Country Brief

Country Brief last updated June 2009

Political History  

Malawi held its fourth Presidential and Parliamentary multiparty elections on May 19, 2009. President Bingu wa Mutharika of the Democratic Progressive Party (DPP) was re-elected to a second term with 66 percent of the valid votes. This is the highest endorsement in the past four elections.  His runner up, John Tembo of the Malawi Congress Party (MCP), had 31 percent of the valid votes. Former president Muluzi of the United Democratic Front (UDF) was disqualified from contesting by the courts on the grounds of having reached the maximum two terms one can serve as president, and his party went into an electoral alliance with the MCP. Muluzi took over the reigns as first president in a multi-party democracy from the MCP’s Hastings Kamuzu Banda who ruled the country under one party rule since independence from the British in 1964.

In Parliament, Mutharika’s DPP got 112 of the 193 seats, which is a 58.33 percent majority. A distant second is the MCP with 14.58 percent (28 seats), while UDF won 14 seats. The independents got 32 seats (16.68 percent), and MAFUNDE and AFORD got one each. All but three of the independent MPs have declared that they will support the DPP in the House. This gives the DPP more than two-thirds majority which would enable it sail its agenda through Parliament. Twenty-two per cent of the MPs are female, which is still short of the SADC minimum of 30 percent female legislators

The DPP is widely seen to have won the elections because of its development agenda.  For his second term of office which ends in 2014, President  Mutharika  has prioritized agriculture, education, transport, energy generation, rural development, irrigation and water development, youth development, and, anticorruption  as key development areas.

The Economy

Malawi has a relatively small economy. Its Gross Domestic Product is US$3.5 billion, and the average income per capita is US$250. Helped by improved macroeconomic management, favorable weather conditions and a supportive donor environment, high growth rates averaging 7.5 percent have been registered in the last 3-4 years, compared to below three percent in previous years. with the economy grew by 9.7 percent in 2008, and growth is projected at 6.9 percent in 2009. Inflation has been in single digits since 2007 and was 8.7 percent in May 2009. Interest rates have declined from 40% in 2003/4 to the current 15 percent. Malawi ’s population is 13.1 million, according to the 2008 census. The poverty headcount was measured at 40 percent by the 2007 Welfare Monitoring Surveyreleased in August 2008. Although at current rates of progress, Malawi may achieve half of the MDGs by 2015 (gender equality, under-five mortality, combating HIV/AIDS and other diseases, and developing global partnership for development), a number of social indicators still remain very poor such as 50 percent of under-five children are stunted.

Agriculture is the mainstay of the economy, but is very vulnerable to weather shocks. Although it contributes 35 percent of GDP compared to 46 percent by services and 19 percent by industry, the sector accounts for more than 80 percent of Malawi’s export earnings, and supports 85 percent of the population. Smallholders make up about three quarters of agricultural production and are mostly engaged in rain-fed maize production. Land distribution is unequal, with more than 40 percent of smallholder households cultivating less than 0.5 hectares. The country's export trade is dominated by tobacco, tea, cotton, coffee, and sugar. Tobacco earned Malawi $472million in the 2007/08 season.

There is increasingly more interest in the mining sector’s contribution to the economy. While the country now has a sense of its mineral potentialand applications for rights to explore minerals are increasing, a uranium mine is now operational at Kayelekerain the northern part of the country. Uranium is expected to contribute over US$200million annually or 25 percent, to Malawi’s export earnings annually. The World Bank is currently assisting Government review the mineral sector as a potential source of economic growth and development in Malawi.

Malawi reached the HIPC Initiative Completion Point in August 2006 and subsequently qualified for the Multilateral Debt Relief Initiative (MDRI). Malawi also qualified for the Compact Stage of the Millennium Challenge Account (MCA) in December 2007, and is in the process of developing a proposal for a five-year program. Malawi has also been the first country to benefit from the IMF’s Exogenous Shock Facility (ESF) which was approved in December 2008.

The Financial Crisis

The impact of the financial crisis on Malawi has so far been limited. The financial sector is small and less sophisticated, with two (out of nine) commercial banks dominating the banking sector. Foreign direct and portfolio investment levels are very small. However, most commercial banks have reported difficulties accessing foreign credit lines. Further, exchange rate movements in the west are having a negative impact on some foreign aid inflows to Malawi. For example, DFID’s inflows (in Malawi Kwacha equivalent) have been reduced by about 25 percent due to a depreciation of the British Pound against the United States Dollar.

