Wednesday, June 27, 2012

Malawi Housing Crisis

There is an acute shortage of housing in the urban areas of this country. Lilongwe is proving to be the worst and there is no end in site. The other three cities are no better. Rentals are skyrocketting beyond the reach of average persons. Add to the fact earnings are generally low and a majority of city dwellers have no job or large families. Factor in our naturally extended families as a means of social protection. There is no end to the housing plight of average citizens that struggle to earn a decent living. Somewhere, someone is not doing their job or simply do not care. The process of allocating land to build houses has institionalised corruption to some extent. Malawi Housing Corporation, City Assemblies and the Ministry of Lands seem highly contented with the status quo. Looks like they take pride in our desperation and ques that we make in their offices. The master slave relationship it has become. We pay taxes. Either they are clueless on what they are supposed to do or do not care as long as they collect corrupt rents from the connected. Unfortunately, it is not easing the housing crisis. People are suffering.

What have we seen over the last decade or afew years? Emergence of peri-urban areas such as Njewa, Lumbazi in the outskirts of Lilongwe, Chileka in Blantyre and along the Nkhata-Bay road. Malawians dream to own homes or invest in residential property but the process is doggy and very corrupt. I dont need to provide proof, but potential home owners, average hard working Malawians, have resorted to buying land in customary areas in the outskirts of our cities. Pathetic situation. Again who has more cash gets such land.
I dont need to provide proof to the anti-corruption bureau, but the mere existence of codes against such malpractices in the land management institutions is enough. There are three, if not two classes of people that are often favoured in land allocation in our cities by assemblies, lands minsitry and the Malawi Housing Corporation. Politicians, often the powerful ruling elites. We have tales of the recent sale of housing units in Blantyre that would even stun a lookie public procurement assistant. Secondly, we have the super-rich-Malawian oligarchs, often connected to the regime and sometimes willing to pay high bribes. Then a bunch of rich foreigners through shady and dubiosu connections. The rest of us are condemned to scramble for the existing houses for rent. I dont know whether this amounts to a housing policy of any kind, but I believe the political leadership should do more. The lands ministry is headed by a capable bloke.

The land grab outside our cities is moving at alarming levels. The poor are being forced to sell their land to rich foreigners or the relatively well off urban dwellers that cannot access land to build homes in the cities for reasons i narrate. The poorer someone becomes, it appears, there are two options. Being forced further out of town so that you pay a much higher bus fare to city and remain in that state forever, or come to city and live in squalor/slum, remain in a similar situation, welfare wise. Vicious cycle it appears. Is our hosuing policy deliberately trapping our poor/middle class and condemning them into perpetual poverty or hell? Maybe we have a silent class war.

There are lots of benefits from making land allocation easy, effective and more important efficient. I see no point in filling forms and paying fees to Malawi Housing Corporation, Minsitry of Lands and City Assemblies and staying for over 20 years without any allocation. Worse still, not even an acknowledgement that your application is unsuccessful for any dubious reason atleast. Sounds like revenue collection of some kind to screw us even more. If these process are efficient, our people can easily access loans to invest from financial institutions. The people we are pushing out of the city to customary land, struggle for years to get a title to their land. To the financial institutions, this land cannot be used as collateral. Issues of title to property are also quite common in the cities where sizeable properties do not have title deeds even in the low density suburbs----reason, there is alot of corruption in the allocation processes. While the cost of borrowing from banks is already high, accessibility to finance can be enhanced if there was a transparent way in which property rights are adminstered by the these three major institutions. Owning land or a property is not a priviledge of the rich few, but a right of every citizen in our “God/Donor fearing nation” as the Republican constitution stipulates.

I believe JB and her government will take heed of the rising population. With limited opportunities in the rural areas, everyone is flocking to the cities. Lilongwe city is now a million plus people. Population growth remains high and will continue to do so. Its time to look at the population numbers seriously rather than simply funding the census for electrol reasons. Malawi population is still very young and predominantly in the reproductive age group. Conveying messeges of family planning will not change the high population growth. We will still grow at high rates and migration to the cities will continue. A comphrensive rethink of how we manage land and housing is required, particularly transparency through electronic databases. It should not favour the rich, politicians and those with a tendency to palm oil bureacrats. There are heaps of urban poor living in uninhabitable conditions. Such things fuel crime. How long are you going to live in getted communities with electric fences? Such things will not protect you. There are constant power outages that render your electric fences useless.

The benefits of a transparent, corrupt free land and housing allocation are many. Not only does it allow easy access to loans, but can help fight urban crime as well.


Tuesday, June 19, 2012

What sense have we made out of Vision 2020, MPRSP and MGDS?

Its not a question of allocating a lions share of the budget to a particular sector, but rather what the money actually does. Does it make Malawi a competitive country to do business, attract foreign direct investment, create jobs and improve welfare of our people? Our planning strategies seem to have been a pre-occupation of the former than the latter. Courtesy of shambolic politics of course. Our lives are still dependent mainly on “wooden hoe” farming.

In the mid 1990’s we took national planning to serious levels with all sorts of strategies but I fail to make sense of them. Nothing much seems to have changed. Sometimes I am tempted to think that the after independence 5 year cycle “Statement of Development Policies” were quite effective planning tool and the political leadership implemented most of the ideals.

