Competition and Development in Malawi

1. Competition and Development in Malawi Inferences from the competition status report

2. Outline • Introduction • Competition and development in theory • Sectoral development and competition • Economic development and competition • Concluding remarks

3. Competition & development in theory • It is expected that under competition there is efficient use of factors of production, optimal output and low prices • Both of these are expected to increase sectoral (and by extension) national output through increased returns to factors of production and increased firm output • Further, increased output leads to increased development through increased income to factors of production and Government expenditure facilitated by increased tax from increased output (unless there is a corresponding reduction in tax rates • Low prices also increases household income allocated to private investment, apart from private consumption • Thus competition leads to economic growth and development, given conditions of competition holding

4. Sectoral development and competition • Lack of competition is one of the factors that limit growth and development of sectors in Malawi. • Sectors without effective competition have no incentive to improve because profits are maximised without product quality improvement and need to export • Very few sectors produce export quality products and indeed very few export

5. Sector development (contd.) • The agriculture sector (both estate and smallholder) are competitive. However, lack of a competitive produce market for the critical cash crops provide no incentive to invest in quality improvement • Estates and smallholders still use old technology. This limits productivity and sectoral development as there is inefficient utilisation of factors including labour • The distribution and retailing sectors are one of the few sectors that are developing. It is the most open and competitive • However, the transport sector which is potentially competitive due to numbers of players has barely developed because of associations

6. Sectoral development (contd.) • Manufacturing sector in Malawi is geared towards supplying the domestic market. • The competition the sector faces is from imports. • Obsolete technology and management styles are forcing many others to go under in the face of imports • Some of the locally produced goods have no perfect substitutes from imports. This gives them some lease of life but fail to develop further because of the technology and management limitations • Others face very limited competition even from imports because of structure of their area of production • Limited competition and lack of incentive to export keeps the manufacturing sector underdeveloped

7. Sectoral development (contd.) • The construction sector has a few players but there is apparently ‘working together’ when it comes to competing for jobs. Local companies hardly manage to compete in the region • Financial services lack effective competition due to limited number of players. This is evidenced by limited financial products. NGOs and Government come in to fill some of the gaps though inefficiently • Likewise, the communication sector is not developed due, in part, to limited number of players. Low coverage even in urban areas shows that the sector would develop with more players and competition • This is also true of utilities. The urban areas are hardly covered let alone the rural areas. Electricity and water are sectors that are not developed.

8. Sector development (contd.) • Malawi’s professional services are not under-developed but growing • However, the quality of the services are not high enough to export, even regionally • There is more imports of professional services than exports. Malawi firms even fail to compete against regional professional services providers • Sectoral competition is not always a recipe for growth and development in the short-term. However, effective competition is a critical ingredient of sustainable sectoral growth and development

9. Competition regime and development • Openness was credited for the economic growth and development in the first years of independent Malawi • The economic crisis brought about by escalating energy prices brought in restrictions thereby stifling of competition. Economic growth slowed down from mid 1970s and came to a halt in early 1980s • SAPs were introduced to re-open the economy. However, that was only possible in some sectors. Many just benefited from the free setting of prices. Firms capitalised on the free market and charged exorbitantly. There was no corresponding investment in equipment • Competition and openness in the new Malawi had a lot of promises. However, corruption nibbled the fruits • Malawi has the potential for growth and development

10. Concluding Remarks • The presentation has limited basis. A comprehensive study is necessarily to test the hypothesis that competition breeds development via efficient use of resources and economic growth • Underdevelopment in most sectors is caused by many factors some of which are closely related to level of sectoral competition • The economic growth and development cycles experienced in Malawi are also related to the level of competition in the country as a whole.