Banda’s Malawi, one year on

Malawi’s deteriorating economic situation has proved difficult to handle, but President Banda believes her austerity measures can lead to a reversal of fortunes

 
Joyce Banda, the first female president of Malawi 
Author: Claire Vanne
May 8, 2013

Joyce Banda inherited many problems, both economical and political, when she became President of Malawi in April 2012, following the sudden death of her predecessor, Bingu Wa Mutharika. But one year on, she is arguably not much closer to solving the economic failings that face her poverty-stricken country.

On taking office, Banda was in no doubt about what she was up against: “People were spending days on end at petrol stations in anticipation of fuel deliveries. Social services such as availability of drugs in our hospitals were very erratic. Due to lack of foreign exchange, companies could not produce goods and services, and hence were laying people off. So I got into office to find a Malawi whose people were frustrated and angry.”

Joyce Banda CV

Age: 63
Education: BA Early Childhood Education – Columbus University, USA
BA Social Studies in Gender Studies – Atlantic International University, USA
Diploma in Management of NGOs – International Labour Organisation Centre, Italy

Political history
2004: Elected Member of Parliament under the United Democratic Front
2004-06: Served as Minister of Gender, Child Welfare and Community Services
2006-09: Minister for Foreign Affairs
2009: Elected Vice President of Malawi
2011: Formed the People’s Party following her expulsion from the then ruling Democratic Progressive Party
2012: Inaugurated as President of Malawi

Humanitarian work
1990: Formed the National Association for Business Women – an organisation that lends start-up cash to small scale businesswomen
1998: Set up The Hunger Project in Malawi – reaches out to rural households with sustainable livelihoods activities
2000: Founded the Young Emerging Leaders Network – aims at enhancing leadership skills among young executives and mentors females students in school. Also founded the Joyce Banda Foundation – provides integrated rural development to poverty-stricken beneficiaries, particularly helping women and children and orphans through education

Unfortunately, a year down the line, rising food and fuel prices have pushed inflation to 37.9 percent, sparking nationwide protests. Banda is touting an austerity budget, but the national mood remains the same.

Landlocked Malawi in southeast Africa is one of the poorest countries in the world. It is densely populated, with low levels of development, and 54 percent of the population live below the poverty line. 90 percent of the labour force works in agriculture, with tobacco accounting for 55 percent of national exports. Malawi relies heavily on international aid, but was pushed further into poverty by Mutharika’s unfavourable relationship with benefactors.

Establishing the People’s Party
Many Malawians were surprised when Mutharika decided to appoint Banda as his running mate for the 2009 elections, as Malawi’s mainly conservative, male-dominated society had never had a female vice president before. Some suggested he only selected her to ensure the female vote. Banda evoked further surprise when she refused to fall in line with Mutharika’s plans to assign his younger brother as his successor when he retired in 2014. She was thrown out of the ruling Democratic Progressive Party, but maintained the vice presidency as it was an elected position and set up her own People’s Party in 2011.

Banda has come a long way from selling mandasi (fritters) at markets, but is proud of her humble origins as over 80 percent of Malawian women work as mandasi sellers. She said: “Actually, when they call me a mandasi woman, they are honouring me and I’m very proud of it. This is a clear testimony through their own mouths that I have reached out to so many women for the past decade. That is the same journey that has seen me becoming the most powerful woman in Africa.”

After leaving an abusive marriage when she was 25, Banda became a women’s rights activist and a successful businesswoman – a rarity in Africa – and encouraged other women to do the same by founding the National Association of Business Women. The non-profit foundation is a social network of 30,000 women, which aims to lift women out of poverty by empowering them economically through financial support and education. The ‘help others to help themselves’ policies from her humanitarian work have flowed through to her politics over the past year as she has tried to lead Malawi out of poverty.

Donors and devaluation
While Malawi’s economy does not appear to be healthier on the whole, Banda has done well to mend relations with European and American donors, whose support equates to around 40 percent of government spending. The IMF approved a tough austerity programme for Malawi in July 2012. To battle the effects of inflation, it recommended devaluing the Malawian currency, the kwacha. The scheme also granted $156m in funds to Malawi over three years to aid the effects of devaluation.

During a visit to Malawi in January, IMF Managing Director Christine Lagarde praised the president for her bold economic reform and expressed her optimism for an impending turnaround as a result of Banda’s efforts: “During my discussions I congratulated President Banda on the bold economic policies of [her] administration, including the liberalisation of the foreign exchange market.

“I welcomed the government’s efforts to address the unforeseen challenges through her continued commitment to economic reforms. Malawi has already made significant progress in addressing the serious imbalances that were hampering economic growth just a few months ago.” But while international partners have supported Banda’s efforts to devaluate the currency, Malawian civil servants responded by staging nationwide strikes. They demanded a pay rise of more than 65 percent, saying inflation caused by devaluation had seriously eroded their salaries.

Other critics have highlighted the sharp decline in economic indicators under Banda. The economy grew by 1.8 percent under her presidency – low compared to 3.6 percent in 2010 and 2.6 percent in 2011. It is the lowest real GDP-per-capita growth Malawi has achieved since gaining independence from Britain in 1963. Political columnist Chisomo Phiri has argued Banda does not deserve more than 12 months in office.

“What President Banda deserves for the good of Malawi is impeachment,” he said. “While attracting misguided and unfounded praise from foreigners who take Malawians for fools, President Banda’s presidency has for the past 12 months continued to haunt the lives of the innocent, poor Malawians with unbearably ever-increasing food prices, depleted maize reserves, exorbitant price of the scarce maize, lack of medicines in hospitals, and corrupt activities and abuse of office.”

