IMPLEMENTING ENABLING LEGISLATION FOR SUSTAINABLE ECONOMIC GROWTH
PAPER PREPARED FORSOCAM SYMPOSIUM ON
SUSTAINING MALAWI’S ECONOMIC GROWTH: PROSPECTS AND CHALLENGES
Introduction
The assignment I have before me can be claimed to be a simple one:
describe how to implement an enabling legislation for sustainable economic growth!
But so many dangerous assumptions have been accommodated in the statement. Among them
that the enabling legislation is in place and that it is implementable.
It also assumes that there is economic growth that can be sustained …
What is sustainability? What is Growth? Should we look at it from the view of the 1377 Arabian economic thinker Ibn Khaldun? Or David Hume, Ricardo, or the ‘Japan model’? Perhaps the ‘US model’?
I am however very happy with the topic as it allows expression of MY views
Presentation Outline
Definitions
Demands / expectations of sustainable economic growth legislation
Legislation in Malawi
Implementing legislation
Enforcement of legislation
Flash lights for successful legislation implementation
Conclusion
Definitions
‘Legislation implementation' is the process by which the state takes a variety of measures to bring stakeholders into conformity with their obligations under the law.
These measures may include laws, administrative procedures and regulations.
There is no single approach to implementation.
Economic growth is the increase in value of the goods and services produced by an economy.
It is conventionally measured as the percent rate of increase in real gross domestic product.
"Economic growth" typically refers to growth of potential output, i.e. production at "full employment," which is caused by growth in aggregate demand or observed output.
Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to net out the effect of inflation on the price of the goods and services produced.
As a field of study, Economic growth is generally distinguished from Development economics.
The former is primarily the study of how rich countries can advance their economies.
The latter is the study of how poor countries can catch up with rich ones.
Sustainable Economic Growth
The Economic Times, 12 October 2006.
"It is sobering to note that inexorable growth is the characteristic of cancers and nuclear fission- processes that ultimately destroy their hosts."
World Commission on Environment and Development defines SEG as
‘Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.’
in contrast with economic growth as GDP growth or a long term expansion of the supply-side of the economy.
Sustainable Economic Growth
Sustainable Economic Growth is a product of both process and content of legislation. It demands
accountability,
transparency,
certainty,
competitiveness,
continuous improvement,
efficiency,
innovation,
integration,
evidence/science-based decision making, and
shared responsibility.
Legislation for sustainable economic growth should facilitate these.
Let us see how implementation of legislation for sustainable economic growth can be done:
Accountability
Setting performance-based standards and indicators and implementing mechanisms for compliance, auditing and reporting on progress towards sustainable resource management. An effective enforcement regime is a key part of accountability.
Transparency
Establishing open and understandable decision-making processes including consulting with key interests prior to making decisions. Transparency also includes the public release of monitoring and compliance records, and tracking of sustainability indicators.
Certainty
Making timely and clear resource management decisions within a predictable and understandable regulatory framework.
Competitiveness
Ensuring that Malawi remains internationally competitive by removing barriers to investment and promoting fair and open trade.
Continuous improvement
Learning from the past and looking for new and improved approaches to management.
Efficiency
Maximizing the net benefits arising from the allocation, development and use of natural resources.
Innovation
Encouraging innovative approaches, technologies and skills to ensure the sustainability of natural resources.
Integration
Ensuring that resource management decisions integrate economic, environmental and social considerations for the benefit of present and future generations.
Evidence-based decision-making
Making justifiable decisions informed by science-based information and risk assessment.
Shared responsibility
Encouraging co-operation among different arms of the government, national and local governments; industry and civil society in developing and implementing finance management policies.
Implementation of legislation
Successful Implementation is measured by quality and quantity of goods and services produced in the country
Requires institutions:
Policy direction
Joint ownership
Enforcement
Authorisation
Inspection
Reporting
Targets, indicators
Largely implementation of such legislation looks at
Economic Management,
Financial Sector Regulation,
Tax Management,
Public Expenditure Management,
Public Service Establishment, and
Corporate Services.
The principle on the part of government is "Spend within the means" – so as the national budget to have a surplus; to ensure that the rate of change of public expenditure is equal to or less than the rate of change of revenue; to maintain a sustainable debt profile; and to sustain inflation rate at single digits.
Marcus Tullius Cicero, 63BC
"The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed, lest Rome become bankrupt."
Marcus Tullius Cicero
Circa 63BC
Legislation in Malawi
Malawi already has several pieces of legislation that will facilitate sustainable economic growth as espoused by the Malawi Growth and Development Strategy (MGDS).
Among them are
Public Finance Management Act (PFMA),
Public Audit Act,
Public Procurement Act;
Competition and Fair Trading Act,
Consumer Protection Act
Public Finance Management Act
The act stipulates everything
Responsibility for Financial Management
Economic, Fiscal and Financial Policy
Parliamentary Appropriation and Budget
Public Money and Consolidated Fund
Trust Moneys and Unclaimed Money
Borrowing, Loans and Guarantees
Statutory Bodies
Financial Reporting
Offences and Discipline
What is at stake is ENFORCEMENT.
Flash lights for successful legislation implementation
An enabling legislation must boost growth, create a wider and more effective economic area; create more and better jobs and modernise the social welfare model; foster a knowledge-based economy and society, including through education and training; and promote sustainable development and decoupling growth from environmental damage.
1. Boosting growth
Sound, stability-oriented macro-economic policies based on sustainable public finances provides the essential underpinning of Malawi’s economy, in particular in the light of demographic multiparty developments.
The process of fiscal consolidation needs to be continued in accordance with the Malawi Growth and Development Strategy.
A comprehensive set of legislation was adopted in 2003 namely Public Finance management Act (PFMA), Public Audit Act, Public Procurement Act.
An essential condition for boosting employment-creating growth is to create a climate in which business and industry generally, and entrepreneurship and innovation in particular, can flourish.
2. Fiscal Policy
The key fiscal policy objective is to have national budget surplus. This in the long term would reduce interest rates and Government’s demand for loans, and stimulate growth in the private sector.
The critical management of the revenue, expenditure and debt programme is crucial to the achievement of the fiscal targets.
3. Revenue
The Tax regime has to be reorganised so that the MRA is fully accountable for meeting tax revenue targets.
The ability to increase revenue will be impacted as Malawi deepens its obligations under the Economic Partnership Agreements (EPAs) and other various trade agreements (e.g. WTO) while trying to maintain a competitive tax regime.
4. Tax Policy
In order to enhance sustainability in the economic growth, there is need to constantly review the tax policy to achieve consistency with growth;
bring tax legislation in alignment with the objective of economic growth;
modernise the Tax Administration functions;
establish a link between revenue and expenditure policies; and
increase the drive towards voluntary compliance. This will help the country to
increase tax revenues while minimising the burden being placed on the taxpayers;
set rates and the tax base at levels comparable to competing regional jurisdictions;
align Malawi’s tax rates with agreements signed with other SADC/COMESA countries or tax regimes; and
ensure that the proper legislative and administrative frameworks are in place.
5. Expenditure
The achievement of fiscal surplus is inextricably linked to prudent and tight management of Government's expenditure. To control the expenditure side of the fiscal equation government needs to:
contain public sector size and wage, (competitive contracting and value for money arrangements);
promote sound planning, management and monitoring of capital projects;
contain off budget expenditure within all Ministries and departments; and
develop and implement a MTEF three-five year budget programme
work with ministries and departments to manage the recurrent expenditure in line with Government priorities.
6. Debt
A budget surplus is crucial for the reduction of debt, since the excess revenue will fund the repayment of debt capital. The principal debt objectives for the medium term would be:
to satisfy the annual borrowing requirements of the fiscal budget; and
ensuring that the debt burden is reduced to sustainable levels over the period.
The strategies may include:
strengthening market mechanism for sale of government securities in the domestic market;
reducing the debt cost;
achieving and maintaining a more prudent debt structure; and
further diversification of the debt portfolio.
7. Monetary Policy
The main monetary policy objective is to maintain inflation at single digits.
This improves confidence in the currency as well as enabling investors to plan with more certainty.
Stability in the exchange rate market and reduction in interest rates encourage long-term foreign investments.
8. Private Public Partnerships (PPPs)
Poor infrastructure increases the cost of doing business and inhibits trade development.
To boost infrastructure development government has to look to innovative partnerships with the private sector.
It is clear that there is agreement on the need for effective legislation to enable PPPs and setting up regulatory structures.
However this is not the case with regard to the operational frameworks that define processes and programme structures, where "it seems that lack of PPP experience results in under-estimates of the complexity required to manage risk and raise the confidence level of the private sector" By Dr Mohan Kaul, Director General and CEO, Commonwealth Business Council (CBC)
9. Just and Accountable Governance
Sustainable growth requires a healthy private sector – one free from corruption and mismanagement, and is a part of improving overall business efficiency.
The Commonwealth Business Council Business Principles provide a good framework for companies, and need to be rolled out and made accessible, especially for the SME sector.
Sustained efforts are required to improve governance, and the formation of the Business Action against Corruption (BAAC) and Civi Slcoiety Action Against Corruption (CSAAC) - joint civil society-public-private initiatives to combat corruption - are developments in the right direction
PFMA
The Act states that Government shall pursue its policy objectives in accordance with the principles of responsible fiscal management which are:
managing total debt at prudent levels so as to provide a buffer against factors that may impact adversely on the level of total public debt in the future;
ensuring that within any borrowing programme the total overall expenditures of the State in each financial year is in the public interest and designed to achieve long-term fiscal stability;
achieving and maintaining levels of the State’s net worth; managing prudently the fiscal risks facing the State;
pursuing policies that are consistent with a reasonable degree of predictability about the level and stability of tax rates for future years and
agreement of Government on the fiscal limits that will apply to the current and future financial expenditure on Ministries and Government projects.
Implementation of Legislation
Conclusion
Malawi does not need any new legislation to ensure sustainable economic growth.
What we need is enforcement of existing legislation
END
Thank you for your attention
Friday, August 15, 2008
Input Subsidy in Malawi
Input Subsidyin Malawi
Introduction:
Malawi, adopted World Bank/IMF economic reform measures from the mid-1980s, resulting in the liberalisation of agricultural sector, a process, which included removal of input subsidies and closure of some ADMARC markets. Fertilizer and maize seed subsidies were phased out completely in the 1994/95 season (Government of Malawi, 1999).
This immediately resulted in a serious drop of 43 percent of the usage of fertilizer in the year (93/94) preceding subsidy removal. Seed sales declined by 56 percent during the same period.
Liberalisation pushed ADMARC to closedown. Input supply to most of the remote rural areas became poor because of withdrawal of ADMARC. Local traders found it costly to move in because of infrastructure reasons including the road network which is in disrepair and own limited financial capacity. To date, input supply is one of the major constraints to crop productivity. The key issues relating to supply are: availability, distance to supply points, timeliness of supply, and affordability (Government of Malawi, Ibid).
In an attempt to deal with the problems of declining agricultural productivity and hunger the government has attempted to provide agricultural inputs, principally seeds and fertilizers using various mechanisms including free distribution, inputs for work programmes and “soft” agricultural input loans1 and the government inputs subsidy programme. This has met various stakeholders’ reactions, with IFIs strongly against government interventions.
Since 1994, the input interventions in Malawi can be roughly categorized into
three:
(a) Starter pack initiative (SPI)
(b) Targeted input programme (TIP)
(c) Targeted fertilizer subsidy programme.
The IMF and World Bank
“The government's strategy under IMF- and World Bank-supported programs in 1998 and 2000 was to end government interventions in the maize market while providing targeted food subsidies to the poor. Interventions through the Agricultural Development and Marketing Corporation (ADMARC) distorted prices and other market signals and impeded the development of the market. They were expensive, as the government bore the costs of these interventions by repeatedly bailing out ADMARC. In addition, they rarely were transparent and so raised governance issues.” (www.imf.org/external/country/mwi)
“These measures were supported by the World Bank's Third Fiscal Restructuring and Deregulation Program, approved by the Bank Board in December 2000.” (www.imf.org/external/country/mwi)
“The World Bank has served as the lead advisor on agricultural and food security policy reform. Given the impact of agriculture on the budget, however, certain elements of the reforms were supported under recent IMF arrangements as well. But while the government did make reference to the reduction in the maize stock and the restriction of the NFRA's role to disaster relief in its letter of intent to the IMF of December 2000, the letter did not include any conditionality related to food security policy.” (www.imf.org/external/country/mwi)
“Following reports from nongovernmental organizations that some regions were experiencing starvation, the government undertook field visits in February 2002, which revealed that the food shortages went beyond the usual seasonality. The government declared a food emergency in late February 2002. It turned out that two components of that carefully formulated food security policy had not been as effectively implemented as expected: …” (www.imf.org/external/country/mwi)
Objectives of the Input Subsidy programme in Malawi
Outlined in “Concept Document for the 2006/2007 Fertiliser Subsidy Programme (Ministry of Agriculture)
To contribute to long term economic growth and development, and … to guide the development of short and medium term objectives (related to poverty reduction and food security), and these in turn (will) guide decisions about the design and implementation of the programme and its interactions with other policies.
Specifically,
To increase agricultural productivity and hence improve food security at both the national and household level
To improve land and labour productivity and production of both food and cash crops by cash constrained smallholder farmers
To promote economic growth and reduce vulnerability to food insecurity, hunger and poverty
To promote development of the private sector agro dealer (input) network
(all these are consistent with the National Agricultural Policy Framework)
Production and Livelihood Outcomes
Bumper yield: 3.1 million tones, more than the 2005 yield of 2.7 million tones (Malawi needs 2 million tones)
Using regression and agronomic models:
Incremental production of about 700,000 tones
Incremental fertiliser application to maize as around 70,000 tones (total fertiliser subsidy was 150,000tones)
20% increase in area under hybrids
9% increase in area planted under OPV
Livelihood:
Lower fertiliser prices meant people did not need ganyu to buy fertiliser >> they concentrated on better crop husbandry
Lower maize prices led to reduced pressure on need for cash >>> lower inflation; tighter labour markets and raised real wages, all these generally benefiting the poor that the Malawi Growth and development Strategy targets.
Yes, increase in food stocks and reduced food prices benefited the normally food deficit producers, but reduced incomes of households that normally are surplus maize producers
Governance and Accountability
Parliament debated and increased allocation to the sector from ……… to …….
Financing of the 2006 / 2007 Subsidy programme
MK 8,955,700,000
Malawi Government
Donors
Malawi Government - 7,200,000,000
DFID/EU/Norway seeds 800,000,000
UNDP communications 35,000,000
DFID Finance Premium 378,000,000
DFID transport 405,000,000
DFID TA 137,700,000
Total Government MK7,200,000
Total 1,755,700,000
What needs to complement the subsidy
Social protection against shocks and assist the productive poor to access matching funds
Agriculture interventions that promote research and extension for maize and other crops, and access to finance
Infrastructure: Road construction and policies promoting growth of both non-farm economy and private sector
Human resources - Health and education investments to promote a flexible and productive population able to respond to and create new opportunities
Conclusions by various stakeholders
Government of Malawi (with support from DFID, USAID, Future Agricultures Consortium)
· ‘has potential to drive growth forward out of the poverty trap in which many Malawians and the Malawian Economy are currently caught’
· ‘Extra importation and distribution of fertilisers is generally considered to be cost effective than doing the same of food – but this is only achieved if weather is good enough’
cmagalasi@gmail.com
Introduction:
Malawi, adopted World Bank/IMF economic reform measures from the mid-1980s, resulting in the liberalisation of agricultural sector, a process, which included removal of input subsidies and closure of some ADMARC markets. Fertilizer and maize seed subsidies were phased out completely in the 1994/95 season (Government of Malawi, 1999).
This immediately resulted in a serious drop of 43 percent of the usage of fertilizer in the year (93/94) preceding subsidy removal. Seed sales declined by 56 percent during the same period.
Liberalisation pushed ADMARC to closedown. Input supply to most of the remote rural areas became poor because of withdrawal of ADMARC. Local traders found it costly to move in because of infrastructure reasons including the road network which is in disrepair and own limited financial capacity. To date, input supply is one of the major constraints to crop productivity. The key issues relating to supply are: availability, distance to supply points, timeliness of supply, and affordability (Government of Malawi, Ibid).
In an attempt to deal with the problems of declining agricultural productivity and hunger the government has attempted to provide agricultural inputs, principally seeds and fertilizers using various mechanisms including free distribution, inputs for work programmes and “soft” agricultural input loans1 and the government inputs subsidy programme. This has met various stakeholders’ reactions, with IFIs strongly against government interventions.
Since 1994, the input interventions in Malawi can be roughly categorized into
three:
(a) Starter pack initiative (SPI)
(b) Targeted input programme (TIP)
(c) Targeted fertilizer subsidy programme.
The IMF and World Bank
“The government's strategy under IMF- and World Bank-supported programs in 1998 and 2000 was to end government interventions in the maize market while providing targeted food subsidies to the poor. Interventions through the Agricultural Development and Marketing Corporation (ADMARC) distorted prices and other market signals and impeded the development of the market. They were expensive, as the government bore the costs of these interventions by repeatedly bailing out ADMARC. In addition, they rarely were transparent and so raised governance issues.” (www.imf.org/external/country/mwi)
“These measures were supported by the World Bank's Third Fiscal Restructuring and Deregulation Program, approved by the Bank Board in December 2000.” (www.imf.org/external/country/mwi)
“The World Bank has served as the lead advisor on agricultural and food security policy reform. Given the impact of agriculture on the budget, however, certain elements of the reforms were supported under recent IMF arrangements as well. But while the government did make reference to the reduction in the maize stock and the restriction of the NFRA's role to disaster relief in its letter of intent to the IMF of December 2000, the letter did not include any conditionality related to food security policy.” (www.imf.org/external/country/mwi)
“Following reports from nongovernmental organizations that some regions were experiencing starvation, the government undertook field visits in February 2002, which revealed that the food shortages went beyond the usual seasonality. The government declared a food emergency in late February 2002. It turned out that two components of that carefully formulated food security policy had not been as effectively implemented as expected: …” (www.imf.org/external/country/mwi)
Objectives of the Input Subsidy programme in Malawi
Outlined in “Concept Document for the 2006/2007 Fertiliser Subsidy Programme (Ministry of Agriculture)
To contribute to long term economic growth and development, and … to guide the development of short and medium term objectives (related to poverty reduction and food security), and these in turn (will) guide decisions about the design and implementation of the programme and its interactions with other policies.
Specifically,
To increase agricultural productivity and hence improve food security at both the national and household level
To improve land and labour productivity and production of both food and cash crops by cash constrained smallholder farmers
To promote economic growth and reduce vulnerability to food insecurity, hunger and poverty
To promote development of the private sector agro dealer (input) network
(all these are consistent with the National Agricultural Policy Framework)
Production and Livelihood Outcomes
Bumper yield: 3.1 million tones, more than the 2005 yield of 2.7 million tones (Malawi needs 2 million tones)
Using regression and agronomic models:
Incremental production of about 700,000 tones
Incremental fertiliser application to maize as around 70,000 tones (total fertiliser subsidy was 150,000tones)
20% increase in area under hybrids
9% increase in area planted under OPV
Livelihood:
Lower fertiliser prices meant people did not need ganyu to buy fertiliser >> they concentrated on better crop husbandry
Lower maize prices led to reduced pressure on need for cash >>> lower inflation; tighter labour markets and raised real wages, all these generally benefiting the poor that the Malawi Growth and development Strategy targets.
Yes, increase in food stocks and reduced food prices benefited the normally food deficit producers, but reduced incomes of households that normally are surplus maize producers
Governance and Accountability
Parliament debated and increased allocation to the sector from ……… to …….
Financing of the 2006 / 2007 Subsidy programme
MK 8,955,700,000
Malawi Government
Donors
Malawi Government - 7,200,000,000
DFID/EU/Norway seeds 800,000,000
UNDP communications 35,000,000
DFID Finance Premium 378,000,000
DFID transport 405,000,000
DFID TA 137,700,000
Total Government MK7,200,000
Total 1,755,700,000
What needs to complement the subsidy
Social protection against shocks and assist the productive poor to access matching funds
Agriculture interventions that promote research and extension for maize and other crops, and access to finance
Infrastructure: Road construction and policies promoting growth of both non-farm economy and private sector
Human resources - Health and education investments to promote a flexible and productive population able to respond to and create new opportunities
Conclusions by various stakeholders
Government of Malawi (with support from DFID, USAID, Future Agricultures Consortium)
· ‘has potential to drive growth forward out of the poverty trap in which many Malawians and the Malawian Economy are currently caught’
· ‘Extra importation and distribution of fertilisers is generally considered to be cost effective than doing the same of food – but this is only achieved if weather is good enough’
cmagalasi@gmail.com
In the Kitchen of the Civil Society in Malawi
IN THE KITCHEN OF THE CIVIL SOCIETY IN MALAWI
January 2007
by
Collins Magalasi
ActionAid International Malawi
cmagalasi@gmail.com collins.magalasi@actionaid.org
CONTENTS
List of Abbreviations and Acronyms ………………………………………………………………………………….... 3
Introduction and Executive Summary ……………………………………………………………………………………. 4
Introducing Malawi …………………………………………………………………………………………………………………….. 6
NGOs and CSOs: Definition Used in the paper …………………………………………………………. 6
History and Growth of CSOs in Malawi ………………………………………………………………………………………7
Manifestations of CSOs ……………………………………………………………………………………………………………… 13
Legal Establishment of CSOs …………………………………………………………………………………………………… 15
Registration ………………………………………………………………………………………………………………….. 15
NGO Law ……………………………………………………………………………………………………………………… 16
Relations …………………………………………………………………………………………………………………………………….18
CSOs and Government ………………………………………………………………………………………………… 18
International CSOs and Local CSOs …………………………………………………………………………… 19
CSOs and Legislature and Political Parties ………………………………………………………………… 20
Ten years from Now: recommendations for CSOs ………….……………………………………………………… 22
Endnotes ………………………………………………………………………………………………………………………………….. 25
List of Abbreviations and Acronyms
AAIM ActionAid International Malawi
C&S Church and Society
CABS Common Approach to Budget Support
CAP Country Assistance Plan
CBO Community Based Organisation
CLC Civil Liberties Committee
CONGOMA Council of Non Governmental Organizations in Malawi
CSC Christian Service Committee
CSO Civil Society Organization
DC District Commissioner
DBS Direct Budget Support
DPP Democratic Progressive Party
DFID Department for International Development
EHP Essential Health Package
FBO Faith Based Organisation
GBS General Budget Support
GDP Gross Domestic Product
IMF International Monetary Fund
ICSO International Civil Society Organisation
INGO International Non Governmental Organization
LCSO Local Civil Society Organisation
LNGO Local Non governmental Organisation
LRC Legal Resource Centre
MCP Malawi Congress Party
MEGS Malawi Economic Growth Strategy
MG-CSC-WP Malawi Government–Christian Service Committee – Working Party
MGDS Malawi Growth and Development Strategy
MOU Memorandum of Understanding
MPRS Malawi Poverty Reduction Strategy
NAC National AIDS Commission
NGO Non Governmental Organization
ODI Overseas Development Institute
OECD Organization for Economic Cooperation and Development
PRGF Poverty Reduction and Growth Facility
SBS Sector Budget Support
SWAp Sector Wide Approach
UDF United Democratic Party
1.0 Introduction and Executive Summary
The Civil Society sector in Malawi has grown tremendously in size, scope and over the past few years. Today the sector represents over 40% of the formal employment in Malawi. Globally, the number of international NGOs was reported to have increased from 6000 in 1990 to 26,000 in 1999. CSOs have also become significant players in global development assistance with the Organization for Economic Cooperation and Development (OECD) reporting that US$11-12 billion in contributions were made annually by CSOs from their own resources by the late 1990’s. [i]
The World Bank defines civil society as the “wide array of non-governmental and not-for-profit organizations that have a presence in public life, expressing the interests and values of their members or others, based on ethical, cultural, political, scientific, religious or philanthropic considerations.”[ii] Civil Society Organizations (CSOs) therefore refer to a wide of array of organizations: community groups, non-governmental organizations (NGOs), labor unions, indigenous groups, charitable organizations, faith-based organizations, professional associations, and foundations, just to mention a few.
The civil society sector has become important channels for delivery of social services and implementation of other development programs, especially in times that government presence is weak, in political turmoil, in emergency situations, or where civil society experience and expertise complements government action. CSOs’ influence on shaping global public policy has also emerged over the past two decades as evidenced in the successful advocacy campaigns around such issues as making the G8 focus on Africa, debt cancellation, banning of land mines, and environmental protection which have mobilized millions of supporters around the globe. This paper gives an in-depth discussion on the nature of civil society in Malawi, the environment in which they operate and the opportunities and challenges they face.
Particularly the paper gives in chapter 2 an overview of Malawi. Chapter 2 describes the history and growth of the civil society in Malawi, and takes the reader through CSO experiences before, during and after democracy. The chapter also gives some of the challenges that CSOs face in Malawi, including those of finance. The next chapter gives the manifestations of CSOs in Malawi and summarises localities, sectors and forms of CSOs in Malawi.
Chapter 5 describes the legal establishment of CSOs, requirements for registration and control. It also details the NGO Law in Malawi. The ensuing chapter describes relationships between CSOs and government, the legislature and Political Parties. The chapter also narrates the relations between local and international CSOs. The last chapter gives recommendations for the CSOs in the years to come.
1.1 NGOs and CSOs: terms and definitions used in this paper
Civil Society comprises of a wide range of non state actors. It therefore includes trade unions, employers’ organisations, chambers of commerce, churches, rotary clubs, youth groups, and many more. In this paper the author uses the term Civil Society Organisations (CSOs) to refer to not-for-profit Non state actors that are involved in development. They include trades unions, faith based organisations, women groups, youth groups and many others. The term NGO (Non Governmental Organisation) is used only when it is clear that a donor or government policy document is referring to this term. But for in this paper, the terms NGOs and CSOs are used interchangeably.
Within the CSO category the paper makes the following distinctions:
International CSOs (ICSOs) are CSOs whose origins and headquarters are usually external to the country where they are operating and whose operations span more than one country.
Local CSOs are CSOs indigenous to the country, founded and managed from within. Their operations may have national coverage and they may seek to advance the fight against poverty in Malawi at an international level. But their focus, identity and origins are confined to the country.
Within the definition of `local CSOs’, the paper distinguishes further between national CSOs – those with national coverage and/or those engaging with national policy issues – and Community Based Organisations (CBOs) – those operating at a district level that may engage in district processes and initiatives at times but are primarily focused on development and poverty reduction in their respective traditional authorities. CBOs are linked more to the social welfare department of the district assemblies.2. Introducing Malawi
Malawi is a landlocked country situated in South Central Africa, bordered by Tanzania to the north east, Mozambique to the south east and south west, and Zambia to the west. Lilongwe which is in central region of the country is the capital and administrative city while Blantyre is the commercial centre and is located in the south of the country. National languages are English and Chichewa. Malawi has a land area of 118,484 Km2, of which about a third is made up of Lake Malawi. Real GDP per capita in Malawi averages at around US$ 160-200 over the past five years. Poverty is widespread, social indicators are among the worst in the world and the country has to go a long way to meeting the MDGS[iii]. HIV/AIDS, malaria and tuberculosis are widely spread. Malawi’s infrastructure remains weak, with low levels of electrification, tarred roads and clean water supply/sanitation. Malawi, which has a young population, is densely populated, with about 50% living in the south, 39% in the centre and 11% in the north.
The economy is highly dependent on agriculture (particularly tobacco), with the sector accounting for over 38.6 per cent of GDP and employing about 85 percent of the labor force. The sector accounts for 83 per cent of foreign exchange earnings. Agriculture is characterized by a dual structure consisting of commercial estates that grows cash crops and a large smallholder sub-sector which is mainly engaged in mixed subsistence farming. Maize, the staple food, accounts for 80 per cent of cultivated land in the smallholder sub-sector. But agricultural output and productivity are low, mostly rain-fed and lacks diversification.
The country has a weak private sector. Since 1981, Malawi has implemented Structural Adjustment Programmes (SAPs) and the opening up of the economy, as was characteristic of the programme, saw the collapse of many industries. SAPs have since been dubbed by Civil Society Activists in Malawi as “Satana Ali Pano” (SAP) which literally translates into “the devil is here” in local Chichewa language. Worse realities approached the private sector around year 1994 when Malawi’s trade was liberalized. Today Malawi is one of the most liberalized economies in the world, yet among the poorest countries in the world.[iv]
Unlike the private sector, the Civil Society which used to be negligible in the one party state, grew rapidly after 1994. The sector now accounts for over 40% of the formal employment in Malawi. The civil society sector has played, and continues to play, influential role in political, social, economic and cultural affairs of the country. The political practice of Malawi’s leaders has, however, occupied the contribution of most of the civil society organizations of late, ranging from political transition, to fiscal management, accountability and transparency just to mention a few.
Malawi, a former colony of Great Britain and member of the Federation of Rhodesia and Nyasaland, became independent in 1964 and a Republic in 1966. The country was under the one party leadership of Dr. Kamuzu Banda of the Malawi Congress Party for 31 years before it turned multiparty in 1994. Dr. Bakili Muluzi was the first democratically elected President in Malawi under the United Democratic Party (UDF) and ten years later he was replaced by his handpicked successor, Dr. Bingu wa Mutharika, who has since resigned from the party that ushered him into power and formed his own Democratic Progressive Party (DPP); literally turning the UDF from the ruling, to the opposition, without elections.
3. History and Growth of Civil Society in Malawi
At the time that Malawi became independent in 1964, it can be said that there was no civil society as we define it today. All non-state interventions were linked in one way or another to political institutions and/or parties. A few years later CSOs began to come on to the scene, but only for direct services delivery, particularly in sectors of infrastructure, agriculture, food relief distribution and health. Another characteristic of the CSOs was that many of them had religious link. Christian Health Association of Malawi (CHAM) constituted 40% of health provision in Malawi. It must be pointed out that any CSO that attempted or was suspected to be involved in policy and advocacy was banned outright. Christian Service Committee is one such case. The experiences of CSC are sample of those CSOs that were established before the end of Kamuzu era.
The Case of Christian Service Committee
The Christian Service Committee (CSC) was the first faith based organization (FBO) constituted in the independent Malawi in 1966 as a service delivery organization.[v] It was however formally registered with the government of Malawi in 1968/69. In 1970 the CSC developed an empowerment programme called “Development Animation.” The programme, which had a Mr. Panje as its programme officer, was aimed at teaching communities to take charge of their own development and not to rely on government and other external players for their sustenance. The programme had district structures, including district committees with District Chairpersons to facilitate its delivery. All this was after the constitution saw removal of the Bill of Rights that was in the colonial constitution.
This programme got CSC into trouble, for in 1976 Government of Malawi closed it down. It all started with Mr. Mlombwa, who was District Chairperson of the Malawi Congress Party in Dedza, who reported the district structure and titles of the Development Animation programme to the then only political party; the Malawi Congress Party (MCP). CSC was essentially closed down.
Recalls Mr. Nandolo:[vi] “I was in Rumphi at that time. I was called to the District Commissioner’s office only to be told that CSC was closed down and I had to leave for Blantyre ... in Blantyre I found the CSC building was surrounded by police and no one was allowed into the building.”
CSC was reopened after about a week of negotiations and submissions. But this time it was a changed CSC. The modus operandi changed, the district structures aware disbanded, and every time CSC staff wanted to carry out programmes in the districts, they needed to pass through the District Commissioner’s (DC’s) office who was providing members of the Malawi Young Pioneers to accompany them. CSC had to be reporting every month to the government of Malawi, and this was the start of “Malawi Government-CSC-Working Party (MG-CSC-WP),” a kind of Memorandum of Understanding. MG-CSC-WP held at least a meeting every month where CSC was giving updates on its programmes to government. Since then all civil society organizations coming to work or were working in Malawi had to have these Working party agreements.
In 1982, the World Vision International came to Malawi, followed by the Red Cross, and many more came in. Each organisation had to sign “Malawi Government Working Party” and this soon proved difficult to manage on the side of government; and called for some control house, a forum where these MOUs would be cleared and managed. The forum was created in 1984 and was called the Council for Social Welfare Services in Malawi. The Council changed name in 1992 to Council of Non Governmental Organisations in Malawi (CONGOMA). CONGOMA has since its birth had Malawian Executive Directors in the following order: Mr. Javis Chakumodzi, Mr. Tomoka, Mr. David Faiti[1] and now Mr. Ted Nandolo.
It must be pointed out here that the coming in of international nongovernmental organisations also brought other interesting organisations. For example the World Vision International facilitated to coming into Malawi of organisations such as Graham Carr – an audit firm, which is a private organisation.
The experience that CSC went through is sample of trends / experiences of the CSOs established before the end of the autocratic rule of Dr. Kamuzu Banda.
3.1 CSOs just before referendum
Most CSOs that were born around the early 1990s were registered as charity / direct social service delivery organisations, even if they were meant to be in human rights and policy advocacy. This was due to the manifested strong hand of the MCP government. The Evangelical Alliance for Rights and Development (EVARD), for example, was formed in 1988 with focus on the plight of Mozambican refugees in the south of the country, in particular dealing with questions of the environment and traditional relief work. But towards the 1994, EVARD changed focus to civic education related to the general elections.
3.2 CSOs after the Referendum
Malawians voted for multiparty system of government in 1993. During this period, more CSOs were born with clear focus on human rights, particularly abuse monitoring and exposure, documentation, seeking accountability and voter and civic education.
The Church and Society (C&S) Department of the Blantyre Synod was established in November 1993 with focus on civic education, reporting and monitoring, and voter education covering the theology of human rights. The Civil Liberties Committee, a network of individuals, rather than organisations was established in 1992 with motivation for organized monitoring of human rights violations by domestic groups--a function previously carried out by external organizations. CLC’s objectives were the documentation of human rights abuses, public education, and case action on the behalf of victims of abuse. Legal Resources Centre (LRC) was established in March 1993 under the auspices of the Law Society of Malawi to educate Malawians about their human rights, legal representation of the needy and low-income earners, as well as related research. The LRC held conferences on constitutional and electoral reform.
3.3 CSOs in multiparty
A few years after the first multiparty elections of 1994, CSOs continued to pursue their clear politics-related civil education, political rights monitoring and reporting. However towards the millennium, more social and economic policy and advocacy organisations were born. Hundreds of CSOs were established and the majority were in the service of policy and advocacy. Even the CSOs that were initially only in political rights sector expanded or switched to socio-economic and cultural rights. The impact of such CSOs cannot be doubted, but a lot more could be done to ensure that the CSOs make bigger impact in policy and practice of government and donors as the CSOs did in political rights sector. Government of Malawi has accused CSOs in advocacy of ‘speaking without thinking’ and ‘accusing government without evidence,’[vii]
The civil society organizations working in policy and advocacy face many challenges.
3.4 Challenges to CSO Engagement in Policy Processes
Overseas Development Institute (ODI) identified main obstacles to CSO engagement in policy processes and interestingly the majority obstacles were internal to CSOs “with respondents listing insufficient capacity and funding (62% and 57% respectively) as their biggest constraints. Others cited the closed nature of the policy process as an impediment to their participation, with 47% of respondents noting policymakers do not see CSO evidence as credible. ”[viii] The following chart gives more:
Source: Kornsweig et al (2006)
CSOs soon came to realise that working in isolation was not going to make the difference they wanted. In addition, CSOS in general have limited understanding of specific policy processes, systems, institutions and actors. CSOs also have weak strategies for policy engagement, inadequate use of evidence and have weak communication approaches in policy influencing. These problems were appreciated by members of the civil society and this ushered in a new breed of organisation: civil society networks. The networks in reference differ from CONGOMA in the sense that they have in their membership the unregistered organizations and associations, and they are issue based.
CSO Networks
The first CSO network (after CONGOMA) was the faith based “Jubilee 2000 Malawi” which was campaigning for external debt cancellation. The Catholic Church was instrumental in the formation and coordination of this network. Other policy networks that followed were around/after year 2000 are the Malawi Economic Justice Network (MEJN), the Civil Society Coalition for Quality Basic Education (CSCQBE), Civil Society Agriculture Network (CISANET), the Advocacy and Users Group, Malawi Health Equity Network, the LandNet, Food Security and Agriculture Network (FOSANET), Human Rights Consultative Committee, MAREFO just to mention a few. Some of these networks are formalized, registered and are having fulltime office and staff. Networks play critical role in bringing CSO stakeholders together around particular issues, helping sieve the right information for decision makers, amplifying the voice of the concerned, sharing capacity amongst members and also facilitate transfer of professionalism within the civil society.
