3.8 Million Reasons for a New View to Entrepreneurship in Malawi

Updated: Jan 21


In the era of Malawi’s proudly self-proclaimed “Mandasi lady,” a.k.a., president Joyce Banda, there were close to a million registered micro, small and medium enterprises (MSMEs) that were together generating about US$2 billion a year, evidently more active in the retail space. These enterprises were owned by about 760,000 individuals, who, by simple math, were earning an average of US$2,600 a year. First impressions: not much to write a book about; not newsworthy for development.

In 2016, under the auspices of Mr. Peter Mutharika, the registry for businesses continues to swell, harboring in it both businesses that will persist and those that will hardly take off. Many others will operate without a certificate. In an average, 5-person enterprise, splitting US$2,600 does not augment economic progress beyond the poverty line too well. Owners and employees, who support four other persons each, on average, define 3.8 million people in the below-poverty-line category in more than one remarkable ways. This is indicative that many businesses still suffer, and their employees are feeling the pinch the hardest.

A valuable aspiration is one that explores how Malawi will change this average from US$2,600 to, say, US$10,000 a year per firm. Just to barely beat the poverty line of US$1.25 per day.

There must be more to the entrepreneurship-development nexus than just the numbers.

In 1990, the economist William Baumol submitted that underdevelopment is not due to an insufficient supply of entrepreneurs, but due to institutional weaknesses that result in a lack of profit opportunities tied to activities that yield economic growth. Sixteen years on, Malawi needs to ask itself the question of how entrepreneurial activity – conducted by hundreds of thousands of entrepreneurs – is shaping its economic growth, and what this activity means for the country’s development.

The government of Malawi views entrepreneurship as one strategy to rid the country of nagging poverty for the 51.7% of its population living below the poverty line (25.5% fill the ultra-poor space), owing to the power of MSMEs to employ people and directly support livelihoods. Mr. Bingu wa Mutharika even initiated a national export strategy (NES) to speed up the focus on export-orientedness of enterprising, mainly to heal the ailing trade balances, which Mrs. Banda happily launched in 2013. The strategy inspired the merging of the country’s investment and export promotion agencies, creating the Malawi Investment and Trade Center (MITC). This new, forward-looking, entity would look to new business models of which entrepreneurs are designed to be the champions.

We think entrepreneurship is critical for sustainable development. But we remain vexed with the idea of wantonly promoting the growth of small-sized businesses that do not encourage growth beyond subsistence. It is the wrong way to expend public resources because it only punctuates consumption patterns than promote investment. A country in need of structural transformation to relieve over 64.1% of its population from an under-performing agriculture sector, Malawi is not doing well in advancing education and vocational skills that will prepare its population for secondary and tertiary industry jobs. In fact, the current business policy environment only allows these people to switch from one type of subsistence (agriculture) to another (trading).

While, through the MITC, the government inclines towards economic growth and creation of an enabling business environment, the practice to stimulate productivity misses some key points. The propensity to retailing, and the non-regulation for production of intermediate goods, is poised to stifle productivity, despite the recent availability of opportunities in the accelerating global technological change. Manufacturing, which grew by 3.8% in 2015, reflects slow capital accumulation and will take long to catch up to the impacts of population growth, which itself seems not in any mood to slow down. Among its key partners, the NES pays minute attention to the role of the Malawi Industrial Research and Technology Development Centre (MIRTDC), whose website reeks of a lack of technological knowhow and distant motivation.

The MIRTDC and the MITC/NES are not quite in talking terms (the NES mentions MIRTDC once in its 64 pages of the main document), although they have the same parent, the Ministry of Industry and Trade – the overt precedence of the latter seems an insult to Dr. Kamuzu Banda, whom the former proudly acknowledges as it welcomes you to its website. In addition, the high concentration of MSMEs in a developing economy is a recipe for disaster as small and vulnerable entities cannot stand even the smallest systemic shocks that are characteristic of the country, weakening risk-taking capability of enterprises to drive innovation and employment.

Development-Oriented Entrepreneurship Policies

The potential of entrepreneurship in development needs to be harnessed in every way. And policies need to coordinate well in making transformational shifts that make private enterprises the engine for productivity growth, and hence attract new skills and growing employment levels, while the diminishing numbers in agriculture make the remaining smaller farming population more productive.

Effective policy change will require enabling entrepreneurs to respond to the needs of a developing economy. This enablement should capture capital accumulation and capital development, taking full advantage of the affordability of technology that innovation is offering the world at the moment. Both the farm and non-farm sectors need to embrace these changes. In terms of public investments, the government’s job is to ensure knowledge accumulation and facilitation of information that its academic and research institutions will have to be enthused to do, and adopting the exchange opportunities that south-south, north-south and triangular cooperation makes possible. Among the externalities of production of intermediate goods will be the full emergence of software development, including app development, that will facilitate the growth of other service industries. Start-ups that are encouraging young talent in computer applications, such as mHub, need to be coordinated and encouraged.

In accordance with the country leadership principle of the Paris Declaration, government is in a position to guide development partners and international financial institutions on the assistance it needs to facilitate knowledge and capital accumulation. In the spirit of our 16 September publication, the proper strategic use of our foreign government missions will catalyze the interactions with potential investors to this process.

A small and slow-growing manufacturing sector that can produce intermediate goods is another worry. It should haunt Malawi’s government until the country’s MSME sector slows down on trading of, mainly, imported final goods. The current status of production keeps the economy warm and comfortable in archaic production technologies for consumer goods and will prolong the endurance of the underdevelopment trap we seem to flourish in at the moment.

National policies that spur economic growth have to tie opportunities, including access to good local and international finance, to private activities that stimulate productivity, particularly in the production of intermediate technologies and goods. Furthermore, these activities should be able to promote decent employment and human capital development in skills, aided by the plethora of technical and vocational training facilities. The production of intermediate goods has the potential to generate technological externalities in bringing new goods and services to the market, while promoting pecuniary externalities that are facilitated by availability of information on profitable new business ventures.

Policies for a new wave of entrepreneurship in Malawi will also strengthen the movement of people and skills from a large informal sector into formality, as structural transformation happens. This has the ability to address associated limited skills and protect the enjoyment of better working conditions for all citizens and will encourage dividends in the social arena, like gender equality and youth empowerment. On 28 September 2016, Habiba Osman passionately noted the large proportion of the country’s youth is locked in the informal sector, and remains largely unemployed and unproductive. Many of these are also young women, whose potential is at risk of being overlooked, unused and whose benefits from development will thus not materialize. Based on these realities, the drawing board needs to pencil in youth- and gender-responsive tools that will maximize the potential of the marginalized groups, which in turn have an important effect on the realization of human development goals couched under sustainable development principles.

Note on Political Will

The era of Mrs. Banda’s attention to micro enterprising in Malawi must end. And Mr. Peter Mutharika will have done an excellent job if he were to focus on graduating Malawi’s entrepreneurs to the US$10,000 mark. For this will have lifted 3.8 million people, going by 2012/13 statistics, out of poverty.

His continued laissez-faire approach to Mrs. Banda’s policies, however, will bring much agony to many vulnerable Malawians who are living through the excruciating global economic crisis and the erratic impacts of climate change that have a way to sting smallholder farming. Encouraging micro-enterprises would also not disrupt unemployment in desired ways, owing to the self-employment structures of such businesses. Although it seems a blessing in disguise that we do not have to live with Mrs. Banda’s policies any longer, not much encouragement is coming from Mr. Mutharika either.

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