GLOBALISATION,

STRUCTURAL
ADJUSTMENT
ANDSMALLANDMICRO-SIZED
ENTERPRISES
IN
MALAWI

in partialfulfilment
A thesissubmitted JohnMoores
of Liverpool
of therequirements
Universityforthedegreeof Doctorof Philosophy

By

GERTRUDE
ENNET
MWANDUMBA

June2007

LiverpoolJohnMooresUniversity

Schoolof SocialScience
ACKNOWLEDGEMENTS
Withwarmthanksandgratitude
to Professor andDrSarahParkerfor
IanCook,DrChrisMulhearn

theirsuperb for
andenthusiasmmyworkand
guidance fortheir
tireless input
creative aswell
asfor

editorialskills;my husband,Henryfor his supportandencouragement

theirinsightful throughout

to this study;my children,DalitsoandRuthfor bearingwithme

the five yearsI wascommitted

whenthegoinggottough;andmyparentsfortheirencouragement thestudy.
throughout

for the entrepreneur

the greathelprenderedby FelixMwandumba
I alsowishto acknowledge

field he
survey workwhich carriedout tirelessly
on mybehalf.
Special
thanks
arealso to
extended

the entrepreneurs and the Malawigovernment

themselves and non-g mentalofficerswho
overn

in the and
participated survey whom
without therewouldbenodatato analyse.

ii
 ABSTRACT

Globalisation
andStructural
Adjustment
Policies(SAPs)havedirectlyandindirectly
impacted
upon
the performance
of SMEs(SmallandMicro-sized
Enterprises)
in developing TheSME
countries.
sectoris recognised
to beplayinga keyeconomic
rolein employment incomegeneration
creation,
It offersopportunities
and povertyalleviation. for self-employment
and has beennotedto be
offeringsomehopefor the industrial
isationprocessin developing
countries.Globalisation
and
SAPsraisetheproblemof theabilityof SMEsin developing to compete
countries in a freemarket
Themainaimof thisstudywasto analysetheimpactof globalisation
globaleconomy. andSAPs
on SMEsin Malawithroughempiricalinvestigation.
A reviewof literature,
whichwasundertaken as
partof the study,formedthe contextual
framework for the empiricalinvestigation,
Theliterature
thatglobalisation
revealed to raiseeconomic
offersthepotential growthratesandat thesametime
exposesfirmsand economies to intensivecompetitivepressures.It also revealedthat global
andmarketliberalisation
capitalism of aidarepartof thecontinued
asa condition marginalisation
of
(sub-SaharanAfrica)SSA.As well as SAPsbeingblamedfor the problemsexperienced, other
reasonswhichincludepoor infrastructure,
smalland fragmented
markets,geography, natural
endowments
resource andpoorinformationtechnology, to theindustrial
havealsobeenattributed
development
failureandpoorSMEperformance
in SSA.

Analysisof the SAPs'impactwas basedon the perceptions

of relevantgovernment
and non-
officersandbusinessownerswhoresponded
governmental to a questionnaire
surveyconducted
on a sampleof SMEsin Malawi.The surveyrevealedthat tradeliberallsation has exposed
domestic fromimportsbeforetheyareableto increase
firmsto competition Theresultant
efficiency.
floodsof importshasreducedthe marketshareof domestic SMEproduction, for
andproduction
domesticmarketstillremainsmuchmoreimportant thanexporting.Thesurveyalsorevealedthat,
in general,Malawilacksthe physicalandsocialinfrastructure
to supportSMEgrowthandtrade
has not improvedthe performance
liberalisation of the manufacturing Those
sector. SMEswith
by lackof finance,highcostof inputs,lackof
potentialto growand competeare constrained
trainingprogrammes
appropriate capacitylimitations.
andtechnical Malawi'seconomic growthand
SMEperformance is alsoimpededby its landlocked
status, dependence on a singlecashcropfor
exportandpoorincentives for foreignanddomestic
investment. Thus,despiteSAPs,Malawidoes
notseemto havesucceeded in integrating
intotheglobaleconomy.
Thegeneralconsensus from
thisstudyis thatthecountryis not wellequippedto competeglobally.Thereis lackof business
skillsandknowledge
to recognise
theopportunities
andbenefits
of globalisation.