In the medium to long term, the second round effects of the financial crisis could have a significant negative impact on Malawi through its impact on commodity exports and remittances. Malawi’s productive sector could be severely affected through reduced demand for the country's exports, mainly tobacco, sugar, and tea. These exports are particularly vulnerable because the EU and the U.S. are the principal destinations. Further, Malawi receives significant amounts of remittances from abroad (around four percent of GDP). Therefore, a slowdown in the world’s economy is likely to have a significant negative impact on Malawi’s current account.

Development Assistance and Donor Coordination

Malawi has relatively fewer donors compared to her neighbors. However, few as they are, they still contribute about 40 percent to Malawi’s annual budget. Overall, the main donors in Malawi are DFID, EC, World Bank, African Development Bank, Norway, and USAID. These account for over 90 percent of Malawi’s development assistance. Other donors include the traditional UN institutions (notably UNDP, UNICEF, WHO, and WFP), JICA, and GTZ.

Donors in Malawi are increasingly becoming more harmonized in the provision of their development assistance. To date, there is pooled funding for sector wide approaches (SWAps) in health and HIV/AIDS. Efforts are also underway to develop SWAps in Education, Agriculture, and Water. General budget support is also provided in a harmonized way through the Common Approach to Budget Support (CABS) group. The CABS currently consists of DFID, EC, Norway, and the African Development Bank. The World Bank, IMF, UNDP, and Germany are observer members. Preparations are underway for the World Bank to become a full member of the CABS. The Bank made a disbursement of its first Poverty Reduction Support Credit (PRSC I) through CABS in 2007. PRSC IIwas approved in May 2009.

The Government is increasingly taking the lead in coordinating donor support. As part of the Malawi Growth and Development Strategy process, the Government has developed a Development Assistance Strategy(DAS) which is a coordination plan aimed at improving the effectiveness of aid inflows to Malawi and defining what Government and Development Partners have to do to implement the Paris Declaration on Aid Effectiveness that was signed in March 2005. The DAS sets out principles, roles, and structures, and has an action plan and a monitoring framework. In pursuance of the aid effectiveness objectives of the DAS, the Government in March 2007 led a Joint Country Program Review (JCPR) process which involved all donors in Malawi. In 2008, in line with DAS the donors and Government are established sector working groups whose responsibilities include guiding prioritization of donor aid at sector level.

World Bank Group's Role

The Malawi Government has taken a leading role in defining its development agenda. The Government’s economic program is set out in the Malawi Growth and Development Strategy (MGDS). The strategy outlines the Government’s policy priorities for the five years between 2006/07 and 2010/11. The MGDS recognizes that strong and sustainable economic growth is key to reducing poverty. As such, it places greater emphasis on economic growth. To achieve this, the MDGS prioritizes six areas of agriculture and food security; irrigation and water development; transport infrastructure development; energy generation and supply; integrated rural development; and prevention and management of nutrition disorders, and HIV/AIDS.

The role of the World Bank is to support Malawi realize its development vision. Through a series of Country Assistance Strategies (CASs), the Bank defines how it is going to contribute to the development objectives set by the country. The latest CAS, which is the fourth for Malawi, is for FY07- FY10. During this period, the Bank seeks to help Malawi build the foundations for its prosperity by assisting in improving smallholder agricultural productivity and integration into agro-processing;  improving infrastructure and investment climate; decreasing vulnerability at the household level especially from HIV/AIDS and malnutrition; and sustaining improvements in fiscal discipline, budget execution, and accountability of the civil service.

The CAS outcomes are achieved through different projects. As of end December 2008, the World Bank has 14 active projects in Malawiwith a total commitment of US$407.9 million. Of this amount, 45 percent ($181.7 million) are credits and the rest grants. This support is distributed as follows: 29 percent for human development; 34 percent for infrastructure development; 24 percent for agriculture, rural development, and natural resources; seven percent for private sector development; and six percent is for public sector development.

The World Bank also provides technical assistance and advisory services on formulating sector investment strategies, assessments, and expenditure reviews. In 2009, the Bank in collaboration with other donors will finalize a Country Economic Memorandum whose title is Seizing Opportunities for Growth through Trade. The Bank  is also finalizing a mining sector review and a status report of the education sector.

The Bank and Agriculture: Agriculture is the foundation of Malawi’s economy. The World Bank program focuses on improving total food output and productivity, and strengthening risk management systems. These activities will complement on-going operations such as the Irrigation and Rural Livelihoods Project and the Community-Based Rural Lands Projects. The Bank has recently approved an Agricultural Development Program Support Projectworth $37.8 million to support investments aimed at improving food security and sustainable agricultural growth.