I recall, just like many others, airing views to the vision 2020 team that visited Chancellor College sometime. Aspiring young students. One thing that I remember about the vision is to attain a middle income status by 2020. Put it simply, by 2020, Malawi will be at the level of Mauritius, Kenya, Botswana, Zambia and Ghana ( the latter two being latest additions to the group). The per capita incomes will average roughly over a thousand us dollars at purchasing power parity. Are we there yet? Does anyone still talk about the vision? You will be surprised that the document itself is not even easy to find in the planning departments and our political leaders don’t even know of its existence. You will be surprised if ever you had a chat with one of them and ask simple questions. Often you will end up with a sweeping response….”to reduce poverty..” as if they know who the poor are.
Then came the Malawi Poverty Reduction Strategy (MPRS), a World Bank obsession with its five pillars. One key thrust was poverty reduction through pro-poor growth. It became the back of national budgeting, atleast the way we were meant to believe, but I have serious doubts whether budget formulation changed. UNIMA still remained closed for long spells. Power outages a norm. Nurses and doctors still fled the country in record numbers. Teachers remained unpaid. These are all growth factors that benefit the common man.

Fast forward. Malawi Growth Strategy that matured into Malawi Growth and Development Strategy (MGDS) in the last reigns of Bakili Muluzi and then to his successor, the title laden Bingu wa Mutharika. Its resurgence was premised on the inadequacies of the MPRSP to address economic growth and is the new obsession. Do we expect a different outcome?

What sense have we made of all of them and what can we learn seriously? Firstly, I cannot lay blame on technicians in the public service whose sole duty is to translate political ideals into reality. They are great folks mostly under a very tough environment.

Just for once, we can think of our politicians as without any meaningful ideals. It has rendered these strategies somehow meaningless. Examples abound. How does one explain a politician’s mind that defects to PP from DPP even before the late president is buried citing PP great policies? They have not even read PP manifesto, if it exists, and spent much time casting the new found love. Could it be a zero-political ideology, whose objective is nothing other than winning an election?

I believe that in all these strategies we have not got our priorities right. We seem to prioritise everything and in the process, things remain the same. Our political leadership has always been pre-occupied with winning elections as an end rather than a means to formulate policies that lift us from poverty. Maybe it’s a question of one has to be rich simple because the other guy next door is poor? I see that through podium benevolence where tax payers money is handed out to buy votes. It keeps them in a permanent position of being rich with no regard to empowering the underprivileged. No priority or development strategy at all but to win an election. Possibly the JB government will set priorities in a different way , akin to needs of a modern aspiring nation. We might wish to note the Asian tigers of Singapore, Hongkong, Taiwan and Malaysia path to growth was partly a result of their investment in education.

Middle income countries are characterized by a sound education system at all levels with a lot of school-related investment put to good use. While the free primary education was a good measure, we failed to bring to justice all culprits in the 187million kwacha scheme at Education ministry. Wasted resources. Tales of Unima closures, underfunding of Mzuni, closure of the Polytechnic Board of Governors are some clear examples of how we value education. Unfortunately, it is only an educated population that can effectively participate in the 21st century labour market and compete at global levels. Failure to expand the capacity of technical colleges and a range of programs offered is symbolic how short our strategies have failed to deliver. An educated population is well informed and can make better choices. And when foreign companies fail to recruit locally we cry nationalism and racism. An educated woman for instance can make better choices about fertility and contribute to better health outcomes. Healthy kids too. They can concentrate and spend more time in school than the ill-equipped hospitals.

This is not the end of the story but to say that countries that are fast progressing have attracted a lot of foreign direct investment, not just opening a new mine or exploring for oil. A wide range of reforms. While the MDGS has focused on export le led growth, institutional reforms and infrastructure development remain very poor. It is not just a just of having export led growth, but rather the ability to attract foreign capital to produce for export. To me this does not require a whole bunch of a document but simple decisions that show seriousness about what we really aspire and want to be. A prosperous future for our kids. An energy crisis that seems not to end but has been known for ages is surely a recipe to scare away any potential investor. Unnecessarily bureaucratic procedures to set up businesses and repatriation of profits to foreign countries just scare away any potential capital injections, necessary to induce export led growth. Remember Kenya and Ethiopia airlines ticketing issue? You simply don’t get into foreign markets, a global brand, and experience through global networks is paramount. That is the knowledge foreign capital brings plus the ability to create jobs. But if we live in environments where we even stifle our companies like Nation Publications, for simply telling a story, it scares investors.

To achieve meaningful growth, we need capital and labour, and more important its efficacy. Our education is shambolic and that is where we train our labour force. Similarly, we need a very effective health care system to ensure our labour force remains effective once they choke in the line of duty. Technology and innovative systems of production can easily be absorbed if our workforce is educated and healthy. These are key social functions that government must provide effectively. It will definitely pull us out of “wooden hoe farming”, a tenet that seems to define our way of life. An enabling environment such as energy, roads, telecommunications and reform of business rules is a must.

In short, I must say, the three strategies have been great works but have not articulated our priorities in a manner that reflects our vision and priorities in a global competitive environment. We seem to have been overtaken or hijacked by interest and lobby groups plus certain rogue external elements with their one size fits all approach. The basics are obvious and should be priotised. Education, health, infrastructure and reform of business laws and the banking system.

Malawi Tourism Requires Mindset Overhaul

Sounding harsh, but in my own right, I consider myself well travelled and competent enough to talk about tourism business mediocrity in my country. An industry that has potential but is beset by our business as usual mindset, get rich quick-ponzi scheme mentality, horrible service delivery, disorganization and rampant overcharging. We need a huge overhaul in how we can develop this industry and appropriate potential gains.

Tobacco earnings have been falling for some years. Tourism has been touted as a potential money earner. The mining business at Kayelekera has become a talk amid cries of a not so impressive deal. Fukushima nuclear disaster in Japan stepped in, closure of nuclear energy in Japan followed, European countries too are considering the same, and Germany has just shut down some nuclear reactors. Prices of Uranium have since gone down. We cant bank our hopes on a clandestinely negotiated Kayelekera 15% stake in the right of global downturn in uranium prices. We need to take our diversification seriously and walk the talk on tourism. The tune is now boring, if not monotonous. We are in a global world and events that happen elsewhere affect us.

