by Setting the scene
Malawi is a small, landlocked country in Southern Africa. It is densely populated with approximately 17.2 million people living within 118.5 million square kilometers, about 20% of which is taken up by Lake Malawi. About 85% of the population live in rural areas, while the rest live in one of Malawi’s four major cities. In 2014, the country’s GDP per capita adjusted by purchasing power parity (PPP) was 821.6 USD.
As approximately 80% of the labor force is engaged in agriculture, Malawi understands the growing hazards of climate change. In 2015, widespread flooding devastated crops in the Southern and Central Region. In 2016, weather changes from El Niño led to an especially dry rainy season, and many crops failed. La Niña is expected to cause additional problems leading into 2017. Like much of Southern Africa during the summer of 2016, Malawi is in the midst of a major food security emergency. About 6.5 million people are expected to need food aid this year.
Not the easiest place to start a new enterprise
The World Bank Ease of Doing Business score in Malawi is #141 worldwide and #16 in Sub-Saharan Africa (SSA). The areas in which Malawi struggles, and which are especially important to an entrepreneur’s ability to enter the market, are “Starting a Business” (#33 in SSA), “Getting Electricity” (#35 in SSA), “Getting Credit” (#33 in SSA) and “Resolving Insolvency” (#37 in SSA). According to these metrics, Malawi’s strongest points are “Dealing with Construction Permits” and “Registering Land,” at #4 and #7 in Sub-Saharan Africa, respectively.
Lack of access to credit is a key issue for Malawian businesspeople and presents a major opportunity for investors outside the country to fund new projects or businesses.
Access to finance
Finance is extremely difficult to access for the average Malawian. As of July 2016, the Reserve Bank of Malawi’s bank rate was 27% and commercial banks’ base lending rates ranged from 34% to 37%. These rates simply price out the majority of would-be borrowers. Microfinance institutions such as FINCA and Opportunity International Bank of Malawi (OIBM), as well as NGOs, have entered the space to provide financial services on a small scale.
Inflation is a major issue within the economy. As of July 2016, the 12-month inflation rate for the Malawian Kwacha (MWK) was 22.6%. The depreciating value of the kwacha against foreign currency makes it expensive to import products and inputs for manufacturing.
The Export Development Fund (EDF) is a government-run development finance institution that helps Malawians access financing. EDF seeks to reduce Malawi’s trade imbalance of nearly 2:1 by providing capital or temporary equity partnerships to companies that have high export potential. EDF currently offers loans below the rate set by commercial banks.
Government’s role in creating an enabling environment for business
There are several government initiatives that assist local and international investors entering the green business sector. One of the most vital is the Small and Medium Enterprise Development Institute (SMEDI). SMEDI works with local individual entrepreneurs and small and medium-sized businesses to provide business mentoring and connections to sources of finance. The agency has worked with over 633 individuals and enterprises during the 2015-2016 time period, which account for over 90 different types of small businesses. However, SMEDI has yet to work with any businesses that fall into “green” industries, such as energy production or recycling. Edwin H Mguwata, the director of SMEDI’s Business Training Coordination, said in an interview that he “absolutely welcomes” any businesses interested in green sectors to work with SMEDI.
In 2013, Malawi effected its National Climate Change Policy and National Climate Change Investment Plan (NCCIP). These policies seek to mitigate and prepare for climate change. The Malawian government allocated over 51 million USD and donors provided almost 55 million USD to implement climate change awareness programs and adaption projects, as well as invest in energy efficiency technology. The NCCIP also encourages the private sector to engage with the federal and local governments in Public Private Partnerships (PPP) facilitated by the government’s Public Private Partnership Commission (PPPC). These funds are shaping the physical, economic and social landscape of Malawi.
Sectors of interest
There are several sectors within Malawi’s economy that should be watched carefully by potential investors, including:
Solar Power/Energy Production: Most of Malawi’s energy comes from the state-run company Escom, but 93% of Malawians still lack access to steady electricity sources. This presents a huge opportunity for entrepreneurs to provide energy for the country. Handheld solar products cost as little as 10 USD, so if financed correctly they could be affordable to almost all Malawians.