3.5 Resources for CSOs and the role of Donors
Most CSOs in Malawi are donor dependent. They rely of donors for almost every aspect of their work. Indeed donors have exploited this muscle and have had more influence in shaping the nature of NGOs in Malawi than acknowledged. They have done this by coming out with resources meant for particular sector and with strings of accountability and reporting. This can be seen from the plethora of Human Rights focused CSOs in the first half decade multiparty dispensation. More donors put forward more resources into human rights and this translated into more CSOs working in human rights sector. When donor priorities changed, CSOs were also up for change.
Towards the millennium, Malawi, under the supervision of the World Bank and the International Monetary Fund (IMF), engaged the process of developing Poverty Reduction Strategy Paper (PRSP). A core principle underlying the whole Poverty Reduction Strategy approach was that strategies should be `nationally-owned’, not just government-owned. National ownership, said the IMF and World Bank, should be promoted through broad-based participation of the civil society in PRS’s,[ix] and meaningful participation should consider:[x]
i. The role of key actors (including parliaments, labour unions, trade and business associations, NGOs, mass media)
ii. Mechanisms for participation
iii. Sustainability of participatory processes (moving beyond consultation in PRS formulation to implementation, monitoring and evaluation of PRS’s)
This opened space for civil society in policy formulation in Malawi. A fairly consultative review process of the MPRS involving CSOs fed into this PRSP formulation process. The Malawi Economic Justice Network (MEJN) was appointed lead CSO in the MPRS process with mandate to mobilize and coordinate civil society to take part in the technical working groups and drafting committee formed for the MPRS annual review.
Bilateral donors began to recognize the role of the civil society in policy. DFID, for example, emphasises civil society participation in its background briefing on Poverty Reduction Strategies it states that `to ensure real ownership [of PRS’s], a wide variety of groups need to be involved in this debate and priority setting: the government, civil society and political opposition parties.’ It goes on to highlight the benefits that broad based participation can bring to poverty reduction:
`In particular, participation can improve the PRS process…The views and knowledge of the poor are important in diagnosing the causes of poverty. Policies are more likely to succeed if their choice has been influenced by civil society consultation and the voices of the poor. As a strategy comes to be implemented, the government will get clearer signals about what is happening if poor people are involved in monitoring the process.’ [xi]
Why DFID supports civil society organisations
`Civil society plays an important role in reducing poverty, complementary to the roles played by governments and the private sector, including:
· Building voice and accountability: civil society helps build effective and accountable states and supports voices for change.
· Providing services and humanitarian assistance: civil society can play an important role, particularly in fragile states, by delivering services to poor people and developing new innovative approaches to reducing poverty. It also has an important role to play in responding to humanitarian crises.
· Promoting awareness and understanding of development: a strong UK development community is important for building public support for development, contributing to policy debates and holding the international community to account.’
From `Civil Society and Development: How DFID works in partnership with civil society to deliver the Millennium Development Goals’ DFID, 2006
Today, almost every CSO in Malawi has policy and advocacy on its agenda, in addition to having staff dedicated to writing proposals and accounting to donors.
Towards the end of the 90s, most donors changed modalities of their support to governments. Direct Budget Support, a form of so-called `programme aid’ (i.e. non-project aid intended to finance the government budget) ushered in. Programme aid itself is not new. For example, the IMF and the World Bank have been providing programme aid in the form of support to governments’ structural adjustment programmes since the 1980s. Food aid, debt relief and other balance of payments support are also classed as `programme aid’. But the late 1990s saw the rise of a new kind of Budget Support specifically intended to support national Poverty Reduction Strategies. In this case governments are expected to be in the driving seat and CSOs and other players must follow and complement government’s priorities.
DFID’s strategy paper for example `Making Government Work for Poor People’ of 2000 focuses on the need to support national governments in delivering national strategies for growth and poverty reduction. By 2004/05, DFID’s Departmental Report showed that in four countries General Budget Support made up 70 per cent of DFID’s programme and in another four countries, it was over 50 per cent.
Ntonya and Magalasi (2006) states that by the post-PRSP period, some donors were of the opinion that a more genuine partnership should be encouraged through more direct support to the Malawi government and closer alignment of aid behind government plans and systems. Indeed, in the case of Malawi government having produced the Malawi Poverty Reduction Strategy, many donors felt it was time to move away from the piecemeal `project approach’ towards funding government budgets directly. Not all donors have embraced this approach in Malawi but for DFID, the World Bank, European Union and Norad, Direct Budget Support - or what others call Poverty Reduction Budget Support - is the logical consequence of the new thinking described above.
There are fears within the CSOs that the coming in of DBS will compromise the independence of CSOs who see themselves as watchdogs of government. Now that donors are cutting down projects that have essentially been run by CSOs, the CSOs fear they are expected to be subcontracted by government if they are to remain in business. In Malawi the health sector has Sector Wide Approach (SWAp), a form of DBS, and CSOs in the health sector such as CHAM, Banja La Mtsogolo are ‘subcontracted’ to delivery a service.
In 1999, the Government of Malawi, through the Ministry of Health together with key donors decided to move away from a project approach to developing the health sector to a Sector-Wide Approach (SWAp).The stated objective of the health SWAp is to improve efficiency and effectiveness of health services through strengthening and rationalization of existing systems. The SWAp is based on support to the Essential Health Package (EHP) to improve health service delivery in Malawi. The main instrument of implementing the SWAp is the Programme of Work (POW) covering 2004-2010. The implementation of the activities will be based on Annual Work Plans (AWP) drawn up at the district level and contained in District Implementation Plans (DIPs).
It is estimated that approximately US$ 735 million will be required to implement the SWAp POW over the six year period, the majority of which will come from donors. The major donors are DFID (GDP 100 million), Norway (USD 60 million) and the Africa Development Bank (USD 21.85 million). The coordination of the POW will be through two modalities namely the Health Sector Review Group (HSRG) and donor sub-group on health. A memorandum of Understanding (MOU) relating to the health SWAp was signed between government and donors in 2004.
As already stated, there is now more donor funding available to CSOs for policy, advocacy and campaigning activities,[xii] whether it is CSO monitoring of public expenditure and the implementation of poverty reduction strategies, support for evidence policymaking, or encouraging citizens to campaign for the realisation of a diverse range of rights (from civil and political rights to social, economic and cultural rights).
Theoretically, donor funding in these areas is intended to strengthen the capacity of civil society to hold to account those bodies which have power, influence, or responsibilities over local populations and resource use, whether it be the government, the private sector, or international institutions. However less funding is available for CSOs to scrutinise donors’ own practices. In this way, country ownership of the development process is supposed to be strengthened, extending beyond government to the population at large, in accordance with PRS philosophy.
4. Manifestations of the CSOs in Malawi
CSOs in Malawi are spread across the country, and across sectors. In the early years of multiparty in the country, the majority of CSOs were in the sector of human rights. Around the millennium, there were more CSOs in policy and advocacy, including budget tracking and evaluation. The fastest growing sub sector is the HIV/AIDS where, with the coming in of the Global Fund, thousands of Community Based Organisations (CBOs) have been born. This has also seen LCSOs that used to be in political rights, for example, adding HIV/AIDS in their work.
A distinct characteristic of CBOs is that they are largely rural based, operating in voluntary system and are linked more to, and supervised by, the social welfare department of the district assemblies. They are managed by an Executive Director who is often times the founder of the CBO. Unlike LCSOs, CBOs are not members of CONGOMA. Most CBOs do not have organisation systems such as accounting yet and do not manage many resources. As stated above most of them are working in the sector of HIV/AIDS and social marketing.
In terms of location by sector, most CSOs that are in direct service delivery such as water and sanitation, agriculture, education etc are in rural areas disregarding whether they are LCSOs or ICSOs.
Some commentators have argued that donors’ apparent embrace of CSOs’ policy and advocacy work is deceptive in that funding has tended to be directed towards the more moderate and less political CSOs rather than to grassroots activists with a real social cause or to social movements, thereby neutralising radical political dissent through this selective support.[xiii] This paper found no evidence of an overtly political agenda behind Donors’ CSO funding strategy or behind that of any other donors providing (though admittedly most of the NGOs consulted were in receipt of donor funds and therefore did not reflect the views of CSOs completely outside the donor fold).
However, some CSOs interviewed did feel that there is a donor bias towards funding the policy and advocacy work of urban-based, national NGOs – usually dominated by educated professionals – rather than the advocacy initiatives of district-level CSOs, in spite of the increasing amount of government resources now flowing to the district level. For example, very few district-level NGOs hve had the means to participate in the various monitoring and review processes related to the Constitution, PRS, Public Expenditure Reviews or the SWAPs processes, even though the experience of these NGOs arising from their proximity to poor rural communities would be extremely valuable to urban-based NGOs, governments and donors alike.
A new breed of CSOs have ushered in: Social Forums and CSO networks. Social Forums are unstructured, they have no legal entity but just a grouping of like minded organisations and individuals that come together on issues. The forum has proved to be a very powerful mobilization tool that even the government of Malawi watches what issues are discussed. The Social Forum concept was brought by the people that attended the World Social Forum (WSF), an international forum against neo-liberal policies and capitalist led globalization. The first World Social Forum (WSF) was in Porto Alegre, Brazil in 2001. The World Social Forum is an annual event that is deliberately organized to coincide with the World Economic Forum. The timing of the World Social Forum is meant to signify civil society voices “opposing the high level profit motivated deliberations at the expense of poor countries and their citizens.”[xiv]
Whilst individual CSOs can be limited in its constituency, scope and impact, the establishment of networks has brought about wider net casting for civil society, particularly around policy and advocacy. Most of the networks are policy and advocacy oriented. Some of the policy networks in Malawi are general such as the Council for NGOs in Malawi (CONGOMA) and Malawi Economic Justice Network (MEJN), while most are sectoral including the Civil Society Coalition for Quality Basic Education (CSCQBE), Civil Society Agriculture Network (CISANET), the Advocacy and Users Group, Malawi Health Equity Network, the LandNet, Food Security and Agriculture Network (FOSANET), Human Rights Consultative Committee, and MAREFO just to mention a few.
4.1 Issues with working in networks
Collaboration in NGO networks is time-consuming and frequently problematic as it involves bringing diverse and often competing groups to a table in order to develop a common agenda and strategy. `The formation of CSO networks has been a continuing process,’ comments Anthony Mangani, `but strong solidarity among the CSOs has been missing’. Meanwhile there are complaints that the secretariats of some networks have a tendency to express a position or take action on something without consulting network members, sometimes functioning like an individual CSO rather than acting on behalf of network members.
Nevertheless, the view from agencies consulted for this paper (mainly CSOs but also donors and governments) is that the creation of CSO policy networks has significantly increased and facilitated CSO influence over policy processes. It is observed that the CSO policy interaction with government is stronger now that the former are organising themselves into sectoral structures. Networks such as the Malawi Economic Justice Network (MEJN), the Malawi Health Equity Network (MHEN), Civil Society Agriculture Network (CISANET) and the Civil Society Coalition for Quality Education (CSCQBE) are now an accepted part of the policy process in Malawi.
4.2 Governments and donors: a block or aid to networks?
As explained, the growing numbers of CSO policy networks has been driven by increased support such networks now receive from donors. Donors and governments have consistently appealed to NGOs to harmonise and coordinate their activities for the same reasons that donors are harmonising (i.e. to avoid duplication, reduce transaction costs etc), yet government and donor behaviour has sometimes hindered rather than helped the effectiveness of networks, particularly on questions of ‘who elected you’ when networks raise raw nerves in policy and practice of government and donors.
5. Legal Establishment of CSOs in Malawi
Most Civil Society Organisations in Malawi are established under either of two main legal regimes. These regimes are as follows:
q Trustee Incorporation i.e. a Trust.
q Company Limited by Guarantee for charitable organisations
Each one of these legal regimes has its own peculiar features that distinguish it from the others. These deal with registration of the entity to create it into a legal entity as an independent corporate body. However once the corporate body has been created or established, for an NGO there is a requirement to also register under the NGO Act. This second registration is not a creation of another legal entity but only to obtain a certificate of recognition without which that legal entity will not be recognised as an NGO nor will it be granted the privileges and incentives granted to NGOs. Privileges include duty waivers on selected materials used by the CSO such as vehicles.
There are other legal regimes that exist but not very applicable to CSOs. These are Cooperative Society under the Cooperative Societies Act, whereby an association or group of members can register under this Act and become a legal entity. The other legal entity type is that of a Statutory Body. This is a legal entity created by an Act of Parliament and is therefore clearly out of question for the CSOs. Another legal entity form is that of a Partnership which is a legal entity formed by two or more people for a common goal.
5.1 Registration of NGOs in Malawi
Registering an NGO in Malawi can be said to be easy depending on the regime that one wants to take. As such it can take an organisation to be registered from as little a time as one week to years. Trustee Incorporation is approved by the Minister of Justice and this can be longer if the Minister is seeking clarification or is in doubt about the organisation’s credentials.
Part VI of the NGO Law (2000) gives requirements for registration of an NGO. A filled in application form is to be accompanied by:
1. a certified copy of the constitution of the NGO
2. Registration fees as may be prescribed by the board from time to time
3. plan of activities which the NGO intends to undertake
4. approval from responsible Ministry in a form of a Memorandum of Understanding or otherwise
5. Proof that the NGO is member of CONGOMA
6. A statement that the NGO shall not engage in partisan politics including electioneering and politicking, and
7. the source of funding for the NGO
The NGO Law makes it mandatory for NGOs to be registered with CONGOMA first, before registering with the NGO Board. Currently Malawian NGOs and International NGOs have to pay MK12,000 and MK32,000 respectively annually to CONGOMA. NGOs also have to pay MK 50,600 to the NGO Board.
5.1.1 Registering Local NGOs with CONGOMA
To register with CONGOMA, local NGOs have to provide the following:
1. A filled CONGOMA Membership Application Form
2. Articles of Association or a Governing Instrument of the NGO
3. A copy of minutes of the first meeting at which it was agreed to form an NGO
4. A brief Concept Paper outlining the Activities or Programmes that the NGO intends to undertake in Malawi
5. Sworn-in Affidavits of at least two trustees and/or Directors, giving their names, citizenship, occupation and address
6. A copy of Trustees Declaration
7. A copy of Certificate of registration with the registrar general
8. payment of a processing fee of MK 500.00
5.1.2 Registering International NGOs with CONGOMA
To register with CONGOMA, INGOs have to provide the following:
1. A filled CONGOMA Membership Application Form
2. Articles of Association or a Governing Instrument of the NGO
3. A copy of the Registration Certificate of the NGO from the originating Country
4. A brief Concept Paper outlining the Activities or Programmes that the NGO intends to undertake in Malawi
5. Sworn-in Affidavits of at least two Malawian trustees and/or Directors, giving their names, citizenship, occupation and address
6. payment of a processing fee of MK 500.00
5.2 The NGO Law: Victim of Game called Politics
The Malawi NGO bill was drawn in 2000 but passed into law in 2002. It must be stated that the idea of NGO law came from the civil society. A draft bill was put together by the CSOs and submitted to Cabinet for its blessing. According to Mr. Nandolo, the Executive Director of CONGOMA, members expected that Cabinet would refer to the CSOs incase there are clauses they did not understand or were not in agreement with. However to the shock of the CSOs, Cabinet amended the draft bill and incorporated clauses that disfavoured NGOs and submitted to parliament for approval without referring back to the originating CSOs. The bill was passed into law by parliament but was rejected by the NGOs.
It is said that the then government in power, the United Democratic Front, wanted to shed off CSOs that would be involved in activities that would stand in its political aim of retaining power in the 2004 general elections. Hence the Cabinet adding into the bill section 20(iv) that requires NGOs “not engage in partisan politics including electioneering and politicking.”
Specifically the NGO Bill addresses issues relating to registration and requirements for the NGOs operating in Malawi so that there is equitable sectoral and geographical distribution of the NGO activities in Malawi, accountability and transparency of NGOs in their activities; co-ordination and consultation with Government in implementation of activities of NGOs and uniformity in the interpretation of policies. The bill makes it mandatory for every NGO established or operating in Malawi to register with the NGO Board and be member of CONGOMA, where in both situations the NGO has to make financial support. This requirement has been challenged by many civil society organisations as unconstitutional arguing that it forces an entity to be a member of a particular organisation. Part of the requirements of registration under this NGO Act is that the legal entity must be a member of CONGOMA which is an association of NGOs. But section 32(2) of the Constitution of the Republic of Malawi says: “No person may be compelled to belong to an association.” By requiring that an NGO will not be registered under the NGO Act unless it is a member of CONGOMA, the Act is compelling an entity to be a member of an association. To-date there is no Court decision on the matter and neither is there a case pending in the High Court on this issue. It must be stated here that the law was produced without an NGO/CSO policy and as such even operationalising the NGO Law would be difficult in the absence of the policy. It can therefore be said that in practice, the Malawi NGO law is under moratorium. Currently the NGO Policy is being developed and CONGOMA is facilitating review of the law and hopes to submit the same to the end-of-year sitting of parliament.
6. Relationships
6.1 Between Civil Society and Government
“In the kitchen”
The relationship between civil society and government in Malawi is growing stronger, courtesy of the MPRS process, where initially the civil society gate-crashed for involvement but later proved to be asset for the government.[xv] Government now expects and makes demands to CSO to give it information, analysis and interpretation. CSOs are invited to policy formulation fora and processes by government. The latest Malawi Growth and Development Strategy (MGDS), for example, has been engaged proactively by the civil society. CSOs are also part of the Constitutional Review process. The challenge that CSOs have is to prove their salt; that they can provide constructive alternatives to the government policies. It is clear, however, that government needs CSO at formulation of policy stages, and not at implementation.
“The Prosecution”
It must be reiterated that this is cordial relationship is but new and is a phenomenon of the mid 2000s. CSOs and government have clashed before on several occasions, notably at the time the former State President Bakili Muluzi attempted to stand for presidency for a third term. The civil society stood a very strong force and the Muluzi campaign failed to pass through. Government dubbed the CSOs as agents of opposition parties.
Influential CSOs have been threatened with de-registration before but so far no one organisation has been deregistered. Also leaders of critical institutions have been the target of the former government. The former Executive Director of the Malawi Economic Justice Network went into hiding two weeks just before the 2004 presidential and parliamentary elections for fear of his life and that of his family. His vehicle was attacked and smashed by the Young Democrats, the violent wing of the United Democratic Party, and he kept changing houses after his Falls Estate house was attacked by a group of Young Democrats. He became target of attack simply because his organization was exposing abuse of national resources by the ruling party in the run up to elections. The organization also produced the first ever Civil Society manifesto in Malawi. Another example is the beating up of the Executive Director of Civil Liberties Committee in the same year by Young Democrats in front of the police after she had exposed human rights abuse by the government officials. Malawi now has a new government and it has not yet clashed with CSOs, suffice to say it is intimidating them and it has so far arrested member of the media for allegedly insulting the president. The government has arrested several former member of the government for corruption and early this year arrested the Vice President for allegations of treason.
“Sent”
A new challenge has come in as far as the relationship between CSOs and government is concerned. With the advent of Direct Budget support referred to above, where CSOs are expected to get to bed with government in service delivery, government has a new sieve that does not allow critical policy CSOs to pass through. A key challenge is that CSOs’ legitimacy in the eyes of governments tends to come from their role in delivering services, in a way taking over the responsibility of government in providing services to its people. More established and recognized local CSOs such as CHAM and Banja La Mtsogolo (BLM) are closely engaged with government at the policy level and are included in a number of implementation committees. In contrast, the Malawi Health Equity Network (MHEN), which is advocacy focused, enjoys relatively less trust and engagement with government.
Question of legitimacy
There have been statements questioning CSO legitimacy to hold the Malawi government to account. Indeed there is clearly a question as to where CSOs fit into this chain of domestic accountability and how they relate to citizenry. CSOs are part of wider society but they do not speak for all of it. Indeed some commentators make a distinction between member-serving, and third-party serving, CSOs. Member-serving CSOs (community-based organisations, trade unions, professional associations etc) are representatives of citizens and therefore have clearly defined constituencies. Third-party serving CSOs are NGOs that are not formally representative but nevertheless have legitimacy by virtue of their development work with poor and excluded communities at the grassroots, their expertise in development-related approaches and techniques (e.g. participatory approaches, disaster mitigation, humanitarian assistance etc) and/or the quality of their policy-related research.[xvi] It is these attributes rather than any kind of representativeness that provide NGOs with the legitimacy to engage with the policy process and to sit at the table with policymakers in government and donor agencies.
Donors and development commentators are increasingly wary of CSOs claiming to represent certain constituencies when in reality they do not have representative lines of accountability. In a functioning multi-party democracy, domestic accountability should hinge on the relationship between citizens, parliament (as citizens’ elected representatives) and government and CSOs must complement this all-important relationship rather than substitute for perceived weaknesses in that relationship.
6.2 Relations between ICSOs and LCSOs
Relationships between ICSOs and LCSOs have generally been cordial. ICSOs have facilitated development and growth of many LCSOs. For example, Christain Serice Committee that was referred to above was sustained by ICSOs. Also the birth of CONGOMA itself has roots in ICSOs. ICSOs have provided both financial and technical support to LCSOs. Indeed several LCSOs view ICSOs as their mother. However changes in funding mechanisms and modalities globally are contributing to significant changes in relations between ICSOs and local CSOs at country level, as the following section reveals.
Sub-contracting to ICSOs. A particularly notable feature of changing aid relations appears to be donors’ increased practice of sub-contracting the management of CSO programmes to ICSOs– a practice explicitly recognised by DFID’s recent paper, ` Civil Society and Development’: `Most of the country offices’ work supporting civil society is managed through intermediaries. These intermediaries can be local institutions, civil society networks, or local civil society organisations. Country offices also use international civil society organisations as intermediaries.’[xvii] Although ICSOs are mentioned last in this list, in practice more ICSO intermediaries are contracted – at least in the initial stages of programme establishment – because of their size and capacity in comparison to local CSOs.
Malawi National Aids Commission sub-contracting to INGO umbrella organisations
The National Aids Commission (NAC) Malawi now supports district and community HIV/AIDS interventions through sub-grants. These sub-grants are managed by five international NGOs (Canadian Physicians for Aid and Relief, ActionAid International Malawi, World Vision International, Save the Children USA, and Plan International) that have responsibility for managing funding to community based and faith based organisations in specific districts.
These ICSOs submit budget proposals to NAC for consideration on the basis of district work plans and once funding is agreed encourage CBOs and FBOs to apply for funding. The ICSOs carry out needs assessments, and support local partners through training in areas such as proposal writing, project and financial management and in how to work with local assemblies to mainstream HIV/AIDS in local development planning.The National AIDS Commission Umbrella Organizations Programme is such example, whereby five ICSOs were contracted to manage the programme in different parts of the country.
In the words of a DFID official, DFID regards itself as a `wholesaler’ of funds to CSOs, not a `retailer’. In the context of a rise in the UK aid budget and a planned decrease in staff numbers, bilateral engagement with large numbers of individual local CSOs is not regarded as an efficient use of DFID country office resources or its comparative advantage. In DFID Malawi’s view, it is more appropriate for the retailing of funds to local CSOs to be carried out by international CSOs and occasionally by large, well-established local CSOs.
6.3 CSOs’ relations with the Legislature and political opposition parties
Experiences in Malawi suggest that it is indeed possible for CSOs and parliamentarians to collaborate constructively together and thereby influence constitutional change and/or government policy. Many of the policy achievements attributed (at least in part) to CSOs over the past few years stem from their collaboration with parliamentarians in some way: the fight against the former president’s attempt for a third term; a strengthening of the Electoral Commission, and the Constitutional review process.
As one might expect, collaboration between CSOs and parliaments tends to happen when CSOs take the initiative, not the other way round. ActionAid International Malawi, for example, facilitated the formation of the Malawi Parliamentary Coalition on IFIs (MAPCOI), a multi-party grouping of Parliamentarians providing oversight over IFI agreements or negotiations with the government.
But it is clear that CSOs are themselves being encouraged to work with parliaments by donors in order to build parliament’s capacity to hold governments to account over the use of public resources. For example, DFID and CIDA (Canada) fund collaboration between CSOs and parliamentarians with regard to public expenditure decision making through the five-year long Tikambirane Project. This project is intended `to increase the capacity of civil society to participate in public expenditure decision making and to increase the capacity of the Government of Malawi to receive and incorporate public input into public expenditure decision making.’ Through this project, three local organisations – the Malawi Economic Justice Network (MEJN), Malawi Institute of Journalism (MIJ), and the Economics Association of Malawi (ECAMA) – work with seven parliamentary committees.
Ultimately, CSOs would be advised to weigh up the advantages and disadvantages of working with parliaments compared to other forms of policy and advocacy work - irrespective of donors’ interests in promoting CSO engagement with parliaments. The parliamentary committees that are supposed to hold ministries accountable are usually drastically understaffed, underfunded and underpowered and there is a danger that CSOs could end up substituting for this serious lack of resources in some cases. Whatever the case, until parliamentarians themselves have acquired real political power, ‘parliamentary scrutiny’ is a relatively meaningless notion and CSOs’ advocacy efforts may be better applied elsewhere.
Relationship with political parties have not been obvious as such. In the run up to elections and other possibilities of political change, CSOs have been interpreted or seen to side with Political opposition parties. This was the case towards 1993 when a national referendum was held and ushered in multipartism. The same was seen in 1994 (first multiparty elections) when Bakili Muluzi replaced Kamuzu Banda as president of Malawi. In 1999 (second multiparty elections) same trends occured, no wonder Gwanda Chakuamba (formerly of MCP) cried foul that the elections were rigged and he had support of many CSOs who were willing to support his court appeals. The 2004 (third multiparty) elections were even more interesting. This is the election that saw Bingu wa Mutharika elected President of Malawi on dubious procedures. There is strong belief that the UDF government rigged the elections and to-date is a case in the high court challenging his election.7. Ten Years from now: Recommendations to CSOs
Years are approaching when civil society will have to prove that they are a force to be accommodated. They need to prove (they will continue) to be independent, accountable and responsive to the needs of the poor communities that they claim to represent and serve.
The following section gives some recommendations of what needs to be done in this quest. By way of clarification, this section does not attempt to analyse all of the diverse and multiple steps by the CSOs to the current and future political and social contexts in the country (whether it be petitions and other forms of public campaigning, citizens’ juries, direct action such as demonstrations or strikes, investigative journalism, radio broadcasts or other forms of public education). It focuses more narrowly on the evolution of CSOs’ work targeted primarily at state and donor authorities.
7.1 Positioning of CSOs to effectively respond to the dynamic government and donor policy environment
CSOs are by no means to be passive recipients of the recent shifts in government and donor policies and mechanisms described in this paper. CSOs have played a part in shaping some shifts and are therefore also `architects’ to some extent. Consultations to this paper indicate that CSOs are actively adapting their own thinking and approaches in the changing policy context.
7.2 Increase CSOs’ policy and advocacy activities
As the paper has shown above, there is reported an increase in policy and advocacy-related activities amongst CSOs in recent years. However, again as the sections above stated, the increase has coincided with the promotion of the Malawi Poverty Reduction Strategy by the donor community and the opportunities this have presented for civil society engagement in policy processes. Donors have encouraged CSOs to embrace PRS process by providing funding specifically earmarked for policy and advocacy. More recently, Budget Support donors have been particularly keen to encourage CSO monitoring and scrutiny of public budgets and expenditure, as a means of improving the accountability of the government to its citizens and the proper use of aid monies channeled through government budgets. Hence the increase in funding available for CSO budget monitoring activities in Malawi.
In the course of consulting stakeholders for this paper, a number of CSOs representatives indicated that their organisations had changed their work and structures in recent years in response to changes in external funding and policies. This is not correct as there is potential for CSOs to be derailed and serve the interest of the donor at the expense of the poor communities that they are to serve. There is therefore urgent need to establish sustainable source of funding for the CSOs. The fund must not have any donor strings. Meanwhile CSOs need to challenge the underlying structures and power relations that gave rise to their not being able to set their own agenda.
It would be inaccurate to suggest that LCSOs and ICSOs have only responded to either donor or government agendas in an effort to access fresh resources. Domestic political factors have also played significant roles. The introduction of multi-party elections over the last decade, after 31 years of single-party domination, and a gradual shift from authoritarian to more open and tolerant political culture have influenced the focus of CSOs. Specifically in Malawi, a new democratic constitution drawn up after the fall of the Banda regime enshrined a Bill of Rights which included the right to freedom of association and this facilitated a proliferation of new-style CSOs, either solely or partially dedicated to policy and advocacy work. Banda had only permitted certain faith-based organisations to operate and had restricted their operations to service delivery. Thus further opportunities do exist.
7.3 CSOs’ capacity deficit
Government and donors often seem frustrated that CSOs are not moving fast enough to embrace new areas of work. One donor representative, for example, asserted that CSOs were reluctant to venture out of the traditional `comfort zone’ of service delivery. Malawian CSOs, on the other hand, have countered that it is a capacity deficit in these new areas that is holding them back.
CSOs’ perceived lack of capacity i.e physical resources, time and dedicated staff, but also skills and capabilities of CSOs necessary to engage meaningfully in policy processes remains a predominant concern amongst a range of stakeholders in the country. Apart from a handful of very specialised, policy-orientated CSOs, most CSOs still have few staff if any dedicated solely to research, alternative thinking and creation and policy/advocacy work and they rely heavily on external consultants for specific policy-related activities
Ironically, CSOs’ policy capacity deficit seems to have been accentuated by the democratization and policy spaces provided e.g. introduction of MPRS. The problem is compounded by the holistic, multi-sectoral nature of PRS, covering a range of areas identified as strategic for poverty reduction. CSOs may be invited to attend a meeting on agricultural extension services one day, and a meeting on constitutional review the next. CSOs may respond to these demands by specialising rather than trying to cover a multiplicity of issues and activities - either in a certain thematic area, or in a certain activity, with the result that we may see more of a differentiation between policy-oriented CSOs and those delivering services in the future. That there are now CSOs in Malawi dedicated solely to policy and advocacy is an indication that trends are already moving in this direction, although the majority of CSOs still combine policy and advocacy work with more traditional development activities.
Donors’ esteem for CSOs often comes from their perceived proximity to poor communities on the ground – a closeness that is frequently sustained through service delivery. A NORAD policy paper, for example, recognises that direct support to civil society actors `contributes to the establishment and maintenance of links to the local level – links that are often lost in the sector-wide approaches.’[xviii] As many CSOs shift the focus of interventions from simply the provision of direct benefits to the empowerment of poor communities to claim basic rights, often through advocacy and campaigning, the situation becomes less clear.[xix] Engagement at a grassroots level does not have to depend on service delivery. This assumption that CSO legitimacy is derived from their role in welfare and service delivery may discourage CSOs from confining their activities solely to policy and advocacy-related activities.
Aside from specialisation, the other logical response to the capacity deficit is to share and pool policy capacity through networking.
7.4 Remember the district!
In spite of the plethora of policy oriented CSOs that have sprung up in recent years, district-level influencing appears to be weak. Consultations to this paper showed that the dearth of NGO policy influencing at a district level is disappointing but less of an issue because of the absence of any real decentralization, including public funds, to the district level. However since 2004, more resources are channeled directly to the districts and District Commissioners are controlling officers. It is high time therefore that policy focused CSOs prioritise district level policy and practice.
7.5 Improve CSO accountability
Calls for greater CSO accountability and transparency have resonated, particularly amongst government staff. For example, a government official expressed the view that CSOs are more accountable to their donors than to the people they are serving, but`You can vote out a government but not CSOs,’ he asserted. This could be interpreted as a government backlash to the increasing challenges mounted by CSOs to government’s own accountability. But it probably also reflects a growing disquiet amongst the government and donors alike about CSOs’ legitimacy in general. Who do CSOs represent? On whose behalf are they advocating? Have they contributed sufficient resources to warrant admittance to high-level policy processes? Is their work of sufficiently high calibre to be taken seriously? As donors’ focus shifts more towards state institutions and as CSOs’ role in the bigger picture arguably recedes, CSOs are clearly going to have to work harder to justify their right to a place at the table.
There is some defensiveness on the part of CSOs to these accusations. CSOs responded to the criticisms of the Malawian government official by saying that the funds they receive to implement their activities are not Malawian taxpayers’ funds and that therefore they are not accountable to Government. At the same time, CSOs themselves are increasingly conscious of the need to improve their own transparency and standards of accountability. Action must be taken to develop a CSO Code of Conduct.
7.6 Check on Donor’s accountability
To whom is a donor country office accountable? Through what means, then, can CSOs in Malawi hope to influence the agendas of donors providing Budget Support? These were questions that the author of this paper asked. Presumably donor staff are accountable to their home Cabinet and by extension, their home parliament and taxpayers. Given the emphasis given on the donor-government partnership, donor offices claim they also regard themselves as accountable to the Malawi (host) government. But accountability to the country’s civil society – let alone its poor citizens whom donors seek to support - does not seem to enter into the equation. Clearly, the watchdog function donors are encouraging CSOs to fulfill with regard to monitoring government behaviour is supposed to extend to CSOs monitoring donor behaviour in Malawi. To site the DFID example, significantly, the only reference made by DFID’s new paper `Civil Society and Development’ to the role of civil society in influencing British government policy is in relation to British civil society in the UK. By that token, International CSOs with British headquarters, origins or constituencies would appear to have a legitimate prerogative to hold DFID to account. But no such role is envisaged for southern, non-British CSOs. Unless this is checked, CSO impact will be difficult in the years to come.
This paper further recommends that there be established an appropriate forum to enable government, CSOs and donors to discuss the national agenda and obtain political will, consensus and common understanding on issues of national development.’
END NOTES
[1] Currently Mr. Faiti is Cabinet Minister of Economic Planning and Development in the Bingu wa Mutharika administration.
[i] World Bank www.worldbank.org\topics\cso\0
[ii] ibid
[iii] MGDS is Malawi Growth and Development Strategy, a successor of the Mlawi Poverty Reduction Strategy
[iv] World Trade Organisation, Geneva
[v] Early Managers were Tom Kolvin and later Brown Colsby
[vi] Mr. Ted Nandolo was Programme Officer at CSC then and is now the Executive Director of Council of NGOs in Malawi (CONGOMA)
[vii] See ActionAid and Care “From Watchdogs to subcontractors: 2006
[viii] Ref ODI and rapid, ‘Policy Engagement: How Civil Society can be more Effective,” 2006
[ix] Ref IMF Factsheet, `Poverty Reduction Strategy Papers, Sept 2005. www.imf.org/external/np/exr/facts/prsp.htm
[x] Ref: `Joint World Bank and IMF Report on Poverty Reduction Strategy Papers – Progress in Implementation 2005 PRS Review’ Concept Note, Feb 2 2005.
[xi] Ref: `Background briefing: Poverty Reduction Strategies. June 2001 – second edition, DfID website.
[xii] Ref: This is the anecdotal perception of interviewees. Regrettably, figures disaggregating the amount of funding dedicated to different types of CSO activity was not available from any other donors contacted in relation to this paper.
[xiii] Ref: Jeremy Gould, `The New Conditionality’ Zed Books, 2006.
[xiv] WSF Principles 2001
[xv] Lawson M, Ng’ambi F and Magalasi 2001
[xvi] Ref. Trish Silkin of Mokoro Consultants
[xvii] Ref. `Civil Society and Development, p.12.
[xviii] Ref. NORAD `How to Deal with Direct Support to Civil Society’ p.5
[xix] Ref to Gould and Ojanen re latter point
[1] World Bank www.worldbank.org\topics\cso\0
[1] ibid
[1] MGDS is Malawi Growth and Development Strategy, a successor of the Mlawi Poverty Reduction Strategy
[1] World Trade Organisation, Geneva
[1] Early Managers were Tom Kolvin and later Brown Colsby
[1] Mr. Ted Nandolo was Programme Officer at CSC then and is now the Executive Director of Council of NGOs in Malawi (CONGOMA)
[1] See ActionAid and Care “From Watchdogs to subcontractors: 2006
[1] Ref ODI and rapid, ‘Policy Engagement: How Civil Society can be more Effective,” 2006
[1] Ref IMF Factsheet, `Poverty Reduction Strategy Papers, Sept 2005. www.imf.org/external/np/exr/facts/prsp.htm
[1] Ref: `Joint World Bank and IMF Report on Poverty Reduction Strategy Papers – Progress in Implementation 2005 PRS Review’ Concept Note, Feb 2 2005.
