Malawi - Economy

Overview: At independence in 1964, Malawi was one of the poorest and least developed countries in the world. It was further disadvantaged when civil war in Mozambique strangled its export trade for over a decade, and when afflicted with long periods of drought, for example between 1991 and 1994, and in 2002. Yet it achieved substantial growth from the 1960s, based on agricultural exports, and especially tobacco.

However, the country’s dependence on agricultural commodities has meant that there have been periods of slow or negative growth, when commodity prices have been depressed or international demand subdued, or in periods of drought. At these times foreign debt grew far quicker than GDP and exports, and debt servicing became a heavy burden.

After one such period in the early 1990s, the government embarked on economic reforms, including stronger fiscal discipline, public spending cuts, greater accountability and a programme of privatisation, and was supported by a series of World Bank structural adjustment loans and IMF stabilisation programmes. In the 2000s, there was investment in some light manufacturing and especially in the production of clothing and textiles for export to the USA.

These reforms led to a gradual recovery, with better agricultural performance, higher commodity prices (notably for tea) and increased export earnings. However, during 2000, with a poor maize harvest, weaker tobacco prices and the growing burden on the economy of the loss of skilled workers and health care costs of HIV/AIDS, growth slowed and then in 2001 the economy shrank by more than 4%. It recovered in 2002 in a climate of persisting drought and generally maintained good rates of growth, becoming strong in 2006 (7.9%) and 2007 (7.4%). Having peaked at 45% in 1999, inflation had moderated to 10–15% by 2001; it then rose above 15% in 2005, peaked at 18% in 2006 and fell to 7.6% in 2007. In 2006, the country qualified for debt relief under the IMF/World Bank Heavily Indebted Poor Countries Initiative.

Trade: Exports of goods and services account for 27% of GDP and manufactured exports for 16% of total merchandise exports (2004). Principal exports are tobacco (the largest by far), sugar, tea, coffee and cotton, and principal imports are industrial inputs, petroleum, and capital and consumer goods. Main trading partners are the US, Germany and South Africa (exports); South Africa (44%) and Zambia (imports).

From 2007, when the Cotonou Agreement between the European Union and the ACP grouping of developing countries came to an end, negotiations proceeded on a series of regional Economic Partnership Agreements, to replace the preferential trade agreements of the Cotonou Agreement with WTO-compliant free-trade areas.