Tourism remains a potential if we get things right. However, Malawi is not the only country in the world or SADC. Others countries are there and a potential tourist will surely weigh options. It might include service delivery, cost of services such as accommodation, health, general use of credit cards amongst others. Remember a tourist is not necessarily a rich person. Some are mere students that save for many years to travel the world. Don’t overcharge. But we love to overprice our stuff.

In Malawi we have a whole ministry of tourism, proof that we take this industry seriously, at-least on paper. If I may ask how many people know about Malawi out there? You would be amazed at how little is known about this country. Sometimes, I am at pains to explain that we are surrounded by Tanzania, Zambia and Mozambique, which apparently are better known. Is it because we are a “God” fearing country? Others know Malawi as “that country where pop star Madonna adopted David and Mercy”. Comical indeed. But what does the ministry of tourism do? Take local journalists in their 32 seater bus around the country visiting doggy night clubs? Is that what you call tourism promotion and how you sell your country? Or is it the obsession to collect the so called tourism marketing levy and justify such tours? Even journalists are tired of these trips.

You will be amazed at how other countries use international cable television to market their destinations. Ever heard of “remarkable Indonesia, incredible India, the South African Shabeen queen, Malaysia truly Asia slogans” on CNN? I last saw a documentary on National Geographic Channel on Malawi, unfortunately it was showcasing how Marijuana is grown in the Northern Highlands.. Why not sub-contract to an international marketing company if we can’t do it? There are lots of international travel companies such as Expedia, Flight Centre and many more. Our embassy staff are busy welcoming visiting politicians or those connected to the regime at any point, and cannot be entrusted with marketing our country. In earnest.
For instance where are tourism offices? Ministry head quarters at city center and the regional office in Blantyre. Not sure whether there is another one in Mzuzu. And the usually unmamaned desks at KIA. If for instance I visit Mangochi, I need to find a tourist office that has information about all I can see in Mangochi and surrounding areas. There is none. If I visit Karonga, there ought to be a tourism office there fully equipped to inform me of things to do in Karonga. Its not enough to say we have a lake and overpriced hotels along the shores of Lake Malawi. Google does not have all solutions.

Do we really have an idea what tourists want and therefore market the country accordingly? I don’t need to talk about Malawi embassies. The story is not new. They have outdated websites and there is little information for any prospective visitor apart from a list of countries that are visa exempt or link to an out-dated MIPA website. Check the Ministry of Tourism website. It has the name of the minister, their plan and mandate or objectives something like. Who really cares about these things? A would be visitor doesn’t require such information but what Malawi has to offer, and it has to be up to date.

Then there is the private sector whose mannerism is as outdated as 1616 Jasper Boccaro. When you visit a hotel, restaurant or any other place of interest, you are often treated as a bother. The service delivery seems to be reserved for a privileged few. In most cases, it is considered a privilege to partake in some of the services yet one is paying his or her own money. Customer service in this country is a new thing and we are too bossy,yet we expect someone to pay for the services. If you have flown Africa’s Most Friendly Airline on a number of occasions you probably know what I am talking about. Cases of cabin crew shouting at passengers in disrespect for simply asking an extra pint of an over-diluted glass of Sobo. You do that to a client, and if they were foreigner, and you expect them to come to this country? “God fearing or Satan trodden” nation. In their sedated state presumably. I doubt.

And the ponzi get rich quick scheme of Malawian businesses. Why would one pay US100 a day for renting a car? This not a flat rate, but add charges per kilometer and daily insurance. And then factor in USD300/night Hotel room. Then a USD50 lunch per person in our hotels. This very beef from Chikwawa or cows that have walked hundreds of kilometers from Mzimba, or mudfish (kampango) from Lake Malawi really? We probably need to know that being a tourist does not necessary mean one is stinking rich or they have won a mega Euro lottery. Most of the blokes that come to visit are just average guys that have worked so hard, saved to travel. But our businesses are so obsessed with making quick bucks from potential tourists thinking they are madly dollar endowed.

We need to understand that other countries are better off than us and offer reasonably priced packages. There is more and much better out there and reasonably priced. A tourist would rather go to Mauritius, Zanzibar, Kenya, South Africa, Namibia or Zambia, where services are reasonably priced but of relatively good quality. Not the screaming front office personnel, neither red eyed angry waitresses or bossy hotel managers, loan-shark minded car rental operators. There is no need to revisit the theory of demand and its determinants. But for the sake of rookies, I will say price and quality of service go hand in hand to attract a potential tourist to this “God fearing country”. We cant always blame “Mose wa Lero (RIP). He found this and left as it is.

To colleagues in the Ministry of Tourism (including the Minister) and various umbrella organization like Tourism Association of Malawi I have some questions. What have you done in the last 2 years to market Malawi as a destination for tourism? What media of marketing Malawi did you use? Why should a tourist come to Malawi and not other countries in the region? Why don’t we have tourist information centres across all the districts and main border posts? This is how you do it.

