Written by RAPHAEL TENTHANI
Former Finance Minister Goodall Gondwe, who has been widely credited for Malawi’s amazing economic growth when the country was touted to be the fastest-growing economy next to the oil-rich Gulf state of Qatar, has been brought back in cabinet to oversee the Joyce Banda administration’s tough Economic Recovery Programme. Does he still have what it takes to take Malawi out of the economic abyss? Raphael Tenthani spoke to the former International Monetary Fund (IMF) director. Excerpts:
Raphael Tenthani (RT): Mr. Minister, the 49 per cent devaluation and the attendant floatation of the kwacha have hit the ordinary citizen hard; prices of goods have shot through the roof and continue rising almost on a daily basis, do you think this is the pain worth going through?
Goodall Gondwe (GG): Yes, I think it’s very much worth it. Don’t forget that almost all countries around us have experienced what we are going through now; they felt the pain but they are out of it now and they have very resounding economies in operation now.
RT: But people’s pockets are being squeezed; the general view is that the medicine is too harsh…
GG: As I have just said, other countries have passed through it. When you have an exchange rate adjustment – and particularly the one that we have just experienced, I think now we are at 207 per cent of devaluation - it means that in fact prices will go up.
Fortunately when you go on and on you plateau somewhere and that’s where the pain stops. It means that incomes will also rise to that level and you have what they call a ‘general equilibrium of the economy’ and at that point in time things will run smoothly.
RT: But the ordinary Malawian doesn’t seem to see this equilibrium on the horizon…
GG: Well, I think that everyone stands to benefit. Just very recently we have had a very thriving black market which means that people were being paid salaries at an official underlying rate but paying the prices that were underlined by the black market, very high prices but with very low wages, that is even more painful.
I think things are going to improve progressively…sometimes slowly, sometimes quickly, but we will get there.
RT: As an administration, are you not concerned that the state of the economy could lead to civil unrest? I have the recent consumer protests in mind.
GG: As I have just said – and I will keep on saying this – we are not the first and certainly we will not be the last country to pass through this. I don’t want to quote countries in Europe but I will quote countries in Africa. You had that in Zambia where in fact at some stage you would never find commodities in shops. People just relied on the black market. There was complete disorder and chaos.
This is certainly true of Zimbabwe. We haven’t got that far ourselves and I think that within a very short time - because of what we are doing - we will have an economy that will be a thriving economy and will in fact lead us to the high double-digit growth that we had some five years ago.
RT: Elaborate, if you will, how you are going to accomplish all that. There is this Economic Recovery Plan that your government has put in place, what are the details?
GG: It’s in three parts, if I may describe it. The first part, of course, is to stabilise the economy. It means that the exchange rate will go as far as it can and it will be unified with the black market. And when we reach that position we will hold it and it will be stabilised.
If we do that therefore inflation also will fall because it’s really due to the exchange rate that we are having high prices.
So we will have both prices as well as the exchange rate stabilised. We will have a situation in which the interests rates themselves will fall. I think we are at about 25 per cent bank rate and as high as 41 per cent lending rates. These are extremely high and we have to come down to where they were before. I think we would like to reach a figure of about 10 per cent.
Therefore when we do that I think we will start growing the economy; people will start seeing normal conditions. And that is what’s going to happen; this is what happened in Zambia, this is what happened in Ghana, this is what happened in Tanzania and this is what happened in Mozambique.
RT: But, Mr. Minister, how did we reach this far? I mean, how does a country that was growing at 9.7 per cent in 2009 be at this precipice now?
GG: Well, quite simple: I think that sometime in 2010, somehow for some very strange reason, we abandoned the policies that worked. We let the exchange rate go on and on devaluing on its own and therefore we had a black market. We decided that we would go ahead with the fertiliser subsidy programme to an extent where the prices actually doubled and therefore public expenditure went very high.
And almost everything that should not be done was done and that’s why we are in a situation where we are.
I’m rather surprised myself that things didn’t go as badly as could have been the case. But things did go bad enough; we had a catastrophe, and there was need for us to hold back and actually start a recovery plan.
RT: There's also need to improve on relations with the donor community. The IMF programme that Malawi has re-embarked on, can you tell us a little bit about that and what’s expected of Malawi as a country?
GG: Normally the donors always feel that a country that is following the policies that are supported by the IMF is one which probably has a sound macro-economic management…it is managing its economy well. And they will give that country the aid that it needs.
If you don’t then you don’t get the support that you require from the donors. It’s all happened that when we abandoned (the IMF-backed) policies the donors also withheld their support. They have started supplying us with the budgetary support now because of what we are doing.
And I think with that - together with our own sound economic management - the economy will improve.
RT: Apart from the technical programme with the IMF, what are you doing yourself as a country to resuscitate the economy?
GG: Well, what is happening now actually is that apart from what is needed to get sound economic management we have added a few things of our own. Certain sectors that probably were not emphasised are being emphasised.
We think that mining, for example, is going to be a very important aspect of the Malawi economy. We have a lot of minerals and we think that in five years’ time probably mining will take over agriculture.
Secondly, Malawians work only about three months in a year. I’m talking about the rural Malawians. Malawi agriculture is there only when the rains are there. We think that with the ‘greenbelt initiative’, the irrigation programme that we are now putting in place, we will have in fact two crops or three crops in a year. That in itself is almost a doubling of GDP right there.
RT: Back to some of the policies you have embarked on, obviously the ordinary person is hurting, what is government doing to help the little man in the streets cope?
GG: It should be admitted – and I think I have admitted – that some of the measures…the policies that we are taking are pinching the poor Malawians. There is no doubt about it. There is no doubt at all that because prices are increasing Malawians have tended to be poorer than they were before and therefore something aught to be done to mitigate the situation.
We have social protection programmes; we have the public works programme, we have the cash-transfer programme…all these are intended to increase and enhance the incomes of the poorest of the poorest so that they encounter the problems of adjustment easier.
RT: Lastly, Mr. Minister, after all is said and done, there is a feeling that you in the ruling class are not feeling the pinch of the economic crisis. Look at the sleek, opulent, gas-guzzling Mercs you are driving in, that does not tell me there is a problem in Malawi…
GG: Well, my friend, I was in one of them! (Laughs) Look, ever since Malawi became independent – and that is about 50 years ago – ministers have been given Mercedes Benz. At first we were given them free by the Germans, then later on we had to pay for them. So it’s something that traditionally has been the case.
But this time it has been decided that in order for us really to try as much as possible to spend money on things that will be of direct support to the poor we should get rid of these cars, these opulent cars as you call them.
And we are going to do that this year. The next crop of ministers will not have Mercedes Benz; they will have ordinary cars and I think that you’re happy with that! (Laughs)
(c) The Maravi Post 2013