Those who support Arthur Peter Mutharika standing for a second term cite roads he has repaired, the malata and cement subsidy scheme among his achievements during his first term. They do not seem to realise that all economic activities are not worth much unless they lead to improvement and maintenance of living standards. To what extent has his regime improved the living standards of the majority of the people?
Foreign commenters such as the World Bank say Malawi has been stuck at the lowest rung of the economic ladder.
Higher standards of living and social welfare cannot be attained prior to economic development and growth. We must, therefore, seek to understand circumstances under which a country achieves economic development and higher economic growth rates.
Economic development and economic growth are sometimes used as if they were completely interchangeable. But there is a difference, either subtle or palpable. By economic development, we mean laying foundations on which growth can take place. It involves building roads, bridges, railways banks, technical schools, tourism resorts, among others. In developed countries, these facilities are in abundance. Governments tackle the problems of economic growth using fiscal and monetary policies. They have people with the necessary skills and entrepreneurs, both of which are scarce in developing countries.
Economic development takes place where the factors of production are available. These are land (natural resources), labour (human effort), capital, machines and equipment and entrepreneurs, special people who organise the factors of production and bear the necessary risks of doing so.
In most developed countries, the first branch of the economy to growth is agriculture. This provides food for workers both in agriculture and other parts of the economy. But agriculture alone has never made a country prosperous. Not Britain, the forerunner of industrial revolutions, not the Tigers of the Far East. It is manufacturing industries that transform an economy beyond recognition as Dr Hastings K Banda would have put it. Are we serious about making Malawi a middle income country? Then, with full determination, let us jump-start manufacturing industries.
Logically and naturally, one would say this is easier said than done. But you never can know whether it can be done until you have tried. So, if we want to go into manufacturing, what basic condition must there be?
The obvious first condition is that there should be stable government, law and order. Where there is no peace, industries are difficult to start and, when started, difficult to sustain. The government must be in the hands of highly committed leaders. This is what we learn from the histories of South Korea, Singapore, Taiwan and mainland China.
There as on a country may remain stagnant economically is that its government is in the hands of routine persons whose slogan is business as usual. For a country to be economically transformed, it must be under dynamic and visionary leadership.
Manufacturing industries flourish where skills and raw materials can be made available.
When a country does not have these in abundance, it can acquire them from abroad, from countries that have them through what is called Foreign Direct Investment (FDI)
There is plenty of capital in developed countries. A good deal of it does not earn the owners substantial returns. Business people there are looking for investment opportunities in under-developed countries such as Malawi. There are many countries which answer to the rubric of under-developed or developing. Foreigners who want to transfer their capital into these countries compare incentives which host countries offer.
Foreign direct investors seek to know the host country’s taxation systems. Is the taxation system fair as far as the investor is concerned or is it extortionate? Does the system conform with Adam Smith’s Canons that a tax must be in accordance with a payer’s ability to pay and that collection of taxes should be done in a convenient manner.
Before going into a country, foreign direct investors enquire how the government treats businesses that are operating there. When they hear that tax authorities dispatch policemen to close long establish businesses which delay to clear their tax bills, they feel it is not worthwhile going into such a country.
If Malawi is to compete favourably with other countries in attracting FDI, it must be seen by foreign investors to be more welcoming than its competitors, and not otherwise. Admittedly, taxes, whether personal or corporate, must be paid so that the government may have the revenue to pay for the services it renders. But the difficulties a payer has at a particular point in time should be given thorough consideration. Delay and tax dodging are different things.
A government uses statutory law to force people to give it the money. This power, a business person does not have.
His customers come voluntarily, they are not coerced and, quite often, they do not come at the time he needs them most because the general conditions of the economy are not good. At the present time, who can dispute that the Malawi economy as a whole is so weak that there are lucky and few business people who make hefty profits, enabling them to respond at once to the demands of the tax collector.
We need FDI if manufacturing industries are to take root here. Among us there are too few entrepreneurs who can venture into manufacturing.
Our people will acquire technical and management skills while working for foreign firms established here. Thereafter, these men and women can set up their own manufacturing firms.
Apart from treating fairly foreign investors, the government nurtures local small people by at least removing the handicaps their people encounter.
Building and office rents and licences which are raised annually by too big margins throttle small businesses.
It is the duty of the government to make sure that no one imposes conditions on businesses which make it difficult to survive. Malawi can learn something from Taiwan.
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