Another potential investment is in miniature power grids. The Mulanje Energy Generation Authority (MEGA) is a privately owned miniature hydroelectric plant in the Mulanje District that provides direct and indirect benefits to over 9,000 local residents. MEGA is the country’s only licensed mini-grid, which suggests there is plenty of room to expand into other parts of the country if the legal environment continues to allow it.
Agriculture: Malawi’s largest exports are cotton, tobacco and sugar, and maize is the staple crop grown for consumption. These crops are water intensive but are primarily rain-fed and produce one yield per year. Investment in irrigation would increase the number of times that maize can be harvested to three times per year. Crops such as pigeon peas and sweet potatoes are being encouraged by the government as they provide diet and marketplace diversification in addition to the existence of a sizeable export market for pigeon peas.
Waste Management: Although Malawi remains predominantly rural, urban areas have grown very quickly despite limited budgets for public services and infrastructure development. For example, the population of Blantyre, Malawi’s financial hub and second city, has grown nearly tenfold between 1966 and 2015, to about 1 million residents. The city government does not have the capacity to meet the demand for human waste and rubbish removal services. Thus, there is room for the private sector to enter the waste removal market. Recycling of rubbish or reuse of human waste to make products such as manure or biogas is an environmentally friendly way to utilize the entire “value chain” of waste.
Industrial Hemp: The cultivation of industrial hemp was legalized by parliament in June 2016. Because of hemp’s similarities to marijuana, it is still a politically sensitive topic and there has been push-back from anti-drug and religious groups. Nonetheless, the government is committed to using hemp as a way to increase exports. The Minister of Agriculture announced that the government would invest 10 million USD in the production of industrial hemp. Local companies have already been involved in the hemp industry for years. One such company, Invegrow, has been in business since 2014 and explains that hemp can be used to make over 80 different products ranging from food to building materials to textiles. Proponents of hemp cultivation argue that products made from the material are more environmentally friendly than the same product made with traditional methods.
Tourism: The government has taken steps to improve the tourism sector. African Parks, an NGO, operates three of Malawi’s national parks and works to conserve the environment and attract tourism. Domestic and international tourists have plenty of options for accommodation as low carbon eco-lodges are commonplace throughout the country. On the policy side, Malawi and Zambia signed a memorandum of understanding to begin providing a “Univisa” to promote tourism in the two countries. Rather than apply for two separate visas, a visitor would be able to use the Univisa in both countries. The tourism sector brings in money from overseas and promotes wildlife and nature education and conservation.
Will Malawians’ entrepreneurial spirit win the day?
Malawi has quite a few challenges for the future. However, where the lay person sees problems, the entrepreneur sees opportunity. An example of the private sector developing the green business space is the Innovate Green Initiative. This organization was founded by entrepreneur Symon Sai Kalombe to spark an “innovation revolution to replace products and services that are harmful to nature and exacerbate climate change.” It is an entirely self-funded local NGO that brings together green businesses and promotes their interests to government and the public.
Another relevant company is mHub. mHub is a technology incubator that provides a physical space for young entrepreneurs to collaborate. The organization also arranges events, such as pitch nights, for innovators and those interested in technology and business to come together, share ideas and hopefully catch the eye of an investor.
Malawian entrepreneurs are tenacious. As Mr. Kalombe puts it, “our strategy is to go straight to the end user and not wait for policy to catch up. The demand for innovative green products is in Malawi. Investors and people thinking about getting into business should not be worried – we are working to better our country.”
Sources Cited
“Interview with Edwin Mguwata.” Personal interview. 29 June 2016.
“Interview with Symon Sai Kalombe.” Personal interview. 17 July 2016.
“Malawi To Invest K7.1 Billion In Industrial Hemp Cultivation.” Malawi Punch. 28 June 2016. Web.
Malawi National Climate Change Investment Plan 2013-2018
Malawi National Climate Change Policy 2013
Malenga, Bright. “WFP Launches Food Relief Operation in Malawi.” Malawi 24. 22 July 2016. Web.
“MEGA, Commercialising Micro-hydro Power in Malawi.” The Practioner Hub for Inclusive Business. Web.
Moto, Godfrey. “From Poverty to Wealth: A Solar Energy Perspective.” Wealth Magazine Malawi 15 Dec. 2015. Print.
Phiri, Grace. “Malawi, Zambia in Common Tourist Visa.” The Nation 26 July 2016: 13-14. Print.
World Bank World Development Indicators.
