THE LINK BETWEEN PUBLIC SECTOR REFORMS AND PRIVATE SECTOR PRODUCTIVITY

1. THE LINK BETWEEN PUBLIC SECTOR REFORMS AND PRIVATE SECTOR PRODUCTIVITY Rosemary Monica Mkandawire Managing Director- Toyota Malawi

2. Discussion Points • Private Sector Expectations • Malawi Public Sector Reforms at a glance • Private Sector and Economic Growth • Economic Liberalization Vs. Private sector productivity • Economic management and private sector performance • Regulatory framework • Conclusion

3. Private Sector Expectations The expectations of the private sector can be summarized as: • Macroeconomic stability • Stable exchange rates • Low interest rates • Ease of doing business • Fair Taxes • Cross border Trade regulations • Security Measures • No Fraud

4. Malawi Public Sector Reforms Public Sector Reform in Malawi can be characterized in the phases below:

5. Malawi Public Sector reforms at a glance Institutional rationalization and realignment with policy legislative framework Performance Contracts Outsourcing / Contracting out Privatization User fees Re-organisations of ministries Outcome based budget Information Communication Technology human resources management conditions of service Decentralization Economic Management

6. Private Sector & Economic Growth • Engine of Economic growth • Private sector contributes to: • 70% of Africa’s output • 2/3 of investment • 90% of employment

7. Private Sector & Economic Growth • Private sector productivity transforms factors of production into outputs (goods & services) • Private sector operates under government regulations. It is therefore affected by public sector reforms. • Any reform may affect a particular factor of production or the whole production process.

8. Economic Liberalization & Private Sector growth • Liberalization is one aspect of public sector reform agenda • Liberalization came into play during the second phase of reforms • This has had the following impact on the market: • Consumers are protected from monopolistic tendencies of suppliers; hence pricing structure becomes favorable • Liberalization of the market brings with it choice amongst various products • It encourages new entrants, hence increasing investment with its trickle down effects of job creation However, there are unintended benefits: • In Malawi, this has allowed the influx of products into the market some of which are sub-standard. • Taking into consideration that income levels in Malawi are very low, individuals still purchase these substandard products. • The regulatory framework that is the Malawi Bureau of Standards (MBS) has a role to protect the consumers and manage the influx of products.

9. Economic Liberalization example One of the sectors that was liberalized as part of public sector reform was the transport sector: • Transportation is an input into production and its costs are factored into goods and services • Notable reforms in the transport sector ( Road transportation mode) are: • Freedom to the transport industry to set own tariffs • Removal of restrictions to entry and exit to passenger and freight transport industry. • The benefits of liberalization of this sector have been: • Increased accessibility to markets • Competitiveness in pricing The liberalization of the transport sector led to an increase in the number of vehicles being imported into the country.

10. Economic Liberalization Example

11. Economic Liberalization example • However, this reform had its own unintended benefits: • A rapidly growing vehicle population in the absence of a good road network • Investment of infrastructure at depots has been neglected. too many users, low level of investment • High cost of vehicle maintenance due to poor road network. This contributes to high production costs of goods and services. • High number of drivers and high demand for licenses, meaning no quality checks done in terms of service provision • An increase in the number of accidents

12. Economic Management • I have talked about the different phases of public sector reform. Let me focus on the fourth phase, particularly the year 2011-2012. • In the most recent years, the market experienced acute forex shortages. This led to the following effects: • Low level of private sector investment • Difficulty in planning due to uncertainty; • Closure of some companies • Retrenchment of staff due to business slow down; • Decrease in revenue payment due to low turnover. • With macroeconomic changes of May 2012, the following effects occurred: • Illiquidity in the market • More Kwachas needed to pay off foreign liability. This reduced Working Capital\ • Further retrenchments

13. Economic Management • Does Public sector reform Really affect Private Sector? • The automotive market usually provides a description of private sector performance and economic growth. Growth in this industry is a sign of a vibrant economy and a healthy private sector.

14. Regulatory Framework – Ease of Doing Business • Potential investors look at the ease of doing business report as an indicator of Malawi’s business environment. • This is one sector where reforms could have an impact of private sector productivity if implemented. • Malawi has not improved in ranking of ease of doing business • Having difficulty regulatory processes has the following adverse effects • robs the country of much needed revenue as some businesses (SMEs) would not go through with the registration process and opt to operate in the informal sector, where tax obligation is non-existent. • Renders a country unattractive to investors. Foreign Investors would opt for other countries • Of notable mention is Rwanda which has improved from a ranking of 150 in the year 2008 to 52 in 2013. • Rwanda has completed 26 reforms where as Malawi like other countries has slightly more than 2-3

15. Regulatory Framework – Ease of Doing Business

16. Conclusion What has worked? What has not worked?

17. References Durevall D., 2001, Reform of the Malawian Public Sector: Incentives, Governance and Accountability, UNU/WIDER, Discussion Paper No. 2001/109, Helsinki Fourie, A., 2000, ‘Public-Private Partnership at Local Governance Level: Implications for Governance and Accountability’ in F. Theron, A. Rooyen and J. Baalen, J., eds., Good Governance for People: Policy and Management, Stellenbosch: School of Public Management and Planning Malawi Government, 1996, Civil Service Action Plan, Zomba: Government Printer

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