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THE IMPACT OF ECONOMIC WOES
ON BUSINESS IN MALAWI
5TH ALL INCLUSIVE STAKEHOLDERS
CONFERENCE
BLANTYRE, 18TH FEBRUARY, 2016
CHANCELLOR KAFERAPANJIRA
1
Introduction
• The economy in which we are living is characterised
by the following phenomena:
• high interest rates, with commercial lending rates starting from
40 percent upwards.
• RBM adjusted policy rate on 4th November, 2015 from 25
percent to 27 percent with a view to restricting credit
especially as a result of over-borrowing by Government.
• a depreciating Kwacha at around MK750 to One
U.S. Dollar from around K480 in July 2015.
• runaway inflation at 24.9 percent in January 2016,
driven by food shortages and a depreciating
currency,
2
Cont’d
• a budget that is not able to provide basic public goods and
services to citizens such as medicines in public hospitals
• long outstanding arrears to the private sector, some of
which have been repaid at a heavily discounted rate
• These symptoms are a reflection of an economy in
distress, and businesses have not been spared.
• Consequently expected economic growth is
estimated at 3 percent for 2015, less than a
forecast of 5.4 percent and the desired 6 percent.
• The impact of these vagaries on business can best
be explained in the form of a chart as indicated
overleaf.
3
1.
Fiscal
Budget
Fiscal
Policy
2.
Budget
inadequate due
to inaction by
govt on donor
requirements.
e.g. ATI Bill
No funds for
investment/
development
1.
2.
3.
Working capital eroded overtime
Some arrears settled at low
discount rate
Interest burden where Working
Capital was borrowed
Arrears are owed
to Private Sector
GOVERNMENT
(Policies and
Actions)
Monetary
Policy
Government
Borrowing
No business for
construction
companies
No private
sector support
infrastructure
No Project or
investment funding
1. Businesses are crowded out
from the money market
2. Interest rates are pushed up
3. future tax burden
(Mortgaging the future)
High Interest rates
therefore increased
cost of capital for
businesses thus
driving their return
into negative territory
•
•
•
Companies
shrinking
No business
expansion
No long term
investment
No business
expansion
Companies
being
liquidated by
financial
institutions
1. Reduced working
capital availability
2. Investors scared
away by
anticipated future
high tax rates
4
SUMMARY OF IMPACT
• As can be seen, Government influences the economy
principally in two ways - Fiscal Policy and Monetary Policy
• We noted that prevailing fiscal policies have
contributed to the current economic mess businesses
are in; i.e.
• Businesses have been deprived of what belongs to them
through arrears owed by government and where the arrears
have been settled, this has been done at a great loss to the
businesses
• Some businesses are suffocating under the heavy weight of
very high interest rates on current obligations; while others are
suffering from high interest on the money they borrowed to
supply government which is still owing in the form of arrears;
5
Cont’d
• Businesses are closing some of their operations and
branches, especially construction companies, owing
to lack of availability of work
• Businesses are retrenching and/or reducing staff at a
rate which cannot be matched, with a view to
reducing the wage bill (i.e. costs) and this is resulting
in increasing unemployment;
• Businesses are relocating to nearby countries en
masse – Mozambique, Zambia and Zimbabwe,
where the business environment is more welcoming
and governments are serious.
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The Daily Times of 10 February, 2016
7
The Daily Times of 10 February,
2016…ESCOM Tariff Escalation
8
The Daily Times of 10 February, 2016..
Loadshedding Schedule
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