[1] Ref: `Background briefing: Poverty Reduction Strategies. June 2001 – second edition, DfID website.
[1] Ref: This is the anecdotal perception of interviewees. Regrettably, figures disaggregating the amount of funding dedicated to different types of CSO activity was not available from any other donors contacted in relation to this paper.
[1] Ref: Jeremy Gould, `The New Conditionality’ Zed Books, 2006.
[1] WSF Principles 2001
[1] Lawson M, Ng’ambi F and Magalasi 2001
[1] Ref. Trish Silkin of Mokoro Consultants
[1] Ref. `Civil Society and Development, p.12.
[1] Ref. NORAD `How to Deal with Direct Support to Civil Society’ p.5
[1] Ref to Gould and Ojanen re latter point
January 2007
by
Collins Magalasi
ActionAid International Malawi
cmagalasi@gmail.com collins.magalasi@actionaid.org
CONTENTS
List of Abbreviations and Acronyms ………………………………………………………………………………….... 3
Introduction and Executive Summary ……………………………………………………………………………………. 4
Introducing Malawi …………………………………………………………………………………………………………………….. 6
NGOs and CSOs: Definition Used in the paper …………………………………………………………. 6
History and Growth of CSOs in Malawi ………………………………………………………………………………………7
Manifestations of CSOs ……………………………………………………………………………………………………………… 13
Legal Establishment of CSOs …………………………………………………………………………………………………… 15
Registration ………………………………………………………………………………………………………………….. 15
NGO Law ……………………………………………………………………………………………………………………… 16
Relations …………………………………………………………………………………………………………………………………….18
CSOs and Government ………………………………………………………………………………………………… 18
International CSOs and Local CSOs …………………………………………………………………………… 19
CSOs and Legislature and Political Parties ………………………………………………………………… 20
Ten years from Now: recommendations for CSOs ………….……………………………………………………… 22
Endnotes ………………………………………………………………………………………………………………………………….. 25
List of Abbreviations and Acronyms
AAIM ActionAid International Malawi
C&S Church and Society
CABS Common Approach to Budget Support
CAP Country Assistance Plan
CBO Community Based Organisation
CLC Civil Liberties Committee
CONGOMA Council of Non Governmental Organizations in Malawi
CSC Christian Service Committee
CSO Civil Society Organization
DC District Commissioner
DBS Direct Budget Support
DPP Democratic Progressive Party
DFID Department for International Development
EHP Essential Health Package
FBO Faith Based Organisation
GBS General Budget Support
GDP Gross Domestic Product
IMF International Monetary Fund
ICSO International Civil Society Organisation
INGO International Non Governmental Organization
LCSO Local Civil Society Organisation
LNGO Local Non governmental Organisation
LRC Legal Resource Centre
MCP Malawi Congress Party
MEGS Malawi Economic Growth Strategy
MG-CSC-WP Malawi Government–Christian Service Committee – Working Party
MGDS Malawi Growth and Development Strategy
MOU Memorandum of Understanding
MPRS Malawi Poverty Reduction Strategy
NAC National AIDS Commission
NGO Non Governmental Organization
ODI Overseas Development Institute
OECD Organization for Economic Cooperation and Development
PRGF Poverty Reduction and Growth Facility
SBS Sector Budget Support
SWAp Sector Wide Approach
UDF United Democratic Party
1.0 Introduction and Executive Summary
The Civil Society sector in Malawi has grown tremendously in size, scope and over the past few years. Today the sector represents over 40% of the formal employment in Malawi. Globally, the number of international NGOs was reported to have increased from 6000 in 1990 to 26,000 in 1999. CSOs have also become significant players in global development assistance with the Organization for Economic Cooperation and Development (OECD) reporting that US$11-12 billion in contributions were made annually by CSOs from their own resources by the late 1990’s. [i]
The World Bank defines civil society as the “wide array of non-governmental and not-for-profit organizations that have a presence in public life, expressing the interests and values of their members or others, based on ethical, cultural, political, scientific, religious or philanthropic considerations.”[ii] Civil Society Organizations (CSOs) therefore refer to a wide of array of organizations: community groups, non-governmental organizations (NGOs), labor unions, indigenous groups, charitable organizations, faith-based organizations, professional associations, and foundations, just to mention a few.
The civil society sector has become important channels for delivery of social services and implementation of other development programs, especially in times that government presence is weak, in political turmoil, in emergency situations, or where civil society experience and expertise complements government action. CSOs’ influence on shaping global public policy has also emerged over the past two decades as evidenced in the successful advocacy campaigns around such issues as making the G8 focus on Africa, debt cancellation, banning of land mines, and environmental protection which have mobilized millions of supporters around the globe. This paper gives an in-depth discussion on the nature of civil society in Malawi, the environment in which they operate and the opportunities and challenges they face.
Particularly the paper gives in chapter 2 an overview of Malawi. Chapter 2 describes the history and growth of the civil society in Malawi, and takes the reader through CSO experiences before, during and after democracy. The chapter also gives some of the challenges that CSOs face in Malawi, including those of finance. The next chapter gives the manifestations of CSOs in Malawi and summarises localities, sectors and forms of CSOs in Malawi.
Chapter 5 describes the legal establishment of CSOs, requirements for registration and control. It also details the NGO Law in Malawi. The ensuing chapter describes relationships between CSOs and government, the legislature and Political Parties. The chapter also narrates the relations between local and international CSOs. The last chapter gives recommendations for the CSOs in the years to come.
1.1 NGOs and CSOs: terms and definitions used in this paper
Civil Society comprises of a wide range of non state actors. It therefore includes trade unions, employers’ organisations, chambers of commerce, churches, rotary clubs, youth groups, and many more. In this paper the author uses the term Civil Society Organisations (CSOs) to refer to not-for-profit Non state actors that are involved in development. They include trades unions, faith based organisations, women groups, youth groups and many others. The term NGO (Non Governmental Organisation) is used only when it is clear that a donor or government policy document is referring to this term. But for in this paper, the terms NGOs and CSOs are used interchangeably.
Within the CSO category the paper makes the following distinctions:
International CSOs (ICSOs) are CSOs whose origins and headquarters are usually external to the country where they are operating and whose operations span more than one country.
Local CSOs are CSOs indigenous to the country, founded and managed from within. Their operations may have national coverage and they may seek to advance the fight against poverty in Malawi at an international level. But their focus, identity and origins are confined to the country.
Within the definition of `local CSOs’, the paper distinguishes further between national CSOs – those with national coverage and/or those engaging with national policy issues – and Community Based Organisations (CBOs) – those operating at a district level that may engage in district processes and initiatives at times but are primarily focused on development and poverty reduction in their respective traditional authorities. CBOs are linked more to the social welfare department of the district assemblies.2. Introducing Malawi
Malawi is a landlocked country situated in South Central Africa, bordered by Tanzania to the north east, Mozambique to the south east and south west, and Zambia to the west. Lilongwe which is in central region of the country is the capital and administrative city while Blantyre is the commercial centre and is located in the south of the country. National languages are English and Chichewa. Malawi has a land area of 118,484 Km2, of which about a third is made up of Lake Malawi. Real GDP per capita in Malawi averages at around US$ 160-200 over the past five years. Poverty is widespread, social indicators are among the worst in the world and the country has to go a long way to meeting the MDGS[iii]. HIV/AIDS, malaria and tuberculosis are widely spread. Malawi’s infrastructure remains weak, with low levels of electrification, tarred roads and clean water supply/sanitation. Malawi, which has a young population, is densely populated, with about 50% living in the south, 39% in the centre and 11% in the north.
The economy is highly dependent on agriculture (particularly tobacco), with the sector accounting for over 38.6 per cent of GDP and employing about 85 percent of the labor force. The sector accounts for 83 per cent of foreign exchange earnings. Agriculture is characterized by a dual structure consisting of commercial estates that grows cash crops and a large smallholder sub-sector which is mainly engaged in mixed subsistence farming. Maize, the staple food, accounts for 80 per cent of cultivated land in the smallholder sub-sector. But agricultural output and productivity are low, mostly rain-fed and lacks diversification.
The country has a weak private sector. Since 1981, Malawi has implemented Structural Adjustment Programmes (SAPs) and the opening up of the economy, as was characteristic of the programme, saw the collapse of many industries. SAPs have since been dubbed by Civil Society Activists in Malawi as “Satana Ali Pano” (SAP) which literally translates into “the devil is here” in local Chichewa language. Worse realities approached the private sector around year 1994 when Malawi’s trade was liberalized. Today Malawi is one of the most liberalized economies in the world, yet among the poorest countries in the world.[iv]
Unlike the private sector, the Civil Society which used to be negligible in the one party state, grew rapidly after 1994. The sector now accounts for over 40% of the formal employment in Malawi. The civil society sector has played, and continues to play, influential role in political, social, economic and cultural affairs of the country. The political practice of Malawi’s leaders has, however, occupied the contribution of most of the civil society organizations of late, ranging from political transition, to fiscal management, accountability and transparency just to mention a few.
Malawi, a former colony of Great Britain and member of the Federation of Rhodesia and Nyasaland, became independent in 1964 and a Republic in 1966. The country was under the one party leadership of Dr. Kamuzu Banda of the Malawi Congress Party for 31 years before it turned multiparty in 1994. Dr. Bakili Muluzi was the first democratically elected President in Malawi under the United Democratic Party (UDF) and ten years later he was replaced by his handpicked successor, Dr. Bingu wa Mutharika, who has since resigned from the party that ushered him into power and formed his own Democratic Progressive Party (DPP); literally turning the UDF from the ruling, to the opposition, without elections.
3. History and Growth of Civil Society in Malawi
At the time that Malawi became independent in 1964, it can be said that there was no civil society as we define it today. All non-state interventions were linked in one way or another to political institutions and/or parties. A few years later CSOs began to come on to the scene, but only for direct services delivery, particularly in sectors of infrastructure, agriculture, food relief distribution and health. Another characteristic of the CSOs was that many of them had religious link. Christian Health Association of Malawi (CHAM) constituted 40% of health provision in Malawi. It must be pointed out that any CSO that attempted or was suspected to be involved in policy and advocacy was banned outright. Christian Service Committee is one such case. The experiences of CSC are sample of those CSOs that were established before the end of Kamuzu era.
The Case of Christian Service Committee
The Christian Service Committee (CSC) was the first faith based organization (FBO) constituted in the independent Malawi in 1966 as a service delivery organization.[v] It was however formally registered with the government of Malawi in 1968/69. In 1970 the CSC developed an empowerment programme called “Development Animation.” The programme, which had a Mr. Panje as its programme officer, was aimed at teaching communities to take charge of their own development and not to rely on government and other external players for their sustenance. The programme had district structures, including district committees with District Chairpersons to facilitate its delivery. All this was after the constitution saw removal of the Bill of Rights that was in the colonial constitution.
This programme got CSC into trouble, for in 1976 Government of Malawi closed it down. It all started with Mr. Mlombwa, who was District Chairperson of the Malawi Congress Party in Dedza, who reported the district structure and titles of the Development Animation programme to the then only political party; the Malawi Congress Party (MCP). CSC was essentially closed down.
Recalls Mr. Nandolo:[vi] “I was in Rumphi at that time. I was called to the District Commissioner’s office only to be told that CSC was closed down and I had to leave for Blantyre ... in Blantyre I found the CSC building was surrounded by police and no one was allowed into the building.”
CSC was reopened after about a week of negotiations and submissions. But this time it was a changed CSC. The modus operandi changed, the district structures aware disbanded, and every time CSC staff wanted to carry out programmes in the districts, they needed to pass through the District Commissioner’s (DC’s) office who was providing members of the Malawi Young Pioneers to accompany them. CSC had to be reporting every month to the government of Malawi, and this was the start of “Malawi Government-CSC-Working Party (MG-CSC-WP),” a kind of Memorandum of Understanding. MG-CSC-WP held at least a meeting every month where CSC was giving updates on its programmes to government. Since then all civil society organizations coming to work or were working in Malawi had to have these Working party agreements.
In 1982, the World Vision International came to Malawi, followed by the Red Cross, and many more came in. Each organisation had to sign “Malawi Government Working Party” and this soon proved difficult to manage on the side of government; and called for some control house, a forum where these MOUs would be cleared and managed. The forum was created in 1984 and was called the Council for Social Welfare Services in Malawi. The Council changed name in 1992 to Council of Non Governmental Organisations in Malawi (CONGOMA). CONGOMA has since its birth had Malawian Executive Directors in the following order: Mr. Javis Chakumodzi, Mr. Tomoka, Mr. David Faiti[1] and now Mr. Ted Nandolo.
It must be pointed out here that the coming in of international nongovernmental organisations also brought other interesting organisations. For example the World Vision International facilitated to coming into Malawi of organisations such as Graham Carr – an audit firm, which is a private organisation.
The experience that CSC went through is sample of trends / experiences of the CSOs established before the end of the autocratic rule of Dr. Kamuzu Banda.
3.1 CSOs just before referendum
Most CSOs that were born around the early 1990s were registered as charity / direct social service delivery organisations, even if they were meant to be in human rights and policy advocacy. This was due to the manifested strong hand of the MCP government. The Evangelical Alliance for Rights and Development (EVARD), for example, was formed in 1988 with focus on the plight of Mozambican refugees in the south of the country, in particular dealing with questions of the environment and traditional relief work. But towards the 1994, EVARD changed focus to civic education related to the general elections.
3.2 CSOs after the Referendum
Malawians voted for multiparty system of government in 1993. During this period, more CSOs were born with clear focus on human rights, particularly abuse monitoring and exposure, documentation, seeking accountability and voter and civic education.
The Church and Society (C&S) Department of the Blantyre Synod was established in November 1993 with focus on civic education, reporting and monitoring, and voter education covering the theology of human rights. The Civil Liberties Committee, a network of individuals, rather than organisations was established in 1992 with motivation for organized monitoring of human rights violations by domestic groups--a function previously carried out by external organizations. CLC’s objectives were the documentation of human rights abuses, public education, and case action on the behalf of victims of abuse. Legal Resources Centre (LRC) was established in March 1993 under the auspices of the Law Society of Malawi to educate Malawians about their human rights, legal representation of the needy and low-income earners, as well as related research. The LRC held conferences on constitutional and electoral reform.
3.3 CSOs in multiparty
A few years after the first multiparty elections of 1994, CSOs continued to pursue their clear politics-related civil education, political rights monitoring and reporting. However towards the millennium, more social and economic policy and advocacy organisations were born. Hundreds of CSOs were established and the majority were in the service of policy and advocacy. Even the CSOs that were initially only in political rights sector expanded or switched to socio-economic and cultural rights. The impact of such CSOs cannot be doubted, but a lot more could be done to ensure that the CSOs make bigger impact in policy and practice of government and donors as the CSOs did in political rights sector. Government of Malawi has accused CSOs in advocacy of ‘speaking without thinking’ and ‘accusing government without evidence,’[vii]
The civil society organizations working in policy and advocacy face many challenges.
3.4 Challenges to CSO Engagement in Policy Processes
Overseas Development Institute (ODI) identified main obstacles to CSO engagement in policy processes and interestingly the majority obstacles were internal to CSOs “with respondents listing insufficient capacity and funding (62% and 57% respectively) as their biggest constraints. Others cited the closed nature of the policy process as an impediment to their participation, with 47% of respondents noting policymakers do not see CSO evidence as credible. ”[viii] The following chart gives more:
Source: Kornsweig et al (2006)
CSOs soon came to realise that working in isolation was not going to make the difference they wanted. In addition, CSOS in general have limited understanding of specific policy processes, systems, institutions and actors. CSOs also have weak strategies for policy engagement, inadequate use of evidence and have weak communication approaches in policy influencing. These problems were appreciated by members of the civil society and this ushered in a new breed of organisation: civil society networks. The networks in reference differ from CONGOMA in the sense that they have in their membership the unregistered organizations and associations, and they are issue based.
CSO Networks
The first CSO network (after CONGOMA) was the faith based “Jubilee 2000 Malawi” which was campaigning for external debt cancellation. The Catholic Church was instrumental in the formation and coordination of this network. Other policy networks that followed were around/after year 2000 are the Malawi Economic Justice Network (MEJN), the Civil Society Coalition for Quality Basic Education (CSCQBE), Civil Society Agriculture Network (CISANET), the Advocacy and Users Group, Malawi Health Equity Network, the LandNet, Food Security and Agriculture Network (FOSANET), Human Rights Consultative Committee, MAREFO just to mention a few. Some of these networks are formalized, registered and are having fulltime office and staff. Networks play critical role in bringing CSO stakeholders together around particular issues, helping sieve the right information for decision makers, amplifying the voice of the concerned, sharing capacity amongst members and also facilitate transfer of professionalism within the civil society.
3.5 Resources for CSOs and the role of Donors
Most CSOs in Malawi are donor dependent. They rely of donors for almost every aspect of their work. Indeed donors have exploited this muscle and have had more influence in shaping the nature of NGOs in Malawi than acknowledged. They have done this by coming out with resources meant for particular sector and with strings of accountability and reporting. This can be seen from the plethora of Human Rights focused CSOs in the first half decade multiparty dispensation. More donors put forward more resources into human rights and this translated into more CSOs working in human rights sector. When donor priorities changed, CSOs were also up for change.
Towards the millennium, Malawi, under the supervision of the World Bank and the International Monetary Fund (IMF), engaged the process of developing Poverty Reduction Strategy Paper (PRSP). A core principle underlying the whole Poverty Reduction Strategy approach was that strategies should be `nationally-owned’, not just government-owned. National ownership, said the IMF and World Bank, should be promoted through broad-based participation of the civil society in PRS’s,[ix] and meaningful participation should consider:[x]
i. The role of key actors (including parliaments, labour unions, trade and business associations, NGOs, mass media)
ii. Mechanisms for participation
iii. Sustainability of participatory processes (moving beyond consultation in PRS formulation to implementation, monitoring and evaluation of PRS’s)
This opened space for civil society in policy formulation in Malawi. A fairly consultative review process of the MPRS involving CSOs fed into this PRSP formulation process. The Malawi Economic Justice Network (MEJN) was appointed lead CSO in the MPRS process with mandate to mobilize and coordinate civil society to take part in the technical working groups and drafting committee formed for the MPRS annual review.
Bilateral donors began to recognize the role of the civil society in policy. DFID, for example, emphasises civil society participation in its background briefing on Poverty Reduction Strategies it states that `to ensure real ownership [of PRS’s], a wide variety of groups need to be involved in this debate and priority setting: the government, civil society and political opposition parties.’ It goes on to highlight the benefits that broad based participation can bring to poverty reduction:
`In particular, participation can improve the PRS process…The views and knowledge of the poor are important in diagnosing the causes of poverty. Policies are more likely to succeed if their choice has been influenced by civil society consultation and the voices of the poor. As a strategy comes to be implemented, the government will get clearer signals about what is happening if poor people are involved in monitoring the process.’ [xi]
Why DFID supports civil society organisations
`Civil society plays an important role in reducing poverty, complementary to the roles played by governments and the private sector, including:
· Building voice and accountability: civil society helps build effective and accountable states and supports voices for change.
· Providing services and humanitarian assistance: civil society can play an important role, particularly in fragile states, by delivering services to poor people and developing new innovative approaches to reducing poverty. It also has an important role to play in responding to humanitarian crises.
· Promoting awareness and understanding of development: a strong UK development community is important for building public support for development, contributing to policy debates and holding the international community to account.’
From `Civil Society and Development: How DFID works in partnership with civil society to deliver the Millennium Development Goals’ DFID, 2006
Today, almost every CSO in Malawi has policy and advocacy on its agenda, in addition to having staff dedicated to writing proposals and accounting to donors.
Towards the end of the 90s, most donors changed modalities of their support to governments. Direct Budget Support, a form of so-called `programme aid’ (i.e. non-project aid intended to finance the government budget) ushered in. Programme aid itself is not new. For example, the IMF and the World Bank have been providing programme aid in the form of support to governments’ structural adjustment programmes since the 1980s. Food aid, debt relief and other balance of payments support are also classed as `programme aid’. But the late 1990s saw the rise of a new kind of Budget Support specifically intended to support national Poverty Reduction Strategies. In this case governments are expected to be in the driving seat and CSOs and other players must follow and complement government’s priorities.
DFID’s strategy paper for example `Making Government Work for Poor People’ of 2000 focuses on the need to support national governments in delivering national strategies for growth and poverty reduction. By 2004/05, DFID’s Departmental Report showed that in four countries General Budget Support made up 70 per cent of DFID’s programme and in another four countries, it was over 50 per cent.
Ntonya and Magalasi (2006) states that by the post-PRSP period, some donors were of the opinion that a more genuine partnership should be encouraged through more direct support to the Malawi government and closer alignment of aid behind government plans and systems. Indeed, in the case of Malawi government having produced the Malawi Poverty Reduction Strategy, many donors felt it was time to move away from the piecemeal `project approach’ towards funding government budgets directly. Not all donors have embraced this approach in Malawi but for DFID, the World Bank, European Union and Norad, Direct Budget Support - or what others call Poverty Reduction Budget Support - is the logical consequence of the new thinking described above.
There are fears within the CSOs that the coming in of DBS will compromise the independence of CSOs who see themselves as watchdogs of government. Now that donors are cutting down projects that have essentially been run by CSOs, the CSOs fear they are expected to be subcontracted by government if they are to remain in business. In Malawi the health sector has Sector Wide Approach (SWAp), a form of DBS, and CSOs in the health sector such as CHAM, Banja La Mtsogolo are ‘subcontracted’ to delivery a service.
In 1999, the Government of Malawi, through the Ministry of Health together with key donors decided to move away from a project approach to developing the health sector to a Sector-Wide Approach (SWAp).The stated objective of the health SWAp is to improve efficiency and effectiveness of health services through strengthening and rationalization of existing systems. The SWAp is based on support to the Essential Health Package (EHP) to improve health service delivery in Malawi. The main instrument of implementing the SWAp is the Programme of Work (POW) covering 2004-2010. The implementation of the activities will be based on Annual Work Plans (AWP) drawn up at the district level and contained in District Implementation Plans (DIPs).
It is estimated that approximately US$ 735 million will be required to implement the SWAp POW over the six year period, the majority of which will come from donors. The major donors are DFID (GDP 100 million), Norway (USD 60 million) and the Africa Development Bank (USD 21.85 million). The coordination of the POW will be through two modalities namely the Health Sector Review Group (HSRG) and donor sub-group on health. A memorandum of Understanding (MOU) relating to the health SWAp was signed between government and donors in 2004.
As already stated, there is now more donor funding available to CSOs for policy, advocacy and campaigning activities,[xii] whether it is CSO monitoring of public expenditure and the implementation of poverty reduction strategies, support for evidence policymaking, or encouraging citizens to campaign for the realisation of a diverse range of rights (from civil and political rights to social, economic and cultural rights).
Theoretically, donor funding in these areas is intended to strengthen the capacity of civil society to hold to account those bodies which have power, influence, or responsibilities over local populations and resource use, whether it be the government, the private sector, or international institutions. However less funding is available for CSOs to scrutinise donors’ own practices. In this way, country ownership of the development process is supposed to be strengthened, extending beyond government to the population at large, in accordance with PRS philosophy.
4. Manifestations of the CSOs in Malawi
CSOs in Malawi are spread across the country, and across sectors. In the early years of multiparty in the country, the majority of CSOs were in the sector of human rights. Around the millennium, there were more CSOs in policy and advocacy, including budget tracking and evaluation. The fastest growing sub sector is the HIV/AIDS where, with the coming in of the Global Fund, thousands of Community Based Organisations (CBOs) have been born. This has also seen LCSOs that used to be in political rights, for example, adding HIV/AIDS in their work.
A distinct characteristic of CBOs is that they are largely rural based, operating in voluntary system and are linked more to, and supervised by, the social welfare department of the district assemblies. They are managed by an Executive Director who is often times the founder of the CBO. Unlike LCSOs, CBOs are not members of CONGOMA. Most CBOs do not have organisation systems such as accounting yet and do not manage many resources. As stated above most of them are working in the sector of HIV/AIDS and social marketing.
In terms of location by sector, most CSOs that are in direct service delivery such as water and sanitation, agriculture, education etc are in rural areas disregarding whether they are LCSOs or ICSOs.
Some commentators have argued that donors’ apparent embrace of CSOs’ policy and advocacy work is deceptive in that funding has tended to be directed towards the more moderate and less political CSOs rather than to grassroots activists with a real social cause or to social movements, thereby neutralising radical political dissent through this selective support.[xiii] This paper found no evidence of an overtly political agenda behind Donors’ CSO funding strategy or behind that of any other donors providing (though admittedly most of the NGOs consulted were in receipt of donor funds and therefore did not reflect the views of CSOs completely outside the donor fold).
However, some CSOs interviewed did feel that there is a donor bias towards funding the policy and advocacy work of urban-based, national NGOs – usually dominated by educated professionals – rather than the advocacy initiatives of district-level CSOs, in spite of the increasing amount of government resources now flowing to the district level. For example, very few district-level NGOs hve had the means to participate in the various monitoring and review processes related to the Constitution, PRS, Public Expenditure Reviews or the SWAPs processes, even though the experience of these NGOs arising from their proximity to poor rural communities would be extremely valuable to urban-based NGOs, governments and donors alike.
A new breed of CSOs have ushered in: Social Forums and CSO networks. Social Forums are unstructured, they have no legal entity but just a grouping of like minded organisations and individuals that come together on issues. The forum has proved to be a very powerful mobilization tool that even the government of Malawi watches what issues are discussed. The Social Forum concept was brought by the people that attended the World Social Forum (WSF), an international forum against neo-liberal policies and capitalist led globalization. The first World Social Forum (WSF) was in Porto Alegre, Brazil in 2001. The World Social Forum is an annual event that is deliberately organized to coincide with the World Economic Forum. The timing of the World Social Forum is meant to signify civil society voices “opposing the high level profit motivated deliberations at the expense of poor countries and their citizens.”[xiv]
Whilst individual CSOs can be limited in its constituency, scope and impact, the establishment of networks has brought about wider net casting for civil society, particularly around policy and advocacy. Most of the networks are policy and advocacy oriented. Some of the policy networks in Malawi are general such as the Council for NGOs in Malawi (CONGOMA) and Malawi Economic Justice Network (MEJN), while most are sectoral including the Civil Society Coalition for Quality Basic Education (CSCQBE), Civil Society Agriculture Network (CISANET), the Advocacy and Users Group, Malawi Health Equity Network, the LandNet, Food Security and Agriculture Network (FOSANET), Human Rights Consultative Committee, and MAREFO just to mention a few.
4.1 Issues with working in networks
Collaboration in NGO networks is time-consuming and frequently problematic as it involves bringing diverse and often competing groups to a table in order to develop a common agenda and strategy. `The formation of CSO networks has been a continuing process,’ comments Anthony Mangani, `but strong solidarity among the CSOs has been missing’. Meanwhile there are complaints that the secretariats of some networks have a tendency to express a position or take action on something without consulting network members, sometimes functioning like an individual CSO rather than acting on behalf of network members.
Nevertheless, the view from agencies consulted for this paper (mainly CSOs but also donors and governments) is that the creation of CSO policy networks has significantly increased and facilitated CSO influence over policy processes. It is observed that the CSO policy interaction with government is stronger now that the former are organising themselves into sectoral structures. Networks such as the Malawi Economic Justice Network (MEJN), the Malawi Health Equity Network (MHEN), Civil Society Agriculture Network (CISANET) and the Civil Society Coalition for Quality Education (CSCQBE) are now an accepted part of the policy process in Malawi.
4.2 Governments and donors: a block or aid to networks?
As explained, the growing numbers of CSO policy networks has been driven by increased support such networks now receive from donors. Donors and governments have consistently appealed to NGOs to harmonise and coordinate their activities for the same reasons that donors are harmonising (i.e. to avoid duplication, reduce transaction costs etc), yet government and donor behaviour has sometimes hindered rather than helped the effectiveness of networks, particularly on questions of ‘who elected you’ when networks raise raw nerves in policy and practice of government and donors.
5. Legal Establishment of CSOs in Malawi
Most Civil Society Organisations in Malawi are established under either of two main legal regimes. These regimes are as follows:
q Trustee Incorporation i.e. a Trust.
q Company Limited by Guarantee for charitable organisations
Each one of these legal regimes has its own peculiar features that distinguish it from the others. These deal with registration of the entity to create it into a legal entity as an independent corporate body. However once the corporate body has been created or established, for an NGO there is a requirement to also register under the NGO Act. This second registration is not a creation of another legal entity but only to obtain a certificate of recognition without which that legal entity will not be recognised as an NGO nor will it be granted the privileges and incentives granted to NGOs. Privileges include duty waivers on selected materials used by the CSO such as vehicles.
There are other legal regimes that exist but not very applicable to CSOs. These are Cooperative Society under the Cooperative Societies Act, whereby an association or group of members can register under this Act and become a legal entity. The other legal entity type is that of a Statutory Body. This is a legal entity created by an Act of Parliament and is therefore clearly out of question for the CSOs. Another legal entity form is that of a Partnership which is a legal entity formed by two or more people for a common goal.
5.1 Registration of NGOs in Malawi
Registering an NGO in Malawi can be said to be easy depending on the regime that one wants to take. As such it can take an organisation to be registered from as little a time as one week to years. Trustee Incorporation is approved by the Minister of Justice and this can be longer if the Minister is seeking clarification or is in doubt about the organisation’s credentials.
Part VI of the NGO Law (2000) gives requirements for registration of an NGO. A filled in application form is to be accompanied by:
1. a certified copy of the constitution of the NGO
2. Registration fees as may be prescribed by the board from time to time
3. plan of activities which the NGO intends to undertake
4. approval from responsible Ministry in a form of a Memorandum of Understanding or otherwise
5. Proof that the NGO is member of CONGOMA
6. A statement that the NGO shall not engage in partisan politics including electioneering and politicking, and
7. the source of funding for the NGO
The NGO Law makes it mandatory for NGOs to be registered with CONGOMA first, before registering with the NGO Board. Currently Malawian NGOs and International NGOs have to pay MK12,000 and MK32,000 respectively annually to CONGOMA. NGOs also have to pay MK 50,600 to the NGO Board.
5.1.1 Registering Local NGOs with CONGOMA
To register with CONGOMA, local NGOs have to provide the following:
1. A filled CONGOMA Membership Application Form
2. Articles of Association or a Governing Instrument of the NGO
3. A copy of minutes of the first meeting at which it was agreed to form an NGO
4. A brief Concept Paper outlining the Activities or Programmes that the NGO intends to undertake in Malawi
5. Sworn-in Affidavits of at least two trustees and/or Directors, giving their names, citizenship, occupation and address
6. A copy of Trustees Declaration
7. A copy of Certificate of registration with the registrar general
8. payment of a processing fee of MK 500.00
5.1.2 Registering International NGOs with CONGOMA
To register with CONGOMA, INGOs have to provide the following:
1. A filled CONGOMA Membership Application Form
2. Articles of Association or a Governing Instrument of the NGO
3. A copy of the Registration Certificate of the NGO from the originating Country
4. A brief Concept Paper outlining the Activities or Programmes that the NGO intends to undertake in Malawi
5. Sworn-in Affidavits of at least two Malawian trustees and/or Directors, giving their names, citizenship, occupation and address
6. payment of a processing fee of MK 500.00
5.2 The NGO Law: Victim of Game called Politics
The Malawi NGO bill was drawn in 2000 but passed into law in 2002. It must be stated that the idea of NGO law came from the civil society. A draft bill was put together by the CSOs and submitted to Cabinet for its blessing. According to Mr. Nandolo, the Executive Director of CONGOMA, members expected that Cabinet would refer to the CSOs incase there are clauses they did not understand or were not in agreement with. However to the shock of the CSOs, Cabinet amended the draft bill and incorporated clauses that disfavoured NGOs and submitted to parliament for approval without referring back to the originating CSOs. The bill was passed into law by parliament but was rejected by the NGOs.
It is said that the then government in power, the United Democratic Front, wanted to shed off CSOs that would be involved in activities that would stand in its political aim of retaining power in the 2004 general elections. Hence the Cabinet adding into the bill section 20(iv) that requires NGOs “not engage in partisan politics including electioneering and politicking.”
Specifically the NGO Bill addresses issues relating to registration and requirements for the NGOs operating in Malawi so that there is equitable sectoral and geographical distribution of the NGO activities in Malawi, accountability and transparency of NGOs in their activities; co-ordination and consultation with Government in implementation of activities of NGOs and uniformity in the interpretation of policies. The bill makes it mandatory for every NGO established or operating in Malawi to register with the NGO Board and be member of CONGOMA, where in both situations the NGO has to make financial support. This requirement has been challenged by many civil society organisations as unconstitutional arguing that it forces an entity to be a member of a particular organisation. Part of the requirements of registration under this NGO Act is that the legal entity must be a member of CONGOMA which is an association of NGOs. But section 32(2) of the Constitution of the Republic of Malawi says: “No person may be compelled to belong to an association.” By requiring that an NGO will not be registered under the NGO Act unless it is a member of CONGOMA, the Act is compelling an entity to be a member of an association. To-date there is no Court decision on the matter and neither is there a case pending in the High Court on this issue. It must be stated here that the law was produced without an NGO/CSO policy and as such even operationalising the NGO Law would be difficult in the absence of the policy. It can therefore be said that in practice, the Malawi NGO law is under moratorium. Currently the NGO Policy is being developed and CONGOMA is facilitating review of the law and hopes to submit the same to the end-of-year sitting of parliament.
6. Relationships
6.1 Between Civil Society and Government
“In the kitchen”
The relationship between civil society and government in Malawi is growing stronger, courtesy of the MPRS process, where initially the civil society gate-crashed for involvement but later proved to be asset for the government.[xv] Government now expects and makes demands to CSO to give it information, analysis and interpretation. CSOs are invited to policy formulation fora and processes by government. The latest Malawi Growth and Development Strategy (MGDS), for example, has been engaged proactively by the civil society. CSOs are also part of the Constitutional Review process. The challenge that CSOs have is to prove their salt; that they can provide constructive alternatives to the government policies. It is clear, however, that government needs CSO at formulation of policy stages, and not at implementation.
“The Prosecution”
It must be reiterated that this is cordial relationship is but new and is a phenomenon of the mid 2000s. CSOs and government have clashed before on several occasions, notably at the time the former State President Bakili Muluzi attempted to stand for presidency for a third term. The civil society stood a very strong force and the Muluzi campaign failed to pass through. Government dubbed the CSOs as agents of opposition parties.
Influential CSOs have been threatened with de-registration before but so far no one organisation has been deregistered. Also leaders of critical institutions have been the target of the former government. The former Executive Director of the Malawi Economic Justice Network went into hiding two weeks just before the 2004 presidential and parliamentary elections for fear of his life and that of his family. His vehicle was attacked and smashed by the Young Democrats, the violent wing of the United Democratic Party, and he kept changing houses after his Falls Estate house was attacked by a group of Young Democrats. He became target of attack simply because his organization was exposing abuse of national resources by the ruling party in the run up to elections. The organization also produced the first ever Civil Society manifesto in Malawi. Another example is the beating up of the Executive Director of Civil Liberties Committee in the same year by Young Democrats in front of the police after she had exposed human rights abuse by the government officials. Malawi now has a new government and it has not yet clashed with CSOs, suffice to say it is intimidating them and it has so far arrested member of the media for allegedly insulting the president. The government has arrested several former member of the government for corruption and early this year arrested the Vice President for allegations of treason.
“Sent”
A new challenge has come in as far as the relationship between CSOs and government is concerned. With the advent of Direct Budget support referred to above, where CSOs are expected to get to bed with government in service delivery, government has a new sieve that does not allow critical policy CSOs to pass through. A key challenge is that CSOs’ legitimacy in the eyes of governments tends to come from their role in delivering services, in a way taking over the responsibility of government in providing services to its people. More established and recognized local CSOs such as CHAM and Banja La Mtsogolo (BLM) are closely engaged with government at the policy level and are included in a number of implementation committees. In contrast, the Malawi Health Equity Network (MHEN), which is advocacy focused, enjoys relatively less trust and engagement with government.
