Country Spotlight: Republic of Malawi
Malawi is a landlocked country, dependent on agriculture and external funding. The Malawian economy is relatively small, susceptible to external shocks, geopolitical instability, and extreme weather conditions, such as droughts and flooding. The Malawian government is currently faced with challenges of widespread poverty, underdevelopment, and an increased burden on the fiscus due to the adverse impacts of climate change and the need to support domestic food security. Economic growth declined from 5.7% in 2014 to 2.8% in 20151, and 2.9% in 2016 due to the 2015 drought, which affected agricultural output[15]. Delayed rains, persistent dry-spells, and depreciation of the Malawian Kwacha, as a result of poor agricultural export earnings, further contributed to Malawi’s plight[16]. This in turn led to increased levels of poverty, and a 12.4% fall in maize production resulted in food insecurity for approximately 17.0% of Malawi’s population in 2015/16[17].Malawi is now faced with a new set of challenges as Britain withdraws from the EU. This process officially commenced on 29 March 2017, with the signing of the order to begin the two-year negotiations[18]. Malawi depends on development aid from the EU, with Britain as one of the most consistent and largest contributors to the European Development Fund (EDF) after Germany and France, reflected below[19].
Table 2: Scale of Assessment for the 11th EDF (2014–20)
Source: EC 2014. European Union Public Finance 5th Edition Budget, European Commission: Brussels, Available At: http://ec.europa.eu/ [Last Accessed: 13 May 2017].
Brexit will inevitably result in the re-negotiation of Britain’s development assistance, which may become overregulated and unfavourable for Malawi. Britain may continue to provide development assistance to Malawi, but will likely come with increased pressure for transparency and accountability in assessing its usefulness and the manner in which the funds are disbursed. On the other hand, Brexit may allow Britain increased autonomy over its development assistance and bolster foreign direct investment into Malawi, and other developing nations[20]. Even so, Britain’s development assistance will be less influential than the sum of the EU’s pooled funding, but may be more effectively disbursed.
Britain’s absence from the EU’s developmental policy making will become increasingly noticeable, especially with regards to the EU’s Common Agricultural Policy (CAP). Although CAP is generous towards European farmers in its allocation of agricultural subsidies, Britain is a long-standing activist lobbying for reform of this policy[21]. Britain has argued that the CAP distorts market prices, making it more difficult for foreign farmers to compete fairly in the EU, which defeats the purpose of a ‘trade for development approach’. Furthermore, it grossly distorts the prices for consumers, wherein a significant 39.0% of the EU’s 2015 budget was awarded to CAP[22]. The CAP policy is deeply detrimental to an economy like Malawi, which is largely dependent on agriculture for trade, employment, revenue, and subsistence[23]. However, Malawi was among 34 African countries that received preferential trade agreements through the Generalised Scheme of Preferences (GSP) in 2014. The GSP is a response to CAP, which awards duty- and quota-free export access into the EU. As a result of the GSP, Malawi receives preferential treatment for its exports of tobacco, its primary export commodity, to the EU. However, re-negotiations of the GSP are being conducted due to imbalances and uncertain consequences of Brexit. There is a marked difference in Malawi’s trade relationship with the EU, when compare to that of the UK. This may be attributed to established colonial ties between the UK and Malawi[24].
Figure 1: Malawi Exports to the UK and EU (1995-2015)
Source: UNCTAD 2017. UNCTADStat Database, ibid
Malawi’s trade has been systematically decreasing. The country is currently maintaining a current account deficit as a result of declining exports, and an increased reliance on imports, due to poor agricultural output over the last three years, as well as the depreciation of the Malawian Kwacha[25]. In addition, Malawi has seen a decline in donor and investor finance due to the 2013 public financial management scandal, which raised concerns about officials’ accountability and disparaged donor confidence.
Nonetheless, Malawi has access to established trade links and bi-lateral or multi-lateral trade agreements to prolong its relations with the EU, such as the Cotonou Agreement which is effective until 2020. The agreement, signed on 23 June 2000 and revised on 25 June 2005, fosters a platform for political dialogue, sustainable development, international cooperation and trade[26]. However, Malawi’s trade with the EU has declined from above 50.0% of total exports to below 40.0% since the signing of the Cotonou Agreement, this can be largely attributed to increased competition from other ACP recipient countries like Brazil[27].
