BY DD PHIRI:
The unreliability of hydroelectric power is one of the disincentives to investment in Malawi, both domestic and foreign. We are told by our engineers and other technocrats that the problems originate from the effects of climate change which have resulted in low levels of Lake Malawi.
Influencing natural forces to operate to human advantage is a gargantuan task. However, this is what constitutes civilisation-controlling the natural and social environments. Those who succeed against the odds are acclaimed as great. Our engineers must do their best to ensure that the Electricity Supply Corporation of Malawi (Escom) is serving the nation as expected.
The problems of Escom do not seem to be purely natural or technical. Apparently, there are management and political problems. Last year, Escom was reported as having achieved a surplus. But this year, the parastatal seems to have gone into insolvency. The question is: Why have these two situations occurred one after the other? The chairman of Escom, Thomson Mpinganjira, is reported to have attributed the insolvency to inefficiency. There may be more to this; possibly political interference and corruption.
Managing State corporations is not one of the easiest jobs in the world. It entails determination of the role of the State in the management of the economy.
The great economist, John Maynard Keyness, said that in an economy, the state should allow private entrepreneurs to undertake those activities which can be managed more efficiently by the private sector. The government should only venture into areas which the private sector won’t do and are necessary. As to which activities the State must undertake and which must be assigned to the private sector is not always a straightforward matter. Besides, is it always desirable for the state to leave entrepreneurs or private businesses on their own? If this were so, then there would be no case for subsidising of fertilisers or any other subsidy.
The word State interference is often uttered or written by economists especially Anglo- American. Hence Reagan and Thatcher went the whole hogg to divest the state of its nationalised industries. But, at that very time, the Tigers of the Far East (South Korea, Taiwan and Singapore) were experiencing breathtaking growths as a result of class alliance between the public and private sectors. The practical relationship is not a matter of science but art.
Now, what relationship should there be between a central bank and the Ministry of Finance? Most theoreticians say a neutral or independent bank is ideal for controlling the macro-economics of inflation and interest rates. Most countries, however, pay only lip-service to a central bank’s independence. They often direct it to lend money to the government which actually means printing new notes which then saturate the economy and push up prices.
When there is too high inflation, a central bank fights by raising interest rates. This deters companies from borrowing and spending capital, resulting in the decline of circulation of money in the economy. But this action, which deprives firms of acquiring capital for expanding businesses, creates unemployment. A government does not want to risk either too high commodity prices or too high unemployment in a country. The dilemma is obvious. In trying to defeat inflation, be prepared to accept or tolerate some amount of unemployment which may entail borrowing from banks on a large scale. This could lead to inflation.
Brave leadership, plus sound public relations, constitutes an answer to the quandary. A leader worth his salt decides between the two choices: which is the lesser evil-must the economy generate more
jobs, never mind the inflation that might accompany it? Must it bring down inflation by raising interest rates, never mind the decline in job opportunities? Weak leaders are indecisive. In the course of trying to please all sectors of society, they are rejected by everyone.
While developed countries worry about two per cent inflation which amounts to deflation (the opposite of inflation), we worry about double digit inflation. Both inflation and deflation discourage investment.
People with capital will undertake investment if prices are good enough to generate worthy returns. They hesitate to invest in a state of galloping hyperinflation because of the uncertainties it creates regarding business contracts and the value of money.
Some governments have factored into their constitutions targeted interest and inflation rates which they will tolerate. An inflation rate of about five per cent is seen as conducive to investment, economic growth and stability of the money’s purchasing power.
Such governments also prescribe the percentage of debt to the Gross Domestic Product (GDP). Borrowing beyond a given percentage is strictly forbidden. Populist governments usually repeat such lows and plunge the country into dizzying heights of national debt.
How can small countries free themselves from such difficult situations? By tackling the supply side of the economy. The economy of a country is made up of goods and services, not banknotes or coins. Behold what Rachir Sharma writes about a well-known small country. The other country that began developing broad strategies in technology while it was still emerging is then even smaller and more unusual. This is the case of Israel, which was recently reclassified as a developed market. It is home to second start-up companies of the world after the United States. Israel is a legitimate technological power, deriving 40 per cent of its GDP from exports and half of its export income from tech and life science.
This country is not even half the size of little Malawi, but comes second to the gigantic United States in terms of technology. How do they manage this? Perhaps the answer is in national culture, belief in education and willingness to make the sacrifices. Whether, as individuals or institutions, progress is achieved first by imagination, generating ideas and implementing some of these ideas.
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