Tuesday, May 8, 2012

Job creation must underpin devaluation

The Malawi Kwacha has been finally floated. It is now time for government to focus on creating employment opportunities for the struggling average person. Critics of devaluation have on many occasions argued that resulting higher prices will affect poor people. Even the late president held the same view. But on many occasions we have not come clear and open to identify these “poor”. The most vulnerable group in the event of high price increases, are the unemployed, usually unskilled and often reliant on the extended family system for survival. If there are numerous job opportunities, a general high level of skill, I think we would be less concerned about devaluation, particularly with respect to basic needs. At least a steady income ensures a reasonable degree of certainty, comfort, security than none when a devaluation strikes. How big is the unemployment problem? Since the advert of “multiparty democracy” in 1994, emerged many private secondary schools as we adopted a liberal approach to education. Free primary education was introduced and enrollments skyrocketed. Schools were overwhelmed, ill prepared. There were not enough teachers, and government undertook a massive recruitment drive for teaches. Jobs got created. Unfortunately, Mzuzu TTC was turned into a University, but nonetheless we managed to get most of young into school. But it appears we have not thought much about what they would become. But nonetheless it gives a quick snapshot of how a major targeted government policy can create jobs and future unemployment. We needed to seriously think beyond kids completing Standard 8. We seem not to get that yet.A child that was aged 5 in 1994, is today 23.This is the free education child. They are supposed to have graduated from University or completed some tertiary education. We have so many of such young people that have not had an opportunity to pursue University or tertiary education. Opportunities have been limited. A majority remain unskilled and unemployable. They just loiter around. Our ill-preparation is reflected in the quota policy, a fire fighting tactic. During the same period, the Malawi Government closed the Polytechnic Board of Governors. An institution that trained various technicians. Offereed opportunities for skills training outside the University of Malawi. While TEVETA took force, capacity of Technical Colleges has been static. Various private colleges have mushroomed, but often beyond the reach of average students whose parents are so poor or deceased. So what do we have?Huge multitudes of young people that are unemployed and have only completed an MSCE or none at all. But they can be turned into useful citizens. They are the ones that will bear the huge cost of a devaluation mentally. Financially, most of their families if they have a job, will swallow the hard devaluation pill. Now we cannot talk of Malawians lacking a saving culture if unemployment is not critically addressed. A devaluation will become senseless if we cannot bring our young into the skilled job market. I hope JB, can explore various policy tools to deal with the situation. I have in mind a-few tips that our government can pursue in-order to have a sustainable job market.In the case of skilled but unemployed Malawians, government can consider giving some tax incentives to private businesses that recruit any of jobless persons. Even more if they recruit straight form colleges. For example, if a business recruits 20 or so chaps that have good qualifications and commits to keep them for some period, a 1% reduction in corporate taxes can be offered with strict monitoring by Ministry of Labour and the Malawi Revenue Authority. Such companies can be monitored throughout the tax- paying periods. It can even be extended further to businesses that recruit straight from Technical Colleges or other non-University tertiary institutions.On the other hand, I believe increase spending in technical or vocational education is key. We can be surprised that most of the houses being built in our cities have the hands of untrained brick layers. Even electricians or plumbers have learnt their trade on the job. Not a reason to smile. There is not enough space or room available at the technical colleges. At the interim, I would contend that increasing capacity of the few technical colleges is worthwhile. Our innovation can go further to introduce more trades and programs for apprentices that extend the pool or range of skill, and in turn increase employment chances. The government can even consider building more technical colleges across the country to offer various courses. Just imagine at the moment we have Mzuzu, Lilongwe, Salima, Nasawa, Namitete and Soche Technical colleges. Not enough to train various skills in trades. Government can even support private institutions such as Phwezi Rural Polytechnic just like they do with grant aided secondary schools or nursing colleges to increase their capacity and range of trades. Talk to our development partners.In short, devaluation and removal of restrictions on forex trading the Reserve Bank of Malawi announced are bold and shrewd monetary policy. However, on the fiscal side, the government can deal with unemployment by giving businesses incentives to recruit. It would enhance a range skill development opportunities to the youth. If we address the critical problem of unemployment we will care less about a devaluation. It will also help reduce the dependency ratio of an average Malawian family, that cannot simply save for the future. Now is the time to think seriously about job creation or else our young people will continue resigning to fate. Consequences are disastrous on the health budget. Need I elaborate? I leave it to you.Feedback:

