Updated: Jan 21, 2020
Times hit hard since embracing multipartyism in the early 1990s in our small country. And while capitalism under our young democracy was sweeping across the business sector, flipping public enterprises into private entities, individual business ventures into the now free market were springing up. For the first time, liberalization of the market granted the regular Malawian the armor to do as they pleased, to enter a trade without the fear they were trampling on the turf of the selected few. And indeed, without the fear that business success would raise suspicion from paranoid leadership to whom financial success was always a threat to the survival of the government. However, as individual enterprise thrived through the 1990s, so did the clustering of businesses where mainly Malawi’s so-called entrepreneurs would consolidate into.
Market entry in Malawi has since been a choreographed affair. A clever individual who identifies a business opportunity would pray they better not succeed. When they do, they inevitably and involuntarily invite swarms of new entrants who mimic the existing business model and earn their share of success. In a market with few or no entry barriers, that has been possible. In the transportation industry alone, the speed of entry of minibus and pick-up truck operators has been phenomenal and has transformed it into a perfectly competitive market that has eventually not benefitted the business owner. Owner operators have found themselves slicing the cake one too many times. Gauging by the continued augmentation of the numbers of homogenous business, the falling profitability has clearly not screamed loud enough to prevent new entry.
In Malawi, the markets where nationals conduct business are few, and many seem to keep to the sort of enterprises where the venture capitalists would find much comfort. Beyond the retail transport sector, Malawians excel at running inner city grocery stores, cross-border goods trade, kaunjika, small food stalls and relatively modest farming businesses. A handful of these will ever make it to medium, let alone large scale, a major factor being the interaction between number of players and the trading of homogenous goods and services. But another significant player to this outcome is the aversion of risk by business people who would rather maintain their status quo, earning enough to take care of immediate needs, where doing anything out of the normal is considered too risky. Of course, for many, it comes down to the lack of ambition.
It is imperative, at this stage, to note one important caveat that works in the perfect competition configuration, which is that the consumer usually winds up the winner as they are able to leave one seller to another who will be willing to supply the same good or service at a fraction of the price. And competition authorities as our Malawi Competition and Fair Trading Commission (MCFTCA) loves to see market actors proliferate in this fashion for the sake of the consumer and to limit the abuse of a dominant position of a large or lonesome entity that has the power to either overcharge or scare away competition. However, as a regulator, the MCFTCA must not only incline its favoritism toward higher competition while businesses are hurt. Nonetheless, the policy instruments up its sleeve to moderate profitability would usually be seen to overdo the role a government ought to play. We will return to this soon.
For many businesses, the room for innovation seems to be too full. The creativity around a minibus business seems to have little beyond tightening seating capacity. Farming maize more profitably than tobacco has not resonated with many farmers, frequently because there is only one way to manage the crop. And the cross-border trader who travels to Tanzania by air is seen as too foolish when it is possible that this may be the best way of making scale economies. In almost every business the regular Malawian has engaged, transforming the norm of doing business has been a hard sell. In risk aversion terms, venturing into a non-traditional business is often a rare phenomenon which is worsened by the absence of other Malawians participating in it.
For instance, it is almost impossible to find a Malawian store owner who will trade in Chiperoni blankets, because this is considered a non-Malawian trade. On the other hand, the Asian and/or Asian-Malawian (for simplicity, let's call him the Asian businessman) businessman will have expanded the same Chiperoni business to a scale where his small profit margin per unit quickly translates to a large sum because he is able to sell in large volumes. He drives the latest Mercedes and sends his children to the best schools. All the while, the Malawian businessman clusters with others in saturated markets where the only motivation is the façade of and hope for profitability.
The difference between the Malawian and the Asian businessman, then, is how far each one of them is willing to differentiate their product or business service. To an extent, this is aided by the choice of business one picks to do, which, for the Asian businessman, is hardly driven by an avalanche of other Asian businesses that enter the same-good market. Even where a number of other Asian businesses seem to deal in homogenous goods, one would easily see how the specific business will normally differ in the terms of conducting business vis-à-vis client management. The Malawian venture capitalist mainly sees what has been keeping his or her neighbor lately. And that is what eventually becomes their target.
But this is not to entirely assert that intensely-competitive businesses are not profitable in practice. There remains a network of trade associations to which almost every business in Malawi belongs whose authority extends to setting new business rules in order to ensure the gap between revenues and costs is large enough and positive. Their primary duty? To set prices and minimize intra-industry competition. The result is the creation of a large orchestrated cartel whose rules affect every member and the deviation of which – as in typical cartel culture – retaliation of a disastrous nature.
Yet there is a countervailing effect of using non-market forces to determine prices. When prices are not negotiated by the invisible hand, i.e., the intersection of supply and demand, clients of minibuses like Salome (read about her in our past article here) will opt out of public transportation altogether, leaving a smaller market size for the large number of service providers. Their fate is to continue suffering.
So, it is imperative that businesses, especially those run by Malawians, learn the ropes in terms of differentiating their businesses enough to maintain a niche of clients that would keep the business profitable enough. In other words, their tact must establish monopoly-like structures that are able to set prices above cost. One easy way to do this will be to learn to venture into new businesses, while other strategies will have to mine operators’ creativity so that there is constant innovation of either the product or the conduct of business itself.