Question of legitimacy
There have been statements questioning CSO legitimacy to hold the Malawi government to account. Indeed there is clearly a question as to where CSOs fit into this chain of domestic accountability and how they relate to citizenry. CSOs are part of wider society but they do not speak for all of it. Indeed some commentators make a distinction between member-serving, and third-party serving, CSOs. Member-serving CSOs (community-based organisations, trade unions, professional associations etc) are representatives of citizens and therefore have clearly defined constituencies. Third-party serving CSOs are NGOs that are not formally representative but nevertheless have legitimacy by virtue of their development work with poor and excluded communities at the grassroots, their expertise in development-related approaches and techniques (e.g. participatory approaches, disaster mitigation, humanitarian assistance etc) and/or the quality of their policy-related research.[xvi] It is these attributes rather than any kind of representativeness that provide NGOs with the legitimacy to engage with the policy process and to sit at the table with policymakers in government and donor agencies.
Donors and development commentators are increasingly wary of CSOs claiming to represent certain constituencies when in reality they do not have representative lines of accountability. In a functioning multi-party democracy, domestic accountability should hinge on the relationship between citizens, parliament (as citizens’ elected representatives) and government and CSOs must complement this all-important relationship rather than substitute for perceived weaknesses in that relationship.
6.2 Relations between ICSOs and LCSOs
Relationships between ICSOs and LCSOs have generally been cordial. ICSOs have facilitated development and growth of many LCSOs. For example, Christain Serice Committee that was referred to above was sustained by ICSOs. Also the birth of CONGOMA itself has roots in ICSOs. ICSOs have provided both financial and technical support to LCSOs. Indeed several LCSOs view ICSOs as their mother. However changes in funding mechanisms and modalities globally are contributing to significant changes in relations between ICSOs and local CSOs at country level, as the following section reveals.
Sub-contracting to ICSOs. A particularly notable feature of changing aid relations appears to be donors’ increased practice of sub-contracting the management of CSO programmes to ICSOs– a practice explicitly recognised by DFID’s recent paper, ` Civil Society and Development’: `Most of the country offices’ work supporting civil society is managed through intermediaries. These intermediaries can be local institutions, civil society networks, or local civil society organisations. Country offices also use international civil society organisations as intermediaries.’[xvii] Although ICSOs are mentioned last in this list, in practice more ICSO intermediaries are contracted – at least in the initial stages of programme establishment – because of their size and capacity in comparison to local CSOs.
Malawi National Aids Commission sub-contracting to INGO umbrella organisations
The National Aids Commission (NAC) Malawi now supports district and community HIV/AIDS interventions through sub-grants. These sub-grants are managed by five international NGOs (Canadian Physicians for Aid and Relief, ActionAid International Malawi, World Vision International, Save the Children USA, and Plan International) that have responsibility for managing funding to community based and faith based organisations in specific districts.
These ICSOs submit budget proposals to NAC for consideration on the basis of district work plans and once funding is agreed encourage CBOs and FBOs to apply for funding. The ICSOs carry out needs assessments, and support local partners through training in areas such as proposal writing, project and financial management and in how to work with local assemblies to mainstream HIV/AIDS in local development planning.The National AIDS Commission Umbrella Organizations Programme is such example, whereby five ICSOs were contracted to manage the programme in different parts of the country.
In the words of a DFID official, DFID regards itself as a `wholesaler’ of funds to CSOs, not a `retailer’. In the context of a rise in the UK aid budget and a planned decrease in staff numbers, bilateral engagement with large numbers of individual local CSOs is not regarded as an efficient use of DFID country office resources or its comparative advantage. In DFID Malawi’s view, it is more appropriate for the retailing of funds to local CSOs to be carried out by international CSOs and occasionally by large, well-established local CSOs.
6.3 CSOs’ relations with the Legislature and political opposition parties
Experiences in Malawi suggest that it is indeed possible for CSOs and parliamentarians to collaborate constructively together and thereby influence constitutional change and/or government policy. Many of the policy achievements attributed (at least in part) to CSOs over the past few years stem from their collaboration with parliamentarians in some way: the fight against the former president’s attempt for a third term; a strengthening of the Electoral Commission, and the Constitutional review process.
As one might expect, collaboration between CSOs and parliaments tends to happen when CSOs take the initiative, not the other way round. ActionAid International Malawi, for example, facilitated the formation of the Malawi Parliamentary Coalition on IFIs (MAPCOI), a multi-party grouping of Parliamentarians providing oversight over IFI agreements or negotiations with the government.
But it is clear that CSOs are themselves being encouraged to work with parliaments by donors in order to build parliament’s capacity to hold governments to account over the use of public resources. For example, DFID and CIDA (Canada) fund collaboration between CSOs and parliamentarians with regard to public expenditure decision making through the five-year long Tikambirane Project. This project is intended `to increase the capacity of civil society to participate in public expenditure decision making and to increase the capacity of the Government of Malawi to receive and incorporate public input into public expenditure decision making.’ Through this project, three local organisations – the Malawi Economic Justice Network (MEJN), Malawi Institute of Journalism (MIJ), and the Economics Association of Malawi (ECAMA) – work with seven parliamentary committees.
Ultimately, CSOs would be advised to weigh up the advantages and disadvantages of working with parliaments compared to other forms of policy and advocacy work - irrespective of donors’ interests in promoting CSO engagement with parliaments. The parliamentary committees that are supposed to hold ministries accountable are usually drastically understaffed, underfunded and underpowered and there is a danger that CSOs could end up substituting for this serious lack of resources in some cases. Whatever the case, until parliamentarians themselves have acquired real political power, ‘parliamentary scrutiny’ is a relatively meaningless notion and CSOs’ advocacy efforts may be better applied elsewhere.
Relationship with political parties have not been obvious as such. In the run up to elections and other possibilities of political change, CSOs have been interpreted or seen to side with Political opposition parties. This was the case towards 1993 when a national referendum was held and ushered in multipartism. The same was seen in 1994 (first multiparty elections) when Bakili Muluzi replaced Kamuzu Banda as president of Malawi. In 1999 (second multiparty elections) same trends occured, no wonder Gwanda Chakuamba (formerly of MCP) cried foul that the elections were rigged and he had support of many CSOs who were willing to support his court appeals. The 2004 (third multiparty) elections were even more interesting. This is the election that saw Bingu wa Mutharika elected President of Malawi on dubious procedures. There is strong belief that the UDF government rigged the elections and to-date is a case in the high court challenging his election.7. Ten Years from now: Recommendations to CSOs
Years are approaching when civil society will have to prove that they are a force to be accommodated. They need to prove (they will continue) to be independent, accountable and responsive to the needs of the poor communities that they claim to represent and serve.
The following section gives some recommendations of what needs to be done in this quest. By way of clarification, this section does not attempt to analyse all of the diverse and multiple steps by the CSOs to the current and future political and social contexts in the country (whether it be petitions and other forms of public campaigning, citizens’ juries, direct action such as demonstrations or strikes, investigative journalism, radio broadcasts or other forms of public education). It focuses more narrowly on the evolution of CSOs’ work targeted primarily at state and donor authorities.
7.1 Positioning of CSOs to effectively respond to the dynamic government and donor policy environment
CSOs are by no means to be passive recipients of the recent shifts in government and donor policies and mechanisms described in this paper. CSOs have played a part in shaping some shifts and are therefore also `architects’ to some extent. Consultations to this paper indicate that CSOs are actively adapting their own thinking and approaches in the changing policy context.
7.2 Increase CSOs’ policy and advocacy activities
As the paper has shown above, there is reported an increase in policy and advocacy-related activities amongst CSOs in recent years. However, again as the sections above stated, the increase has coincided with the promotion of the Malawi Poverty Reduction Strategy by the donor community and the opportunities this have presented for civil society engagement in policy processes. Donors have encouraged CSOs to embrace PRS process by providing funding specifically earmarked for policy and advocacy. More recently, Budget Support donors have been particularly keen to encourage CSO monitoring and scrutiny of public budgets and expenditure, as a means of improving the accountability of the government to its citizens and the proper use of aid monies channeled through government budgets. Hence the increase in funding available for CSO budget monitoring activities in Malawi.
In the course of consulting stakeholders for this paper, a number of CSOs representatives indicated that their organisations had changed their work and structures in recent years in response to changes in external funding and policies. This is not correct as there is potential for CSOs to be derailed and serve the interest of the donor at the expense of the poor communities that they are to serve. There is therefore urgent need to establish sustainable source of funding for the CSOs. The fund must not have any donor strings. Meanwhile CSOs need to challenge the underlying structures and power relations that gave rise to their not being able to set their own agenda.
It would be inaccurate to suggest that LCSOs and ICSOs have only responded to either donor or government agendas in an effort to access fresh resources. Domestic political factors have also played significant roles. The introduction of multi-party elections over the last decade, after 31 years of single-party domination, and a gradual shift from authoritarian to more open and tolerant political culture have influenced the focus of CSOs. Specifically in Malawi, a new democratic constitution drawn up after the fall of the Banda regime enshrined a Bill of Rights which included the right to freedom of association and this facilitated a proliferation of new-style CSOs, either solely or partially dedicated to policy and advocacy work. Banda had only permitted certain faith-based organisations to operate and had restricted their operations to service delivery. Thus further opportunities do exist.
7.3 CSOs’ capacity deficit
Government and donors often seem frustrated that CSOs are not moving fast enough to embrace new areas of work. One donor representative, for example, asserted that CSOs were reluctant to venture out of the traditional `comfort zone’ of service delivery. Malawian CSOs, on the other hand, have countered that it is a capacity deficit in these new areas that is holding them back.
CSOs’ perceived lack of capacity i.e physical resources, time and dedicated staff, but also skills and capabilities of CSOs necessary to engage meaningfully in policy processes remains a predominant concern amongst a range of stakeholders in the country. Apart from a handful of very specialised, policy-orientated CSOs, most CSOs still have few staff if any dedicated solely to research, alternative thinking and creation and policy/advocacy work and they rely heavily on external consultants for specific policy-related activities
Ironically, CSOs’ policy capacity deficit seems to have been accentuated by the democratization and policy spaces provided e.g. introduction of MPRS. The problem is compounded by the holistic, multi-sectoral nature of PRS, covering a range of areas identified as strategic for poverty reduction. CSOs may be invited to attend a meeting on agricultural extension services one day, and a meeting on constitutional review the next. CSOs may respond to these demands by specialising rather than trying to cover a multiplicity of issues and activities - either in a certain thematic area, or in a certain activity, with the result that we may see more of a differentiation between policy-oriented CSOs and those delivering services in the future. That there are now CSOs in Malawi dedicated solely to policy and advocacy is an indication that trends are already moving in this direction, although the majority of CSOs still combine policy and advocacy work with more traditional development activities.
Donors’ esteem for CSOs often comes from their perceived proximity to poor communities on the ground – a closeness that is frequently sustained through service delivery. A NORAD policy paper, for example, recognises that direct support to civil society actors `contributes to the establishment and maintenance of links to the local level – links that are often lost in the sector-wide approaches.’[xviii] As many CSOs shift the focus of interventions from simply the provision of direct benefits to the empowerment of poor communities to claim basic rights, often through advocacy and campaigning, the situation becomes less clear.[xix] Engagement at a grassroots level does not have to depend on service delivery. This assumption that CSO legitimacy is derived from their role in welfare and service delivery may discourage CSOs from confining their activities solely to policy and advocacy-related activities.
Aside from specialisation, the other logical response to the capacity deficit is to share and pool policy capacity through networking.
7.4 Remember the district!
In spite of the plethora of policy oriented CSOs that have sprung up in recent years, district-level influencing appears to be weak. Consultations to this paper showed that the dearth of NGO policy influencing at a district level is disappointing but less of an issue because of the absence of any real decentralization, including public funds, to the district level. However since 2004, more resources are channeled directly to the districts and District Commissioners are controlling officers. It is high time therefore that policy focused CSOs prioritise district level policy and practice.
7.5 Improve CSO accountability
Calls for greater CSO accountability and transparency have resonated, particularly amongst government staff. For example, a government official expressed the view that CSOs are more accountable to their donors than to the people they are serving, but`You can vote out a government but not CSOs,’ he asserted. This could be interpreted as a government backlash to the increasing challenges mounted by CSOs to government’s own accountability. But it probably also reflects a growing disquiet amongst the government and donors alike about CSOs’ legitimacy in general. Who do CSOs represent? On whose behalf are they advocating? Have they contributed sufficient resources to warrant admittance to high-level policy processes? Is their work of sufficiently high calibre to be taken seriously? As donors’ focus shifts more towards state institutions and as CSOs’ role in the bigger picture arguably recedes, CSOs are clearly going to have to work harder to justify their right to a place at the table.
There is some defensiveness on the part of CSOs to these accusations. CSOs responded to the criticisms of the Malawian government official by saying that the funds they receive to implement their activities are not Malawian taxpayers’ funds and that therefore they are not accountable to Government. At the same time, CSOs themselves are increasingly conscious of the need to improve their own transparency and standards of accountability. Action must be taken to develop a CSO Code of Conduct.
7.6 Check on Donor’s accountability
To whom is a donor country office accountable? Through what means, then, can CSOs in Malawi hope to influence the agendas of donors providing Budget Support? These were questions that the author of this paper asked. Presumably donor staff are accountable to their home Cabinet and by extension, their home parliament and taxpayers. Given the emphasis given on the donor-government partnership, donor offices claim they also regard themselves as accountable to the Malawi (host) government. But accountability to the country’s civil society – let alone its poor citizens whom donors seek to support - does not seem to enter into the equation. Clearly, the watchdog function donors are encouraging CSOs to fulfill with regard to monitoring government behaviour is supposed to extend to CSOs monitoring donor behaviour in Malawi. To site the DFID example, significantly, the only reference made by DFID’s new paper `Civil Society and Development’ to the role of civil society in influencing British government policy is in relation to British civil society in the UK. By that token, International CSOs with British headquarters, origins or constituencies would appear to have a legitimate prerogative to hold DFID to account. But no such role is envisaged for southern, non-British CSOs. Unless this is checked, CSO impact will be difficult in the years to come.
This paper further recommends that there be established an appropriate forum to enable government, CSOs and donors to discuss the national agenda and obtain political will, consensus and common understanding on issues of national development.’
END NOTES
[1] Currently Mr. Faiti is Cabinet Minister of Economic Planning and Development in the Bingu wa Mutharika administration.
[i] World Bank www.worldbank.org\topics\cso\0
[ii] ibid
[iii] MGDS is Malawi Growth and Development Strategy, a successor of the Mlawi Poverty Reduction Strategy
[iv] World Trade Organisation, Geneva
[v] Early Managers were Tom Kolvin and later Brown Colsby
[vi] Mr. Ted Nandolo was Programme Officer at CSC then and is now the Executive Director of Council of NGOs in Malawi (CONGOMA)
[vii] See ActionAid and Care “From Watchdogs to subcontractors: 2006
[viii] Ref ODI and rapid, ‘Policy Engagement: How Civil Society can be more Effective,” 2006
[ix] Ref IMF Factsheet, `Poverty Reduction Strategy Papers, Sept 2005. www.imf.org/external/np/exr/facts/prsp.htm
[x] Ref: `Joint World Bank and IMF Report on Poverty Reduction Strategy Papers – Progress in Implementation 2005 PRS Review’ Concept Note, Feb 2 2005.
[xi] Ref: `Background briefing: Poverty Reduction Strategies. June 2001 – second edition, DfID website.
[xii] Ref: This is the anecdotal perception of interviewees. Regrettably, figures disaggregating the amount of funding dedicated to different types of CSO activity was not available from any other donors contacted in relation to this paper.
[xiii] Ref: Jeremy Gould, `The New Conditionality’ Zed Books, 2006.
[xiv] WSF Principles 2001
[xv] Lawson M, Ng’ambi F and Magalasi 2001
[xvi] Ref. Trish Silkin of Mokoro Consultants
[xvii] Ref. `Civil Society and Development, p.12.
[xviii] Ref. NORAD `How to Deal with Direct Support to Civil Society’ p.5
[xix] Ref to Gould and Ojanen re latter point
[1] World Bank www.worldbank.org\topics\cso\0
[1] ibid
[1] MGDS is Malawi Growth and Development Strategy, a successor of the Mlawi Poverty Reduction Strategy
[1] World Trade Organisation, Geneva
[1] Early Managers were Tom Kolvin and later Brown Colsby
[1] Mr. Ted Nandolo was Programme Officer at CSC then and is now the Executive Director of Council of NGOs in Malawi (CONGOMA)
[1] See ActionAid and Care “From Watchdogs to subcontractors: 2006
[1] Ref ODI and rapid, ‘Policy Engagement: How Civil Society can be more Effective,” 2006
[1] Ref IMF Factsheet, `Poverty Reduction Strategy Papers, Sept 2005. www.imf.org/external/np/exr/facts/prsp.htm
[1] Ref: `Joint World Bank and IMF Report on Poverty Reduction Strategy Papers – Progress in Implementation 2005 PRS Review’ Concept Note, Feb 2 2005.
[1] Ref: `Background briefing: Poverty Reduction Strategies. June 2001 – second edition, DfID website.
[1] Ref: This is the anecdotal perception of interviewees. Regrettably, figures disaggregating the amount of funding dedicated to different types of CSO activity was not available from any other donors contacted in relation to this paper.
[1] Ref: Jeremy Gould, `The New Conditionality’ Zed Books, 2006.
[1] WSF Principles 2001
[1] Lawson M, Ng’ambi F and Magalasi 2001
[1] Ref. Trish Silkin of Mokoro Consultants
[1] Ref. `Civil Society and Development, p.12.
[1] Ref. NORAD `How to Deal with Direct Support to Civil Society’ p.5
[1] Ref to Gould and Ojanen re latter point
THE EFFECTS OF PRIVATISATION IN MALAWI
THE EFFECTS OF PRIVATISATION
ON THE PUBLIC SECTOR AND THE ROLE OF THE STATE IN MALAWI
By
Collins Magalasi cmagalasi@gmail.com
December 2006
LIST OF ACRONYMS
1. INTRODUCTION. 4
1.1. Objectives of the Paper 5
1.2. Methodology. 5
1.3. Organisation of the Report 5
2. PRIVATISATION: THEORETICAL FRAMEWORK. 6
2.1. Privatization Trends in Developing Countries. 7
2.1.1. Sub-Saharan Africa. 7
3. PUBLIC SECTOR AND SOES IN MALAWI 9
3.1. Reasons for Public Sector Participation. 9
3.1.1. The Colonial Era. 9
3.1.2. Political Dimension. 10
3.2. Nature and Coverage. 10
4. PRIVATIZATION PROCESS IN MALAWI 14
4.1. Earlier Experiences. 14
4.2. Privatisation Policy. 15
4.3. Why Privatization. 16
4.4. Policy Environment 17
4.5. Consultations. 20
4.6. Malawi's Privatisation Programme (PP) 21
5. CHALLENGES OF PRIVATISATION. 25
5.1. Privatization and Technical Efficiency. 26
5.2. Impact of the Privatization Program.. 27
5.2.1. Treasury Effects. 27
5.2.2. Use of Privatization Proceeds. 28
5.2.3. Malawian participation and Ownership De-concentration. 28
5.2.4. Impact of Listed Companies on Capital Market Development 29
5.2.5. Employment 29
5.3. Discussion. 30
5.4. Solutions / Alternatives. 32
6. CONCLUSION AND RECOMMENDATIONS. 35
APPENDIX 1
LIST OF ACRONYMS
ADMARC Agricultural Development and Marketing Corporation
AIHL ADMARC Investment Holding Limited
CBM Commercial Bank of Malawi
DWASCO Dwangwa Sugar Corporation
DEA Data Envelopment Analysis
DEVPOL Development Policy Plan
DSP Divesture Sequence Plan
ESCOM Electricity Commission of Malawi
GDP Gross Domestic Product
IB Intermediate Buyer
IBRD International Bank for Reconstruction and Development
IDA International Development Aid
IFI International Financial Institutions
IMF International Monetary Fund
IPTAC Industrial Trade Policy Adjustment Credit
MDC Malawi Development Corporation
MIPA Malawi Investment Promotion Agency
MPTC Malawi Post and Tele-Communications Ltd
NICO national Insurance Company
OECD Organisation for Economic Cooperation and Development
PC Privatisation Programme
PCL Press Commission Limited
PIM Packaging Industries (MW) Limited
SAL Structural Adjustment Loan
SAPs Structural Adjustment Programmes
SC Statutory Corporation
SOE State Owned Enterprise
SUCOMA Sugar Corporation of Malawi
1. INTRODUCTION
Privatisation in its simplest sense is the transfer of public enterprise to private ownership. Beginning in the 1970s, there has been a global trend to move away from state ownership and control towards privatisation. State participation, which became common after the Second World War in developed countries and after independence in developing countries, slowly became less popular. Apart from the general fact that several of the State Owned Enterprises (SOEs) were inefficient and poorly managed, the period (1970-1990) was dominated by the growing dominance of neo-liberalism as a model for economic development (Jaunch, 2002). The neo-liberal ideology is driven by the belief in the "free market" as the best regulator and engine of economic growth while the state's developmental role in the economy is to be reduced.
The privatisation trend became common in African developing countries around 1980s to 1990s as part structural adjustment programs (SAPs). Introduced by international Financial Institutions (IFIs), the SAPs were meant to “assist” countries that were going through some economic hardship. The World Bank and International Monetary Fund (IMF) offered loans to these countries, and in return for these loans, African countries were forced to implement neo-liberal economic policies, which included privatization.
The trend of privatization in Africa and some developing countries did not miss Malawi whose [privatization] experience dates back to 1985. Malawi, a landlocked country in Southern Africa, is one of the poorest countries in the world. It is estimated that over 50% of Malawi’s 12million people live below poverty line, and the majority of Malawians derive their livelihood from agriculture sector. Despite all the reliance in agriculture, ironically, the first company to be subjected to privatisation was Agriculture Development Marketing Corporation (ADMARC), an institution that has been providing food support and back-up for rural Malawians, and whose full privatisation still remains a big contention by civil society up to now.
The imposition of privatisation by Bretton Woods[1] institutions, albeit its positive theoretical economic assessments, attracted a lot of critics who have expressed strong reservations about privatisation’s fairness and sometimes its efficiency and impact. Some of the specific arguments are, first, that privatisation causes social dislocation. Second, privatisation leads to layoffs and a worsening in labour conditions, in the short term in the divested firms and in the long run in the economy at large. Third, it has been argued that the bulk of the benefits accrue to a privileged few – shareholders, managers, foreign or domestic investors, those connected to the political elite – whereas the costs are borne by many, particularly tax payers, consumers, and workers, thereby reducing the overall welfare.
As expected, studies on the effects of privatisation show that there is a lot of variation on how privatisation has fared. In some countries, they provided a good solution to companies in infrastructure and network industries; privatisation transferred inefficient public monopolies to become efficient private monopolies; and significant gains have been achieved after privatisation. For example, in Brazil, during the 1981-94, before privatisation, the ratio of profits to net assets was negative, averaging -2.5 and falling to -5.4 percent towards the end; after privatisation most firms became profitable, and investment increased dramatically. Furthermore, higher profits brought more tax revenue to the government, and some companies began paying dividends to their investors (Kikeri and Nellis, 2003).
This paper is a result of quest to inform lobbyists and campaigners in Malawi and beyond on Privatisation and the Public Sector in Malawi. The paper is critical of the objectives and effects of privatisation on the public sector and the role of the state.
1.1. Objectives of the Paper
A number of reports show that privatisation has had considerable effects, both positive and negative. This paper covers a broader initiative to root an alternative development paradigm within the achievements and lessons from earlier experience of state led development. By looking at the nature and role of the “public sector” defined broadly, to cover democratic, accountable to the popular forces and which highlights popular participation, management and control, we try to focus on the appropriate role for the state in advancing development.
1.2. Methodology
The paper contextualises the process of privatisation within a review of the public sector in the period after independence capturing the key role of the state in developing the national resources and industries and advancing the rights and welfare of the people. Most of this is done through secondary data. Primary sources of information is used where there is little or no available documentation. The paper gets down to sectoral levels, where key strategic sectors are chosen to emphasise the above point. The sectors chosen are strategic from the point of view of their importance to the country’s economy and overall national development.
1.3. Organisation of the Paper
The paper is divided into four main parts. The first part is the privatisation theoretical framework which also covers the trends in developing countries. In the second part, the paper looks at the Public Sector and State Owned Enterprises in Malawi. Here the author will be looking at the Public Sector in Malawi and the reasons for going into production, infrastructures and services. The third part analyses the privatisation process in Malawi. The fourth section goes into the challenges of privatisation. And finally, before concluding, the paper looks at solutions and alternatives to privatisation, which could work in poor country like Malawi.
2. PRIVATISATION: THEORETICAL FRAMEWORK
In trying to answer the question of whether privatisation is necessary, most of the literature in the 1990s support privatisation. A good number of the supporters feel that privatisation is necessary, not simply to improve performance of public enterprises, it’s essential contributions are to ‘lock in the gains’ achieved earlier in reforming public ownership or in preparing a firm for sale, to distance the firm from political interference, and to inoculate it against the recurrence of the common and deadly ailment of public enterprises: interference by owners who have more than profit in their minds. (John Nellis, 1994).
The neoclassical reasoning is that there is there is little difference whether a firm is privately or publicly owned as long as it operates in a competitive market without barriers to entry or exit; or the owner instructs management to follow signals provided by the market and gives the autonomy to do so. The modern theory, however, changed this reasoning by attempting to establish a clearer relationship between ownership and efficiency. It is believed that private ownership will produce superior efficiency outcomes because of the following factors:
- establishment of a market for managers, leading to higher quality management
- capital markets subject privately owned firms to greater scrutiny and discipline than they do public enterprises
- private firms are subject to exit much more often than public enterprises
- politicians interfere less in the affairs of private than public firms
- private firms are supervised by self interested board members and shareholders, rather than by disinterested bureaucrats
This reasoning is supported by a trend where most state enterprises went through losses, became inefficient, produced low quality goods and services at high cost especially in developing countries. The general impression on state enterprises was that there were overstaffed, did not compete, and often resulted in bailouts, leading to national financial losses amounting in some cases as much as 5 to 6 percent of gross domestic product annually[2]. Bailouts for most of the state enterprises meant that the government had to finance larger fiscal deficits and increase tax revenues or reduce public spending in other areas, or both.
Privatization is also taken positively by public choice theorists, who look at the bureaucratic approach in which public enterprises are seen as an instrument of enhancing the utility functions of politicians such as maximization of votes and budgets (Niskanen, 1972; Buchanan, 1972; Blankart, 1983; Boycko et al., 1996). Proponents of the public choice theory hold that government departments pursue objectives that do not maximize profits and usually pursue goals such as maximizing budget, risk aversion, employment and investment. Boycko et al. (1996) propose a model of privatization within the framework of public choice theory. The model shows that privatization will lead to effective restructuring of state-owned enterprises that are currently producing at inefficiently high levels to maximize employment, only if both cash flow rights and control rights pass from the government into private hands (particularly managers’ hands). This will make it difficult for the government to bribe managers to produce at inefficient levels by offering them operating subsidies. Therefore, cutting the ‘soft budget constraint’ is vital to improving performance.
2.1. Privatization Trends in Developing Countries
By mid-1990s, privatisation in developing countries, which had started slowly in the 1980s, accelerated. Between 1990 and 1999 global proceeds totalled USD850 billion, growing from $30bn in 1990 to $145 in 1999. The Organisation for Economic Cooperation and Development (OECD) countries dominated throughout. In terms of numbers of countries and transactions developing countries dominated. Between 1990 and 2003, 120 developing countries carried out 7,860 transactions between 1990 and 2003, generating close to $410 billion in privatization proceeds, or 0.5 percent of total developing country GDP during that period.
The analysis of overall developing country trends shows that: (i) privatization activity dropped off after 1997 but picked up, albeit modestly, in recent years; (ii) the average size of a transaction increased over the years as countries moved towards privatizing larger firms; (iii) while a large number of countries are involved in privatisation processes, proceeds are highly concentrated in a handful of countries; and (iv) foreign investment accounted for half of privatization proceeds in the 1990s (Kikeri and Kolo, 2005).
In the early to mid-1990s, privatization proceeds in developing countries averaged between $20 to 30 billion on an annual basis. Proceeds peaked sharply in 1997 to almost $70 billion. The sudden and one-time jump resulted from increased activity in large infrastructure and energy (oil and gas) transactions across virtually all regions, with the largest share coming from three countries in Latin America (Argentina, Brazil, Mexico), Kazakhstan, Russia, and China. Revenues declined thereafter as Argentina’s stock of enterprises dwindled and as activity in Asia and Europe slowed down following the East Asian financial crisis of 1997 and the Russian debt crisis of 1998. By 2001 activity had reached the level of 1990, but starting in 2002 proceeds began a modest pick up and is slowly creeping back up to pre-1997 levels. The recent increases resulted mainly from share sales in telecoms, power, and banking in countries such as China (additional share offering of China Telecom), the Czech Republic (partial sale of Transgas), Slovakia (partial sale of the electricity company), India (telecoms), Pakistan (United Bank), and Saudi Arabia (telecoms).
2.1.1. Sub-Saharan Africa
By 2003 Sub-Saharan Africa—with $11 billion or 3 percent of proceeds and some 960 transactions—had the third highest number of transactions (after Eastern Europe and Latin America), but 70 percent were mostly small, low-value firms in competitive sectors. While 37 countries were engaged in privatization, the bulk of regional revenues in the 1990s was accounted for by a few large transactions in Ghana (Ashanti Goldfields and Consolidated Diamond Mines), South Africa (telecoms, steel, petrochemicals), and Nigeria (selected oil fields). South Africa was by far the biggest contributor to regional proceeds starting in 2000, accounting for nearly half of all regional proceeds, mainly due to additional share sales in Telkom, the sale of South African Airways, and sales in the petrochemicals sector. Other recent large transactions in the region: the partial divestitures of Mauritius Telecom (for $261 million) and the Cotton Company of Zimbabwe ($93 million).
Figure 1: Regional Distribution of Privatization Proceeds: 1990-2003
SAS: South Asia
MENA: Middle East and North America
ECA: Eastern Europe and Central Asia
LAC: Latin America and the Caribbean
EAP: East Asia and Pacific
SSA: Sub-Saharan Africa
Source: World Bank
3. PUBLIC SECTOR AND STATE OWNED ENTERPRISES IN MALAWI
The government of Malawi, from the mid 1960’s to the early 1980s, followed a policy of seeking comprehensive ownership of the means of production and also centralized management of the economy. In a way, this aimed to give the economy a state driven boost that was anticipated to trickle down to the poor masses, hitherto marginalized during colonial rule. This section looks at reasons for public sector participation, nature and coverage, and then looks at some sectoral cases.
3.1. Reasons for Public Sector Participation
State participation in most African countries has been common especially in essential services like utilities, manufacturing, mining, distribution and trade. The reasons for such participation vary a lot depending on the history and development levels of the countries concerned. In some cases, essential services such as utilities required large capital investments which given small market sizes were unattractive to foreign investors. Most utilities were deemed to be “natural monopolies” because provision by more than one provider would be inefficient for the economy because of the duplication of infrastructures (Kaluwa, 1998). Furthermore, there was the problem the absence of an indigenous entrepreneurial base with requisite technical skills and capital in the context of underdeveloped finance markets.
Historically, we also note that most African States inherited poor infrastructure at the time of independence. Actually, in infrastructure development, Africa has lagged behind the western hemisphere for centuries, even trailing Latin America in recent decades (Torero and Showdhury, 2004). During the colonial era, little was done to improve Africa’s infrastructure. The little infrastructure built during the colonial era was just to connect natural/mineral resources to markets. In fact, two thirds of the African railways built during the colonial period connected mines to a coastal harbor (J-P Platteau, 1996). These handicaps made most African States perceive the need to undertake some of the economic activity themselves because few private sector companies would want to invest in places where infrastructure support is unavailable.
Malawi’s public sector participation in economic activity is attributed to high financial barriers that made it almost impossible for private companies to undertake huge investments. The sectors where the state was mainly involved were utilities, covering water boards, the Electricity Supply Commission and the Department of Posts and Telecommunications; manufacturing, real estate, tourism, trade and development. Three main firms: the Malawi Development Corporation, ADMARC and Press Holdings became the major players in the sectors outside the utilities. These were supposed to moderate foreign dominance in industrial and commercial sectors and offer some “degree of economic autonomy without cutting off the flow of foreign investment” (DEVPOL-1, 1971).
3.1.1. The Colonial Era
Apart from the above reasons, Malawi is one country that has not enjoyed the benefit of mineral resources. It is also a landlocked country. With these two factors, the country’s colonial era compounded further labour exploitation without any infrastructure support. When the colonialists came into the country 1897 and realized the little benefits of this country, they started pushing for the Confederation with Zambia and Zimbabwe who had good deposits of some minerals. This came in much later, in 1953, with the Central African Federation or the Federation of Rhodesia and Nyasaland. Rhodesia was divided into two parts: Northern Rhodesia (which is now Zambia) and Southern Rhodesia (the current Zimbabwe).
The federation, when it was approved brought considerable social rupture of Malawi through displacement/ migration of Malawians to the mines in Zambia and Zimbabwe. Malawi effectively became a labour reserve. No industries came to Malawi, and all the investments were transferred to Salisbury (now Harare), the capital of Southern Rhodesia, and which also became the main business hub for the federation. At independence, the State effectively saw that had no choice but to take on the responsibility of certain investments.
3.1.2. Political Dimension
Another aspect for state participation in economic activity is the political dimension. The postcolonial ‘state’ embraced ‘unity’ as the means to evade the previous colonial tactics of divide and rule or any other threat of postcolonial polarization. Therefore design of the ‘state’ tried to take into account national integration, given the potentially dangerous ethnic and social cleavages that pervaded the political and social landscapes in the three regions of the country.
At a political level, the ‘state’ advocated the single party designed to subdue and keep dynamics of a free society under surveillance and also force its various competitive tendencies to occur within a single defined political arena. At the administrative level, the ‘state’ also advocated superiority of bureaucracy as structured machinery for awarding approvals of private activity while the state exercises regulatory control of all activity through central government, regional/provincial and district/local government.
In economic terms, the government postured itself as a benevolent amalgamation of newfound political values and economic authority seeking to provide for the needs of ‘masses’ hitherto marginalized by colonial rule. This practically relegated private enterprise to peripheral significance while public sector was defined along the principles of Stalinist-Marxist philosophy that the state should determine, inter alia, allocation of resources, distribution of income and consumption, levels of saving and investment, and relative prices of goods and services[3].
In this context, private enterprise existed as the preserve of an elite utilising political power to accomplish objectives of political accumulation in a fashion that evoked the term ‘capitalism of the few’. Survival and success for private sector required co-operation with and co-option by the state.
3.2. Nature and Coverage
Comparing with some neighbouring countries, Malawi cannot be characterized as having one of the largest numbers of public enterprises. Tanzania and Mozambique featured higher in the privatisations of the early 1990s. For Tanzania, it is probably more a legacy of her socialist background. Table 3.1 below gives a good indicator of Malawi’s place among the Sub-Saharan countries.
Table 3.1. Comparative Analysis: Malawi and Sub-Saharan Africa, 1986-92
% of enterprises divested
Number of Enterprises before Divesture
0-50
51-100
101-200
>200
0-10
The Gambia
Mauritius
Rwanda
Sierra Leone
Zimbabwe
Burkina Faso
Congo
Uganda
Zambia
Cameroon
Cote d’Ivoire
Malawi
Kenya
Tanzania
11-25
Chad
Burundi
Central African Republic
Madagascar
Ghana
Mozambique
26-40
Niger
Guinea
Nigeria
41-60
Guinea-Bissau
Benin
Mali
Senegal
Togo
Divesture includes partial sales but not management contracts and leases. Malawi had 121 statutory bodies and 18 commercial parastatals. Source: World Bank (1994)
During the 1990s, the SOEs in Malawi accounted for 25% of GDP, 20% of gross fixed capital formation and 8% of total formal sector employment (Economic Report, 1990). The main players, as already stated, were ADMARC, MDC and Press Holdings. This state domination started much earlier than the 1990s. In fact, before the start of the general economic reforms in the 1980s the government directly owned 24 of the 77 commercial statutory and non-statutory SOEs, the rest being either majority owned or minority owned through ADMARC and MDC (Kaluwa, 2000).
In order for one to understand specifically the set up of SOEs and the operations, I have briefly outlined below the three important players, ADMARC and MDC and PCL.
