages which are constraining industrial production and also deterring foreign investment.
In the past two months, the country has managed to reign in on inflation which now stands at 16.1 percent as last reported by the National Statistical Office.
Just recently, the Reserve Bank of Malawi (RBM) cut its policy rate to 22 percent from 24 percent giving hope to a further cut on interest rates. Traditionally, a cut in the policy rates is followed up with a reduction in bank lending rates.
But, according to Alliance Capital Limited, blackouts pose a serious threat to the modest recovery the economy is making as there is a strong relationship between economic development and per capita electricity consumption.
The UNDP Human Development Report of 2013 shows Malawi’s per capita consumption and its corresponding Human Development Index of 0.418 as being well below the sub- Saharan regional and global averages.
“It’s frightening to realise that the rains are finally bidding farewell and the blackouts are slowly gaining back momentum to the levels experienced in 2016 and this is only March. One can only imagine how it is going to be like in just a few weeks from now when the rains cease completely,” Alliance Capital said.
The firm said the importance of having a constant supply of energy for any economy that is serious about economic advancement can never be underestimated.
“Energy forms the core of the production function. Frequent and prolonged blackouts not only constrain industrial production and provision of socioeconomic services but also deter foreign investment.
“Additionally, blackouts contribute to environmental degradation as consumers resort to unsustainable use of biomass energy like charcoal and firewood,” Alliance Capital said.
Malawi has been battling economic turbulence for more than two years with an inflation rate peaking above the 26 countries that form the Common Market for Eastern and Southern Africa. The kwacha, now looking stable, also had a tough time in the basket of currencies.
In 2016, the country experienced the worst electricity shortages it has ever seen in the last decade. Before its unbundling, Electricity Supply Corporation of Malawi (Escom) attributed the problem to low water levels in Lake Malawi and subsequent flows in the Shire River where Escom taps power for hydro-electric power generation.
But Alliance Capital fears that although the government is attempting to add capacity to the grid in order to remedy the situation, these measures will take time to come into effect.
In its latest Malawi Business Climate Survey Report, the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) listed electricity among the major constraints to doing business in 2016.
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