iii
TABLEOFCONTENTS

Acknowledgements #
Abstract fii
Listof Maps,Figures,
BoxesandTables ix
Acronyms xii

ChapterOne: GeneralIntroduction I

1.1Aim 1
1.2Objectives 1
1.3Purpose of theResearch
andMotivation 1
1.4Conceptual
Framework 4
1.5Summary Outline
andChapter 7

ChapterTwo:TheoreticalConceptsandLiteratureReview 9
2.1Introduction 9
2.2TheConcept
of Globalisation 9
2.2.1Definition
anddrivingforcesof Globalisation 10
2.2.1.1Economic integration,
SSAandSMEs:anoverview 11
2.2.1.2Impactandimplications Globalisation
of Economic 22
2.3TheConcept Adjustment
ofStructural Programme 24
2.3.1Historical Economies
ofAfrican
context 25
2.3.1.1SSAandtheColonial
era 26
2.3.1.2
Firstdecades
ofindependence: through
import-substitution to
neoliberal
policies 29
2.3.2Consequences
ofSAPmeasures 35
2.4Economic
Performance
of SSAsinceindependence 39
2.4.1SSA:Integration
withtheglobaleconomy 43
2.4.2SSAandRegionalIntegration 52
2.4.3SSA:Opening
upandFIDI 56
2.5SSA:SMEs,Manufacturing
andIndustry underthepolicychanges
performance 60
2.5.1SSA:theManufacturing
industry 61
2.5.2SSA:theSMEsectorunderSAPs 64
2.5.2.1
SAPimpactonSMEperformance 65
2.5.2.2
SMEoperating
environment
and in
experiencesselected

iv
 SSAcountries 70
2.6 RecentInternational
PolicyDevelopments:
post-SAPs 74
2.7 Summary 79

Chapter
Three:Research
Methodology 81
3.1Introduction 81
3.2StudyApproach 82
3.3Theoretical
Context 83
3.3.1Linking
Theory
to Evidence 84
3.4Survey
Coverage 90
3.4.1Sample
Size 92
3.4.2Sample
Design
andSelection
Procedure 94
3.4.2.1Sampling
Theory 95
3.4.2.2
Sample
Selection 96
3.5DataCollection
Methods 97
3.5.1Interviews 98
3.5.1.1
PhaseI Interviews 99
3.5.1.2Phase11
Interviews 100
3.5.2Questionnaire
Design 102
3.6DataProcessing,
Analysis
andInterpretation 103
3.7Reflexivity, andValidity
Reliability 104
3.8Summary 105

Chapter
Four:Malawi,
Historical
andEconomic
Developments 107
4.1Introduction 107
4,2Geographical
description,
Historical andSocio-economic
background 107
characteristics
4.2.1Geography
andHistorical
Background 107
4.2.2Population
distribution
andgrowth 109
4.2.3Environmental
factors 110
4.3Post-independence
Economic
Trends
andPolicies
4.3.1TheMalawi
Economy
beforeSAPs
4.3.1.1
Prices 113
4.3.1.2Incomes,
Wages andEmployment 115
4.3.1.3
Agriculture
andFoodProduction 115
4.3.1.4
TheIndustrial
Sector 116

V
 4.3.1.5External
Debt,ExchangeRateandBalance
of Payments 117
4.3.2Theperiodof economic
crisis,1979-81 118
4.4TheEconomic (1981onwards)
andPoliticalReforms 119
4.4.1Structural
Adjustment Loans 121
4.4.2Sectoral
Adjustment
Loans 122
4.4.3ExtendedFundFacilityandEnhancedStructural Facility
Adjustment 125
4.4.4FiscalRestructuring
andDeregulation
Programme 126
4.4.5Political
transition liberalisation
andeconomic 127
4.5Impactof thereformmeasures 129
4.5.1ImpactontheMalawieconomy asa whole 129
4.5.1.1PolicyimpactontheSmallholder
sector 136
4.5.1.2PolicyimpactontheEstatesector 137
4.5.1.3PolicyimpactontheExternal
sector 137
4.5.1.4PolicyimpactontheIndustrial/Man ringsector
ufactu 139
4.5.1.5PolicyimpactonSMEs 141
4.6Malawi:BeyondSAPs 143
4.7Summary 146