Figure 2: Malawi Inward FDI (1995-2015)
Source: UNCTAD 2017. UNCTADStat Database, ibid.
Considering the internal and external challenges Malawi has to overcome, its current economic conditions provide an opportunity to rebalance the SADC economies through macroeconomic convergence. Macroeconomic convergence is an important driver that can underpin deeper regional integration and broaden intraregional trade within SADC[28]. This includes the SADC Finance and Investment Protocol (FIP) assistance in leveraging Malawi’s central geographic location to exploit both Eastern and Southern African markets. This may require further investment into Malawi’s infrastructure, to form and tap into established trade corridors, logistics and production networks throughout the region. Additionally, the FIP process monitors achievements of SADC member states in terms of their public and national debt, inflation levels, and current account balance[29]. Even so, the continued success of macroeconomic convergence in SADC will rely on large economies like South Africa, sharing their industrial capacity with the region, to spread production and promote intraregional trade and competition. This in turn affords poorer countries an opportunity to exploit their comparative advantage within the REC, taking into account the structural and institutional weaknesses in SADC.
Ultimately, smaller SADC economies need to focus their efforts on integrating with the wider region in order to encourage macroeconomic convergence. The example of Greece in the EU provides an important lesson for the SADC region. It illustrates the negative consequences of macroeconomic divergence and uneven regional growth, which undermined progress achieved by the EU[30].
By Tafadzwa Mahubaba
[15] AfDB 2017. Malawi Economic Outlook, on the African Development Bank Website, viewed on 18 March 2017, from https://www.afdb.org/;CABRI 2016. The 2016/17 Mid-Year Budget Review, Collaborative Africa Budget Reform Initiative: Centurion. Available At: https://www.cabri-sbo.org/ [Last Accessed: 6 April 2017].
[16] WB 2016. Malawi Economic Monitor: Analysis Predicts Continued Weak Growth in 2016 Amid Low Agricultural Production, on the World Bank Website, viewed on23 March 2017, from http://www.worldbank.org/.
[17] WB 2016. Malawi Economic Monitor: Analysis Predicts Continued Weak Growth in 2016 Amid Low Agricultural Production, ibid.
[18] GoUK 2014a. Prime Minister’s Letter to Donald Tusk Triggering Article 50’, Government of the United Kingdom: London. Available At: https://www.gov.uk/government/ [Last Accessed: 13 May 2017]; GoUK 2014b. Oral Statement to Parliament: Prime Minister’s Commons Statement on Triggering Article 50, on the Government of the United Kingdom Website, viewed on 13 May 2017, from https://www.gov.uk/.
[19] AfDB 2017. Malawi Economic Outlook, on the African Development Bank Website, viewed on 18 March 2017, from https://www.afdb.org/.
[20] AfDB 2017. Malawi Economic Outlook, ibid.
[21] EP 2017. Financing of the CAP, on the European Parliament Website, viewed on 14 May 2017, from https://www.europarl.europa.eu/.
[22] EC 2017a. CAP Expenditure in the Total EU Expenditure, European Commission: Brussels, Available At: http://ec.europa.eu/ [Last Accessed: 14 May 2017].
[23] EC 2017b. CAP in your Country, on the European Commission Webiste, viewed on 3 April 2017, from https://ec.europa.eu/.
[24] UNCTAD 2017. UNCTADStat Database, United Nations Conference on Trade and Development: Geneva, Available At: http://unctadstat.unctad.org/ [Last Accessed: 10 April 2017].
[25] UNCTAD 2017. UNCTADStat Database, ibid.
[26] ACP 2011. ACP Countries to Negotiate as a Unified Entity with EU, on the African Caribbean Pacific Website, viewed on 3 April 2017, from http://www.acp.int/.
[27] FAO 2017. SUGAR: Policy Insights from Analysis of Sugar Sector Reform, Food and Agricultural Organisation: Rome, Available At: http://www.fao.org/ [Last Accessed: 14 May 2017].
[28] SADC 2012. Macroeconomic Convergence, on the Southern African Development Community Website, viewed on 3 April 2017, from http://www.sadc.int/.
[29] SADC 2012. Macroeconomic Convergence, ibid.
[30] ECB 2015. Real Convergence in the Euro Area: Evidence, Theory and Policy Implications, European Central Bank: Frankfurt, Available At: https://www.ecb.europa.eu/ [Last Accessed: 3 April 2017].