ADMARC: Structure and Purpose
ADMARC, a Malawian parastatal organization was created in 1971 with the mandate to market agricultural produce and inputs, and to assist the development of the smallholder agricultural sector through marketing activities and investments in agro-industry enterprises. In addition, ADMARC was mandated with a food security role in maize markets by acting as a buyer and seller in remote areas, providing grain storage across seasons and supporting a large marketing structure with distribution or market centers located throughout urban and rural areas. This function was especially critical at times of maize scarcity.
The social role was reflected in the pan-territorial and pan-seasonal pricing system for smallholder farmers, particularly maize, and the establishment of markets in non-profitable areas. Until 1987, ADMARC enjoyed a monopoly in buying, importing, marketing and storage of grain.
To fulfil its mandates, ADMARC operated a maize price band that remained in effect until the mid-1990s. Further, it rapidly developed an extensive network and infrastructure of markets across the country comprising of regional offices, divisional offices, area offices, storage depots, parent markets, unit markets and seasonal markets[4]. These markets were used to conduct sales of inputs, purchase commodities from smallholders, and sell food crops to net consumers.
Apart from agricultural marketing activities, ADMARC also invested heavily in equities and loans in various enterprises and is directly involved in estate agriculture. In fact, by the mid-1980s, ADMARC had equity investments in 34 commercial enterprises and owned numerous estates. Until 2002 ADMARC also used to run various subsidiaries (e.g. a cotton ginning company, a bus company, cold storage), many of which were loss making. In 2002, the Ministry of Finance assumed control over its four largest loss-making subsidiaries, in preparation for public sale, and three of the companies have since been privatized. ADMARC also runs many support departments, including printing services, building services, carpentry services, tailoring services, hospital, football clubs, rice mill, groundnut grading factory, guest houses and cottages, and urban housing.
Malawi Development Corporation
The government’s created the Malawi Development Corporation as a publicly funded development bank specialized in establishment of new industries. MDC was mandated to provide long-term financing for investment in projects undertaken through acquisition of shares from foreign enterprises or completely new investments in industry. The rationale for the MDC was defined along the needs for robust financial and project development effort at the country’s early stages of development.
Hence, MDC’s key investments included the labour intensive Portland Cement Company of Malawi, which supplied cement to the local building and construction industry; Packaging Industries, catering largely for cement and industrial carton box packaging as well as investment in Commercial Bank of Malawi, one of the country’s only two banks after independence.
MDC also owned Cold Storage Company, the only approved abattoir and front for development of beef farming in the country; Agrimal, a company involved in production of hoes and farm equipment and Plastic products Ltd, also involved in industrial packaging.
Press Corporation Limited (PCL)
Press Corporation was owned by Dr Kamuzu Banda, then the Life President of Malawi and undertook a number of acquisitions in the strategic areas of the economy. Press Corporation joined ADMARC as co-investor in National Bank of Malawi also raising the stake from the state sector. Press Corporation also joined MDC as investors in National Insurance Company similarly raising the shareholding of the State. Press also undertook joint investments with Carlsberg Denmark in Carlsberg Malawi, ensuring that it maintained a majority stake in the joint venture (Southern Bottlers).
The state’s presence in the agricultural sector was also manifested through Press Corporation Ltd, which owned a large number of tobacco estates under Press Agriculture Limited, andGeneral Farming Co Limited. This was in addition to Khasu, Mudi, Kasonjola and other private estates owned personally by Dr Banda.
PCL, though a personal company, played a huge role in the economy and state domination. For example, in the 1970’s, Life President Banda issued a directive removing all Asian traders from the rural areas to urban and peri-urban centers. This paved the way for expansion of Peoples’ Trading Centre retail shops owned by none other than PCL (Kalonga Stambuli, 2002). In 1984, the Malawi government specifically issued bonds purely for debt recovery replaced bad debts of Press Corporation to Commercial Bank of Malawi amounting to $39 million. Apart from enhancing state domination, the ownership structures reflected strong infusions of politically appointed management.
4. PRIVATIZATION PROCESS IN MALAWI
Government of Malawi finally accepted to undertake privatization in 1987 under the Industrial Trade Policy Adjustment Credit (ITPAC). By this time the government had already undertaken some structural adjustment loans, and there existed no practical economic alternative when this facility came in. The main obstruction to privatization was now political due to the fact that this would deprive government of the means of economic control. Very few studies gave a detailed analysis of any future effects of this program. Nevertheless, things moved slowly, and it was only post 1994, after the change of government, which brought fresh impetus to the public sector reform program. This section looks at privatization process from earlier experiences up to the current situation.
4.1. Earlier Experiences
Privatization process in Malawi started around 1984, though it was a decade later that the Privatization Commission came into existence. During this time the government implemented privatization programs within the framework of expenditure-switching and expenditure-reducing structural adjustment programs of the World Bank and IMF following the poor performance of state enterprises in the early 1980s (Adam et al., 1992; Adam, 1994). The restructuring process of the SOE sector in Malawi began with the parastatal reform programme which was initiated in 1981 and mainly targeted directly owned state enterprises. The establishment of the Department of Statutory Bodies, responsible for monitoring and improving control and resource management in state-owned enterprises marked the first step in enhancing the operational efficiency of SOEs.
The government reform strategies included review of corporate objectives, introduction of performance related incentives, increasing the autonomy of management in recruitment and firing of employees (Malawi Government, 1987). All these strategies were in line with the overall policy objective of improving the efficiency and effectiveness of parastatal institutions including public departments responsible for reviewing, monitoring and regulating the parastatal sector.
Thus, within the framework of restructuring process, privatisation has been implemented in two main phases.
Phase 1
The first phase, which is also in two parts, began in 1984. This overall phase of privatization was supported under the first six structural adjustment loans that the World Bank provided to Malawi. The initial part comprised a “no cash, in-house” asset swap worth MK14 million involving the troika to align their portfolios with their core areas of interest. Alongside the asset swaps between 1984 and 1989, ADMARC and MDC also intensified divesture activity in the form of minority equity sales in associate companies or the sales of minor interests such as farms and other enterprises.
The second part, which went on to 1992, was dominated by heavy financial losses and heavy borrowing from the government and the banking system by the two most problematic parastatals, ADMARC and Malawi Railways, suggesting a need for significant restructuring. There was weak medium- to long-term financial and investment planning which required a stronger input by the Department of Statutory Bodies through its broader responsibilities. Both ADMARC and Malawi Railways underwent restructuring with ADMARC divesting its investment portfolio further although there has been considerable resistance and delays in redefining its function and roles. Nevertheless, several estates, thirteen non-manufacturing enterprises and eleven manufacturing enterprises held by ADMARC and MDC were privatized by the end of 1992 (Chirwa, 2000). The eleven privatized manufacturing enterprises were among the fifty-two state-owned enterprises in the manufacturing sector.
In assessing the initial part of phase 1, one can say that the asset swap benefited PCL (controlled by Dr. Banda) more than it did ADMARC which received PCL’s unprofitable subsidiaries and left ADMARC financially exposed (Harrigan, 1991). Secondly, the divesture programme did not amount to privatization since as development finance institutions, divesture would typically be normal activity especially for farms; ADMARC itself financed the purchases by Malawians through soft loans.
Overall assessment of the early privatization episodes can be summarized as follows:
- privatization in the strict sense was a minor component of the parastatal restructuring programme
- both the privatization and restructuring hardly addressed the main issues usually considered, such as widespread poverty, concentrated ownership, uncompetitive markets (for both productive inputs and outputs) and the demands of globalised markets and accountability dispensation.
- ADMARC and Press still held a dominant position in the banking system and the economy as a whole
- Although the financial performance of the parastatal sector did show some improvement, this was still fragile and mainly attributable to interest-cost reduction.
- Much of the impact of this phase was more notable for the experience it generated than anything else (Adam et al, 1992).
Phase 2
The second phase, which will be covered at length in this part of the paper, began in 1996 under the seventh structural adjustment loan, the Fiscal Restructuring and Deregulation Programme. The scope of privatization in the second phase is much broader and the government identified more than one hundred and fifty state enterprises to be privatised. To have a complete understanding on the background of this phase, we can start by looking at the privatisation policy which laid foundation for the overall program.
4.2. Privatisation Policy
The Privatisation Act and Privatisation Policy[5] came into being in 1996, and paved the way for the establishment of the Privatisation Commission. This second phase of the restructuring program had the major objective of increasing the size and diversity of the private sector while reducing public budgetary and administrative burden. According to the privatisation policy document, the major objectives of the Malawi privatization program are stipulated as:
· to foster increased efficiency in the economy;
· to increase competition and reduce monopoly;
· to promote participation by the Malawi public in enterprises; and
· to raise revenue for the government.
Accordingly, by realizing these objectives, the Government is expected to create an economic environment conducive to private sector development and also free public resources for investment in infrastructure and social programmes.
The first three objectives, it can be noted, have direct welfare implications for the society, in terms of availability of goods and services and their quality, their competitive pricing, and equity in the distribution of income generating assets. The last objective probably not only covers the proceeds of privatization but also expenditure savings from reduced subventions as well as revenue generated from profitable and tax paying enterprises. There are other potential positive aspects effects apart from those that were specifically identified, like the impact on the development of a finance capital market and the upgrading of Malawian participation in the economic activity from predominantly petty service-oriented enterprises to more substantial ones including manufacturing (Kaluwa, 2000).
The institutional arrangement places The Privatisation Commission (PC) with the sole authority in Malawi to implement the privatization of the direct or indirect government ownership of any public enterprise. Its functions include, but are not limited to, the planning, management implementation, and control of the privatization of public enterprises in Malawi. It is also the duty of the Commission to report to the Cabinet the details of the sale of each public enterprise.
Membership of the Commission includes ex-officio representatives of Government, representatives nominated by each political party represented in the National Assembly, a representative nominated by the Malawi Congress of Trade Unions, and members representing professional and commercial business interests.
A Secretariat of The Privatization Commission was established comprising an Executive Director and subordinate employees. The Executive Director of the Privatization Commission is responsible for the effective administration and implementation of the provisions of the privatisation programme.
4.3. Why Privatization
The reason for Malawi to go into privatization at that time was more to do with the performance of the economy during the 1970s and 1980s. After some good performance for almost two decades after independence, Malawi started experiencing significant economic problems. When the Bretton Woods institutions came in to help around 1981, Malawi slowly drifted into “conditionality trap”. It was therefore easy for the international financial institutions to impose privatization as conditionality, just when the privatization fever was spreading globally. This part takes us through the post independence eras and how the country got herself involved deeper and deeper with IFIs and the conditionalities that came forth.
1965-1984 Era
The period soon after independence (1964) to 1979 is one of the best that Malawi experienced economically. The per capita GDP grew fairly rapidly from $158 in 1965 up to $225 in l979, after which there were two years of negative growth rates before a recovery began in 1982. The year 1979 can be treated as a major turning point in the post-Independence economy. Table 4.1 summarizes the trend during this period.
Table 4.1, Growth rates for selected national income aggregates: In real terms (annual growth rates)
1965-84 1965-79 1979-84
Aggregate
1. Real GDP 4.7% 5.5% 2.6%
2. Real GDP per capita 1.9% 2.6% 0.1%
1965-83 1965-79 1979-83
3. Real Total Consumption 0.2% 0.8% -1.5%
per capita,
of which:
(i) Private Sector consumption
per capita 0.2% 0.2% 0.9%
(ii) Public Sector Consumption
per capita 0.4% 4.2% -11.8%
4. Real total investment
per capita,
of which:
(i) Private Sector consumption
per capita 5.6% 12.9% -16.6%
(ii) Public Sector Consumption
per capita 3.2% 4.2% 0.0%
Source: Government data, (Kydd and Hewitt, 1986)
At independence the economy was overwhelmingly agrarian, agriculture accounting for 55% of GDP. By 1984, the share of agriculture in GDP had declined to 37%, while the share of manufacturing had risen moderately to 12%. However, perhaps the most crucial change between l964 and l984 had been within the agricultural sector, in which the estimated share of agricultural production (monetary and non-monetary) of peasant producers (farmers in customary land areas) had declined from 92 to 77% in 1983, recovering slightly to 79% in 1984.” This reflects the fact that the share of estate (i.e. large-scale) agriculture in GDP had risen nearly eightfold over the 20 years from l964. Thus a striking feature of Malawi’s post-Independence economic development has been the rapid development of estate agriculture.
4.4. Policy Environment
Terms of Trade
The terms of trade held up reasonably well through the 1970s but declined sharply in 1979 and 1980. Although the terms of trade recovered somewhat in 1981, both series shown in Figure 4.1 agree that they declined subsequently, but differ on the extent of this decline. The terms of trade estimates permit the conclusions that, up to 1979, the trading environment facing Malawi was supportive of the rapid growth which occurred and also that, from 1979, the sharp deterioration in the trading environment was a major cause both of the decline in per capita GDP in 1980 and 1981 and of the sharp recovery in GDP in 1984. There is, nevertheless, a possibility that other factors could have contributed to these changes.
Responses to the balance-of-payments, 1975-83: Structural Adjustment Loan 1
The current account balance has been negative in every year since Independence. Up to the mid-1970s this negative balance was adequately offset by long-term capital inflows. However, balance-of-payments difficulties began to emerge in 1975, when there was a large deficit on the overall balance, but did not become a critical constraint on growth until 1979. Over 1975 to 1979 the deficit was mainly financed by a reduction of reserves, taking up quotas with the IMF, drawing on the Compensatory Financing Facility and borrowing in the Eurocurrency market, but these methods of financing had been exhausted by the time of the sharp deterioration in the terms of trade in 1980.
From 1980 several instruments were used to deal with the situation. There were some facilities that were available from IMF, and there was also the rescheduling of official and commercial debt. The third and the most important one that helped finance the payment deficits were the World Bank structural Adjustment Loans (SALs). The government requested a SAL in 1980 and, in June 1981, a loan of US $4.5 million at standard IBRD terms was approved, to be disbursed over two years. This “first SAL” was fully disbursed by mid-1982 and was followed by a “second SAL” approved in November 1983, to be disbursed in two tranches, one in 1983 and one in 1984. The second SAL was US $52 million, and was on the much more concessional terms of an IDA credit.
The justification for SALs arose from the need felt within the World Bank for a financing instrument which would be “entirely policy focused” and would not only demonstrate but put into effect the Bank’s “single-minded concern for policy reform.” The main objective implied by the documents was to ensure that the Bank’s mix of projects was relevant to the needs of the country as they evolved. Most of the recommendations made to the government in these documents were project related, but also a few more general recommendations were made (for example on agricultural pricing and general advice against public subsidies). However in the pre-SAL period, these recommendations never became more than that; for example, the government was able to effectively ignore the Bank’s recommendations (and agreements with the Bank) on agricultural prices from 1973 to 1982, without experiencing any interruption in the Bank’s disbursements for projects.
When the preliminary work for the first SAL began in late 1980, the nature of the Bank’s involvement in Malawi changed. Priority was now given to devising a set of policies which would bring about the necessary adjustments to allow the economy to resume growth with a viable balance of payments. What had previously been the Bank’s central concern, questions about projects, were now clearly subsidiary to a search across the whole economy for measures which would assist in adjustment and bring about increased efficiency. Thus the reorientation in the Bank’s work not only drew it into areas of the Malawi economy in which its existing experience was relatively shallow but also required that an agenda of possible policy changes had to be drawn up rather rapidly (Kydd and Hewitt, 1986).
The report for the first SAL argued that, while the primary cause of the crisis was deterioration in the terms of trade, nevertheless this had revealed underlying structural weaknesses. Six areas of weakness were identified. First was the slow growth of peasant produced exports. An issue with which the Bank was very familiar as, since l967, it had been the leading donor to Malawi’s rural development program, the main objective of which had been to increase peasant crop production. Second was what was described as the narrowness of the export base: this was a response to the growing importance over the 1970s of tobacco in Malawi’s earnings and the experience, in 1980, of a sharp fall in export prices for what was then the major estate grown variety, Flue-cured. Third was a concern about energy resources, in particular the country’s overwhelming dependence on dwindling stock of fuelwood supplemented by imported oil products. Fourth was the deterioration which had occurred in the finances of parastatal enterprises. Fifth was increasing budget deficits at the end of the 1970s, caused by expenditure growing much faster than tax revenues. Finally, there was the rigidity and unpredictability caused by the system of administered prices and wages.
Structural Adjustment Loan 2
The second SAL, approved in November 1983, stands in marked contrast to its predecessor. First of all, the economic background was different, because over the two years of the first SAL the problem in the balance of payments and in public finance had become more acute, and it was evident that tougher corrective measures would be necessary. Second, the Bank now had the experience of two years’ engagement with the general problems of the Malawi economy and most of the studies commissioned in conjunction with the first SAL had been completed. Thus the Bank felt that, in dealing with the Malawi economy, it had moved a good way down the learning curve. It now had an agenda of policy changes and institutional reforms which it was prepared to press hard in negotiations with the government.
The financial performance and efficiency of the parastatals and of the Press Group was now a major issue in the dialogue between the Bank and the government. In the case of the parastatals, the main thrust of the Bank’s advice was that tariffs should be raised to a level which eliminated the need for subsidies and/or borrowing to cover operating deficits plus debt repayment.
In reviewing the two SALs to Malawi, there are a number of features that can be noted. The first SAL was characterized by mild conditionality and recognition that structural problems can best be tackled in a medium-term perspective. The Bank did not believe that it knew all the answers, and much of the work of the first SAL was directed towards identifying issues and studying them. The resources provided by the SALs were of a sufficient scale to avert a drastic curtailment of the government’s development program and its recurrent spending. Over the period of the SALs it has been possible to continue to expand the government’s main “poverty focused” program, rural development projects in peasant farming areas. At the same time, the Bank has been discussing with the government measures to improve primary health care and primary education, although significant World Bank investment in these areas has yet to occur, and in some of the proposals the poverty focus is markedly less keen.
The background of the two SALs created a niche for liberalization, and parallel studies, mostly commissioned by the international financial institutions supporting privatization. The World Bank (1989) study on Malawi manufacturing provided the first evidence available to the effect that foreign owned firms were found to be more efficient than locally owned ones and that private firms were more efficient than publicly owned ones. The study was undertaken during a period before trade liberalization reforms and when the economy was characterized by acute foreign exchange rationing.
4.5. Consultations
Prior to 1996, a number of workshops and meetings took place on privatization. The institutions involved were mostly The World Bank and the donor community, Malawi Government and parastatals that were directly related to private sector development. Civil society was hardly involved. Such workshops, seminars and meetings were mostly supported by the World Bank. As sponsoring organization, the Bank used the platform to convince the government on privatization. For example, during one of the workshops (MIPA, 1994), the Deputy Resident Representative of the World Bank Malawi Mission gave a long lecture on the positive aspects of privatization. He emphasized on the development of private sector as paramount importance to the country, as well as a clear hint of more money coming in if the government were to go into such a program. Among other issues he said:
“Properly planned and executed, privatization has the potential to achieve the following:
- Broaden Malawi’s ownership base. In the past, entrepreneurial initiative was dampened by policies that favored, explicitly and implicitly, some businesses and firms over others. The result is a high level of concentration in the economy which has crowded out additional private investment and initiative and has been detrimental to consumer welfare
- Help reduce budgetary burden for the government. In the 1960s and 70s, government budget was able to support infrastructural developments and subvention to the public enterprises. Today, Malawi’s government budget can no longer provide everything it once did. Building and operating of its infrastructure must be privatized to make space for increased social spending with the aim of alleviating poverty. Clearly, the private sector has to and seems to be willing to take up part of the traditional functions that are currently carried out by the public sector
- Increase economic efficiency and thus free resources for growth and development. The 1989 World Bank Industrial Sector Memorandum noted that in terms of resource costs, private sector firms were nearly twice as efficient as parastatals.
- Free-up valuable managerial capacity of Government. Malawi, as we all know, has a large unfulfilled agenda in respect to poverty alleviation, such as schools, medical facilities, etc. Government’s human resource capacity is too limited to implement a broad based poverty alleviation package without compromising in other areas of public of the public sector. Privatisation of selected public enterprises will free up the delay needed resources that are needed in hanging social sector and poverty related issues.
- Lastly, as studies have shown – for Africa as well as for other LDCs – an important benefit of privatization is the inflow of direct investment. Malawi needs to attract such investments and in doing so it is in sharp competition with its neighboring countries. Therefore it is even more important that the country sends the right signals to potential investors and private entrepreneurs about conduciveness of its business environment.”
The most revealing part of his presentation was on World Bank assistance.
“with the limited resource base, Malawi will continue to require substantial amounts of external financing. On its part, the World Bank will continue to support the central areas in Malawi’s development agenda, namely: (a) poverty reduction; (b) liberalization of the environment for private sector investments; (c) enhanced productivity of smallholder farmers; (d) natural resource conservation; and (d) macroeconomic stability.
“The reforms supported by early World Bank-financed structural adjustment operations encompassed public enterprise reform, agricultural pricing and marketing, and fiscal and external policies to support restoration of macroeconomic stability. More recent reforms have focused on underlying issues critical for generating broad-based and equitable participation in the economy, giving smallholders access to key high-value cash crops, and removing policy obstacles to entrepreneurship that continue to constrain physical capital investment and limit access to financial and human capital. The next set of structural issues to be addressed will concern trade and distribution, and aim at reducing obstacles posed by market concentration and promoting ease of entry.”
4.6. Malawi's Privatisation Programme (PP)
With all the push from World Bank, the second government that came in in 1994 made parastatal sector reform a priority. The reasons and arguments for this reform aligned to what the Bank had said during the SALs and in several fora: that the government was spending a lot of money subventing unprofitable SOEs, there was need to increase efficiency in private sector, need to do away with monopolies and increase competition. Department of Statutory Bodies was created and a privatization policy drafted which was passed into law in 1996.
The Act set out four very clearly stated objectives of the programme. The Privatisation Commission (PC) was established to begin the process of privatising SOEs.
The government, not the Commission, devised a Divestiture Sequence Plan. This was essentially a list of 100 SOEs earmarked for privatization. “The government determines who; the Commission only determines when and how”.
Of those original 100 SOEs in the DSP, by 2002 about 50 had been privatized. This started with the small ones and intended to that the "biggies" in the utilities sector - MTL and ESCOM, would come in at a later stage. Most of the utilities are still undertaking preparatory work for the privatisation process, though MTL has recently completed its privatisation (Dec 2005). The actual sequence chosen by the PC has been influenced by many factors, including how much time might be required to find a buyer or to restructure the SOE to make it saleable, and how the sale might affect the Malawian consumer.
There are several methods of privatization: the government can sell all or some of the shares in the entity (as was done with NICO); they can sell the assets as bits and pieces (for example, Malawi Book Service), they can sell it as a going concern (Portland Cement), or they can offer it as a concession (Malawi Railways).
When the government wholly owns (either directly or through Admarc Investment Holdings, or MDC, or MPICO or another holding company) an enterprise, it may first be necessary to change the legal status of the entity to meet the requirements of the Companies Act. This is what happened with MPTC - the telephone side was restructured as a private company, Malawi Telecoms Ltd, while the post office side, which is not being privatized at this time, remains a parastatal.
Many of the enterprises on the DSP list were operating as private sector companies with government ownership. This includes Packaging Industries (government shareholding sold), Encor (management buyout) Chillington Agrimal (sold to Malawi-based investor), Bata Shoe, and Leopard Match. In these cases, there are often pre-emption agreements - if a shareholder wants to sell its shares, they must first be offered to the other shareholders. In some cases the other shareholders ended up as majority or sole shareholders. Nampak, the South African technical partner with PIM, bought a majority shareholding. Chillington of Chillington Agrimal on the other hand, chose to sell its own shares instead of buying government's. Bata and Leopard Match have not yet been privatised although discussions are underway.
Table 4.2 gives a complete list of Divesture Sequence Plan (DSP) as at the end of 2002. This DSP is a list, as approved by Cabinet, of public enterprises categorized according to the sequence in which the whole or part of Government's shares will be disposed of. Cabinet last approved the DSP in 1997.
Table 4.2 Divesture Sequence Plan
COMPLETED TRANSACTIONS
PUBLIC ENTERPRISE
NO. OF UNITS
TRANSACTION CLASSIFICATION
1
Auction Holdings Ltd
1
Local and Private Placement
2
Bain Hogg Insurance Brokers
1
Sale to Shareholders
3
Blantyre Dairy
1
Competitive Sale
4
Blantyre Lodge (formerly Blantyre Rest House)
1
Competitive sale
5
Brick and Tile Company
1
Transfer of shares
6
Capital Hill Dairy Farm
1
Competitive sale
7
Central Tobacco Properties Ltd.
1
Reorganisation
8
Chemicals and Marketing Ltd
1
MBO
9
Chillington Agrimal Ltd
1
Concession
10
Chiphazi Farm
1
Competitive sale
11
Chitipa Inn
1
Competitive sale
12
Chintheche Inn
1
Concession
13
Choma Ranch
1
Concession/ Competitive sale
14
Commercial Bank of Malawi Ltd.
1
Public offer / share sale / MBO
15
Dwangwa Sugar Corporation (DSC)
1
Dept-equity/ sale to shareholders
16
Dzalanyama Ranch
1
17
Encor Products Ltd.
1
Dept-equity/sale to shareholders
18
Finance Corporation Ltd.
1
Competitive sale
19
Forestry Rest Houses
1
Concession
20
Government Hostel
1
Concession
21
I&E
1
Dept-equity/sale to shareholders/comp
22
Kaombe Farm
1
Completed-competitive sale
23
Kasikidzi Farm
1
Distributed to the people
24
Kasungu Inn
2
Concession and purchase
25
Katete Farm
1
Competitive sale
26
Kuti Ranch
2
Competitive sale
27
Likhubula Lodge
1
Concession
28
Luwawa Lodge
1
sale to shareholders
29
Chigumukire Ltd
1
30
Mchenga Coal Mine
1
Competitive sale
31
National Bank of Malawi
2
Public offer/stock exchange transaction
32
National Insurance Co. Ltd.
2
Public offer & MBO
33
New Building Society
1
sale to shareholders
34
VIPCOR
1
liquidation
35
VIPLY Ltd
1
sale to shareholders
36
Zomba Trout Farm
1
Concession
37
Smallholder Coffee Authority
1
Commercialisation
38
Smallholder Sugar Authority
1
Commercialisation
39
Ngabu Inn
1
Concession
40
Optichem (Malawi) Ltd.
1
sale to shareholders
41
Packaging Industries (MW) Ltd.
4
sale to shareholders/IPO/private sale
42
Premier Mining Ltd
1
Sale to shareholders
43
SUCOMA
4
Sale & Public offer
44
Malawi Lake Services Ltd.
1
Concession
45
Malawi Railways (1994) Ltd.
1
Concession
46
Mpwepwe Boatyard Company Limited
1
MBO
47
Mangochi Lodge
1
Concession
48
Mining & Investment Development Corporation
1
liquidation
49
Limbe Rest House
1
Competitive sale
50
Malawi Book Service
1
liquidation
51
Kachere lodge
1
Concession
52
Dzalanyama Lodge
1
Concession
53
Ntchisi Lodge
1
Concession
CURRENT TRANSACTIONS
1
ADMARC
GOVERNMENT
2
Air Cargo
GOVERNMENT
3
Air Malawi Ltd
GOVERNMENT
4
Alexander Forbes (formerly MIBRO)
5
Blantyre Milling Company Limited
Sold competitively
6
Blantyre Water Board
GOVERNMENT
7
Bwemba Dairy Farm
GOVERNMENT
8
Chileka International Airport
9
Cold Storage Co Ltd
ADMARC
10
David Whitehead and Sons (Malawi) Limited
ADMARC
11
ESCOM Limited
GOVERNMENT
12
Grain & Milling Ltd
ADMARC Sold competitively
13
Kasungu Flue Cured Authority
GOVERNMENT
14
Leopard Match Co. Ltd
MDC
15
Lifidzi Farm
16
Lilongwe Water Board
GOVERNMENT
17
Malawi Catering Services
GOVERNMENT
18
Malawi Dairy Industries
19
Malawi Finance Co. Ltd
GOVERNMENT
20
Malawi Rural Finance Company
GOVERNMENT
21
Malawi Tea Factory Co. Ltd
ADMARC
22
Malawi Telecommunications Limited
GOVERNMENT
23
Mchenga Coal Mine
24
Meru Ranch
GOVERNMENT
25
MPICO Ltd
GOVERNMENT
26
National Investment Trust Limited
27
Plastic Products Ltd.
MDC
28
Portland Cement Co. (1974) Ltd
MDC
29
Smallholder Tea Authority
GOVERNMENT
FUTURE TRANSACTIONS
1
ADMARC Investment Holdings Ltd
ADMARC
2
Bata Shoe Co. (Malawi) Ltd
MDC
3
Borehole Construction Fund
GOVERNMENT
4
Capital City Development Fund
GOVERNMENT
5
Government Press
GOVERNMENT
6
Malawi Housing Corporation
GOVERNMENT
7
Shire Buslines Ltd
ADMARC
8
Lilongwe International Airport
GOVERNMENT
9
Malawi Development Corporation (MDC)
ADMARC
10
Stockbrokers Malawi Limited
ADMARC
11
TDIC / Sunbird Tourism
MDC
12
Central Government Stores
GOVERNMENT
13
Central Medical Stores
GOVERNMENT
14
District Rest House Chain
ADMARC
15
Indefund
MDC
16
Indebank
ADMARC
17
Lilongwe Smallholder Poultry Project
GOVERNMENT
18
Manica Freight Services
GOVERNMENT
19
Mzuzu Smallholder Poultry Project
GOVERNMENT
20
National Seed Company
ADMARC
21
UNDP Housing Fund
ADMARC
Source: PC Annual Report
5. CHALLENGES OF PRIVATISATION
Very few studies have attempted the task of undertaking a complete analysis of privatisation in Malawi. Assessing performance of such a complicated venture would not give a good picture if done over a short period. A clearer impression will probably start showing some years (maybe 5-10) after the complete privatisation process. This does not mean that the immediate effects are not important. The controversial water privatisations proposals in Ghana and Tanzania in the past three years show how bitter the issues can become (see Box 5.1 below).
Box 5.1 Tanzania and Ghana Water Experiences
TANZANIA [DAWASA Water Privatisation]
(40-50% of the population have no access to clean water)
[2002]
The International Monetary Fund (IMF) and World Bank in Tanzania included conditions within their aid programs related to the divestiture of Dar es-Salaam Urban Water and sewerage Authority (DAWASA), the semi-autonomous government body previously responsible for running water supply system. This was part of the conditions for having Tanzania on debt relief under HIPC program. But then there was a lack of investor interest. The first bidding process was stopped after two French companies; Saur International and Vivendi were rejected. Donors agreed to waive the privatisation only to push it again through giving a loan (of $145m) which was meant to improve the water system.
GHANA
Current official statistics state that 62-70% of the urban population has access to treated water and 35-40% of the rural population. However, these figures mask the fact that far less has piped water. In urban areas, only 40% of the population (and 25% of the urban poor) have access to running water in their homes.
In July 2001, the World Bank approved a new $110 million structural adjustment loan for Ghana. Before disbursing the loan, however, the Bank forced the government of Ghana to implement seven “prior actions,” including a requirement to “increase electricity and water tariffs by 96 percent and 95 percent, respectively, to cover operating costs.”
(By 2002) A bucket of clean water in Ghana became more expensive than in the UK. This meant that a family making minimum wage had to spend almost half of its daily income for just three buckets of water. As a result, many families could not afford clean drinking water, and women and children bore the burden of collecting water, often from polluted streams and rivers.
The effort to attain “full cost recovery” is a prerequisite to privatization. Private companies want to operate systems where consumers meet the expenses of running the systems and pay enough for company profits, too, so that they earn a return on their investment.
Pressured by the World Bank, the government of Ghana plans to lease the Ghana Water Company to two as yet undetermined multinational water companies to provide urban water service. The World Bank included water privatization as one of many conditions that determined the extent of Ghana’s access to the portfolio of loans in the World Bank’s Country Assistance Strategy (CAS).
5.1. Privatization and Technical Efficiency
A study evaluating the impact of privatization on the technical efficiency of about 15 companies in the manufacturing sector was undertaken around the year 2000 (Chirwa, 2000). This was a very technical evaluation. Enterprise level data was used in the manufacturing sector spanning the period 1970 to 1997, by selecting industries in which privatization took place during the 1984-91 period in Malawi, in which privatized enterprises had been under private ownership for at least five years. The study, therefore, contributed to the limited empirical evidence on the privatization-efficiency hypotheses, particularly in developing countries by taking into account oligopolistic interdependence and the impact of other liberalization measures.
The sample for this paper was drawn from eight privatization activities (excluding asset swaps). Each of the five privatized enterprises was grouped into three-digit industry classification level. Data was obtained for private enterprises and other state-owned enterprises competing in the same industry. The privatized manufacturing industries were three-digit industries in which privatization occurred between 1984 and 1991. The three privatized manufacturing industries were food processing, manufacture of other chemical products and manufacture of transport equipment, and the sample included six privatized state-owned enterprises (PSOEs), three state-owned enterprises (SOEs) which had never been privatized and six private enterprises (PVTs) which had never been under state enterprise during the period of analysis.
After computing technical efficiency scores for firms using Data Envelopment Analysis (DEA) based on industry specific inter-temporal frontiers at three-digit industry level, the statistical results, overall, show that technical efficiency improved among privatized state enterprises, state-owned enterprises and private enterprises. However, there was significant evidence that changes in technical efficiency were higher in privatized enterprises, and that the proportion of the variance in technical efficiency attributed to privatization was also higher among privatized enterprises compared with that among state-owned enterprises and private enterprises.
The approach in this paper had been to study all firms competing in the same industry to discern the industry effects and to control for the many other sources of technical efficiency. The results from the econometric analysis, which accounts for other sources of technical efficiency showed that improvements in technical efficiency could not be attributed to privatization alone. The empirical results, particularly among privatized enterprises, showed that after controlling for the many other sources of technical efficiency, privatization improved technical efficiency and efficiency scores were at least 25 percent points higher in the period after privatization. The positive impact of privatization was also supported by the significant negative relationship between technical efficiency and state ownership in the industry effects model. These findings implied that the technical inefficiency associated with state ownership could be reduced by transferring their ownership to the private sector and partial privatization may not maximize efficiency. Furthermore, technical efficiency is higher in competitive industries, among firms with high capital intensity and among subsidiaries of multinational corporations. The latter implied that foreign participation in the privatization process in Malawi had positive implication on efficient domestic production. Structural adjustment programs by removing market rigidities enhanced the role of the market mechanism and provided further incentives for input allocation to maximize output.
Overall, from a policy point of view, the findings showed that the objective of promoting efficiency materialized in the first phase of privatization in Malawi even when other factors that influence technical efficiency are taken into account. Nonetheless, the competitive environment which was partly reinforced by the sequential implementation of structural adjustment policies played a critical role in facilitating the positive impact of privatization.
5.2. Impact of the Privatization Program
A comprehensive performance evaluation was done in 1998 covering three main indicators, a) the macro-level indicators which measure impact on economy-level variables, b) the meso-level indicators, which deal with the impact on markets, and c) micro-level indicators, which measure results at the enterprise level (Kaluwa, 2000). Often, one may add political level indicators, which might deal with issues like when to privatize, what enterprises, mode of privatization, immediate beneficiaries, reserve price of offer, use of proceeds etc.
5.2.1. Treasury Effects
According to the World Bank, by 1997 there had been 44 privatization transactions including those outside the Privatization Program with total sales of US$56m. By July 1999, the Privatization Programme itself raised around MK850m, which translates to 1% of GDP. These are one-off and short-term treasury effects. However, one may also wish to look at the long term effects like tax revenue and savings on subsidies to formerly government supplied inputs in sectors such as forestry and veterinary services. Table 5.1 summarises available information that facilitates an impressionistic view of treasury effects associated with current financial flows.