EnterpriseDevelopment
ChapterFive:Small-Scale in Malawi 148

5.1Introduction 148
5.2Definitions 148
5.3TheSMEsectorin Malawi 151
5.3.1Development enterprises
of small-scale 151
of SMEsin Malawi
5.3.2TheRoleandDistribution 153
5.4Summary 162

ChapterSix:SurveyFindings 163

6.1Introduction 163
6.2Analysisof theData 164
6.2.1Analysis
of findingsfromPhaseI investigation 164
6.2.1.1Globalisation 164
6.2.1.2Structural Programme
Adjustment 166
6.2.1.3TradeLiberalisation 167
6.2.1.4Competition 170
6.2.1.5Strategy
andPolicyissues 172

vi
 6.2.2Analysisof findingsfromPhase11investigation 173
6.2.2.1Characteristics
of theEntrepreneurs 175
6.2.2.2Characteristics
of theEnterprises 178
6.2.2.2.1
Profile 178
6.2.2.2.2
Procurement
of rawmaterials 180
6.2.2.2.3
Markets
supplied 180
6.2.2.2.4
Marketing
andCompetition 182
6.2.2.3Business
Operating
Environment 184
6.2.2.3,1Mainproblems andimpactof adjustment 184
6.2.2.3.2Impacton production
andemployment 188
6.2.2.3.3Impacton investment 190
6.2.2.3,4Impacton products
andmarkets 192
6.2.2.3.5Impactonexports 192
6.2.2.3.6Impacton imports 194
6.2.2.3.7Impactoncompetition 196
6.2.2.3.8Impactonviability 197
6.2.2.3.9
Constraints of the
withregardto continuation
Adjustment 197
6.2.2.3.10
Financing andaccessto credit
enterprises 198
6.2.2.3.11
Regulatory
environment 200
Satisfaction
6.2.2.4GeneralEntrepreneur 202
6.2.2.5Comparison
of Surveyresults 203
6.3Summary 205

ChapterSeven:AnalysisandDiscussions 208
7.1Introduction 208
7.2Discussions 208
7.2.1Tradeliberalisation 209
deregulation
7.2.2Domestic andpublicsectorrestructuring 212
7.2.3FiscalandMonetary
reforms 213
7.2.4Supportingsectoralinitiatives 214
7.2.5Impactof Globalisation 217
7.3Policyimplications 220
7.4Summary 225

vii
ChapterEight:Conclusions,ReflectionsandSuggestions
for Further
ResearchWork 227
8.1Introduction 227
8.2Conclusions 227
8.3Furtherresearchwork 231
8.4Reflections
andfinalremarks 235

References 238

Appendices 265
Appendix
1 in Malawi
SALProgramme 265
Appendix
2 Introductory
Statement interviews
to thein-depth 267
Appendix
3 Detailsof governmentalandNGOs for PhaseI interviews 268
Appendix
4 Transcript interviews
fromoneof thein-depth 270
Appendix
5 Detailed from
responses in-depthinterviews 272
Appendix
6 Listof Documents
obtainedfromin-depthinterviews 276
Appendix
7 Questionnaire 277

