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Malawi at a Glance: 2000-01

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Malawi at a Glance: 2000-01 COUNTRY REPORT Malawi At a glance: 2000-01 OVERVIEW President Bakili Muluzi is expected to remain in power over the forecast period. But the main political parties, will, to varying degrees, experience internal disarray. A clear split has emerged in the main opposition party, the MCP, though the postponement of the September local elections should allow it to tackle its internal differences before they are held. A new uranium mining project will help the mining sector to develop, but infrastructure will need upgrading to attract further mining investment. Falling world tobacco prices in 2000, along with lower domestic production, will reduce export revenue, and increase the trade deficit. The rail link between Malawi and the Mozambican port of Nacala is scheduled to open in September, promising savings in transport costs, but improved track and signalling equipment is required. Key changes from last month Political outlook • There has been a major split in the opposition MCP party. John Tembo and Gwanda Chakuamba were both elected as party leader at parallel conventions in their respective regional strongholds. Economic policy outlook • The 2000/01 budget promises to build on the government’s reform efforts. But fiscal stability remains heavily reliant on foreign grants. Economic forecast • The EIU’s economic forecast remains essentially unchanged. Real GDP growth will slow to 3.5% in 2000, because of reduced agricultural output owing to poor weather. The rate of inflation will average nearly 29% in 2000 and the exchange rate will slip to MK65:US$1 by end-2000. September 2000 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through our digital portfolio, where our latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising conferences and roundtables. The firm is a member of The Economist Group. London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 15 Regent St The Economist Building 25/F, Dah Sing Financial Centre London 111 West 57th Street 108 Gloucester Road SW1Y 4LR New York Wanchai United Kingdom NY 10019, US Hong Kong Tel: (44.20) 7830 1000 Tel: (1.212) 554 0600 Tel: (852) 2802 7288 Fax: (44.20) 7499 9767 Fax: (1.212) 586 1181/2 Fax: (852) 2802 7638 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Website: http://www.eiu.com Electronic delivery This publication can be viewed by subscribing online at http://store.eiu.com/brdes.html Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office London: Jan Frost Tel: (44.20) 7830 1183 Fax: (44.20) 7830 1023 New York: Alexander Bateman Tel: (1.212) 554 0643 Fax: (1.212) 586 1181 Hong Kong: Amy Ha Tel: (852) 2802 7288/2585 3888 Fax: (852) 2802 7720/7638 Copyright © 2000 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the EIU does not accept responsibility for any loss arising from reliance on it. ISSN Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK Malawi 1 Outlook for 2000-01 Political outlook Domestic politics The main opposition alliance, of the Malawi Congress Party (MCP) and the Alliance for Democracy (Aford), has indicated that it will appeal against a court ruling upholding the result of the 1999 presidential election. Nevertheless, the president, Bakili Muluzi, is expected to remain in power throughout the forecast period. This will ensure that the domestic political scene remains generally stable throughout 2000 and 2001. A second case brought by the alliance over electoral fraud has yet to be heard in the High Court. However, even in the likely event that some evidence of vote-rigging in favour of the ruling United Democratic Front (UDF) is discovered, this will not have been on a scale large enough to have affected the outcome of the election. In addition, all the main opposition parties seem to be facing a degree of turmoil. According to the constitution, Mr Muluzi has to stand down at the next election, which is scheduled for 2004; and whether or not the UDF attempts to alter the constitution, leading party members will vie with each other for the succession. This issue recently claimed its first high- profile victim—the party treasurer, James Makhumula Nkhoma—and the split in the party’s upper echelons will become more divisive. Election watch More public, and potentially damaging, is the dispute within the MCP-Aford alliance, and in particular within the MCP itself, which will allow the UDF to maintain and possibly increase its slender majority in parliament. The MCP’s deputy leader, John Tembo, is beginning another campaign for the party leadership against the incumbent, Gwanda Chakuamba, which has created a clear split in the party. The two factions held parallel conventions in their respective regional strongholds in early August to elect their choice of party leader (the results of both ballots were nullified by the courts). The dispute also jeopardises the future of the alliance, as members of both MCP factions are in favour of terminating the relationship with Aford. The future of the MCP is under threat, although the postponement of the local elections, which were scheduled for September and in which the party was expected to perform poorly, may have saved it from serious electoral losses. International relations Regional instability will continue to cause concern. The continuing conflicts in the Democratic Republic of Congo (DRC) and Angola, and unrest in Zimbabwe, will all have a negative effect on the international view of the country, although Malawi is not expected to be dragged into any of the external conflicts. Economic policy outlook Policy trends Policy recommendations from Malawi’s consultative group (CG) of donors largely correspond with the ten-point plan presented in March by the finance minister, Matthews Chikaonda. Strengthening fiscal discipline, increasing EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 2 Malawi accountability and accelerating liberalisation are not popular policies and will prove difficult to implement. On the other hand, significant policy slippage will jeopardise donor funding—the CG pledged US$1.1bn in aid and discussions are under way for new loans from the IMF under the poverty reduction and growth facility (PRGF). Mr Chikaonda has built up his credibility with the donor community, and this should help him to win the support of most senior party members for the 10- point plan which embodies the government’s commitment to reform. Nonetheless, because of concerns over domestic popularity and vested interests the government is looking to reduce its reliance on donor support. Efforts at economic diversification will continue as foreign governments discourage the domestic consumption of tobacco, the country’s largest foreign-exchange earner. There is potential in growing horticultural crops such as paprika, fruits, vegetables and cut flowers, but it is unlikely any will replace tobacco as the leading foreign-currency earner over the forecast period. Attempts to exploit the country’s mineral reserves will be less successful, although the Australian mining company, Paladin Resources, has announced a US$60m uranium mining project in the north of the country. However, improvements in infrastructure will be necessary to make other mineral discoveries viable. Manufacturers will benefit from the reduction of import duties on raw materials and intermediate goods in the recent budget, although inadequate power distribution will continue to prove a hindrance. Fiscal policy The budget for the 2000/01 fiscal year (July-June) places tight controls on government expenditure, although there will be some resistance to this from within government departments. Greater transparency and re-prioritisation should improve the effectiveness of the spending undertaken. Civil service reforms (under the 10-point plan) will further improve the fiscal position, but will also be unpopular. State expenditure in the forecast period will focus on government efforts to diversify the economy, improve social provision and reduce subsidies to public- sector enterprises. Reforms aimed at improving revenue collection were successful in 1999/2000 and, together with a broadening of the tax base, should help to reduce the fiscal deficit to 0.7% of GDP in 2000 and 0.5% of GDP in 2001. The fiscal position will, however, remain heavily dependent on foreign grants. Any worsening of relations with foreign donors will jeopardise Mr Chikaonda’s fiscal discipline. Monetary policy The Reserve Bank of Malawi (RBM, the central bank) is expected to maintain a tight monetary policy, which will help push down the rate of inflation over the forecast period. However, given the fall in the rand and the expected knock-on effect of this on the kwacha and Malawian inflation, rates will have to stay higher for longer than was previously forecast.
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