US President Barack Obama speaks following a meeting with African leaders including Malawi’s President Joyce Banda (l) and Sierra Leone’s President Ernest Bai Koroma (r)
US President Barack Obama speaks following a meeting with African leaders including Malawi’s President Joyce Banda (l) and Sierra Leone’s President Ernest Bai Koroma (r)

No money, no maize
Since independence, Malawi has gone through drastically different monetary and food supply scenarios under its various leaders. In a positive start under Hastings Kamuzu Banda, the country had plenty of food and people had the money to buy it. During Bakili Muluzi’s presidency, despite a maize shortage due to drought, other food was available and Malawians could afford it. Under Mutharika, there was maize, but people had no money with which to buy it due to poor economic governance. Now Joyce Banda rules over the most unfavourable scenario: no money and no maize.

The state grain marketer – the Agricultural Development and Marketing Corporation (ADMARC) – does not have enough staple food maize, which people grind to prepare their meals. This has contributed to the Malawi Vulnerability Assessment Committee’s projection that 1.9 million Malawians were facing hunger. The national minimum monthly wage stands at around $20, yet a family of five – the national average – needs around $170 a month to meet its basic food needs. ADMARC officials only allow consumers to buy maize in small quantities to ensure all households are able to buy their share. In February, Banda decreed that 47,000 metric tonnes of maize, worth $11.6m, would be released from strategic grain reserves to help reduce the cases of maize shortage.

While Banda’s distribution of maize to the country’s neediest families is a gesture of goodwill, it has eaten into the supply on the market. She buys maize to distribute from Rab Processors: an outlet that cushions supplies of maize and flour on the open market. She is being blamed for stretching the company’s processing capacity to such extremes that it is now unable to offer the open market enough supplies, raising the prices of flour to expensive heights. Retailers are going days without having the commodity in stock, giving vendors the opportunity to increase prices by 100 percent. Due to the shortage, maize flour is currently being sold at MK300 per kg (six US cents) rather than the usual MK150 per kg.

Former first lady of Malawi, Calista Chapola Mutharika – wife of the late Bingu Wa Mutharika – has voiced her negative opinion of Banda’s presidency, blaming her for grossly failing to rule the country and putting Malawians in misery. She said: “There is maize on the local market, a sign that we have food in the country. The only problem is on logistics; it seems the authorities are unable to ferry the grain from one point to another, and people currently don’t have money to buy. It is the first time in Malawi we have seen a 50kg bag of maize selling at MK7,500. It has
never happened before.”

It is true Malawi’s poor infrastructure is an issue that needs to be addressed to ensure the country’s economic growth. As a landlocked country, Malawi heavily depends on the road infrastructure to support its economic activities – but Malawi has poor infrastructure, with its road networks inadequate in both quality and extent. Banda is actively looking to improve domestic roads to render the investment environment more attractive. The poor condition of the roads is reflected in Malawi having one of the worst road accident rates in the world, despite its very low car-to-person ratio of two per 1,000.

Priced out of gas
In response to national fuel supplies falling short of demand in June 2012 (another result of Mutharika’s disagreement with the West) Banda and the Malawi Energy Regulatory Authority introduced an Automatic Pricing Mechanism. Under APM, fuel prices were adjusted to reflect fuel price movements on the international market to allow fuel-importing companies to recover importation costs on a real-time basis. Pump price adjustments therefore reflect the changes in value of petroleum products and movements of the kwacha against the dollar.

Source: IMF. Notes: Post-2011 figures are estimates.
Source: IMF. Notes: Post-2011 figures are estimates.

To minimise the impact of frequent fuel price fluctuations on the international market, the APM operates within a threshold of five percent. A change in fuel costs of more than five percent will trigger a price adjustment. The Price Stabilisation Fund compensates importers directly by absorbing all changes in product landing cost within the five percent threshold.

The implications have made fuel readily available again, but have led to prices soaring. The Consumers Association of Malawi Executive Director, John Kapito, has warned of civil unrest over economic hardships unless Banda and her government abandon APM. He told the Nyasa Times: “As long as this Automatic Pricing Mechanism and kwacha floatation remain, Malawians will continue facing tough times economically. The government has to act hastily and abandon this system if it is to avoid public disorder.

“Expect even those not working and in rural areas to start reacting because the fuel price rise affects the prices of commodities, thereby making life harder for ordinary Malawians. First it was civil servants and now you should expect the unemployed taking to the streets demonstrating too.”

Source: IMF. Notes: Post-2011 figures are estimates.
Source: IMF. Notes: Post-2011 figures are estimates.

In the economic recovery plan Banda issued upon her inauguration, she outlined immediate- (within three months) short- (one year) and medium-term (two- to five-year) policy reforms aimed at restoring external and internal economic stability. She has addressed the immediate issue of exchange rate adjustment by devaluing the kwacha, built a forex reserve cushion by entering into agreements with the IMF, and introduced APM to address the issue of fuel pricing.

The short-term objective of anchoring price dynamics through national monetary policy to maintain low and stable inflation has not been successful. It remains to be seen whether the areas of energy, mining, agriculture, tourism, transport infrastructure and ICT will be addressed to aid the economic circumstances of this struggling country.

Banda has cut government spending, relinquishing ministerial fringe benefits (including selling the presidential jet) and cutting her own salary by 30 percent in
the process.

While a positive sign of things to come, meeting her own austerity targets is a far tougher task and one that will require dedicated and well-constructed planning. If the reaction to Europe’s austerity measures are anything to go by, she might find herself losing popularity before gaining any ground, but she’s on the right track for regaining a grip on the country’s economic prosperity.