viii
LISTOFMAPS,FIGURES,
BOXESANDTABLES

Maps
1.1 AfricaRegion
sub-Saharan 2
2.1 European totheAfrican
Claimants Continent
in 1913 27
3.1 Malawi
- Regions
Administrative andDistriicts 91
Figures
1.1 Framework
Conceptual 5
2.1 Growthin volumeof worldmerchandise (%)
tradeandproduction 11
2.2 Africa'sshareinworldtradeovertheyears(%) 13
2.3 Shareof PrimaryCommodities (excluding
fuels)in all merchandise
tradevalues,Exportsin selectedregions,1970-2000 14
2.4 Regional
shareof ManufacturedExports 15
2.5 Growthof Industry annual%growth)forselected
Output(average
Regions(1965-2004) 18
2.6 SSA'sDebtBurden- TotalExternalDebt,1970-2005(US$billion) 21
2.7 A possible fora liberalisation
sequence programme 38
2.8 RealpercapitaGDPgrowthrate(%),selectedregions 40
2.9 SSAandDevelopingAsia:Inflation(%),1975-2004 42
2.10 Shareof WorldMerchandise exportsbydeveloping
regions 45
2.11 2004(asaverage
ExportswithinAfricanRegions, %of countries'
totalexports) 54
2.12 SSAcountries
InwardFDIStockas%of GDP,selected 59
2.13 HIPCProcess 75
3.1 CausalModelof SMEperformance 84
3.2 Conceptualisation
the
of relationship theory
between anddata 85
3.3 SAPappraisal
methodology 88
3.4 Research anddatasources
objectives 98
4.1 (index1980= 100)
Malawi:Termsof Trade,1960-80 114
4.2 Malawi:Balance
of Payments 1965-85
indicators,
(US$million,currentprices) 118
4.3 Selected
indicators:
1982-88 actualagainstplannedaverages 132
4.4 Declineof thevalueof MalawiKwachato 1 US$overtime 138
5.1 Enterprise (basedonemployee
categories numbers) 150
5.2 SMEsbysub-sector
of activity 155

ix
 5.3 Profitas%ofSalesbyactivity 156
6.1 Sampled Enterprises
bysectorofactivity 174
6.2 Reasonsforstarting
ownbusiness 177
6.3 Satisfaction
withbusiness
performance 202
Boxes
6.1 Respondents' ontheGlobalisation
perspectives concept 165
6.2 Respondents' ontheSAPconcept
perspectives 167
6.3 Respondents' onTradeLiberalisation
perspectives 168
6.4 Respondents' onCompetition
perspectives 171
6.5 Respondents' onSMEstrategy
comments andpolicy 172
Tables
2.1 Shareof merchandise
tradebyselected andyears(Billion
regions
dollars
& percentage) 12
2.2 Averageannual inManufacturers
growth ValueAdded 17
2.3 Structure
of Output
forSSAValueAdded
asa%ofGDP 17
2.4 GrowthofOutput (average %growth),
annual SSAcountries 19
selected
2.5 Integration
withtheglobaleconomy 44
2.6 Information
andTechnology
indicators 2003 49
SSAcountries,
inselected
2.7 Market-oriented
pro-growth
economicreforminAfrica,
selected 57
countries
2.8 Share
of FIDIinflowstodeveloping (%),1970-2004
regions 58
2.9 Selected forselected
statistics SSAcountries,
2003 61
2.10 Selected inselected
policymeasures SSAcountries 65
2.11 Impact
of inappropriate adjustment
ofstructural
sequencing measures 67
2.12 SMEcharacteristics,
comparison SSA 2003
ofselected countries, 71
2.13 TopTenConstraints
(identified
bysmallenterprises
asmajororvery
severe),
selectedSSAcountries, ofproblems
ranking
countiy 72
4.1 Malawi,
Statistical
Trends,
1970-2005 110
4.2 Economic
Malawi: structure fromaround
andperformance 113
independence
4.3 Growth
ratesofGDPanditscomponents,
1982-1986 130
4.4 Comparison
of Planned
toActualOutcomes
of Malawi's
Adjustment
Programme,
1982-88 131
4.5 KeyMacroeconomic
Indicators:
1987-1992 133
4.6 KeyMacroeconomic
Indicators:
1993-1999 135
4.7 Recent
Macroeconomic
Indicators:
2000-2004 144