Table 5.1: Treasury Effects: Total Flows of Funds, Tax revenue and Net Flow of Funds
Year
Total Flow(1)
Tax: SC (2)
Tax: Major “Divested” Companies
SUCOMA
CBM
NICO
PIM
Total Tax
Net Flows (3)
1993
126.92
0.70
0.02
6.54
2.96
3.57
13.79
112.43
1994
187.85
0.90
0.02
30.80
6.09
1.38
39.19
147.76
1995
593.35
54.87
38.42
79.67
6.49
4.69
184.14
354.34
1996
37.96
2.01
68.42
67.58
12.39
4.03
154.43
-118.48
1997
701.38
29.71
65.20
70.89
10.95
9.60
186.35
485.32
1998
572.84
7.80
26.19
110.22
10.58
25.03
179.82
385.22
Notes:
(1) To Statutory Corporations, (2) Commercial Statutory Corporations, (3) +net of all taxes
Source: B. Kaluwa (1998), Economic Reports, various company Annual Reports
Total financial flows from central government to statutory corporations include “grants and transfers” on the recurrent budget as a large item (representing 99.9% of the total in 1998), and net long term lending on the development budget as a minor item. Return flows to central government include consolidated tax payments from commercial statutory corporations plus tax payments by large corporations “divested’ by central government and its agencies, which have since been listed on the Malawi Stock Exchange.
Although the picture presented in Table 5.1 incorporates trends which are not due to the Privatisation Programme it still allows a number of observations:
- The largest of divested companies (SUCOMA and CBM) have individually been associated with larger tax payments on a consistent year to year basis and cumulatively higher than all the commercial statutory corporations from 1996 although for CBM this trend pre-dates the Privatisation Programme.
- The trend of tax revenues from SCs has been erratic compared to those of the four listed companies and a major culprit is likely to be capital investment costs/revenue structures for the larger infrastructure SOEs such as ESCOM and the Water Boards
- The trend in the total net flows dominated by flows to statutory corporations which still represent large outflows towards that sector despite the large gains made from divested companies implying a persistent fiscal drag from subsidized SOEs.
From the table and accompanying statistics, the average share of flows to SOEs in total government expenditure has gone down since 1996 to 3.02% from 5.26% between 1987 and 1995 and implies a lowered burden on the government. Nevertheless there appear to have been some compensation effect since their share in total domestic credit has gone up from an average of 2.39% in the earlier period to 6.71% after 1996. This represents some sort of switching effect from dependence on government to market dependence which itself may be a sign of inadequate internal revenue generation coupled with heavy investment requirements.
5.2.2. Use of Privatization Proceeds
According to statutory provisions, the proceeds of privatization are held in the Privatisation Revenue Account for use in “funding the direct costs of the Commission and the Privatisation Programme, funding the restructuring public enterprises to be privatized including payment of retrenchment benefits, …” Among the uses of potentially contentious issue has been the pre-empted in the sense that residual revenues from this one-off exercise, after privatization related expenditures, could also be used in one-off development projects, rather than government recurrent expenditures (B Kaluwa, 2000).
5.2.3. Malawian participation and Ownership De-concentration
The overall assessment of the privatization programme shows that there has indeed been a commitment to relinquish government control. According to figures presented by World bank (World bank Reports, 1998/99), by 1997, 86% of privatization transactions involved transfers of the majority ownership to the private sector, 64% of the transaction involved shares while much of the rest involved asset sales.
Malawian participation too has been fulfilled. When we look at statistics of the first 38 transactions, about 50% involved Malawians as new owners, concession holders, or shareholders while 13% involved a mixture of Malawians and foreigners and 37% involved only foreigners.
Politically conscious decisions have been made to affect share-ownership, sales and asset transfers to special interest groups namely: tobacco growers and employees in the case of Auction Holdings Ltd; growers in the case of the former Kasinthula Rice Scheme and the Smallholder Coffee Authority; management buy-outs in cases of Mpwepwe Boatyard and New Capital Dairy (B Kaluwa, 2000). The major problem has been that Malawian participation could not be guaranteed in all cases of privatization despite stated preferences and softer loans. Part of the reason could be thin domestic financial capital base and management capacity, which have in a number cases contributed slow uptake by successful Malawian bidders. These problems have influenced the role of foreign ownership which has been beneficial in terms of providing foreign linkages for investment capital, technology, management and marketing in different available sectors.
5.2.4. Impact of Listed Companies on Capital Market Development
Privatisation has been a big boost to the development of capital markets in Malawi. Malawi has been a capital scarce economy and an obvious outcome of privatization has been a good base for stock exchange activity. This can be a catalyst for foreign investment inflows although so far these have not been large due to small capitalization and an inflationary environment. Privatisation boasts of about MK10 billion of its capitalization in the Malawi Stock Exchange. As can be seen from Table 5.2 below, by 1998, barely three years after the commission was put in place, the firms divested under privatization accounted for 73% of the stocks listed on the Malawi Stock Exchange.
Table 5.2: The Impact of the Privatisation Program (PP) on MSE Capitalisation
Company
Capitalization (MK)
Privatisation Program Companies
Commercial Bank of Malawi
1130.00
NICO
170.00
PIM
174.85
SUCOMA
4054.51
Total PP
5529.36
Other
BL
143.91
PCL
1981.91
OML
378.91
Grand Total
8034.09
PP/Grand Total (%)
73.54
Source: MSE
5.2.5. Employment
Looking at 20 mixed firms that had privatized (and were able to supply the information) by 1998, there was an 11% decline in employment for manufacturing firms (B Kaluwa, 2000). This is however tricky because most proponents of privatization look at this as temporal. It should be noted that post-privatisation employment changes reflect empowerment of management to effect changes that reflect commercial discretion so that from the enterprises perspective cutbacks can be in their best interest. Overall for the 20 firms, there was 55% rationalization of employment.
****
There are several factors this report could go into where privatization has been assessed and impact quantified. These include Import Substitution and Exports, Number of Products / Services changed, Debt/Equity Performance, New Investment and Technology, Staff performance and Staff benefits, Profitability and Efficiency Performance. However all these look at company level performance. The studies that link these micro performances to national socio-economic factors which the World Bank was trying to address when they came up with the initiative are hardly available. The next section attempts to look at these national areas that have been affected by privatization, through a discussion.
5.3. Discussion – has privatisation achieved its objectives?
Did privatization achieve its objective? At firm level there appears to be some indication of an improvement in performance. However, when one looks at national level with the fact that The World Bank’s core mandate is to eradicate poverty, there is some doubt that privatization achieved its goal. Privatisation, a central World Bank policy, should be able to contribute to this goal. Malawi’s indicators have gotten worse since liberalization and privatization came in, though these are not the only factors that impact on poverty indicators. The per capita income has gone down from $210 in the early 1980s to $170 in the late 1990s/early 2000. Obviously, the World Bank’s analytical framework is inconsistent, and damaging outcomes on privatization are still emerging.
ADMARC and Agricultural Sector
Let’s take for example, one of the sensitive areas which have received a lot of criticism from the civil society, that is, the proposed privatization of ADMARC, an agricultural marketing board. The World Bank has been demanding the commercialisation of the Malawian agricultural marketing board as a condition of its latest structural adjustment loan. Actually, the privatization of the state marketing board in Malawi (ADMARC) has been an objective of the World Bank for 10 years. It represents a central element in an approach to agriculture that holds that full liberalization of the sector will be best for poor women and men. This approach has been increasingly questioned in Malawi and other countries in the region, particularly in the context of the recurrent food crises. Many commentators believe the full liberalization of other elements of the agriculture sector under the Bank greatly contributed to the cause of the food crisis and the subsequent deaths in 2002.
Malawi’s economy relies on agriculture. State intervention in the agricultural sector in Malawi dates back to as early as 1926 when the colonial government established the Native Tobacco Board. Two more boards were later established in 1949: the Cotton and Maize Control Boards. In 1956, the three boards were merged to form the Agricultural Production and Marketing Board, which was renamed Farmers Marketing Board in 1962. In 1971, the Agricultural Development and Marketing Corporation (ADMARC) was established to replace the Farmers Marketing Board. Its main mandate was to market agricultural inputs and outputs, but was also allowed to make investments in anything that would contribute to the development of the economy.
Until the late 1970s and early 1980s, ADMARC performed reasonably well (Scarborough 1990) in terms of coverage. In particular, it was able to provide assured and reliable markets for smallholder produce in most remote areas. Further, it paid farmers cash on delivery, subsidized the cost of inputs, and subsidized the consumption of maize and rice. Between 1971 and 1979, ADMARC made about MK181.9 million from its marketing activities in the small-holder sector (Kydd and Christianssen 1982). This money was used to cross-subsidize the cost of inputs to small-holder farmers, consumption of maize and rice by food-deficit and urban households, and making investments in other sectors of the economy.
Towards the late 1970s, ADMARC started facing financial difficulties. The literature identifies a number of factors, both internal as well as external, that were responsible for ADMARC’s problems. Internal factors have included poor management of the corporation, mainly due to its large size and poor investment policies. On the other hand, external factors have included bad weather, poor pricing policies by the government, and increased transportation costs due to civil war in Mozambique that led to the closure of Malawi’s traditional route to the sea. Increased political interference played its part.
As ADMARC was going through financial problems, the economy of Malawi as a whole also found itself in a crisis. When the SALs came in, not surprisingly, ADMARC was one of the targets of reforms. Indeed, since then, the corporation has undergone various changes. These have among other changes, included market liberalization, a phased removal of input subsidies, and rationalization. ADMARC is on the list of current privatisations.
After all the reforms, including partial commercializing ADMARC and closing some of its outlets, several problems have occurred. Oxfam Study (2002) identified some of these as:
(a) Although private traders were allowed to complement the marketing activities of ADMARC, a problem still exists in the sense that these private traders find it difficult to go to some remote areas due to poor roads. Thus, some farmers in areas where ADMARC withdrew have found it difficult to sell their produce and to buy food and inputs. This poses a problem to the government since it has a duty to ensure that these areas have access to markets for produce, food, and inputs. Consequently, ADMARC has found itself being called upon to service such areas. But since government has to support ADMARC's commercialization programme for the benefit of World Bank, one reality it has had to face is that if ADMARC were to make a commercial decision when operating in these areas, the poor would be adversely affected. For example, if ADMARC were to supply maize to food-deficit households in such areas, the commercially viable price would be beyond their reach. The government has therefore entered into memoranda of understanding with ADMARC to the effect that it will undertake to pay ADMARC for the costs it incurs while performing such social roles on its behalf. However, the problem that still remains is that in most cases, the government has not lived up to its obligations and separating the social role is not easy.
(b) Related to the problem discussed in (b) above, is the fact that a cost-effective mechanism is not yet in place for the supply of food to food-deficit areas. For example, sometimes ADMARC moves maize from one corner of the country to another during the buying season, only to be asked to transport it to another far corner of the country during lean months. But as already mentioned, the government usually does not fully reimburse the transport costs that ADMARC incurs in undertaking such operations.
(c) Certain areas of the country, such as Likoma Island, are perpetually food-deficit. But there is no long lasting solution to ensure that such areas have access to food at reasonable prices, but without jeopardising the financial position of ADMARC.
(d) The commercialisation programme that ADMARC is undertaking is in some cases being frustrated by political interference. For example, even when ADMARC feels that the closure of a certain non-viable market will not adversely affect the poor, politicians usually resist the move because they fear that it will be politically costly. A case in point is one where a suggestion by ADMARC to replace a permanent market with a mobile one is resisted simply because of the view that development is non-existent unless one can see a permanent physical structure.
This is one area that gives some true colours to privatization at grassroots levels. A number of factors are not taken into consideration as international institutions give their conditions. Mostly, these have to do with poor understanding of the local and remote situations, knowledge of the infrastructure available and real levels of poverty.
Privatization of Utilities (Water)
Privatization of utilities is another case in point where there have been a lot of blunders in a lot of African countries.
Every day 30,000 children in the Third World die of preventable causes. Many of them could be saved if they had access to safe water. The World Bank argues that governments in impoverished countries have to privatize their water supply and distribution systems if they are to get the efficient delivery of water that is needed.
On the face of it, the argument makes sense. The adequate supply of water and other public services is too often frustrated by inadequate funding, inefficient bureaucracy or lack of political will. Promoters of private ownership say it brings investment and cost-effective service.
Experience and common sense say otherwise. Private investors aren't attracted by poor and rural communities. Any improvements that might come with private ownership are in areas that generate profit. Private water, telecommunications and electricity companies tend to focus on efficiency in collecting tariffs, but not on improving service, though it can be argued otherwise. In most cases, these companies will ignore long term major investments, and any investment is transferred to the customers. Costs of services usually leap up quickly, annoying middle class and wealthy customers but potentially in most cases leaving the poor without service at all.
People in affected communities do not have a voice in how or if they want their services privatized. People in impoverished countries want efficient services, sometimes even if the cost is higher as lack of services can carry hidden costs (especially in utility services). In some, privatization may be the way to go. They need to be allowed to choose if it is appropriate for them.
Looking at number countries in Sub-Saharan Africa, high prices and disconnections must mean that the poorest segments of society are likely to be the main losers from the privatization process. However, the privatisation process can also be helpful if the SOEs are very inefficient and do not provide the services at all to the poor, who cannot afford any alternatives or backup. In certain key sectors, like water, if privatisation leads to increases use of unsafe water sources, the consequences will be disastrous for public health (Kate Bayliss, 2001).
5.4. Solutions / Alternatives
Liberalization era came with a lot of unrealistic proposals in Malawi. For example, in health, user fees were suggested putting the majority of the population in difficult situation because they could hardly afford the services. Deregulation of the health sector too has resulted in deteriorating public healthcare services.
Repercussions due to privatization of water have been obvious in a number of countries. Malawi’s population that has access to clean water is about 50%. The privatization process of water sector led into some problems as early as 2001. In May 2001, 350 water workers were sacked for strike action. Workers were protesting at poor wages (most earned about $50 a month) and working conditions, as the company started implementing “stringent measures” to be more effective. Some employees were subsequently rehired but to regain their jobs, the workers had to sign a letter agreeing not to strike again and accepting their previous pay and working conditions.
Other utilities like telecommunications and electricity equally threaten the countries development goals if they go in private hands. Over 60 percent who do not have access to electricity can forget it should the electricity company go into the wrong hands. Nevertheless, with the current standing, there is very little effort by the SOEs and the government in improving the status.
Indeed private sector has a role in the delivery of public services, in particular, where capacity was lacking for extension of services. However, long-term concessions and splitting up of agencies were not seen as part of the private sector’s role. The state should maintain overall control and ownership for provision of services. In terms of different alternatives, below are some suggestions for some of the important sectors.
Joining Campaigns
Opposition to water privatization has taken place across the globe. Table 5.3 below lists major cases where privatisation was opposed with some definite degree of success. A number of campaigns are continuing, with no final outcome yet visible. However the fact that the campaigns are still going demonstrates a degree of success – Brazil was close to privatising much of its major cities’ water in 1999, for example.
Table 5.3: International campaigns against water privatisation
Country
City
Year
Type
Poland
Lodz
1994
Privatisation prevented
Honduras
Honduras
1995
Privatisation prevented
Hungary
Debrecen
1995
Privatisation prevented
Sweden
Malmo
1995
Privatisation prevented
Argentina
Tucuman
1996
Termination and reversion to public
Germany
Munich
1998
Privatisation prevented
Brazil
Rio
1999
Privatisation prevented
Canada
Montreal
1999
Privatisation prevented
Panama
1999
Privatisation prevented
Trinidad
1999
Termination and reversion to public
Bolivia
Cochabamba
2000
Termination and reversion to public
Brazil
Limeira
2000
Incomplete termination
Germany
Potsdam
2000
Termination and reversion to public
Hungary
Szeged
2000
Incomplete termination
Mauritius
2000
Privatisation prevented
Thailand
2000
Termination and reversion to public
USA
Birmingham
2000
Termination and reversion to public
Argentina
BA Province
2001
Termination and reversion to public
France
Grenoble
2001
Termination and reversion to public
Brazil
current
Continuing campaign
Ghana
current
Continuing campaign
Indonesia
Jakarta
current
Continuing campaign
S Africa
current
Continuing campaign
Uruguay
current
Continuing campaign
Source: David Hall, 2001, South Africa Labour Bulletin
There have also been a number of effective campaigns against water privatisation in sub-Saharan Africa. Two good examples are South Africa and Ghana.
South Africa
Water privatisation has been strongly and effectively opposed in South Africa (see above). These protests had an impact beyond national borders, affecting the privatisation of water in Mozambique. When the water privatisation contract award was first announced in September 1999, it was reported that Mozambican Public Works and Housing Minster, Roberto White, promised that not a single one of the country's current 850 workers will be retrenched or otherwise dismissed. This was described as an attempt to ”head off looming labour union protests” following concerted union protests in South Africa that have held back commercialisation schemes.
Ghana
There has been well-organised and effective widespread protest against the planned privatisation of water in Ghana. This has been dominated by the Integrated Social Development Centre (ISODEC), a Ghanaian NGO. The campaign has been reinforced by research from Christian Aid and benefited from widespread international support from academics and NGOs. Many of these participants have not protested against other water privatisations so the level of support must be a testament to the success of ISODEC in bringing the issue to international attention.
6. CONCLUSION AND RECOMMENDATIONS
Privatization is now widespread in industrialized, developing and transitional economies. The World Bank has played a key role in the implementation of privatization in low-income countries, attaching privatization to aid disbursements and promoting a pro-privatization culture.
The World Bank’s core mandate is to eradicate poverty. Privatization, a central World Bank policy, should therefore contribute to this goal, and is expected to do so by reducing poverty through the development of the private sector. In Malawi, the benefits of privatization mostly exist at company levels. The linkages to the poor and marginalized are weak or absent in some cases. The poor, who are supposed to benefit are getting worst outcomes of privatization, consequently affecting overall development negatively. However, despite all this, privatization is still pushed at the policy level.
According to this paper, however, the status quo has also got several weaknesses. Most SOEs have been performing below standard, with inefficient use of the government subvention that would have benefited the poor. Political factors also come in, where disconnections do not take place when people connected to the government are involved. Furthermore, sometimes the SOEs have been used as channel to siphon funds for the ruling political party’s activities.
Overall, privatization, as currently conceived by policy makers, will not help and may be detrimental to development prospects. Privatization policy goals must be reassessed, based on a more realistic perspective, and in particular there must be examination of what privatization, as opposed to alternative measures for public sector reform, can provide. There is need for proper and detailed cost-benefit analysis to guide restructuring processes, and to determine the public interest. More importantly, this analysis provided the basis for engagement between government and labor. Unfortunately, such studies have not been comprehensive as countries sometimes go into hurried privatization.
Recommendations, therefore, include:
· The government of Malawi should revisit the contracts made with the Bank, and change conditions after proper consultations with different stakeholders including civil society. At the same time, the World Bank and IMF should stop requiring privatisation of public services and utilities as a condition of loans.
· Reform strategies should start with assessing the strengths and a weakness of an enterprise in the context of the specific national and regional circumstances - not with the premise that private is best.
· Governments and donors should look at examples of best practice in public as well as private provision. Advisers and consultants need to be selected from the best performing service providers – not from consultancies who depend on the World Bank for a large proportion of their fees.
· Reform options should always include a plan for restructuring within the public sector. This and other options then need to be evaluated in an open and transparent way, using a fair basis for comparison.
· Effective regulation of private companies requires, first, clear and quantifiable objectives (for example, technology transfer, management and financial systems development, construction etc); second, adequate resources for monitoring and enforcement. If the capacity for this is lacking, then privatisation will only create a new set of problems.
The civil society needs to continue fighting the rights of the consumers in either case: where the SOEs are still in control or privatisation has taken place. We can say no to privatisation, but this may not improve the services. There is need to keep up pressure for improved performance among the service providers.
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Appendix 1
PRIVATISATION POLICY
Introduction
In this policy document commercial public enterprises are defined as those entities owned directly or indirectly by Government which by the nature of their activity are commercially oriented and have or should have financial autonomy. These encompass statutory corporations, trusts, authorities, treasury funds and limited liability companies in which the Government directly or indirectly has a shareholding.
It is recognised that efforts to promote agricultural and industrial development and increase the standard of living of the indigenous population through market intervention and establishment of public enterprises have not met with expectations. The Government of Malawi, taking into account the legacy of past inefficient interventions, has adopted a policy of liberalization of the economy and move to market based incentives and allocation of resources. In accordance with this policy, the Government has decided to divest its interests in commercial public enterprises and encourage and promote the private sector. Ultimately, the Government will seek no role in the competitive market beyond that of neutral arbiter.
Objectives of Privatisation
The declared policy of the Government of Malawi is to diminish the size of the public enterprise sector through privatisation with a view to:
Foster increased efficiency in the economy;
Increase competition and reduce monopoly in the economy;
Promote participation by the Malawian public in enterprises; and
Raise revenue for the Government.
By realizing these objectives, the Government will create an economic environment conducive to private sector development and also free public resources for investment in infrastructure and social programmes.
Institutional Arrangements
A "Public Enterprises (Privatization) Act" was passed by Parliament in March 1996 and it was assented to by His Excellency the State President on 17th April 1996. The Act which sets out the objectives and guidelines for the privatization programme also establishes the institutional set-up for the execution of the privatization programme.
The Privatization Commission shall be the sole authority in Malawi to implement the privatization of the direct or indirect government ownership of any public enterprise. Its functions include, but are not limited to, the planning, management implementation, and control of the privatisation of public enterprises in Malawi. It will also be the duty of the Commission to report to the Cabinet the details of the sale of each public enterprise.
Membership of the Commission includes ex-officio representatives of Government, representatives nominated by each political party represented in the National Assembly, a representative nominated by the Malawi Congress of Trade Unions, and members representing professional and commercial business interests.
A Secretariat of The Privatization Commission has been established comprising an Executive Director and subordinate employees. The Executive Director of the privatisation Commission is responsible for the effective administration and implementation of the provisions of the privatization programme.
Scope of Privatisation
Approximately one hundred and forty public enterprises exist to which should be added some thirty other assets managed by various ministries such as ranches, farms, fish farms and rest-houses.
In excess of one hundred of these enterprises or assets have a commercial orientation and have or should have financial autonomy. These entities will all fall within the scope of the privatization programme, and be included in a divestiture sequence plan prepared by the Privatisation Commission and submitted to the Cabinet for their approval. Some of these entities will need to undergo a 'commercialization' process with a view to preparing them for privatisation and ensuring greater operating efficiency in the interim period leading up to their eventual privatization.
This will entail changing their status to that of limited liability companies and granting them greater autonomy in their day to day management.
Remaining public enterprises, which are not presently considered to have a commercial orientation, will revert to the control of the appropriate ministry. In those cases where there is no apparent need for financial autonomy the enterprise will be absorbed directly into the relevant line ministry. A number of entities which are dormant will be liquidated and any surplus assets sold to private buyers.
Principles of Privatization
The privatisation programme will be carried out in accordance with certain guiding principles. To the extent possible, subject only to limitations imposed by existing rights conferred by shareholders' agreement, for example, pre-emption rights, etc., the following fundamental principles will apply:
Each transaction will be fully transparent to the public at large. In this regard thePrivatisation Commission will publicise details of all completed activities of the privatisation programme.
All investors, irrespective of ethnic group or source of capital (foreign or local) are free to participate in the privatization programme. In order to achieve the objective of increased participation by the Malawian public at large, shares in or assets of certain enterprises may be made available at a discount to citizens of Malawi. Where discounts are available, this fact and the quantum of the discount will be publicized in the invitation for competitive bids and a precondition of the discount being granted is that the shares or assets are subsequently retained for a period of not less than two years.
The privatization process will be fair and efficient. An independent opinion of value will be obtained for each enterprise to be privatised. Full disclosure of the details of the enterprise will be available to the investing public and fair and equitable bidding procedures and criteria for ranking bids will be established and published.
Sales will be primarily on a cash basis. However, mechanisms will be developed to facilitate broader participation by Malawian citizens in the privatisation process.
It is the intention of Government to sell all of its interest in public enterprises and not to maintain a minority position or set any conditions concerning the future operations of a privatised enterprise. In certain exceptional circumstances, where the existing regulatory framework is considered inadequate, Government may with the agreement of parties to the sale of an enterprise, retain a shareholding conferring special rights to, in the national interest; intervene in the operations of the privatized enterprise.
To the greatest extent possible, privatization transactions will be designed to reduce concentration of ownership and avoid creation or maintenance of consumer market monopolies. To this end, Government will not divest unregulated monopolies or grant any privileges or guarantees to purchasers of privatised enterprises.
The Commission may elect to privatise public enterprises in various ways including, but not limited to, a public offering of shares, sales by competitive tender of the shares or assets and business of a public enterprise, management or employee buy-out or, where pre-emption rights exist, negotiated private sale of shares. The Commission may also create and offer for sale additional shares in a public enterprise in order to dilute Government's existing shareholding in that enterprise.
Retrenchment
One of the principles of the privatisation programme is that Government will not set any conditions regarding the future operations of a privatised enterprise including requirements as to number of employees. In privatised enterprises where the number of employees is high, some level of retrenchment may be a prerequisite to being able to operate efficiently in a competitive market.
Where employees are made redundant as the result of privatisation or commercialisation of a public enterprise, retrenchment benefit will be promptly paid to all retrenched employees in addition to any other entitlements (excluding redundancy pay entitlements) provided for in their conditions of service or the rules of the enterprise's staff pension or provident fund.
To protect employees who are retained in the employ of a privatised or commercialised enterprise and therefore not entitled to retrenchment benefit, the newly privatised or commercialized enterprise will be required to give a legally binding undertaking to incorporate in their conditions of service provisions to provide for retrenchment benefits at least equal to those of staff retrenched during privatisation.
Proceeds Of Privatisation
A fund entitled the Privatisation Revenue Account will be established and placed under the control of the Ministry of Finance. The proceeds of the sale of all direct Government interest in public enterprises will be paid into this fund.
In the case of indirect Government interests, a public enterprise selling its interest in another public enterprise may be permitted by the Minister, on the advice of the Commission, to retain all or part of the proceeds of sale with the balance being paid into the Privatisation Revenue Account.
The funds being held on the Privatisation Revenue Account may with the approval of the Minister of Finance, be used for a limited number of purposes, namely, funding the direct costs of the Commission and the privatisation programme, funding the restructuring of public enterprises to be privatised including payment of retrenchment benefits, the remainder of the fund will be applied to projects included within the Government development budget.
End:
For Comments and Questions, please contact:
Collins Magalasi
Mobiles Malawi: +265 888 826 092 / +265 992 655 467
Email: cmagalasi@gmail.com
[1] Bretton Woods is the term commonly used to mean the International Financial Institutions (IFI) formed at the Bretton Woods meeting after the Second World War. In this report this term is used interchangeably with IFI or IMF and World Bank.
[2] This is more applicable in developing economies and in infrastructure and network industries. See Sunita Kikeri and John Nellis, An Assessment of Privatisation, The World Bank Observer, Vol 19, No 1. 2004.
[3] See Kalonga Stambuli, State Hegemony, Macro Effects and Private Enterprise in Malawi, SIGERE Working Paper 2002/34/pub Econ. Surrey Institute of Global Economics Research. 2002
[4] Seasonal markets are satellite markets of unit markets. They are mobile selling points that can be opened on demand with a temporary sales force. They operate mainly in the harvesting seasons and are mainly used to purchase produce from farmers. Unit markets have permanent structures such as small storage facility and office, with staff. They generally operate throughout the year and buy produce, sell produce and inputs. Parent markets combine permanent storage facilities with an administrative office that oversees unit and seasonal markets.
[5] The full text of the Privatisation Policy is in Annex 1.
ON THE PUBLIC SECTOR AND THE ROLE OF THE STATE IN MALAWI
By
Collins Magalasi cmagalasi@gmail.com
December 2006
LIST OF ACRONYMS
1. INTRODUCTION. 4
1.1. Objectives of the Paper 5
1.2. Methodology. 5
1.3. Organisation of the Report 5
2. PRIVATISATION: THEORETICAL FRAMEWORK. 6
2.1. Privatization Trends in Developing Countries. 7
2.1.1. Sub-Saharan Africa. 7
3. PUBLIC SECTOR AND SOES IN MALAWI 9
3.1. Reasons for Public Sector Participation. 9
3.1.1. The Colonial Era. 9
3.1.2. Political Dimension. 10
3.2. Nature and Coverage. 10
4. PRIVATIZATION PROCESS IN MALAWI 14
4.1. Earlier Experiences. 14
4.2. Privatisation Policy. 15
4.3. Why Privatization. 16
4.4. Policy Environment 17
4.5. Consultations. 20
4.6. Malawi's Privatisation Programme (PP) 21
5. CHALLENGES OF PRIVATISATION. 25
5.1. Privatization and Technical Efficiency. 26
5.2. Impact of the Privatization Program.. 27
5.2.1. Treasury Effects. 27
5.2.2. Use of Privatization Proceeds. 28
5.2.3. Malawian participation and Ownership De-concentration. 28
5.2.4. Impact of Listed Companies on Capital Market Development 29
5.2.5. Employment 29
5.3. Discussion. 30
5.4. Solutions / Alternatives. 32
6. CONCLUSION AND RECOMMENDATIONS. 35
APPENDIX 1
LIST OF ACRONYMS
ADMARC Agricultural Development and Marketing Corporation
AIHL ADMARC Investment Holding Limited
CBM Commercial Bank of Malawi
DWASCO Dwangwa Sugar Corporation
DEA Data Envelopment Analysis
DEVPOL Development Policy Plan
DSP Divesture Sequence Plan
ESCOM Electricity Commission of Malawi
GDP Gross Domestic Product
IB Intermediate Buyer
IBRD International Bank for Reconstruction and Development
IDA International Development Aid
IFI International Financial Institutions
IMF International Monetary Fund
IPTAC Industrial Trade Policy Adjustment Credit
MDC Malawi Development Corporation
MIPA Malawi Investment Promotion Agency
MPTC Malawi Post and Tele-Communications Ltd
NICO national Insurance Company
OECD Organisation for Economic Cooperation and Development
PC Privatisation Programme
PCL Press Commission Limited
PIM Packaging Industries (MW) Limited
SAL Structural Adjustment Loan
SAPs Structural Adjustment Programmes
SC Statutory Corporation
SOE State Owned Enterprise
SUCOMA Sugar Corporation of Malawi
1. INTRODUCTION
Privatisation in its simplest sense is the transfer of public enterprise to private ownership. Beginning in the 1970s, there has been a global trend to move away from state ownership and control towards privatisation. State participation, which became common after the Second World War in developed countries and after independence in developing countries, slowly became less popular. Apart from the general fact that several of the State Owned Enterprises (SOEs) were inefficient and poorly managed, the period (1970-1990) was dominated by the growing dominance of neo-liberalism as a model for economic development (Jaunch, 2002). The neo-liberal ideology is driven by the belief in the "free market" as the best regulator and engine of economic growth while the state's developmental role in the economy is to be reduced.
The privatisation trend became common in African developing countries around 1980s to 1990s as part structural adjustment programs (SAPs). Introduced by international Financial Institutions (IFIs), the SAPs were meant to “assist” countries that were going through some economic hardship. The World Bank and International Monetary Fund (IMF) offered loans to these countries, and in return for these loans, African countries were forced to implement neo-liberal economic policies, which included privatization.
The trend of privatization in Africa and some developing countries did not miss Malawi whose [privatization] experience dates back to 1985. Malawi, a landlocked country in Southern Africa, is one of the poorest countries in the world. It is estimated that over 50% of Malawi’s 12million people live below poverty line, and the majority of Malawians derive their livelihood from agriculture sector. Despite all the reliance in agriculture, ironically, the first company to be subjected to privatisation was Agriculture Development Marketing Corporation (ADMARC), an institution that has been providing food support and back-up for rural Malawians, and whose full privatisation still remains a big contention by civil society up to now.
The imposition of privatisation by Bretton Woods[1] institutions, albeit its positive theoretical economic assessments, attracted a lot of critics who have expressed strong reservations about privatisation’s fairness and sometimes its efficiency and impact. Some of the specific arguments are, first, that privatisation causes social dislocation. Second, privatisation leads to layoffs and a worsening in labour conditions, in the short term in the divested firms and in the long run in the economy at large. Third, it has been argued that the bulk of the benefits accrue to a privileged few – shareholders, managers, foreign or domestic investors, those connected to the political elite – whereas the costs are borne by many, particularly tax payers, consumers, and workers, thereby reducing the overall welfare.
As expected, studies on the effects of privatisation show that there is a lot of variation on how privatisation has fared. In some countries, they provided a good solution to companies in infrastructure and network industries; privatisation transferred inefficient public monopolies to become efficient private monopolies; and significant gains have been achieved after privatisation. For example, in Brazil, during the 1981-94, before privatisation, the ratio of profits to net assets was negative, averaging -2.5 and falling to -5.4 percent towards the end; after privatisation most firms became profitable, and investment increased dramatically. Furthermore, higher profits brought more tax revenue to the government, and some companies began paying dividends to their investors (Kikeri and Nellis, 2003).
This paper is a result of quest to inform lobbyists and campaigners in Malawi and beyond on Privatisation and the Public Sector in Malawi. The paper is critical of the objectives and effects of privatisation on the public sector and the role of the state.
1.1. Objectives of the Paper
A number of reports show that privatisation has had considerable effects, both positive and negative. This paper covers a broader initiative to root an alternative development paradigm within the achievements and lessons from earlier experience of state led development. By looking at the nature and role of the “public sector” defined broadly, to cover democratic, accountable to the popular forces and which highlights popular participation, management and control, we try to focus on the appropriate role for the state in advancing development.
1.2. Methodology
The paper contextualises the process of privatisation within a review of the public sector in the period after independence capturing the key role of the state in developing the national resources and industries and advancing the rights and welfare of the people. Most of this is done through secondary data. Primary sources of information is used where there is little or no available documentation. The paper gets down to sectoral levels, where key strategic sectors are chosen to emphasise the above point. The sectors chosen are strategic from the point of view of their importance to the country’s economy and overall national development.
1.3. Organisation of the Paper
The paper is divided into four main parts. The first part is the privatisation theoretical framework which also covers the trends in developing countries. In the second part, the paper looks at the Public Sector and State Owned Enterprises in Malawi. Here the author will be looking at the Public Sector in Malawi and the reasons for going into production, infrastructures and services. The third part analyses the privatisation process in Malawi. The fourth section goes into the challenges of privatisation. And finally, before concluding, the paper looks at solutions and alternatives to privatisation, which could work in poor country like Malawi.
2. PRIVATISATION: THEORETICAL FRAMEWORK
In trying to answer the question of whether privatisation is necessary, most of the literature in the 1990s support privatisation. A good number of the supporters feel that privatisation is necessary, not simply to improve performance of public enterprises, it’s essential contributions are to ‘lock in the gains’ achieved earlier in reforming public ownership or in preparing a firm for sale, to distance the firm from political interference, and to inoculate it against the recurrence of the common and deadly ailment of public enterprises: interference by owners who have more than profit in their minds. (John Nellis, 1994).
The neoclassical reasoning is that there is there is little difference whether a firm is privately or publicly owned as long as it operates in a competitive market without barriers to entry or exit; or the owner instructs management to follow signals provided by the market and gives the autonomy to do so. The modern theory, however, changed this reasoning by attempting to establish a clearer relationship between ownership and efficiency. It is believed that private ownership will produce superior efficiency outcomes because of the following factors:
- establishment of a market for managers, leading to higher quality management
- capital markets subject privately owned firms to greater scrutiny and discipline than they do public enterprises
- private firms are subject to exit much more often than public enterprises
- politicians interfere less in the affairs of private than public firms
- private firms are supervised by self interested board members and shareholders, rather than by disinterested bureaucrats
This reasoning is supported by a trend where most state enterprises went through losses, became inefficient, produced low quality goods and services at high cost especially in developing countries. The general impression on state enterprises was that there were overstaffed, did not compete, and often resulted in bailouts, leading to national financial losses amounting in some cases as much as 5 to 6 percent of gross domestic product annually[2]. Bailouts for most of the state enterprises meant that the government had to finance larger fiscal deficits and increase tax revenues or reduce public spending in other areas, or both.
Privatization is also taken positively by public choice theorists, who look at the bureaucratic approach in which public enterprises are seen as an instrument of enhancing the utility functions of politicians such as maximization of votes and budgets (Niskanen, 1972; Buchanan, 1972; Blankart, 1983; Boycko et al., 1996). Proponents of the public choice theory hold that government departments pursue objectives that do not maximize profits and usually pursue goals such as maximizing budget, risk aversion, employment and investment. Boycko et al. (1996) propose a model of privatization within the framework of public choice theory. The model shows that privatization will lead to effective restructuring of state-owned enterprises that are currently producing at inefficiently high levels to maximize employment, only if both cash flow rights and control rights pass from the government into private hands (particularly managers’ hands). This will make it difficult for the government to bribe managers to produce at inefficient levels by offering them operating subsidies. Therefore, cutting the ‘soft budget constraint’ is vital to improving performance.