In helping improve agricultural productivity, the World Bank provides technical assistance (TA) and carries out analytical work. For example, the Micro-level Weather Insurance is a TA that facilitated the successful pilot of weather insurance and associated bank financing to 1300 smallholders in the 05/06 growing season.

The Bank and Infrastructure and Private Sector Development: The Bank seeks to support areas that would enable the private sector evolve as a driver of the economy such as infrastructure investments (electricity, transport and water) and help address limitations in the investment climate. The Business Environment Strengthening and Technical Assistance Project (BESTAP) seeks to support capacity development and investment climate reforms to accelerate economic growth in Malawi. The Business Growth Scheme is a component of BESTAP that is supporting SMEs with advice and financial support to enable them build their productivity, profitability and international competitiveness. The Bank continues to assess Malawi’s reforms and in its 2009 Doing Businessreport, the Bank Group established that Malawi did not carry out any reforms in the period June 2007 to June 2008, and ended up dropping in its ranking to 134/181 economies.

Infrastructure issues are being addressed through the Infrastructure Services Projectwhich is providing core infrastructure services in market centers and surrounding rural areas. The National Water Development Projectis also improving water supply in the main cities of Blantyre, Lilongwe, Mzuzu and Zomba. The Bank has also approved the Mozambique-Malawi Transmission Interconnection Project that will connect Malawi to the Southern African Power Pool (SAPP), allowing two-way energy trade between the two countries. This will ensure much-needed diversification in Malawi’s electricity supply and allow the export of any off-peak power surpluses. This project awaits approval by the Malawi Parliament.

The Bank and HIV/AIDS and Nutrition: The prevalence rate of HIV/AIDS among prime age adults (15-49 years) in Malawi is estimated to be 11.8 percent. The Poverty and Vulnerability Assessmentobserves that even in the best-case scenarios of decreasing incidence of infection, the lag between HIV infection and development of AIDS means that the disease will continue to impact Malawians well into the future. This makes behavioral change and treatment to be more critical issues. In FY09, the World Bank will supplement its HIV/AIDS financing through an HIV/AIDS Project to address behavioral change and treatment issues. New initiatives in HIV/AIDS will build on current support the Bank has been providing since 2005 through an HIV/AIDS pool funding, with activities on the ground coordinated by the National AIDS Commission.

Chronic malnutrition is endemic in Malawi. Thirty-five percent of Malawians consume insufficient amount of calories. Vulnerability of households to poor nutrition is another problem the Bank is addressing. The Bank would seek to understand the root causes of the nutrition problem in Malawi through a study on Barriers and Facilitators to Good Feeding Practices (FY08). Based on the study, the Bank will seek to inform and support the establishment of and identify financing for a coherent and appropriately targeted nutrition program.

The Bank and Governance:  In the past few years, Malawi has recorded improvements in macro-economic management. The World Bank seeks to support further improvements in public sector management, building on on-going initiatives such as the Financial Management and Transparency Project (FIMTAP) (FY03-08), which is addressing elements of public expenditure management, civil service reform, right sizing, and capacity building.

In its new projects to support governance improvements, the World Bank proposes to address weaknesses in the institutional system for fiscal discipline. The Bank also plans to finance the strengthening of the operational links between the central and local government. This will be done through new operations such as the Public Sector Swap/ MASAF III, which would be a pooled fund program that would seek to incorporate and rationalize numerous current donor efforts to improve public sector management and build civil service capacity. This project would also seek to strengthen the Government’s decentralization program by more closely integrating the operation of MASAF into the local government financing system. The Bank’s Development Policy Credits I-IV would also seek to support policy implementation aimed at strengthening the institutions of public management and improving transparency and accountability. 

Since 1966, the World Bank's support to Malawi has totaled US$2.6 billion supporting over 120 operations. Of the five World Bank Group (WBG) agencies, the  International Development Association (IDA), which focuses on low income countries, has the most operations. The International Finance Corporation( IFC) has a total committed portfolio of US$23.66 million as of June 30, 2008. This commitment is in telecommunications, financial markets and agro-industry. In telecommunications, IFC supports Zain Malawi with a US$15million loan. In the pipeline is another financing package to Zain to support its distributors. US$2.3million is to the financial markets - National Insurance Company (NICO), First Merchant Bank, and NBS Bank. IFC's most recent commitment is US$5 million to Bakhresa Malawi, a flour milling company.