x
5.1 Characteristics
of sampled bysize
enterprises 154
5.2 Characteristics
of sampled bygenderof owner
enterprises 154
5.3 Dominant (%)
SMEactivities 156
5.4 SMEcontribution
to household (%)
incomes 157
5.5 Business (%)
placeof operation 157
5.6 Lifespan bygenderandsector(%)
of businesses 158
5.7 forbusiness
Mainreasons closure 159
5.8 Business
operation (%)
constraints 160
5.9 SMEsreceivinganyformof assistance 160
6.1 Characteristics
of sampleentrepreneurs
andenterprises 175
6.2 Mainclientelebysub-sector and
of activity,sizeof enterprise
createdin eachyeargroup(%)
numberof enterprises 181
6.3 Maincompetitors
bysub-sectorof activity,sizeof enterprise
createdin eachyeargroup(%)
andnumberof enterprises 183
6.4 Maindifficulties
in everyday bysizeof theenterprise
operations 185
6.5 Impactof adjustment on production
andemployment bysizeof
enterpriseandyearof creation(%) 188
6.6a Impactof theadjustmenton production by
andemployment
of activity(%)
sub-sector 190
6.6b bysub-sector
Impactof theadjustment of activity 191
6.7 Impactof theadjustment bysizeof theenterprise 193
6.8 Financing andaccessto credit(%)
of enterprises 198
6.9 Comparison
of Survey Malawi
results: Survey
GEMINI with
OwnEntrepreneur
Survey 203

xi
 ACRONYMS

ADB/AfD13 AfricaDevelopment
Bank
ADMARC Agricultural
Development
andMarketing
Corporation
AIDS AcquiredImmune
Deficiency
Syndrome
ARIA Assessing Integration
Regional inAfrica
ASAC Agricultural
SectorAdjustment
Credit
BEED Business
Expansion
andEntrepreneurship
Development
Bop Balance
of Payments
CEMAC CentralAfricanMonetary
andEconomic
Community
CGE Computable-general
Equilibrium
COMESA Common
MarketforEasternandSouthern
Africa
CSR CentreforSocialResearch
DEMATT Development
of Malawian
TradersTrust
DfID Department
for International
Development
DTI Departmentof TradeandIndustry
EAC EastAfricanCommunity
ECCAS Economic
Community
forCentralAfricanStates
ECfA Economic
Commission
forAfrica
ECOWAS Economic
Community
of WestAfricanStates
EDDRP Development
Entrepreneurship andDrought
Recovery
Programme
EFF Extended
FundFacility
EIU Economic
Intelligence
Unit
ESAF Enhanced Adjustment
Structural Facility
ESCOM Electricity
SupplyCorporation
of Malawi
EU European
Union
FAO FoodandAgricultureOrganisation
FDI ForeignDirectInvestment
FRDP FiscalRestructuring
andDeregulation
Programme
G8 Groupof Eightwealthycountries:
UnitedKingdom, Germany,
Russia,
Japan,Italy,Canada,
FranceandUnitedStatesofAmerica
GDP GrossDomestic
Product
GNP GrossNationalProduct
GATT General
Agreement onTariffsandTrade
GEMINI GrowthandEquitythroughMicro-enterprise andInstitutions
Investments

xii
 HIPC Heavily
Indebted
PoorCountries
HIV Human
Immunodeficiency
Virus
IBRD International
BankforReconstruction
andDevelopment
(alsoreferred
toastheWorldBank)
ICT Information
Communication
andTechnology
IDA International
Development
Association
IDC Industrial
Development
Corporation
IMF International
Monetary
Fund
ITPAC Industrial
andTradePolicy
Adjustment
Credit
LDCs LeastDeveloped
Countries
MCI Ministry
of Commerce
andIndustry
MCP MalawiCongress
Party
MDC Malawi
Development
Corporation
MDGs Millennium
Development
Goals
MEPC Malawi
Export
Promotion
Council
MIPA Malawi
Investment
Promotion
Agency
MK MalawiKwacha(currency
unit)
MNCs Multi-National
Companies
MPH MakePoverty
History
MPRSP Malawi
Poverty
Reduction
Strategy
Paper
MSE MicroandSmallEnterprises
MVA Manufacturing
ValueAdded
NEC National
Economic
Council
NGOs non-gove
mmental
organisations
NSSA National
Sample
Survey
ofAgriculture
NSO National
Statistical
Office
OECD Organisation
forEconomic andDevelopment
Co-operation
OPEC Organisation
of thePetroleum Countries
Exporting
PAP PovertyAlleviation
Programme
PCL PressCorporation
Limited
PGL PressGroupLimited
PRGF PovertyReduction
andGrowthFacility
PRSP PovertyReduction
Strategy
Paper
PSIP PublicSectorInvestment
Programme