2.1. Privatization Trends in Developing Countries
By mid-1990s, privatisation in developing countries, which had started slowly in the 1980s, accelerated. Between 1990 and 1999 global proceeds totalled USD850 billion, growing from $30bn in 1990 to $145 in 1999. The Organisation for Economic Cooperation and Development (OECD) countries dominated throughout. In terms of numbers of countries and transactions developing countries dominated. Between 1990 and 2003, 120 developing countries carried out 7,860 transactions between 1990 and 2003, generating close to $410 billion in privatization proceeds, or 0.5 percent of total developing country GDP during that period.
The analysis of overall developing country trends shows that: (i) privatization activity dropped off after 1997 but picked up, albeit modestly, in recent years; (ii) the average size of a transaction increased over the years as countries moved towards privatizing larger firms; (iii) while a large number of countries are involved in privatisation processes, proceeds are highly concentrated in a handful of countries; and (iv) foreign investment accounted for half of privatization proceeds in the 1990s (Kikeri and Kolo, 2005).
In the early to mid-1990s, privatization proceeds in developing countries averaged between $20 to 30 billion on an annual basis. Proceeds peaked sharply in 1997 to almost $70 billion. The sudden and one-time jump resulted from increased activity in large infrastructure and energy (oil and gas) transactions across virtually all regions, with the largest share coming from three countries in Latin America (Argentina, Brazil, Mexico), Kazakhstan, Russia, and China. Revenues declined thereafter as Argentina’s stock of enterprises dwindled and as activity in Asia and Europe slowed down following the East Asian financial crisis of 1997 and the Russian debt crisis of 1998. By 2001 activity had reached the level of 1990, but starting in 2002 proceeds began a modest pick up and is slowly creeping back up to pre-1997 levels. The recent increases resulted mainly from share sales in telecoms, power, and banking in countries such as China (additional share offering of China Telecom), the Czech Republic (partial sale of Transgas), Slovakia (partial sale of the electricity company), India (telecoms), Pakistan (United Bank), and Saudi Arabia (telecoms).
2.1.1. Sub-Saharan Africa
By 2003 Sub-Saharan Africa—with $11 billion or 3 percent of proceeds and some 960 transactions—had the third highest number of transactions (after Eastern Europe and Latin America), but 70 percent were mostly small, low-value firms in competitive sectors. While 37 countries were engaged in privatization, the bulk of regional revenues in the 1990s was accounted for by a few large transactions in Ghana (Ashanti Goldfields and Consolidated Diamond Mines), South Africa (telecoms, steel, petrochemicals), and Nigeria (selected oil fields). South Africa was by far the biggest contributor to regional proceeds starting in 2000, accounting for nearly half of all regional proceeds, mainly due to additional share sales in Telkom, the sale of South African Airways, and sales in the petrochemicals sector. Other recent large transactions in the region: the partial divestitures of Mauritius Telecom (for $261 million) and the Cotton Company of Zimbabwe ($93 million).
Figure 1: Regional Distribution of Privatization Proceeds: 1990-2003
SAS: South Asia
MENA: Middle East and North America
ECA: Eastern Europe and Central Asia
LAC: Latin America and the Caribbean
EAP: East Asia and Pacific
SSA: Sub-Saharan Africa
Source: World Bank
3. PUBLIC SECTOR AND STATE OWNED ENTERPRISES IN MALAWI
The government of Malawi, from the mid 1960’s to the early 1980s, followed a policy of seeking comprehensive ownership of the means of production and also centralized management of the economy. In a way, this aimed to give the economy a state driven boost that was anticipated to trickle down to the poor masses, hitherto marginalized during colonial rule. This section looks at reasons for public sector participation, nature and coverage, and then looks at some sectoral cases.
3.1. Reasons for Public Sector Participation
State participation in most African countries has been common especially in essential services like utilities, manufacturing, mining, distribution and trade. The reasons for such participation vary a lot depending on the history and development levels of the countries concerned. In some cases, essential services such as utilities required large capital investments which given small market sizes were unattractive to foreign investors. Most utilities were deemed to be “natural monopolies” because provision by more than one provider would be inefficient for the economy because of the duplication of infrastructures (Kaluwa, 1998). Furthermore, there was the problem the absence of an indigenous entrepreneurial base with requisite technical skills and capital in the context of underdeveloped finance markets.
Historically, we also note that most African States inherited poor infrastructure at the time of independence. Actually, in infrastructure development, Africa has lagged behind the western hemisphere for centuries, even trailing Latin America in recent decades (Torero and Showdhury, 2004). During the colonial era, little was done to improve Africa’s infrastructure. The little infrastructure built during the colonial era was just to connect natural/mineral resources to markets. In fact, two thirds of the African railways built during the colonial period connected mines to a coastal harbor (J-P Platteau, 1996). These handicaps made most African States perceive the need to undertake some of the economic activity themselves because few private sector companies would want to invest in places where infrastructure support is unavailable.
Malawi’s public sector participation in economic activity is attributed to high financial barriers that made it almost impossible for private companies to undertake huge investments. The sectors where the state was mainly involved were utilities, covering water boards, the Electricity Supply Commission and the Department of Posts and Telecommunications; manufacturing, real estate, tourism, trade and development. Three main firms: the Malawi Development Corporation, ADMARC and Press Holdings became the major players in the sectors outside the utilities. These were supposed to moderate foreign dominance in industrial and commercial sectors and offer some “degree of economic autonomy without cutting off the flow of foreign investment” (DEVPOL-1, 1971).
3.1.1. The Colonial Era
Apart from the above reasons, Malawi is one country that has not enjoyed the benefit of mineral resources. It is also a landlocked country. With these two factors, the country’s colonial era compounded further labour exploitation without any infrastructure support. When the colonialists came into the country 1897 and realized the little benefits of this country, they started pushing for the Confederation with Zambia and Zimbabwe who had good deposits of some minerals. This came in much later, in 1953, with the Central African Federation or the Federation of Rhodesia and Nyasaland. Rhodesia was divided into two parts: Northern Rhodesia (which is now Zambia) and Southern Rhodesia (the current Zimbabwe).
The federation, when it was approved brought considerable social rupture of Malawi through displacement/ migration of Malawians to the mines in Zambia and Zimbabwe. Malawi effectively became a labour reserve. No industries came to Malawi, and all the investments were transferred to Salisbury (now Harare), the capital of Southern Rhodesia, and which also became the main business hub for the federation. At independence, the State effectively saw that had no choice but to take on the responsibility of certain investments.
3.1.2. Political Dimension
Another aspect for state participation in economic activity is the political dimension. The postcolonial ‘state’ embraced ‘unity’ as the means to evade the previous colonial tactics of divide and rule or any other threat of postcolonial polarization. Therefore design of the ‘state’ tried to take into account national integration, given the potentially dangerous ethnic and social cleavages that pervaded the political and social landscapes in the three regions of the country.
At a political level, the ‘state’ advocated the single party designed to subdue and keep dynamics of a free society under surveillance and also force its various competitive tendencies to occur within a single defined political arena. At the administrative level, the ‘state’ also advocated superiority of bureaucracy as structured machinery for awarding approvals of private activity while the state exercises regulatory control of all activity through central government, regional/provincial and district/local government.
In economic terms, the government postured itself as a benevolent amalgamation of newfound political values and economic authority seeking to provide for the needs of ‘masses’ hitherto marginalized by colonial rule. This practically relegated private enterprise to peripheral significance while public sector was defined along the principles of Stalinist-Marxist philosophy that the state should determine, inter alia, allocation of resources, distribution of income and consumption, levels of saving and investment, and relative prices of goods and services[3].
In this context, private enterprise existed as the preserve of an elite utilising political power to accomplish objectives of political accumulation in a fashion that evoked the term ‘capitalism of the few’. Survival and success for private sector required co-operation with and co-option by the state.
3.2. Nature and Coverage
Comparing with some neighbouring countries, Malawi cannot be characterized as having one of the largest numbers of public enterprises. Tanzania and Mozambique featured higher in the privatisations of the early 1990s. For Tanzania, it is probably more a legacy of her socialist background. Table 3.1 below gives a good indicator of Malawi’s place among the Sub-Saharan countries.
Table 3.1. Comparative Analysis: Malawi and Sub-Saharan Africa, 1986-92
% of enterprises divested
Number of Enterprises before Divesture
0-50
51-100
101-200
>200
0-10
The Gambia
Mauritius
Rwanda
Sierra Leone
Zimbabwe
Burkina Faso
Congo
Uganda
Zambia
Cameroon
Cote d’Ivoire
Malawi
Kenya
Tanzania
11-25
Chad
Burundi
Central African Republic
Madagascar
Ghana
Mozambique
26-40
Niger
Guinea
Nigeria
41-60
Guinea-Bissau
Benin
Mali
Senegal
Togo
Divesture includes partial sales but not management contracts and leases. Malawi had 121 statutory bodies and 18 commercial parastatals. Source: World Bank (1994)
During the 1990s, the SOEs in Malawi accounted for 25% of GDP, 20% of gross fixed capital formation and 8% of total formal sector employment (Economic Report, 1990). The main players, as already stated, were ADMARC, MDC and Press Holdings. This state domination started much earlier than the 1990s. In fact, before the start of the general economic reforms in the 1980s the government directly owned 24 of the 77 commercial statutory and non-statutory SOEs, the rest being either majority owned or minority owned through ADMARC and MDC (Kaluwa, 2000).
In order for one to understand specifically the set up of SOEs and the operations, I have briefly outlined below the three important players, ADMARC and MDC and PCL.
ADMARC: Structure and Purpose
ADMARC, a Malawian parastatal organization was created in 1971 with the mandate to market agricultural produce and inputs, and to assist the development of the smallholder agricultural sector through marketing activities and investments in agro-industry enterprises. In addition, ADMARC was mandated with a food security role in maize markets by acting as a buyer and seller in remote areas, providing grain storage across seasons and supporting a large marketing structure with distribution or market centers located throughout urban and rural areas. This function was especially critical at times of maize scarcity.
The social role was reflected in the pan-territorial and pan-seasonal pricing system for smallholder farmers, particularly maize, and the establishment of markets in non-profitable areas. Until 1987, ADMARC enjoyed a monopoly in buying, importing, marketing and storage of grain.
To fulfil its mandates, ADMARC operated a maize price band that remained in effect until the mid-1990s. Further, it rapidly developed an extensive network and infrastructure of markets across the country comprising of regional offices, divisional offices, area offices, storage depots, parent markets, unit markets and seasonal markets[4]. These markets were used to conduct sales of inputs, purchase commodities from smallholders, and sell food crops to net consumers.
Apart from agricultural marketing activities, ADMARC also invested heavily in equities and loans in various enterprises and is directly involved in estate agriculture. In fact, by the mid-1980s, ADMARC had equity investments in 34 commercial enterprises and owned numerous estates. Until 2002 ADMARC also used to run various subsidiaries (e.g. a cotton ginning company, a bus company, cold storage), many of which were loss making. In 2002, the Ministry of Finance assumed control over its four largest loss-making subsidiaries, in preparation for public sale, and three of the companies have since been privatized. ADMARC also runs many support departments, including printing services, building services, carpentry services, tailoring services, hospital, football clubs, rice mill, groundnut grading factory, guest houses and cottages, and urban housing.
Malawi Development Corporation
The government’s created the Malawi Development Corporation as a publicly funded development bank specialized in establishment of new industries. MDC was mandated to provide long-term financing for investment in projects undertaken through acquisition of shares from foreign enterprises or completely new investments in industry. The rationale for the MDC was defined along the needs for robust financial and project development effort at the country’s early stages of development.
Hence, MDC’s key investments included the labour intensive Portland Cement Company of Malawi, which supplied cement to the local building and construction industry; Packaging Industries, catering largely for cement and industrial carton box packaging as well as investment in Commercial Bank of Malawi, one of the country’s only two banks after independence.
MDC also owned Cold Storage Company, the only approved abattoir and front for development of beef farming in the country; Agrimal, a company involved in production of hoes and farm equipment and Plastic products Ltd, also involved in industrial packaging.
Press Corporation Limited (PCL)
Press Corporation was owned by Dr Kamuzu Banda, then the Life President of Malawi and undertook a number of acquisitions in the strategic areas of the economy. Press Corporation joined ADMARC as co-investor in National Bank of Malawi also raising the stake from the state sector. Press Corporation also joined MDC as investors in National Insurance Company similarly raising the shareholding of the State. Press also undertook joint investments with Carlsberg Denmark in Carlsberg Malawi, ensuring that it maintained a majority stake in the joint venture (Southern Bottlers).
The state’s presence in the agricultural sector was also manifested through Press Corporation Ltd, which owned a large number of tobacco estates under Press Agriculture Limited, andGeneral Farming Co Limited. This was in addition to Khasu, Mudi, Kasonjola and other private estates owned personally by Dr Banda.
PCL, though a personal company, played a huge role in the economy and state domination. For example, in the 1970’s, Life President Banda issued a directive removing all Asian traders from the rural areas to urban and peri-urban centers. This paved the way for expansion of Peoples’ Trading Centre retail shops owned by none other than PCL (Kalonga Stambuli, 2002). In 1984, the Malawi government specifically issued bonds purely for debt recovery replaced bad debts of Press Corporation to Commercial Bank of Malawi amounting to $39 million. Apart from enhancing state domination, the ownership structures reflected strong infusions of politically appointed management.
4. PRIVATIZATION PROCESS IN MALAWI
Government of Malawi finally accepted to undertake privatization in 1987 under the Industrial Trade Policy Adjustment Credit (ITPAC). By this time the government had already undertaken some structural adjustment loans, and there existed no practical economic alternative when this facility came in. The main obstruction to privatization was now political due to the fact that this would deprive government of the means of economic control. Very few studies gave a detailed analysis of any future effects of this program. Nevertheless, things moved slowly, and it was only post 1994, after the change of government, which brought fresh impetus to the public sector reform program. This section looks at privatization process from earlier experiences up to the current situation.
4.1. Earlier Experiences
Privatization process in Malawi started around 1984, though it was a decade later that the Privatization Commission came into existence. During this time the government implemented privatization programs within the framework of expenditure-switching and expenditure-reducing structural adjustment programs of the World Bank and IMF following the poor performance of state enterprises in the early 1980s (Adam et al., 1992; Adam, 1994). The restructuring process of the SOE sector in Malawi began with the parastatal reform programme which was initiated in 1981 and mainly targeted directly owned state enterprises. The establishment of the Department of Statutory Bodies, responsible for monitoring and improving control and resource management in state-owned enterprises marked the first step in enhancing the operational efficiency of SOEs.
The government reform strategies included review of corporate objectives, introduction of performance related incentives, increasing the autonomy of management in recruitment and firing of employees (Malawi Government, 1987). All these strategies were in line with the overall policy objective of improving the efficiency and effectiveness of parastatal institutions including public departments responsible for reviewing, monitoring and regulating the parastatal sector.
Thus, within the framework of restructuring process, privatisation has been implemented in two main phases.
Phase 1
The first phase, which is also in two parts, began in 1984. This overall phase of privatization was supported under the first six structural adjustment loans that the World Bank provided to Malawi. The initial part comprised a “no cash, in-house” asset swap worth MK14 million involving the troika to align their portfolios with their core areas of interest. Alongside the asset swaps between 1984 and 1989, ADMARC and MDC also intensified divesture activity in the form of minority equity sales in associate companies or the sales of minor interests such as farms and other enterprises.
The second part, which went on to 1992, was dominated by heavy financial losses and heavy borrowing from the government and the banking system by the two most problematic parastatals, ADMARC and Malawi Railways, suggesting a need for significant restructuring. There was weak medium- to long-term financial and investment planning which required a stronger input by the Department of Statutory Bodies through its broader responsibilities. Both ADMARC and Malawi Railways underwent restructuring with ADMARC divesting its investment portfolio further although there has been considerable resistance and delays in redefining its function and roles. Nevertheless, several estates, thirteen non-manufacturing enterprises and eleven manufacturing enterprises held by ADMARC and MDC were privatized by the end of 1992 (Chirwa, 2000). The eleven privatized manufacturing enterprises were among the fifty-two state-owned enterprises in the manufacturing sector.
In assessing the initial part of phase 1, one can say that the asset swap benefited PCL (controlled by Dr. Banda) more than it did ADMARC which received PCL’s unprofitable subsidiaries and left ADMARC financially exposed (Harrigan, 1991). Secondly, the divesture programme did not amount to privatization since as development finance institutions, divesture would typically be normal activity especially for farms; ADMARC itself financed the purchases by Malawians through soft loans.
Overall assessment of the early privatization episodes can be summarized as follows:
- privatization in the strict sense was a minor component of the parastatal restructuring programme
- both the privatization and restructuring hardly addressed the main issues usually considered, such as widespread poverty, concentrated ownership, uncompetitive markets (for both productive inputs and outputs) and the demands of globalised markets and accountability dispensation.
- ADMARC and Press still held a dominant position in the banking system and the economy as a whole
- Although the financial performance of the parastatal sector did show some improvement, this was still fragile and mainly attributable to interest-cost reduction.
- Much of the impact of this phase was more notable for the experience it generated than anything else (Adam et al, 1992).
Phase 2
The second phase, which will be covered at length in this part of the paper, began in 1996 under the seventh structural adjustment loan, the Fiscal Restructuring and Deregulation Programme. The scope of privatization in the second phase is much broader and the government identified more than one hundred and fifty state enterprises to be privatised. To have a complete understanding on the background of this phase, we can start by looking at the privatisation policy which laid foundation for the overall program.
4.2. Privatisation Policy
The Privatisation Act and Privatisation Policy[5] came into being in 1996, and paved the way for the establishment of the Privatisation Commission. This second phase of the restructuring program had the major objective of increasing the size and diversity of the private sector while reducing public budgetary and administrative burden. According to the privatisation policy document, the major objectives of the Malawi privatization program are stipulated as:
· to foster increased efficiency in the economy;
· to increase competition and reduce monopoly;
· to promote participation by the Malawi public in enterprises; and
· to raise revenue for the government.
Accordingly, by realizing these objectives, the Government is expected to create an economic environment conducive to private sector development and also free public resources for investment in infrastructure and social programmes.
The first three objectives, it can be noted, have direct welfare implications for the society, in terms of availability of goods and services and their quality, their competitive pricing, and equity in the distribution of income generating assets. The last objective probably not only covers the proceeds of privatization but also expenditure savings from reduced subventions as well as revenue generated from profitable and tax paying enterprises. There are other potential positive aspects effects apart from those that were specifically identified, like the impact on the development of a finance capital market and the upgrading of Malawian participation in the economic activity from predominantly petty service-oriented enterprises to more substantial ones including manufacturing (Kaluwa, 2000).
The institutional arrangement places The Privatisation Commission (PC) with the sole authority in Malawi to implement the privatization of the direct or indirect government ownership of any public enterprise. Its functions include, but are not limited to, the planning, management implementation, and control of the privatization of public enterprises in Malawi. It is also the duty of the Commission to report to the Cabinet the details of the sale of each public enterprise.
Membership of the Commission includes ex-officio representatives of Government, representatives nominated by each political party represented in the National Assembly, a representative nominated by the Malawi Congress of Trade Unions, and members representing professional and commercial business interests.
A Secretariat of The Privatization Commission was established comprising an Executive Director and subordinate employees. The Executive Director of the Privatization Commission is responsible for the effective administration and implementation of the provisions of the privatisation programme.
4.3. Why Privatization
The reason for Malawi to go into privatization at that time was more to do with the performance of the economy during the 1970s and 1980s. After some good performance for almost two decades after independence, Malawi started experiencing significant economic problems. When the Bretton Woods institutions came in to help around 1981, Malawi slowly drifted into “conditionality trap”. It was therefore easy for the international financial institutions to impose privatization as conditionality, just when the privatization fever was spreading globally. This part takes us through the post independence eras and how the country got herself involved deeper and deeper with IFIs and the conditionalities that came forth.
1965-1984 Era
The period soon after independence (1964) to 1979 is one of the best that Malawi experienced economically. The per capita GDP grew fairly rapidly from $158 in 1965 up to $225 in l979, after which there were two years of negative growth rates before a recovery began in 1982. The year 1979 can be treated as a major turning point in the post-Independence economy. Table 4.1 summarizes the trend during this period.
Table 4.1, Growth rates for selected national income aggregates: In real terms (annual growth rates)
1965-84 1965-79 1979-84
Aggregate
1. Real GDP 4.7% 5.5% 2.6%
2. Real GDP per capita 1.9% 2.6% 0.1%
1965-83 1965-79 1979-83
3. Real Total Consumption 0.2% 0.8% -1.5%
per capita,
of which:
(i) Private Sector consumption
per capita 0.2% 0.2% 0.9%
(ii) Public Sector Consumption
per capita 0.4% 4.2% -11.8%
4. Real total investment
per capita,
of which:
(i) Private Sector consumption
per capita 5.6% 12.9% -16.6%
(ii) Public Sector Consumption
per capita 3.2% 4.2% 0.0%
Source: Government data, (Kydd and Hewitt, 1986)
At independence the economy was overwhelmingly agrarian, agriculture accounting for 55% of GDP. By 1984, the share of agriculture in GDP had declined to 37%, while the share of manufacturing had risen moderately to 12%. However, perhaps the most crucial change between l964 and l984 had been within the agricultural sector, in which the estimated share of agricultural production (monetary and non-monetary) of peasant producers (farmers in customary land areas) had declined from 92 to 77% in 1983, recovering slightly to 79% in 1984.” This reflects the fact that the share of estate (i.e. large-scale) agriculture in GDP had risen nearly eightfold over the 20 years from l964. Thus a striking feature of Malawi’s post-Independence economic development has been the rapid development of estate agriculture.
4.4. Policy Environment
Terms of Trade
The terms of trade held up reasonably well through the 1970s but declined sharply in 1979 and 1980. Although the terms of trade recovered somewhat in 1981, both series shown in Figure 4.1 agree that they declined subsequently, but differ on the extent of this decline. The terms of trade estimates permit the conclusions that, up to 1979, the trading environment facing Malawi was supportive of the rapid growth which occurred and also that, from 1979, the sharp deterioration in the trading environment was a major cause both of the decline in per capita GDP in 1980 and 1981 and of the sharp recovery in GDP in 1984. There is, nevertheless, a possibility that other factors could have contributed to these changes.
Responses to the balance-of-payments, 1975-83: Structural Adjustment Loan 1
The current account balance has been negative in every year since Independence. Up to the mid-1970s this negative balance was adequately offset by long-term capital inflows. However, balance-of-payments difficulties began to emerge in 1975, when there was a large deficit on the overall balance, but did not become a critical constraint on growth until 1979. Over 1975 to 1979 the deficit was mainly financed by a reduction of reserves, taking up quotas with the IMF, drawing on the Compensatory Financing Facility and borrowing in the Eurocurrency market, but these methods of financing had been exhausted by the time of the sharp deterioration in the terms of trade in 1980.
From 1980 several instruments were used to deal with the situation. There were some facilities that were available from IMF, and there was also the rescheduling of official and commercial debt. The third and the most important one that helped finance the payment deficits were the World Bank structural Adjustment Loans (SALs). The government requested a SAL in 1980 and, in June 1981, a loan of US $4.5 million at standard IBRD terms was approved, to be disbursed over two years. This “first SAL” was fully disbursed by mid-1982 and was followed by a “second SAL” approved in November 1983, to be disbursed in two tranches, one in 1983 and one in 1984. The second SAL was US $52 million, and was on the much more concessional terms of an IDA credit.
The justification for SALs arose from the need felt within the World Bank for a financing instrument which would be “entirely policy focused” and would not only demonstrate but put into effect the Bank’s “single-minded concern for policy reform.” The main objective implied by the documents was to ensure that the Bank’s mix of projects was relevant to the needs of the country as they evolved. Most of the recommendations made to the government in these documents were project related, but also a few more general recommendations were made (for example on agricultural pricing and general advice against public subsidies). However in the pre-SAL period, these recommendations never became more than that; for example, the government was able to effectively ignore the Bank’s recommendations (and agreements with the Bank) on agricultural prices from 1973 to 1982, without experiencing any interruption in the Bank’s disbursements for projects.
When the preliminary work for the first SAL began in late 1980, the nature of the Bank’s involvement in Malawi changed. Priority was now given to devising a set of policies which would bring about the necessary adjustments to allow the economy to resume growth with a viable balance of payments. What had previously been the Bank’s central concern, questions about projects, were now clearly subsidiary to a search across the whole economy for measures which would assist in adjustment and bring about increased efficiency. Thus the reorientation in the Bank’s work not only drew it into areas of the Malawi economy in which its existing experience was relatively shallow but also required that an agenda of possible policy changes had to be drawn up rather rapidly (Kydd and Hewitt, 1986).
The report for the first SAL argued that, while the primary cause of the crisis was deterioration in the terms of trade, nevertheless this had revealed underlying structural weaknesses. Six areas of weakness were identified. First was the slow growth of peasant produced exports. An issue with which the Bank was very familiar as, since l967, it had been the leading donor to Malawi’s rural development program, the main objective of which had been to increase peasant crop production. Second was what was described as the narrowness of the export base: this was a response to the growing importance over the 1970s of tobacco in Malawi’s earnings and the experience, in 1980, of a sharp fall in export prices for what was then the major estate grown variety, Flue-cured. Third was a concern about energy resources, in particular the country’s overwhelming dependence on dwindling stock of fuelwood supplemented by imported oil products. Fourth was the deterioration which had occurred in the finances of parastatal enterprises. Fifth was increasing budget deficits at the end of the 1970s, caused by expenditure growing much faster than tax revenues. Finally, there was the rigidity and unpredictability caused by the system of administered prices and wages.
Structural Adjustment Loan 2
The second SAL, approved in November 1983, stands in marked contrast to its predecessor. First of all, the economic background was different, because over the two years of the first SAL the problem in the balance of payments and in public finance had become more acute, and it was evident that tougher corrective measures would be necessary. Second, the Bank now had the experience of two years’ engagement with the general problems of the Malawi economy and most of the studies commissioned in conjunction with the first SAL had been completed. Thus the Bank felt that, in dealing with the Malawi economy, it had moved a good way down the learning curve. It now had an agenda of policy changes and institutional reforms which it was prepared to press hard in negotiations with the government.
The financial performance and efficiency of the parastatals and of the Press Group was now a major issue in the dialogue between the Bank and the government. In the case of the parastatals, the main thrust of the Bank’s advice was that tariffs should be raised to a level which eliminated the need for subsidies and/or borrowing to cover operating deficits plus debt repayment.
In reviewing the two SALs to Malawi, there are a number of features that can be noted. The first SAL was characterized by mild conditionality and recognition that structural problems can best be tackled in a medium-term perspective. The Bank did not believe that it knew all the answers, and much of the work of the first SAL was directed towards identifying issues and studying them. The resources provided by the SALs were of a sufficient scale to avert a drastic curtailment of the government’s development program and its recurrent spending. Over the period of the SALs it has been possible to continue to expand the government’s main “poverty focused” program, rural development projects in peasant farming areas. At the same time, the Bank has been discussing with the government measures to improve primary health care and primary education, although significant World Bank investment in these areas has yet to occur, and in some of the proposals the poverty focus is markedly less keen.
The background of the two SALs created a niche for liberalization, and parallel studies, mostly commissioned by the international financial institutions supporting privatization. The World Bank (1989) study on Malawi manufacturing provided the first evidence available to the effect that foreign owned firms were found to be more efficient than locally owned ones and that private firms were more efficient than publicly owned ones. The study was undertaken during a period before trade liberalization reforms and when the economy was characterized by acute foreign exchange rationing.
4.5. Consultations
Prior to 1996, a number of workshops and meetings took place on privatization. The institutions involved were mostly The World Bank and the donor community, Malawi Government and parastatals that were directly related to private sector development. Civil society was hardly involved. Such workshops, seminars and meetings were mostly supported by the World Bank. As sponsoring organization, the Bank used the platform to convince the government on privatization. For example, during one of the workshops (MIPA, 1994), the Deputy Resident Representative of the World Bank Malawi Mission gave a long lecture on the positive aspects of privatization. He emphasized on the development of private sector as paramount importance to the country, as well as a clear hint of more money coming in if the government were to go into such a program. Among other issues he said:
“Properly planned and executed, privatization has the potential to achieve the following:
- Broaden Malawi’s ownership base. In the past, entrepreneurial initiative was dampened by policies that favored, explicitly and implicitly, some businesses and firms over others. The result is a high level of concentration in the economy which has crowded out additional private investment and initiative and has been detrimental to consumer welfare
- Help reduce budgetary burden for the government. In the 1960s and 70s, government budget was able to support infrastructural developments and subvention to the public enterprises. Today, Malawi’s government budget can no longer provide everything it once did. Building and operating of its infrastructure must be privatized to make space for increased social spending with the aim of alleviating poverty. Clearly, the private sector has to and seems to be willing to take up part of the traditional functions that are currently carried out by the public sector
- Increase economic efficiency and thus free resources for growth and development. The 1989 World Bank Industrial Sector Memorandum noted that in terms of resource costs, private sector firms were nearly twice as efficient as parastatals.
- Free-up valuable managerial capacity of Government. Malawi, as we all know, has a large unfulfilled agenda in respect to poverty alleviation, such as schools, medical facilities, etc. Government’s human resource capacity is too limited to implement a broad based poverty alleviation package without compromising in other areas of public of the public sector. Privatisation of selected public enterprises will free up the delay needed resources that are needed in hanging social sector and poverty related issues.
- Lastly, as studies have shown – for Africa as well as for other LDCs – an important benefit of privatization is the inflow of direct investment. Malawi needs to attract such investments and in doing so it is in sharp competition with its neighboring countries. Therefore it is even more important that the country sends the right signals to potential investors and private entrepreneurs about conduciveness of its business environment.”
The most revealing part of his presentation was on World Bank assistance.
“with the limited resource base, Malawi will continue to require substantial amounts of external financing. On its part, the World Bank will continue to support the central areas in Malawi’s development agenda, namely: (a) poverty reduction; (b) liberalization of the environment for private sector investments; (c) enhanced productivity of smallholder farmers; (d) natural resource conservation; and (d) macroeconomic stability.
“The reforms supported by early World Bank-financed structural adjustment operations encompassed public enterprise reform, agricultural pricing and marketing, and fiscal and external policies to support restoration of macroeconomic stability. More recent reforms have focused on underlying issues critical for generating broad-based and equitable participation in the economy, giving smallholders access to key high-value cash crops, and removing policy obstacles to entrepreneurship that continue to constrain physical capital investment and limit access to financial and human capital. The next set of structural issues to be addressed will concern trade and distribution, and aim at reducing obstacles posed by market concentration and promoting ease of entry.”
4.6. Malawi's Privatisation Programme (PP)
With all the push from World Bank, the second government that came in in 1994 made parastatal sector reform a priority. The reasons and arguments for this reform aligned to what the Bank had said during the SALs and in several fora: that the government was spending a lot of money subventing unprofitable SOEs, there was need to increase efficiency in private sector, need to do away with monopolies and increase competition. Department of Statutory Bodies was created and a privatization policy drafted which was passed into law in 1996.
The Act set out four very clearly stated objectives of the programme. The Privatisation Commission (PC) was established to begin the process of privatising SOEs.
The government, not the Commission, devised a Divestiture Sequence Plan. This was essentially a list of 100 SOEs earmarked for privatization. “The government determines who; the Commission only determines when and how”.
Of those original 100 SOEs in the DSP, by 2002 about 50 had been privatized. This started with the small ones and intended to that the "biggies" in the utilities sector - MTL and ESCOM, would come in at a later stage. Most of the utilities are still undertaking preparatory work for the privatisation process, though MTL has recently completed its privatisation (Dec 2005). The actual sequence chosen by the PC has been influenced by many factors, including how much time might be required to find a buyer or to restructure the SOE to make it saleable, and how the sale might affect the Malawian consumer.
There are several methods of privatization: the government can sell all or some of the shares in the entity (as was done with NICO); they can sell the assets as bits and pieces (for example, Malawi Book Service), they can sell it as a going concern (Portland Cement), or they can offer it as a concession (Malawi Railways).
When the government wholly owns (either directly or through Admarc Investment Holdings, or MDC, or MPICO or another holding company) an enterprise, it may first be necessary to change the legal status of the entity to meet the requirements of the Companies Act. This is what happened with MPTC - the telephone side was restructured as a private company, Malawi Telecoms Ltd, while the post office side, which is not being privatized at this time, remains a parastatal.
Many of the enterprises on the DSP list were operating as private sector companies with government ownership. This includes Packaging Industries (government shareholding sold), Encor (management buyout) Chillington Agrimal (sold to Malawi-based investor), Bata Shoe, and Leopard Match. In these cases, there are often pre-emption agreements - if a shareholder wants to sell its shares, they must first be offered to the other shareholders. In some cases the other shareholders ended up as majority or sole shareholders. Nampak, the South African technical partner with PIM, bought a majority shareholding. Chillington of Chillington Agrimal on the other hand, chose to sell its own shares instead of buying government's. Bata and Leopard Match have not yet been privatised although discussions are underway.
Table 4.2 gives a complete list of Divesture Sequence Plan (DSP) as at the end of 2002. This DSP is a list, as approved by Cabinet, of public enterprises categorized according to the sequence in which the whole or part of Government's shares will be disposed of. Cabinet last approved the DSP in 1997.
Table 4.2 Divesture Sequence Plan
COMPLETED TRANSACTIONS
PUBLIC ENTERPRISE
NO. OF UNITS
TRANSACTION CLASSIFICATION
1
Auction Holdings Ltd
1
Local and Private Placement
2
Bain Hogg Insurance Brokers
1
Sale to Shareholders
3
Blantyre Dairy
1
Competitive Sale
4
Blantyre Lodge (formerly Blantyre Rest House)
1
Competitive sale
5
Brick and Tile Company
1
Transfer of shares
6
Capital Hill Dairy Farm
1
Competitive sale
7
Central Tobacco Properties Ltd.
1
Reorganisation
8
Chemicals and Marketing Ltd
1
MBO
9
Chillington Agrimal Ltd
1
Concession
10
Chiphazi Farm
1
Competitive sale
11
Chitipa Inn
1
Competitive sale
12
Chintheche Inn
1
Concession
13
Choma Ranch
1
Concession/ Competitive sale
14
Commercial Bank of Malawi Ltd.
1
Public offer / share sale / MBO
15
Dwangwa Sugar Corporation (DSC)
1
Dept-equity/ sale to shareholders
16
Dzalanyama Ranch
1
17
Encor Products Ltd.
1
Dept-equity/sale to shareholders
18
Finance Corporation Ltd.
1
Competitive sale
19
Forestry Rest Houses
1
Concession
20
Government Hostel
1
Concession
21
I&E
1
Dept-equity/sale to shareholders/comp
22
Kaombe Farm
1
Completed-competitive sale
23
Kasikidzi Farm
1
Distributed to the people
24
Kasungu Inn
2
Concession and purchase
25
Katete Farm
1
Competitive sale
26
Kuti Ranch
2
Competitive sale
27
Likhubula Lodge
1
Concession
28
Luwawa Lodge
1
sale to shareholders
29
Chigumukire Ltd
1
30
Mchenga Coal Mine
1
Competitive sale
31
National Bank of Malawi
2
Public offer/stock exchange transaction
32
National Insurance Co. Ltd.
2
Public offer & MBO
33
New Building Society
1
sale to shareholders
34
VIPCOR
1
liquidation
35
VIPLY Ltd
1
sale to shareholders
36
Zomba Trout Farm
1
Concession
37
Smallholder Coffee Authority
1
Commercialisation
38
Smallholder Sugar Authority
1
Commercialisation
39
Ngabu Inn
1
Concession
40
Optichem (Malawi) Ltd.
1
sale to shareholders
41
Packaging Industries (MW) Ltd.
4
sale to shareholders/IPO/private sale
42
Premier Mining Ltd
1
Sale to shareholders
43
SUCOMA
4
Sale & Public offer
44
Malawi Lake Services Ltd.
1
Concession
45
Malawi Railways (1994) Ltd.
