On the projected 5.4% GDP Growth:
By Henry Kachaje
The Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has said it is difficult for the government to justify the technique that will be used to register a projected real Gross Domestic Product (GDP) growth of 5.4 percent this year considering the inactive private sector and harsh weather-hit agriculture sector.
MCCCI CEO, Chancellor Kaferapanjira said failure to pay a larger part of the MK157 billion arrears that government owes suppliers has resulted into inactivity among several businesses. … Most suppliers that government has failed to pay over the years have been forced to stop doing business or downgrade thereby rendering them unproductive for the economy.
“The president is talking about the projected growth of about 5.4 percent but I do not know where that will come from, if we consider the conditions on the ground. The agriculture sector, we know, will suffer a lot because of the weather conditions. I therefore do not see where such growth will come from….
He is talking about industrialization, he is talking about private sector thriving. But we have seen how much the economy has shrunk and I am telling you from the experiences of our members because we visit them and I can tell you there is literally no activity in the majority of the businesses.” – MCCCI – CEO
(Source: The Daily Times, Thursday, May 7, 2015)
Okay, if private sector does not know where economic growth will come from, based on their facts on the ground: where do we think our economic growth will come from? Here is Economics 101 simplified for “Non Economics” readers:
Government does not create wealth or economic growth. It simply creates an environment where wealth can be created. The wealth is created through businesses primarily. Businesses create jobs, thereby providing livelihood to citizens. The employed pay taxes to government just as the businesses also pay taxes. If more businesses are created and more people are employed, the economy grows and more taxes are collected.
A wise and prudent government uses the taxes to provide social services like health care, education, free fertilizer, e.t.c. to the general public. But in the case of Malawi, the government has allowed thieves to loot the taxes either in the name of Cashgate, or to bailout some individuals or businesses who borrowed money from some government owned banks but for some reason, don’t want to pay back, while still driving very expensive cars and living lavish lifestyles.
But then, the government has to still provide services to the general popolation. So it goes to ask the same private sector companies to provide it with goods and services. It issues out contracts for the businesses to build schools, hospitals, supply medicines, school materials, e.t.c. with the promise to pay them once the goods are supplied.
Then government defaults, (because the money was looted) and doesn’t pay the suppliers. It keeps telling them; “come tomorrow, maybe your cheque will be ready”. And months turn into years. Then the unpaid bills accumulate to about MK157 billion. The businesses then fail to continue to operate well or at full capacity as their capital is locked up in bad debts and can’t import any more raw materials.
But government has to keep people happy. So it tells them, “the economy is fine, it is growing, actually, we have accumulated more reserves for imports than in any other time in history”. Of course the businesses know that the growing reserves are largely because they can’t import any more raw materials because they are broke. Of course, the government also knows the truth, but hopes the people don’t”.
Do you now understand Malawian Economics? Good.