xiii
RA Research
Assistant
RER Rate
RealExchange
SACU AfricanCustoms
Southern Union
SADC Community
SouthAfricaDevelopment
SALs Loans
Adjustment
Structural
SAM Matrix
SocialAccounting
SAP Structural Programme
Adjustment
SAPs Policies
Adjustment
Structural
SECALs Sectoral Loans
Adjustment
SEDOM Development
SmallEnterprise of Malawi
Organisation
SMEs SmallandMicro-sized
Enterprises
SMP StaffMonitored
Programme
SPS Sanitary Standards
andPhytosanitary
SSA Africa
sub-Saharan
TBT Technical to Trade
Barriers
TNC Corporation
Trans-national
UDF UnitedDemocratic
Front
UN UnitedNations
UNCDF Fund
UnitedNationsCapitalDevelopment
UNCTAD of TradeandDevelopment
UnitedNationsConference
UNDP Programme
UnitedNationsDevelopment
UNICEF UnitedNationsInternational Fund
Children's
UNIDO UnitedNationsIndustrial Organisation
Development
US/USA UnitedStatesofAmerica
USAID Development
UnitedStatesAgencyInternational
WB WorldBank
WDI Indicators
WorldDevelopment
WIDER WorldInstitute
forDevelopment Research
Economics
WTO WorldTradeOrganisation

xiv
 ChapterOne

GeneralIntroduction

1.1Alm
The principalaim of this researchwas to analysethe impactof globalisation
and Structural
AdjustmentPolicies(SAPs)on SmallandMicro-sizedEnterprises
(SMEs)in Malawi.

1.2Objectives
Theresearch
aimwasachieved throughthefollowing
objectives:
I. Assessthe impactof Structural
AdjustmentPolicies,in particular
tradeliberalisation,
and
consequences onthesmallandmicro-sized
of globalisation sectorin Malawi
enterprise
2. Analysisof theresponse of theSMEsto adjustment
measures,thus,findoutif theSMEs
werebecoming morecompetitive in termsof exportgrowthand
andefficientas predicted,
increaseinshareof domestic
market
3. Determine
of the localproduction
anddistribution amongtheSMEsthemselves
networks
andalsowithlargeenterprises for makingnew
andif freetradeis creatingopportunities
andprofitableconnections theenterprises
amongst
4. Critically
analysetheneweconomic of 'freetrade'to seeif it is suitableforthe
environment
development growthof SMEs.
andsustained

1.3PurposeandMotivationof the Research

Therewerebothpersonalandacademic reasonsfor carryingout this study.To beginwith,the
researchwasbornoutof mypersonalexperience
of livingin a countrywhichhadadoptedSAPs
beforebecomingdemocratised.
Soon after Malawibecamea democraticcountry(1994),1
observedsomechangesin the economicandsocialenvironment.
As the natureof the political
changedso did the businessenvironment
environment andattitudestowardssmallbusinesses.
Theseobservations
sparkedan interestin SMEsandin particular andbenefitsposed
theproblems
by SAPs.Theideaof thisresearchbeganwiththe question:
are SMEs in Malawi from
benefiting
SAPsandglobalisation?
Thisbroughtabouta numberof questions interplay
relatedto thecomplex
between SAPsandSMEexperiences
globalisation, in a freemarketeconomy.
I wascuriousabout
a specificphenomenon,whichis theimpactof globalisation
andSAPsonSMEperformance in sub-
Saharan Africa(SSA),in particular,
Malawi.ThetermSSAhasbeenusedin thisstudyto describe
thosecountriesof theAfricancontinent
thatareto thesouthof theSaharadesert.It containsmany
of theleastdevelopedcountriesin theworld,withthoseregarded the
as world'spoorest, with less

1
thanUS$400percapitahighlighted for choosingthe
in the Map(Map1.1).Themainmotivation
topic was personalinterestin people,attitudesand institutionsand specialinterestto investigate

economic livesof manypeoplein a globalising

policiesaffecting world.