Tax excessive bank profits, reduce interest spread

Our commercial banks at the end of March reported huge profits after tax. Profits between National Bank and Standard Bank hovered around K7billion. Other banks also recorded much higher profits. No bank made a loss. It appears that banks are the most profitable business in a very harsh and tough economic environment. Much of this profit emanates from high interest income. Our banks have annoyingly-katapila like huge spread between lending and savings rates. The Reserve Bank of Malawi (RBM) has failed to coerce banks to reduce the interest spread. A case of free market says RBM. The Bankers Association of Malawi (BAM), typical of any business interest group, has made hysterical arguments that the banking business environment is very tough and risky in Malawi. BAM argues that the Reserve Bank of Malawi, in pursuit of prudential regulations, requires them to deposit a certain amount of money without any interest. Consequently, they feel very justified to pay 2% on savings accounts and charge 18% on loans. BAM demonstrates that they care more about profits of their members and not the cost of finance to the banking public. The liquidity reserve requirement, a proportion of funds that the RBM requires banks to deposit at no interest is meant to ensure that the banking public has its deposits secure in case of a bank failure. Malawi does not have a deposit insurance scheme. If one bank failed today it could be disaster. This is a standard practice anywhere in the world and BAM should not use it as an excuse for usury or overcharging. Worse still, we don’t know how the banks manage their risk or invest.We need an extra tax on these obscene bank profits and encourage a competitive behavior amongst them, level the business playing field. These excuses about risky borrowers yet they bask in billions of profits year in and out is predatory capitalism. Tales of obscene bonuses amongst them are not new.An interest spread of around 15% - 16% on savings and lending rates exploitative. A special tax should be introduced to induce competition and make credit accessible to medium and small businesses. Most of the loans are now given to huge businesses because they can afford it, yet movers of Malawi GDP are the so called risky borrowers . Banking should be an engine for growth. We cannot achieve meaningful growth if small businesses cannot borrow. This is how I see it.Specifically, I suggest a tax be implemented as follows. I only pray that colleagues in tax policy unit can think seriously about it and consider it in the upcoming budget. For me, I believe a tax is progressive and must be seen to address issues of equity and fostering growth on equal terms. While banks, just like any other business do pay corporate taxes, I think they enjoy an undue advantage by overcharging on loans and with RBM powerless to dictate interests, a tax on the interest spread is necessary. Such a tax would generate raise funds that can be allocated to small scale business lenders such as Mardef, SEDOM and institutions like DEMAT or even the fertilizer subsidy. Such institutions have over the years been able to give capital to small vulnerable groups that do not have the collateral required by the dealer banks. Yet small businesses do play a vital role in the fight against poverty. All you need is to visit the mobile markets at different locations in the country such as Kampepuza, Nsundwe, Govala, Mhuju amongst others to appreciate the power of small businesses.If a bank charges 17% on loans and pays 2 % on savings accounts, government can tax part of the difference. Such bank enjoys 15% spread while a saver is disadvantaged by the same margin. Ameneyu si katapila? We need banks and not loan sharks masquerading banks. It simply makes borrowing. It defeats the whole objective of mobilising savings, reduces funds available to small investors .Government would introduce a 3% tax free margin and charge a tax of 12% on excess bank profits, on the after corporate tax profits using this illustration. Tax policy gurus at Treasury might wish to devise such a tax on the basis of the annual average spread of the banking year, April 1, to March 31. In other words, banks that would charge 6% for loans and pay 3% on savings rates would naturally find themselves exempt from paying such a tax. Put it simply, banks that can reduce the spread between lending rates and savings rates will see themselves paying less tax.This is not an attack on the banks but I think it is important that sanity prevails in the financial system to ensure easy access to capital to small and medium businesses. Banks exists to facilitate economic growth, and not derail it, the current situation. It is a fact that banks predominantly lend to big businesses. But we can clearly see that the high levels of GDP growth Malawi has experienced in the recent years has got nothing to do with bank lending. If anything it has been induced by fertiliser subsidy to small-scale poor farmers that are pariah customers to the mainstream banking. In other words, our high GDP growth is due to a category of our society that doesn’t access banking services. And if some do, they are not allowed to borrow because they are deemed risky.So what is this fuss about billions being made by our banks yet their lending is not growth oriented? If I were a government planner, I would be seriously thinking about improving the working capital of public financial intermediaries that lend easily to organized groups of small businesses. OIBM has been trying this concept albeit the interest spread is still high. It does however, give evidence that organized groups of small scale borrowers are not necessary risky. Our banks still play first class capitalism, but I think Capital Hill needs to let the hammer down and take equitable growth seriously. Such tax revenue can be ploughed into Mardef, SEDOM, DEMAT, and others that show willingness to lend to the so called risky group, yet remains the engine for economic growth in this country. In short, establish an after-corporate tax on bank profits. Banks that reduce their lending and savings rates to within 3% to 4% can enjoy an exemption. Those that tend to overcharge and use all sorts of excuses, hallmarks of exploitative businesses must bear the full force of such a tax. You don’t tax the weak but tax the strong to achieve equitable growth. Even if the banks pass on the burden of this tax to its customers, their mindset to lend to the so called “risky group” will not change but in any case it will induce competition amongst themselves. They will reduce the interest spread to minimize the tax burden, a good thing for potential borrowers and encourage more people to save. If this does not work, atleast institutions like Mardef, Sedom, Dematt can have more funds to available to lend to small businesses—if not why not use such a tax to finance fertilizer subsidy? Who wants to see a long queue in the bank of malnourished Malawians and overfed bank executives? After all our growth is smallholder agriculture driven.Feedback:

Let Tobbaco growers operate foreign currency accounts, they are exporters!