1
Concession
46
Mpwepwe Boatyard Company Limited
1
MBO
47
Mangochi Lodge
1
Concession
48
Mining & Investment Development Corporation
1
liquidation
49
Limbe Rest House
1
Competitive sale
50
Malawi Book Service
1
liquidation
51
Kachere lodge
1
Concession
52
Dzalanyama Lodge
1
Concession
53
Ntchisi Lodge
1
Concession
CURRENT TRANSACTIONS
1
ADMARC
GOVERNMENT
2
Air Cargo
GOVERNMENT
3
Air Malawi Ltd
GOVERNMENT
4
Alexander Forbes (formerly MIBRO)
5
Blantyre Milling Company Limited
Sold competitively
6
Blantyre Water Board
GOVERNMENT
7
Bwemba Dairy Farm
GOVERNMENT
8
Chileka International Airport
9
Cold Storage Co Ltd
ADMARC
10
David Whitehead and Sons (Malawi) Limited
ADMARC
11
ESCOM Limited
GOVERNMENT
12
Grain & Milling Ltd
ADMARC Sold competitively
13
Kasungu Flue Cured Authority
GOVERNMENT
14
Leopard Match Co. Ltd
MDC
15
Lifidzi Farm
16
Lilongwe Water Board
GOVERNMENT
17
Malawi Catering Services
GOVERNMENT
18
Malawi Dairy Industries
19
Malawi Finance Co. Ltd
GOVERNMENT
20
Malawi Rural Finance Company
GOVERNMENT
21
Malawi Tea Factory Co. Ltd
ADMARC
22
Malawi Telecommunications Limited
GOVERNMENT
23
Mchenga Coal Mine
24
Meru Ranch
GOVERNMENT
25
MPICO Ltd
GOVERNMENT
26
National Investment Trust Limited
27
Plastic Products Ltd.
MDC
28
Portland Cement Co. (1974) Ltd
MDC
29
Smallholder Tea Authority
GOVERNMENT
FUTURE TRANSACTIONS
1
ADMARC Investment Holdings Ltd
ADMARC
2
Bata Shoe Co. (Malawi) Ltd
MDC
3
Borehole Construction Fund
GOVERNMENT
4
Capital City Development Fund
GOVERNMENT
5
Government Press
GOVERNMENT
6
Malawi Housing Corporation
GOVERNMENT
7
Shire Buslines Ltd
ADMARC
8
Lilongwe International Airport
GOVERNMENT
9
Malawi Development Corporation (MDC)
ADMARC
10
Stockbrokers Malawi Limited
ADMARC
11
TDIC / Sunbird Tourism
MDC
12
Central Government Stores
GOVERNMENT
13
Central Medical Stores
GOVERNMENT
14
District Rest House Chain
ADMARC
15
Indefund
MDC
16
Indebank
ADMARC
17
Lilongwe Smallholder Poultry Project
GOVERNMENT
18
Manica Freight Services
GOVERNMENT
19
Mzuzu Smallholder Poultry Project
GOVERNMENT
20
National Seed Company
ADMARC
21
UNDP Housing Fund
ADMARC
Source: PC Annual Report
5. CHALLENGES OF PRIVATISATION
Very few studies have attempted the task of undertaking a complete analysis of privatisation in Malawi. Assessing performance of such a complicated venture would not give a good picture if done over a short period. A clearer impression will probably start showing some years (maybe 5-10) after the complete privatisation process. This does not mean that the immediate effects are not important. The controversial water privatisations proposals in Ghana and Tanzania in the past three years show how bitter the issues can become (see Box 5.1 below).
Box 5.1 Tanzania and Ghana Water Experiences
TANZANIA [DAWASA Water Privatisation]
(40-50% of the population have no access to clean water)
[2002]
The International Monetary Fund (IMF) and World Bank in Tanzania included conditions within their aid programs related to the divestiture of Dar es-Salaam Urban Water and sewerage Authority (DAWASA), the semi-autonomous government body previously responsible for running water supply system. This was part of the conditions for having Tanzania on debt relief under HIPC program. But then there was a lack of investor interest. The first bidding process was stopped after two French companies; Saur International and Vivendi were rejected. Donors agreed to waive the privatisation only to push it again through giving a loan (of $145m) which was meant to improve the water system.
GHANA
Current official statistics state that 62-70% of the urban population has access to treated water and 35-40% of the rural population. However, these figures mask the fact that far less has piped water. In urban areas, only 40% of the population (and 25% of the urban poor) have access to running water in their homes.
In July 2001, the World Bank approved a new $110 million structural adjustment loan for Ghana. Before disbursing the loan, however, the Bank forced the government of Ghana to implement seven “prior actions,” including a requirement to “increase electricity and water tariffs by 96 percent and 95 percent, respectively, to cover operating costs.”
(By 2002) A bucket of clean water in Ghana became more expensive than in the UK. This meant that a family making minimum wage had to spend almost half of its daily income for just three buckets of water. As a result, many families could not afford clean drinking water, and women and children bore the burden of collecting water, often from polluted streams and rivers.
The effort to attain “full cost recovery” is a prerequisite to privatization. Private companies want to operate systems where consumers meet the expenses of running the systems and pay enough for company profits, too, so that they earn a return on their investment.
Pressured by the World Bank, the government of Ghana plans to lease the Ghana Water Company to two as yet undetermined multinational water companies to provide urban water service. The World Bank included water privatization as one of many conditions that determined the extent of Ghana’s access to the portfolio of loans in the World Bank’s Country Assistance Strategy (CAS).
5.1. Privatization and Technical Efficiency
A study evaluating the impact of privatization on the technical efficiency of about 15 companies in the manufacturing sector was undertaken around the year 2000 (Chirwa, 2000). This was a very technical evaluation. Enterprise level data was used in the manufacturing sector spanning the period 1970 to 1997, by selecting industries in which privatization took place during the 1984-91 period in Malawi, in which privatized enterprises had been under private ownership for at least five years. The study, therefore, contributed to the limited empirical evidence on the privatization-efficiency hypotheses, particularly in developing countries by taking into account oligopolistic interdependence and the impact of other liberalization measures.
The sample for this paper was drawn from eight privatization activities (excluding asset swaps). Each of the five privatized enterprises was grouped into three-digit industry classification level. Data was obtained for private enterprises and other state-owned enterprises competing in the same industry. The privatized manufacturing industries were three-digit industries in which privatization occurred between 1984 and 1991. The three privatized manufacturing industries were food processing, manufacture of other chemical products and manufacture of transport equipment, and the sample included six privatized state-owned enterprises (PSOEs), three state-owned enterprises (SOEs) which had never been privatized and six private enterprises (PVTs) which had never been under state enterprise during the period of analysis.
After computing technical efficiency scores for firms using Data Envelopment Analysis (DEA) based on industry specific inter-temporal frontiers at three-digit industry level, the statistical results, overall, show that technical efficiency improved among privatized state enterprises, state-owned enterprises and private enterprises. However, there was significant evidence that changes in technical efficiency were higher in privatized enterprises, and that the proportion of the variance in technical efficiency attributed to privatization was also higher among privatized enterprises compared with that among state-owned enterprises and private enterprises.
The approach in this paper had been to study all firms competing in the same industry to discern the industry effects and to control for the many other sources of technical efficiency. The results from the econometric analysis, which accounts for other sources of technical efficiency showed that improvements in technical efficiency could not be attributed to privatization alone. The empirical results, particularly among privatized enterprises, showed that after controlling for the many other sources of technical efficiency, privatization improved technical efficiency and efficiency scores were at least 25 percent points higher in the period after privatization. The positive impact of privatization was also supported by the significant negative relationship between technical efficiency and state ownership in the industry effects model. These findings implied that the technical inefficiency associated with state ownership could be reduced by transferring their ownership to the private sector and partial privatization may not maximize efficiency. Furthermore, technical efficiency is higher in competitive industries, among firms with high capital intensity and among subsidiaries of multinational corporations. The latter implied that foreign participation in the privatization process in Malawi had positive implication on efficient domestic production. Structural adjustment programs by removing market rigidities enhanced the role of the market mechanism and provided further incentives for input allocation to maximize output.
Overall, from a policy point of view, the findings showed that the objective of promoting efficiency materialized in the first phase of privatization in Malawi even when other factors that influence technical efficiency are taken into account. Nonetheless, the competitive environment which was partly reinforced by the sequential implementation of structural adjustment policies played a critical role in facilitating the positive impact of privatization.
5.2. Impact of the Privatization Program
A comprehensive performance evaluation was done in 1998 covering three main indicators, a) the macro-level indicators which measure impact on economy-level variables, b) the meso-level indicators, which deal with the impact on markets, and c) micro-level indicators, which measure results at the enterprise level (Kaluwa, 2000). Often, one may add political level indicators, which might deal with issues like when to privatize, what enterprises, mode of privatization, immediate beneficiaries, reserve price of offer, use of proceeds etc.
5.2.1. Treasury Effects
According to the World Bank, by 1997 there had been 44 privatization transactions including those outside the Privatization Program with total sales of US$56m. By July 1999, the Privatization Programme itself raised around MK850m, which translates to 1% of GDP. These are one-off and short-term treasury effects. However, one may also wish to look at the long term effects like tax revenue and savings on subsidies to formerly government supplied inputs in sectors such as forestry and veterinary services. Table 5.1 summarises available information that facilitates an impressionistic view of treasury effects associated with current financial flows.
Table 5.1: Treasury Effects: Total Flows of Funds, Tax revenue and Net Flow of Funds
Year
Total Flow(1)
Tax: SC (2)
Tax: Major “Divested” Companies
SUCOMA
CBM
NICO
PIM
Total Tax
Net Flows (3)
1993
126.92
0.70
0.02
6.54
2.96
3.57
13.79
112.43
1994
187.85
0.90
0.02
30.80
6.09
1.38
39.19
147.76
1995
593.35
54.87
38.42
79.67
6.49
4.69
184.14
354.34
1996
37.96
2.01
68.42
67.58
12.39
4.03
154.43
-118.48
1997
701.38
29.71
65.20
70.89
10.95
9.60
186.35
485.32
1998
572.84
7.80
26.19
110.22
10.58
25.03
179.82
385.22
Notes:
(1) To Statutory Corporations, (2) Commercial Statutory Corporations, (3) +net of all taxes
Source: B. Kaluwa (1998), Economic Reports, various company Annual Reports
Total financial flows from central government to statutory corporations include “grants and transfers” on the recurrent budget as a large item (representing 99.9% of the total in 1998), and net long term lending on the development budget as a minor item. Return flows to central government include consolidated tax payments from commercial statutory corporations plus tax payments by large corporations “divested’ by central government and its agencies, which have since been listed on the Malawi Stock Exchange.
Although the picture presented in Table 5.1 incorporates trends which are not due to the Privatisation Programme it still allows a number of observations:
- The largest of divested companies (SUCOMA and CBM) have individually been associated with larger tax payments on a consistent year to year basis and cumulatively higher than all the commercial statutory corporations from 1996 although for CBM this trend pre-dates the Privatisation Programme.
- The trend of tax revenues from SCs has been erratic compared to those of the four listed companies and a major culprit is likely to be capital investment costs/revenue structures for the larger infrastructure SOEs such as ESCOM and the Water Boards
- The trend in the total net flows dominated by flows to statutory corporations which still represent large outflows towards that sector despite the large gains made from divested companies implying a persistent fiscal drag from subsidized SOEs.
From the table and accompanying statistics, the average share of flows to SOEs in total government expenditure has gone down since 1996 to 3.02% from 5.26% between 1987 and 1995 and implies a lowered burden on the government. Nevertheless there appear to have been some compensation effect since their share in total domestic credit has gone up from an average of 2.39% in the earlier period to 6.71% after 1996. This represents some sort of switching effect from dependence on government to market dependence which itself may be a sign of inadequate internal revenue generation coupled with heavy investment requirements.
5.2.2. Use of Privatization Proceeds
According to statutory provisions, the proceeds of privatization are held in the Privatisation Revenue Account for use in “funding the direct costs of the Commission and the Privatisation Programme, funding the restructuring public enterprises to be privatized including payment of retrenchment benefits, …” Among the uses of potentially contentious issue has been the pre-empted in the sense that residual revenues from this one-off exercise, after privatization related expenditures, could also be used in one-off development projects, rather than government recurrent expenditures (B Kaluwa, 2000).
5.2.3. Malawian participation and Ownership De-concentration
The overall assessment of the privatization programme shows that there has indeed been a commitment to relinquish government control. According to figures presented by World bank (World bank Reports, 1998/99), by 1997, 86% of privatization transactions involved transfers of the majority ownership to the private sector, 64% of the transaction involved shares while much of the rest involved asset sales.
Malawian participation too has been fulfilled. When we look at statistics of the first 38 transactions, about 50% involved Malawians as new owners, concession holders, or shareholders while 13% involved a mixture of Malawians and foreigners and 37% involved only foreigners.
Politically conscious decisions have been made to affect share-ownership, sales and asset transfers to special interest groups namely: tobacco growers and employees in the case of Auction Holdings Ltd; growers in the case of the former Kasinthula Rice Scheme and the Smallholder Coffee Authority; management buy-outs in cases of Mpwepwe Boatyard and New Capital Dairy (B Kaluwa, 2000). The major problem has been that Malawian participation could not be guaranteed in all cases of privatization despite stated preferences and softer loans. Part of the reason could be thin domestic financial capital base and management capacity, which have in a number cases contributed slow uptake by successful Malawian bidders. These problems have influenced the role of foreign ownership which has been beneficial in terms of providing foreign linkages for investment capital, technology, management and marketing in different available sectors.
5.2.4. Impact of Listed Companies on Capital Market Development
Privatisation has been a big boost to the development of capital markets in Malawi. Malawi has been a capital scarce economy and an obvious outcome of privatization has been a good base for stock exchange activity. This can be a catalyst for foreign investment inflows although so far these have not been large due to small capitalization and an inflationary environment. Privatisation boasts of about MK10 billion of its capitalization in the Malawi Stock Exchange. As can be seen from Table 5.2 below, by 1998, barely three years after the commission was put in place, the firms divested under privatization accounted for 73% of the stocks listed on the Malawi Stock Exchange.
Table 5.2: The Impact of the Privatisation Program (PP) on MSE Capitalisation
Company
Capitalization (MK)
Privatisation Program Companies
Commercial Bank of Malawi
1130.00
NICO
170.00
PIM
174.85
SUCOMA
4054.51
Total PP
5529.36
Other
BL
143.91
PCL
1981.91
OML
378.91
Grand Total
8034.09
PP/Grand Total (%)
73.54
Source: MSE
5.2.5. Employment
Looking at 20 mixed firms that had privatized (and were able to supply the information) by 1998, there was an 11% decline in employment for manufacturing firms (B Kaluwa, 2000). This is however tricky because most proponents of privatization look at this as temporal. It should be noted that post-privatisation employment changes reflect empowerment of management to effect changes that reflect commercial discretion so that from the enterprises perspective cutbacks can be in their best interest. Overall for the 20 firms, there was 55% rationalization of employment.
****
There are several factors this report could go into where privatization has been assessed and impact quantified. These include Import Substitution and Exports, Number of Products / Services changed, Debt/Equity Performance, New Investment and Technology, Staff performance and Staff benefits, Profitability and Efficiency Performance. However all these look at company level performance. The studies that link these micro performances to national socio-economic factors which the World Bank was trying to address when they came up with the initiative are hardly available. The next section attempts to look at these national areas that have been affected by privatization, through a discussion.
5.3. Discussion – has privatisation achieved its objectives?
Did privatization achieve its objective? At firm level there appears to be some indication of an improvement in performance. However, when one looks at national level with the fact that The World Bank’s core mandate is to eradicate poverty, there is some doubt that privatization achieved its goal. Privatisation, a central World Bank policy, should be able to contribute to this goal. Malawi’s indicators have gotten worse since liberalization and privatization came in, though these are not the only factors that impact on poverty indicators. The per capita income has gone down from $210 in the early 1980s to $170 in the late 1990s/early 2000. Obviously, the World Bank’s analytical framework is inconsistent, and damaging outcomes on privatization are still emerging.
ADMARC and Agricultural Sector
Let’s take for example, one of the sensitive areas which have received a lot of criticism from the civil society, that is, the proposed privatization of ADMARC, an agricultural marketing board. The World Bank has been demanding the commercialisation of the Malawian agricultural marketing board as a condition of its latest structural adjustment loan. Actually, the privatization of the state marketing board in Malawi (ADMARC) has been an objective of the World Bank for 10 years. It represents a central element in an approach to agriculture that holds that full liberalization of the sector will be best for poor women and men. This approach has been increasingly questioned in Malawi and other countries in the region, particularly in the context of the recurrent food crises. Many commentators believe the full liberalization of other elements of the agriculture sector under the Bank greatly contributed to the cause of the food crisis and the subsequent deaths in 2002.
Malawi’s economy relies on agriculture. State intervention in the agricultural sector in Malawi dates back to as early as 1926 when the colonial government established the Native Tobacco Board. Two more boards were later established in 1949: the Cotton and Maize Control Boards. In 1956, the three boards were merged to form the Agricultural Production and Marketing Board, which was renamed Farmers Marketing Board in 1962. In 1971, the Agricultural Development and Marketing Corporation (ADMARC) was established to replace the Farmers Marketing Board. Its main mandate was to market agricultural inputs and outputs, but was also allowed to make investments in anything that would contribute to the development of the economy.
Until the late 1970s and early 1980s, ADMARC performed reasonably well (Scarborough 1990) in terms of coverage. In particular, it was able to provide assured and reliable markets for smallholder produce in most remote areas. Further, it paid farmers cash on delivery, subsidized the cost of inputs, and subsidized the consumption of maize and rice. Between 1971 and 1979, ADMARC made about MK181.9 million from its marketing activities in the small-holder sector (Kydd and Christianssen 1982). This money was used to cross-subsidize the cost of inputs to small-holder farmers, consumption of maize and rice by food-deficit and urban households, and making investments in other sectors of the economy.
Towards the late 1970s, ADMARC started facing financial difficulties. The literature identifies a number of factors, both internal as well as external, that were responsible for ADMARC’s problems. Internal factors have included poor management of the corporation, mainly due to its large size and poor investment policies. On the other hand, external factors have included bad weather, poor pricing policies by the government, and increased transportation costs due to civil war in Mozambique that led to the closure of Malawi’s traditional route to the sea. Increased political interference played its part.
As ADMARC was going through financial problems, the economy of Malawi as a whole also found itself in a crisis. When the SALs came in, not surprisingly, ADMARC was one of the targets of reforms. Indeed, since then, the corporation has undergone various changes. These have among other changes, included market liberalization, a phased removal of input subsidies, and rationalization. ADMARC is on the list of current privatisations.
After all the reforms, including partial commercializing ADMARC and closing some of its outlets, several problems have occurred. Oxfam Study (2002) identified some of these as:
(a) Although private traders were allowed to complement the marketing activities of ADMARC, a problem still exists in the sense that these private traders find it difficult to go to some remote areas due to poor roads. Thus, some farmers in areas where ADMARC withdrew have found it difficult to sell their produce and to buy food and inputs. This poses a problem to the government since it has a duty to ensure that these areas have access to markets for produce, food, and inputs. Consequently, ADMARC has found itself being called upon to service such areas. But since government has to support ADMARC's commercialization programme for the benefit of World Bank, one reality it has had to face is that if ADMARC were to make a commercial decision when operating in these areas, the poor would be adversely affected. For example, if ADMARC were to supply maize to food-deficit households in such areas, the commercially viable price would be beyond their reach. The government has therefore entered into memoranda of understanding with ADMARC to the effect that it will undertake to pay ADMARC for the costs it incurs while performing such social roles on its behalf. However, the problem that still remains is that in most cases, the government has not lived up to its obligations and separating the social role is not easy.
(b) Related to the problem discussed in (b) above, is the fact that a cost-effective mechanism is not yet in place for the supply of food to food-deficit areas. For example, sometimes ADMARC moves maize from one corner of the country to another during the buying season, only to be asked to transport it to another far corner of the country during lean months. But as already mentioned, the government usually does not fully reimburse the transport costs that ADMARC incurs in undertaking such operations.
(c) Certain areas of the country, such as Likoma Island, are perpetually food-deficit. But there is no long lasting solution to ensure that such areas have access to food at reasonable prices, but without jeopardising the financial position of ADMARC.
(d) The commercialisation programme that ADMARC is undertaking is in some cases being frustrated by political interference. For example, even when ADMARC feels that the closure of a certain non-viable market will not adversely affect the poor, politicians usually resist the move because they fear that it will be politically costly. A case in point is one where a suggestion by ADMARC to replace a permanent market with a mobile one is resisted simply because of the view that development is non-existent unless one can see a permanent physical structure.
This is one area that gives some true colours to privatization at grassroots levels. A number of factors are not taken into consideration as international institutions give their conditions. Mostly, these have to do with poor understanding of the local and remote situations, knowledge of the infrastructure available and real levels of poverty.
Privatization of Utilities (Water)
Privatization of utilities is another case in point where there have been a lot of blunders in a lot of African countries.
Every day 30,000 children in the Third World die of preventable causes. Many of them could be saved if they had access to safe water. The World Bank argues that governments in impoverished countries have to privatize their water supply and distribution systems if they are to get the efficient delivery of water that is needed.
On the face of it, the argument makes sense. The adequate supply of water and other public services is too often frustrated by inadequate funding, inefficient bureaucracy or lack of political will. Promoters of private ownership say it brings investment and cost-effective service.
Experience and common sense say otherwise. Private investors aren't attracted by poor and rural communities. Any improvements that might come with private ownership are in areas that generate profit. Private water, telecommunications and electricity companies tend to focus on efficiency in collecting tariffs, but not on improving service, though it can be argued otherwise. In most cases, these companies will ignore long term major investments, and any investment is transferred to the customers. Costs of services usually leap up quickly, annoying middle class and wealthy customers but potentially in most cases leaving the poor without service at all.
People in affected communities do not have a voice in how or if they want their services privatized. People in impoverished countries want efficient services, sometimes even if the cost is higher as lack of services can carry hidden costs (especially in utility services). In some, privatization may be the way to go. They need to be allowed to choose if it is appropriate for them.
Looking at number countries in Sub-Saharan Africa, high prices and disconnections must mean that the poorest segments of society are likely to be the main losers from the privatization process. However, the privatisation process can also be helpful if the SOEs are very inefficient and do not provide the services at all to the poor, who cannot afford any alternatives or backup. In certain key sectors, like water, if privatisation leads to increases use of unsafe water sources, the consequences will be disastrous for public health (Kate Bayliss, 2001).
5.4. Solutions / Alternatives
Liberalization era came with a lot of unrealistic proposals in Malawi. For example, in health, user fees were suggested putting the majority of the population in difficult situation because they could hardly afford the services. Deregulation of the health sector too has resulted in deteriorating public healthcare services.
Repercussions due to privatization of water have been obvious in a number of countries. Malawi’s population that has access to clean water is about 50%. The privatization process of water sector led into some problems as early as 2001. In May 2001, 350 water workers were sacked for strike action. Workers were protesting at poor wages (most earned about $50 a month) and working conditions, as the company started implementing “stringent measures” to be more effective. Some employees were subsequently rehired but to regain their jobs, the workers had to sign a letter agreeing not to strike again and accepting their previous pay and working conditions.
Other utilities like telecommunications and electricity equally threaten the countries development goals if they go in private hands. Over 60 percent who do not have access to electricity can forget it should the electricity company go into the wrong hands. Nevertheless, with the current standing, there is very little effort by the SOEs and the government in improving the status.
Indeed private sector has a role in the delivery of public services, in particular, where capacity was lacking for extension of services. However, long-term concessions and splitting up of agencies were not seen as part of the private sector’s role. The state should maintain overall control and ownership for provision of services. In terms of different alternatives, below are some suggestions for some of the important sectors.
Joining Campaigns
Opposition to water privatization has taken place across the globe. Table 5.3 below lists major cases where privatisation was opposed with some definite degree of success. A number of campaigns are continuing, with no final outcome yet visible. However the fact that the campaigns are still going demonstrates a degree of success – Brazil was close to privatising much of its major cities’ water in 1999, for example.
Table 5.3: International campaigns against water privatisation
Country
City
Year
Type
Poland
Lodz
1994
Privatisation prevented
Honduras
Honduras
1995
Privatisation prevented
Hungary
Debrecen
1995
Privatisation prevented
Sweden
Malmo
1995
Privatisation prevented
Argentina
Tucuman
1996
Termination and reversion to public
Germany
Munich
1998
Privatisation prevented
Brazil
Rio
1999
Privatisation prevented
Canada
Montreal
1999
Privatisation prevented
Panama
1999
Privatisation prevented
Trinidad
1999
Termination and reversion to public
Bolivia
Cochabamba
2000
Termination and reversion to public
Brazil
Limeira
2000
Incomplete termination
Germany
Potsdam
2000
Termination and reversion to public
Hungary
Szeged
2000
Incomplete termination
Mauritius
2000
Privatisation prevented
Thailand
2000
Termination and reversion to public
USA
Birmingham
2000
Termination and reversion to public
Argentina
BA Province
2001
Termination and reversion to public
France
Grenoble
2001
Termination and reversion to public
Brazil
current
Continuing campaign
Ghana
current
Continuing campaign
Indonesia
Jakarta
current
Continuing campaign
S Africa
current
Continuing campaign
Uruguay
current
Continuing campaign
Source: David Hall, 2001, South Africa Labour Bulletin
There have also been a number of effective campaigns against water privatisation in sub-Saharan Africa. Two good examples are South Africa and Ghana.
South Africa
Water privatisation has been strongly and effectively opposed in South Africa (see above). These protests had an impact beyond national borders, affecting the privatisation of water in Mozambique. When the water privatisation contract award was first announced in September 1999, it was reported that Mozambican Public Works and Housing Minster, Roberto White, promised that not a single one of the country's current 850 workers will be retrenched or otherwise dismissed. This was described as an attempt to ”head off looming labour union protests” following concerted union protests in South Africa that have held back commercialisation schemes.
Ghana
There has been well-organised and effective widespread protest against the planned privatisation of water in Ghana. This has been dominated by the Integrated Social Development Centre (ISODEC), a Ghanaian NGO. The campaign has been reinforced by research from Christian Aid and benefited from widespread international support from academics and NGOs. Many of these participants have not protested against other water privatisations so the level of support must be a testament to the success of ISODEC in bringing the issue to international attention.
6. CONCLUSION AND RECOMMENDATIONS
Privatization is now widespread in industrialized, developing and transitional economies. The World Bank has played a key role in the implementation of privatization in low-income countries, attaching privatization to aid disbursements and promoting a pro-privatization culture.
The World Bank’s core mandate is to eradicate poverty. Privatization, a central World Bank policy, should therefore contribute to this goal, and is expected to do so by reducing poverty through the development of the private sector. In Malawi, the benefits of privatization mostly exist at company levels. The linkages to the poor and marginalized are weak or absent in some cases. The poor, who are supposed to benefit are getting worst outcomes of privatization, consequently affecting overall development negatively. However, despite all this, privatization is still pushed at the policy level.
According to this paper, however, the status quo has also got several weaknesses. Most SOEs have been performing below standard, with inefficient use of the government subvention that would have benefited the poor. Political factors also come in, where disconnections do not take place when people connected to the government are involved. Furthermore, sometimes the SOEs have been used as channel to siphon funds for the ruling political party’s activities.
Overall, privatization, as currently conceived by policy makers, will not help and may be detrimental to development prospects. Privatization policy goals must be reassessed, based on a more realistic perspective, and in particular there must be examination of what privatization, as opposed to alternative measures for public sector reform, can provide. There is need for proper and detailed cost-benefit analysis to guide restructuring processes, and to determine the public interest. More importantly, this analysis provided the basis for engagement between government and labor. Unfortunately, such studies have not been comprehensive as countries sometimes go into hurried privatization.
Recommendations, therefore, include:
· The government of Malawi should revisit the contracts made with the Bank, and change conditions after proper consultations with different stakeholders including civil society. At the same time, the World Bank and IMF should stop requiring privatisation of public services and utilities as a condition of loans.
· Reform strategies should start with assessing the strengths and a weakness of an enterprise in the context of the specific national and regional circumstances - not with the premise that private is best.
· Governments and donors should look at examples of best practice in public as well as private provision. Advisers and consultants need to be selected from the best performing service providers – not from consultancies who depend on the World Bank for a large proportion of their fees.
· Reform options should always include a plan for restructuring within the public sector. This and other options then need to be evaluated in an open and transparent way, using a fair basis for comparison.
· Effective regulation of private companies requires, first, clear and quantifiable objectives (for example, technology transfer, management and financial systems development, construction etc); second, adequate resources for monitoring and enforcement. If the capacity for this is lacking, then privatisation will only create a new set of problems.
The civil society needs to continue fighting the rights of the consumers in either case: where the SOEs are still in control or privatisation has taken place. We can say no to privatisation, but this may not improve the services. There is need to keep up pressure for improved performance among the service providers.
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Appendix 1
PRIVATISATION POLICY
Introduction
In this policy document commercial public enterprises are defined as those entities owned directly or indirectly by Government which by the nature of their activity are commercially oriented and have or should have financial autonomy. These encompass statutory corporations, trusts, authorities, treasury funds and limited liability companies in which the Government directly or indirectly has a shareholding.
It is recognised that efforts to promote agricultural and industrial development and increase the standard of living of the indigenous population through market intervention and establishment of public enterprises have not met with expectations. The Government of Malawi, taking into account the legacy of past inefficient interventions, has adopted a policy of liberalization of the economy and move to market based incentives and allocation of resources. In accordance with this policy, the Government has decided to divest its interests in commercial public enterprises and encourage and promote the private sector. Ultimately, the Government will seek no role in the competitive market beyond that of neutral arbiter.
Objectives of Privatisation
The declared policy of the Government of Malawi is to diminish the size of the public enterprise sector through privatisation with a view to:
Foster increased efficiency in the economy;
Increase competition and reduce monopoly in the economy;
Promote participation by the Malawian public in enterprises; and
Raise revenue for the Government.
By realizing these objectives, the Government will create an economic environment conducive to private sector development and also free public resources for investment in infrastructure and social programmes.
Institutional Arrangements
A "Public Enterprises (Privatization) Act" was passed by Parliament in March 1996 and it was assented to by His Excellency the State President on 17th April 1996. The Act which sets out the objectives and guidelines for the privatization programme also establishes the institutional set-up for the execution of the privatization programme.
The Privatization Commission shall be the sole authority in Malawi to implement the privatization of the direct or indirect government ownership of any public enterprise. Its functions include, but are not limited to, the planning, management implementation, and control of the privatisation of public enterprises in Malawi. It will also be the duty of the Commission to report to the Cabinet the details of the sale of each public enterprise.
Membership of the Commission includes ex-officio representatives of Government, representatives nominated by each political party represented in the National Assembly, a representative nominated by the Malawi Congress of Trade Unions, and members representing professional and commercial business interests.
A Secretariat of The Privatization Commission has been established comprising an Executive Director and subordinate employees. The Executive Director of the privatisation Commission is responsible for the effective administration and implementation of the provisions of the privatization programme.
Scope of Privatisation
Approximately one hundred and forty public enterprises exist to which should be added some thirty other assets managed by various ministries such as ranches, farms, fish farms and rest-houses.
In excess of one hundred of these enterprises or assets have a commercial orientation and have or should have financial autonomy. These entities will all fall within the scope of the privatization programme, and be included in a divestiture sequence plan prepared by the Privatisation Commission and submitted to the Cabinet for their approval. Some of these entities will need to undergo a 'commercialization' process with a view to preparing them for privatisation and ensuring greater operating efficiency in the interim period leading up to their eventual privatization.
This will entail changing their status to that of limited liability companies and granting them greater autonomy in their day to day management.
Remaining public enterprises, which are not presently considered to have a commercial orientation, will revert to the control of the appropriate ministry. In those cases where there is no apparent need for financial autonomy the enterprise will be absorbed directly into the relevant line ministry. A number of entities which are dormant will be liquidated and any surplus assets sold to private buyers.
Principles of Privatization
The privatisation programme will be carried out in accordance with certain guiding principles. To the extent possible, subject only to limitations imposed by existing rights conferred by shareholders' agreement, for example, pre-emption rights, etc., the following fundamental principles will apply:
Each transaction will be fully transparent to the public at large. In this regard thePrivatisation Commission will publicise details of all completed activities of the privatisation programme.
All investors, irrespective of ethnic group or source of capital (foreign or local) are free to participate in the privatization programme. In order to achieve the objective of increased participation by the Malawian public at large, shares in or assets of certain enterprises may be made available at a discount to citizens of Malawi. Where discounts are available, this fact and the quantum of the discount will be publicized in the invitation for competitive bids and a precondition of the discount being granted is that the shares or assets are subsequently retained for a period of not less than two years.
The privatization process will be fair and efficient. An independent opinion of value will be obtained for each enterprise to be privatised. Full disclosure of the details of the enterprise will be available to the investing public and fair and equitable bidding procedures and criteria for ranking bids will be established and published.
Sales will be primarily on a cash basis. However, mechanisms will be developed to facilitate broader participation by Malawian citizens in the privatisation process.
It is the intention of Government to sell all of its interest in public enterprises and not to maintain a minority position or set any conditions concerning the future operations of a privatised enterprise. In certain exceptional circumstances, where the existing regulatory framework is considered inadequate, Government may with the agreement of parties to the sale of an enterprise, retain a shareholding conferring special rights to, in the national interest; intervene in the operations of the privatized enterprise.
To the greatest extent possible, privatization transactions will be designed to reduce concentration of ownership and avoid creation or maintenance of consumer market monopolies. To this end, Government will not divest unregulated monopolies or grant any privileges or guarantees to purchasers of privatised enterprises.
The Commission may elect to privatise public enterprises in various ways including, but not limited to, a public offering of shares, sales by competitive tender of the shares or assets and business of a public enterprise, management or employee buy-out or, where pre-emption rights exist, negotiated private sale of shares. The Commission may also create and offer for sale additional shares in a public enterprise in order to dilute Government's existing shareholding in that enterprise.
Retrenchment
One of the principles of the privatisation programme is that Government will not set any conditions regarding the future operations of a privatised enterprise including requirements as to number of employees. In privatised enterprises where the number of employees is high, some level of retrenchment may be a prerequisite to being able to operate efficiently in a competitive market.
Where employees are made redundant as the result of privatisation or commercialisation of a public enterprise, retrenchment benefit will be promptly paid to all retrenched employees in addition to any other entitlements (excluding redundancy pay entitlements) provided for in their conditions of service or the rules of the enterprise's staff pension or provident fund.
To protect employees who are retained in the employ of a privatised or commercialised enterprise and therefore not entitled to retrenchment benefit, the newly privatised or commercialized enterprise will be required to give a legally binding undertaking to incorporate in their conditions of service provisions to provide for retrenchment benefits at least equal to those of staff retrenched during privatisation.
Proceeds Of Privatisation
A fund entitled the Privatisation Revenue Account will be established and placed under the control of the Ministry of Finance. The proceeds of the sale of all direct Government interest in public enterprises will be paid into this fund.
In the case of indirect Government interests, a public enterprise selling its interest in another public enterprise may be permitted by the Minister, on the advice of the Commission, to retain all or part of the proceeds of sale with the balance being paid into the Privatisation Revenue Account.
The funds being held on the Privatisation Revenue Account may with the approval of the Minister of Finance, be used for a limited number of purposes, namely, funding the direct costs of the Commission and the privatisation programme, funding the restructuring of public enterprises to be privatised including payment of retrenchment benefits, the remainder of the fund will be applied to projects included within the Government development budget.
End:
For Comments and Questions, please contact:
Collins Magalasi
Mobiles Malawi: +265 888 826 092 / +265 992 655 467
Email: cmagalasi@gmail.com
[1] Bretton Woods is the term commonly used to mean the International Financial Institutions (IFI) formed at the Bretton Woods meeting after the Second World War. In this report this term is used interchangeably with IFI or IMF and World Bank.
[2] This is more applicable in developing economies and in infrastructure and network industries. See Sunita Kikeri and John Nellis, An Assessment of Privatisation, The World Bank Observer, Vol 19, No 1. 2004.
[3] See Kalonga Stambuli, State Hegemony, Macro Effects and Private Enterprise in Malawi, SIGERE Working Paper 2002/34/pub Econ. Surrey Institute of Global Economics Research. 2002
[4] Seasonal markets are satellite markets of unit markets. They are mobile selling points that can be opened on demand with a temporary sales force. They operate mainly in the harvesting seasons and are mainly used to purchase produce from farmers. Unit markets have permanent structures such as small storage facility and office, with staff. They generally operate throughout the year and buy produce, sell produce and inputs. Parent markets combine permanent storage facilities with an administrative office that oversees unit and seasonal markets.
[5] The full text of the Privatisation Policy is in Annex 1.
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