The tobacco selling season is here again and the prices have been somewhat satisfactory though not the best. The IMF has been on a strong collision with the Reserve Bank decision to get tobacco dollars straight from the auction floors. Its not the first time RBM has done this. I am not sure whether it has achieved the core issues of foreign exchange shortage. It appears like fire fighting. The IMF argues that the tobacco dollars be left with commercial banks. The essence of the thought remains that banks can effectively allocate foreign exchange to private business and individuals. Sounds like a very compelling argument to keep the Reserve Bank out of the tobacco auction floors but in all this talk I pose a serious question. Who effectively owns these tobacco dollars? It’s the farmer. Let them have US dollar accounts.Bingu wa Mutharika fought wars against tobacco buyers. He argued farmers were given a raw deal. He went further to chase out of the country a tobacco company senior executive. To him was attached the buyer-collusion theory that exploits farmers. But the late head of state was economic with the truth or carefully selected his arguments. Either he devalued the Malawi kwacha so that a dollar sale of the green leaf gave the farmer a lot of kwachas or let the farmers get the dollars straight into their accounts. He never instructed RBM to stop getting dollars from the auction floors yet he was fighting for the farmer. The former president never liked any talk of devaluation and so went ahead to fight the tobacco buyers. Farmers in Chipata even called on the Zambian government to follow the Malawi example as reported The Post of Zambia sometime last year. For some reason, I believe that the tobacco industry, its regulatory bodies, and the government of Malawi exploit farmers as well. They buyer is not the worse devil or satana.Consider the way Malawi has been running foreign currency accounts over the years. Exporters are allowed to keep a certain portion of foreign currency in their foreign currency accounts. This protects them from major changes in the local currency. Consider exports of sugar, in which Malawi has over the years enjoyed preferential access to the European market. Sugar is produced by a multinational company in this country and they receive their proceeds in foreign currency and keep it comfortably in our banks. The money doesn’t go to RBM but is available to them anytime they want from their respective dealer banks. Similarly, we can think of tea exports by the various tea growers in the Thyolo-Mulanje area, mostly foreign owned or have origins from foreigners. Such companies comfortably export their tea and receive their proceeds in foreign currency. Again, the Reserve Bank does not get their forex. Tea growers happily maintain their foreign earnings. The same applies to the Uranium mining in Karonga, though the situation is slightly different in the sense that they keep their foreign earnings offshore. It could be the same case with the other businesses such tea, sugar and hotels.Back to the tobacco farmer. Who are these tobacco farmers? I prefer to put them into two groups. The “big” farmers with huge hectares of land and the average “small” with possibly a hectare of land. In my mind, both of these growers are tobacco exporters. They sell their tobacco at the Auction Floors to foreign buyers in US dollars that consequently ship it all over the world. These growers/exporters should be allowed to keep their proceeds in the currency of sale, the US dollar in this case. After all foreign currency accounts are meant for exporters to receive their proceeds. A tobacco farmer is no different from the tea growers or other multinationals involved in exports. RBM should have no business to get their money and give them the Malawi kwacha. They never sale their tobacco in Malawi kwacha. Why should we blame the buyer when infact it is our own public institutions and banks that are screwing the farmer? Commercial banks have been at it all, giving all sorts of “tobacco accounts” to farmers wooing them with dubious incentives that are nothing but mere serpent minded banking. Remember the smiling assassin? These dealer banks have never liked the idea of RBM getting forex from the auction floors and have selfishly argued that tobacco dollars should go to them. Both are wrong and are part of the equation that is exploiting the farmers. Tobacco dollars do not belong to RBM or Commercial banks but to the exporters, tobacco growers in this case. In anything if the tobacco dollars go the banks, it should be in the accounts of the growers.Why do we always pick up a fight with tobacco buyers? Infact it is our own institutions that are partly exploiting our growers. Is it because most of tobacco farmers are peasants scattered across the country? Sometimes I wonder the hypocrisy of politicians. They can pretend to fight for the street man when in essence do promote interests of conglomerates or capitalists. Why should multi-nationals enjoy such privileges but deny tobacco farmers the same opportunities? The farmers can decide for themselves when to redeem their dollars into Malawi kwacha cash equivalent. When it suits them, and not when RBM or banks think it is right for them. Tobacco farmers also require safeguards against inflation by managing their proceeds in foreign currencies just like other single major exporters. Allocative efficiency is only attainable if returns to businesses are given to the rightful owners in a manner of their choice, and not an RBM-Commercial Banks pre-thought. That is how market forces work.Don’t shoot the buyer but have a closer look at the banks: from the mother bank to all of them.

RBM independence is long over due

President Mutharika has used every opportunity not to devalue the Malawi Kwacha. He has also gone flat out to blame forex bureaus’ as conduits for leakage of foreign exchange out of the country. In reaction RBM moved in and raised capital requirements for forex bureau operators and went further to instruct them to align themselves with authorized dealer banks or faced closure. The battle was fought in courts to no avail. Most of them closed business, and some jobs got lost and those that remained, found themselves in convenience business partnerships with banks. The banks of course smiled. They established subsidiaries companies called “forex bureaus” or whatever you name it. It just rekindles the debate of RBM independence and its effect on the Malawi economy. Have matters of monetary policy have now become a responsibility of state house or capital hill? Has the Malawi government tight grip on RBM yielded the macro-economic benefits that this country yearns for such as employment, low and inflation interest rates? After all the high GDP growth induced by fertilizer subsidy did not even require a tight control of RBM. We can achieve higher economic growth without State House telling RBM what to do.Generally, I have no doubts. The economic brains at RBM are smart enough and are some of Malawi’s finest in matters of monetary policy. While RBM remains a public institution and hence subject to control by its shareholder, Malawian citizens, through elected public leaders on trust, issues of independence over monetary policy and financial prudence are be better managed without control of statehouse. Examples abound. We can look at the issue of closing of forex bureaus or simply making their business deliberately difficult, which in my opinion was motivated by presidential accusations of the former siphoning forex. Its usurping the powers of a central bank and a vote of no confidence about their supervisory functions. I don’t think they failed. Were forex bureaus really siphoning forex? Whatever the case, it does raise some questions about some demerits of the executive arm of government or simply, the presidency directing RBM what to do. A fairly independent RBM on the policy front is a fair go to effectively implement monetary policy and price stabilization, one critical incentive a serious minded investor looks for.We can see that such interference is now making the job of the RBM more difficult, traditionally price stabilization or inflation control. Closure of forex bureau just gave Malawians keen to conduct business legitimately to explore alternative markets for foreign exchange amid the mediocre service of our commercial banks, plus the monopoly they now enjoy in the forex market. While forcing forex bureaus to align themselves with dealer banks makes some supervisory tasks easier, forex monopolies owned by banks have spilled but not competitive, because exchange rates are determined by State house. Unfortunately, the forex has not gone into the banks and easily slipped onto the street, and its scramble is inducing high inflation. With RBM loss of Malawi Kwacha control and management, its ability to contain inflation is compromised. All I am saying is, RBM is much better placed to manage exchange rate and money supply independently as opposed to state house. Framers of the RBM Act had this in mind. After all forex bureaus were by law required to maintain foreign currency denominated accounts with authorized dealer banks and RBM had better knowledge of money circulating around than now.Similarly, matters of exchange rate control while debated at length with contrary views, still put in question why our central bank is better placed to manage the kwacha unlike the President. The Reserve Bank of Zimbabwe does not have a currency to manage, and I am afraid this is a path we have taken. The ZIM dollar was controlled and managed from State House. It is now a good souvenir. Without dwelling much on merits of devaluation or maintaining the status quo, the price stabilization goal of the RBM has now become more complex. As we anticipate further increases in inflation in the coming months, not from seasonal factors but rather general macro-economic collapse, it will be political suicide for state house to let RBM decide competently on a rate rise. At the peak of US economy meltdown, Barack Obama was quite busy trying to convince a conservative led Congress to bail out the Detroit big four car companies and Wall Street banks while Ben Bernake, the Fed Chairman (Reserve Bank of the US) took upon himself to explore different measures such “quantitative easing”, flooding the money markets with USD, a ‘polite’ devaluation technique to fight the recession. Their relationship was mutual and eliminated any conflict between monetary and fiscal policies. But what I see in this country is very different. It appears the President determines monetary policy and potentially taking over the role of the central bank. At the same-time, he determines fiscal policy at capital hill without question as evidenced by a unilateral decision to host expensive summits such as the AU without parliament approval and purchase of a jet without parliament approval. I believe Statehouse or the presidency should loose grip of RBM and let it make independent decisions on aspects of monetary policy that are in the best interest of the country and the economy in general. The presidency and cabinet need to focus on their dream of making Malawi an export led growth economy. No one needs to educate him on this as the DPP manifesto is very clear. Forex flows into countries whose growth is export led. Our new friends from China are classic example. More concern should be given to reducing unemployment and attracting foreign direct investment as opposed to telling RBM what the exchange rate should be or which forex bureau is siphoning forex out of the country and needs closure. Systems of bank and non-bank institutions supervision are well established at RBM and managed by very competent people. The President should be more concerned with numerous power outages, unemployed youths, unpaid primary school teachers, a collapsing health system, government red tape in establishing new businesses amongst others. These are supply side issues that are quite critical in making Malawi an attractive business investment destination.

VAT on bank charges, a growth reducing policy tool.

It must be removed.The Malawi government, through its tax collecting agency, Malawi Revenue Authority has started collecting a Value Added Tax, rated at 16.5 percent on bank charges. It is obvious that this is another desperation by the government of Malawi to balance its budget after major donors froze budgetary support citing human rights violations and poor economic governance. Malawi’s financial institutions have accordingly include the VAT in their charges. In short, VAT on bank charges will not enhance economic growth, over tax Malawians, increase the cost of doing businesses and strengthen informal channels through which foreign exchange comes into this country. It is an ill-conceived tax policy tool in a country where a majority of people do not have a bank account, and consequently cannot meaning fully save. Besides a high withholding tax rate on personal savings income still exists. Worse still some foreign companies enjoy tax breaks/holidays while the average poor folk has face the music. We can examine the various channels of how economic growth unfriendly the VAT is below.Almost all services that banks offer are charged somehow and mostly explicitly. If you maintain a current account, one often pays a monthly fee of around MK500. And if you use an internet banking facility with the same bank that also comes at roughly the same MK500, your monthly charge now will come to MK1000 plus 16.5% VAT to MK1165. If your relation happens to send some much needed cash from overseas like USD1000 into your Malawian kwacha account, the bank charges 1 percent commission which is USD10. Because there is now a VAT, the bank will deduct around 12USD. Similarly, if you want to have your ATM card replaced either through loss or expiry add 16.5% to the cost. If you want to procure goods abroad, the bank will add 16.5% to what they normally charge. Even buying forex from the banks will attract an extra cost. We can think of this for private businesses as well. The list is endless but the implications are many, unfortunately not very good. If you add all these up, one notes that it is costly to keep money in a bank account. It looks like the government of Malawi has now become a silent shareholder of all banks and making a killing through commissions masquerading VAT.Firstly, we need to understand that Malawi has a very low savings rate, to be precise negative savings rate. The Malawi government has been saying a lot policy wise to encourage a savings culture and we have seen banks open up and reach many parts of the country to reach the unbanked masses. Banks too have becomes so innovative and introduced various products beyond traditional savings-cheque accounts. However, the VAT, in my opinion militates against the very policy objective of encouraging people to save. Malawians, especially those that have a regular income, don’t earn enough and it will remain economic foolishness for someone who earns an MK10000 to put it in a bank and pay 16.5% on various services. This is besides customers paying a withholding tax on their interest income on savings account. Factor in, people who do not have a regular job or women groups that get loans and have to open up accounts. It kind looks a policy of desperation.Secondly, in terms of major businesses that import, costs of doing business are likely to rise . Bank charges on lines of credit, in which foreign suppliers are guaranteed payments from Malawian importers now attract VAT. Such importers are likely to feel a pinch as the VAT clicks in. This is besides commissions they have to pay whenever they undertake normal forex related transactions like purchases of foreign exchange. Under normal circumstances, businesses are likely to scale down, and the situation will get even worse as Malawi’s credit rating is sliding to dog level. This is compounded by the harsh environment that the businesses operate such power outages. Lack of foreign exchange and overvaluation of the Malawi kwacha.In short, the impact is a likely shrinkage on savings in the official banking system and a rise financial transactions through informal channels. Has the Malawi government ever wondered why the total value of official imports is much lower than the sales of foreign exchange from the banking system even if valued at the so called black or parallel markets? It has become so common amongst Malawians to ask their friends or family in the diaspora to buy things on their behalf and make payments to their local accounts or even give Kwachas to their families. This a very big informal bank at the moment operating amongst Malawians here and across borders. It has kept Somalia and Zimbabwe afloat. While it has been fuelled by the overvalued Malawi kwacha and consequently depriving the banking system of foreign exchange, introduction of VAT on bank charges, is only strengthening such channels of informal finance business. Not long ago the governor of the Reserve Bank was in DC, trying to convince Malawians in the diaspora to remit their money. The fact is many do, but are not using the banks due to many charges and the over- valued exchange rate. The VAT is one of them and the banks will soon tell us the impact it has on their balance sheets. Whoever might have been crafting this policy or conceived the idea of VAT on bank charges, fell short of giving appropriate advice to authorities that maybe. The economics is bad. It is nothing other than a treasury decision to collect revenue without due to how that revenue is generated: businesses and individuals that are heavily taxed. In earnest, the Malawi government budget has ceased to be a tool for economic growth but a channel for revenue collection. Being one of the poorest countries on earth, worse still without civil strife, we need to learn that nationalistic and protectionists policies will lead to a path of more chronic economic decline. Time to reflect on our relationship with our donors and the IMF otherwise we are doomed for a catastrophe. Our economy will continue to shrink. I don’t believe in the growth numbers.

Strong kwacha will not deter rise in prices

Official data from the National Statistical Office (NSO) shows that inflation has hit double digits in January 2012 to 10.3% from 9.8% in December 2011 . Non-food inflation even went further to 14.9% in January 2012 from 14.4% in December 2011 on a year to year basis. The Center for Social Concern, a catholic linked NGO, also reported a rise in cost of living, especially in the four main urban centres. Authorities contend an overvalued Malawi kwacha is necessary, and argue against a devaluation on the basis that it will hurt the over-taxed poor people through high prices. I disagree, simply because prices are still rising and the low wages, for the few that have a paid job, are very much static. How much do you pay for sugar, bus fare, fuel, cooking oil and bread now compared to same period last year? Would a strong kwacha really contain inflation? Recently chiefs have been paraded in public to support the government’s premise that a devaluation will hurt poor Malawians. I assume the poor in this country can be easily identified because most of us barely survive. Job or not. Its effect is a rise in prices, so goes the argument to justify the strong kwacha. One question we should all ask is: why are prices rising when the kwacha remains “very strong” against all major trading currencies ? A weak Malawi kwacha easily buys US dollars or South African Rands on the street. The stronger Malawi kwacha fails to do so in our commercial banks. Which Malawi kwacha is real in this case or trust-worthy in terms of value? I leave it to you. We know that businesses have continuously adjusted their prices in light of high inflation amid doubts over official numbers, a common trend by businesses everywhere in the world. It appears a “strong” or “artificially strong” currency does not guarantee low inflation rates, and the devaluation fallacy should be re-looked, the economics corrected and the average person told the truth. At least, this is a reality in our “God fearing” Malawi.Take a case of a policy with any of the insurance companies. The upward adjustments in premiums due to inflation are being felt by individuals and businesses, thereby adding to more hardships. While insurance premiums might considered a “domain of the rich” think of the wrangles going on between minibus operators, insurance and the jitters it sends with possible fare hikes. Minibus owners fights with insurance companies is indeed classic example of high inflation at the moment minus the usual insurance risk. And then if you are junk of online chats such as “facebook”, it is clear people are wondering why prices of certain products are rising over fifty percent or even doubling. The price of a 5 litre Kazinga cooking oil now costs MK2500, from MK1300 a year ago. This is all happening when the Malawi Kwacha is still very “strong” and authorities want to maintain the status quo for the sake of “not hurting the poor with high prices”. But prices are rising and the supposedly poor people being protected by the anti- devaluation are feeling the pinch. Factor in a heap of taxes that Malawians are paying. What do you get? We all cannot turn to religion and expect divine solutions. Someone must take responsibility and leadership to deal with the worsening economic situation.So why not devalue the Malawi Kwacha? At least we are already living a reality of high prices. The earlier, the better. If the fear of high prices is real, the government of Malawi through its regulatory authorities such as the Reserve Bank of Malawi must make it easier for businesses or individuals to easily access foreign exchange and remove the “war type” exchange controls. Alliance Capital Limited in its lastly weekly money market commentary for February 2012 notes that the parallel market has blossomed to the extent that many companies are using it and I quote “It is no wonder that, unofficially, every company/business is frantically trying to access forex by any means, legal or otherwise, even at exorbitant rates way above the official rates simply to avert what maybe be catastrophic conditions”. This observation is real and confirms the reality: a high Malawi kwacha will not stop prices from rising as businesses are already paying almost twice the official rates to access foreign exchange to procure inputs. If you factor in taxes and transportation costs, one can easily understand why prices are going up. Why not devalue then?Do businesses or investors trust the Malawi kwacha? Kind of a difficult question to answer but you can judge for yourself. On short-term, possibly yes. Some sort of anecdotal evidence that the kwacha has not come close to the “once mighty Zim dollar”. But I have strong reservations on the long-term if current events are anything to go by. Investors are not taking a long-term view of our Malawi kwacha until issues of overvaluation are courageously addressed by authorities. For instance, Treasury bills, a short term instrument, on February 23, 2012 were oversubscribed by MK8billion. Authorities were only looking for MK1.23billion. On the other hand, the authorities have not been able to raise enough money through issuing long-term instruments despite higher rates. Why is this so? It could be a pointer that everyone is taking a short-term view of investing in Malawi kwacha instruments. Not a very good scenario for business confidence. Recently Ethiopian airlines announced that they no longer accept bookings in Malawi kwacha citing the tough exchange controls in Malawi and the consequent inability to remit their proceeds to Addis Ababa. They have accordingly reduced their flights or intend to do so. Whatever the reasons, both scenarios in my opinion reflect an increasingly loss of confidence in the Malawi Kwacha as a trading currency. The high market premiums on the street tell a clear story. Why authorities cannot act decisively is amazing. Nonetheless prices are rising and the strong Malawi kwacha, coupled with exchange controls is bringing a lot of inflationary pressures. At the same-time “informal street banks” dealing in forex are fast becoming a norm albeit with higher rates, but fortunately market determined. In short, I hold the opinion, that attempts to mobilize chiefs and other pundits to argue a case against devaluation on the premise of expected high prices is not only flawed but ill-informed. Prices are rising at much faster rate because a sizeable number of imports are being financed by forex obtained from the street. The street rates reflect the true value of the Malawi Kwacha. Clinging to a strong kwacha is not stopping a rise in prices. If you disagree, how much more do you pay for your loaf of bread now than a year ago?