Thestudytopicwasalsochosenbecauseit linksin withmyacademic

background:in business
and
analysis.My personalaim was to
studiesand a specialinterestin socio-economic
population
globalisation
understand andSAPs, in trade
particular liberalisation
andits impact
on SMEs,
SMEs.
SAPsandGlobalisationwere'hot'topicsof the late1980sand1990sin thesocialandeconomic
disciplines
academic of development There
studies. havebeenmany both
studies, theoretical
and

2
 that havebeencarriedout in an attemptto determine
empirical, the impactof globalisation
and
SAPson economic development
of SSAcountries.In the pastotherstudieshavefocusedon a
conceptrangingfromglobalisation,
specificsocialor economic SAPsto SMEcharacteristics and
development, littleworkfocusingon theinternalandspecificdynamics
withcomparatively of local
production
systems
andsmall-scale in anopeneconomy.
producers

Theformulationof a moreprecisesetof myresearch owedmuchto a reviewof literature

questions
and SAPs(coveredin the next chapter).The reviewuncovered
on globalisation a wealthof
literatureabout these concepts,and what was lackingfrom most of this work was a
conceptualisation andthe SAPsrolein SMEperformance
of globalisation andan exploration
of
SMEexperiences This
andorientations. is whenI decided
to carryouta studywhichtooka holistic
towardstheseconcepts,thuslookingat howthe conceptslink up andimpacton one
approach
I
another.wasespeciallyinterested
in the androleof
contribution in
SMEs Malawi,
as a casestudy
forSSAcountries
to theeconomic globalprocessthroughtrade.

Malawiwaschosenbecauseit is oneof thepoorestcountries in theSSAregionandas myhome

countryI havespecialinterestin its socialand economic In additionI wantedto
development.
acquireinformation
fromindividuals
whichwould helppolicymakersdevelop strategiesto benefit
thedevelopmentof the SMEsectorin the This
country. research by
started looking at whatpolicy
was,at the timeof this and
study, how it wasbeing by
affected with
globalisation, the main focus
beingon howsmallenterprises canandwerecopingandadapting to thedemands of a globalising
worldeconomy. I believethat in for
order a completeand proper economic integration
of the
developingcountriesinto the globaleconomyto occur,it has to start from the very small
into
connecting globalmarketsvia mediumand
enterprises large in
enterprises localeconomies.
Moreoverthemajorityof theworldpopulation andall policychangesultimately
aresmallproducers
impactSMEsin one way or another.It is hopedthat by shiftingto an analyticalratherthan
prescriptive this
perspective, has
research brought
outdifferent
aspects
of theworldintoview.

As thisresearchanalyses
howlocalproducers in Malawiresponded
to a competitiveenvironment
broughtaboutbyfreetradepolicies,it is hopedthatan important
outcome willbeinformation
which
wouldenableSME policy-makers, support institutions
and the SMEs to see themselvesas
gaininginsightinto skillsand capacityrequiredto achievesustainable
entrepreneurs, growth,
achieveenhancedproductivity
and improve their In
competitiveness. to
order feedbackthe results
of the studyto relevantstakeholders,
a summarised will
report be distributed
to and
government

3
 NGOparticipants
of thisstudy,whoarealsotheindividuals
involvedin national
economic
policy
formulation.
andstrategy Thisreportwill alsobe madeavailable
to thoseentrepreneurs
who
aninterestintheresultsof thesurvey.
expressed

It is hopedthatfuturepolicyformulation by theentrepreneurs
theviewsexpressed
will assimilate
themselves andalsothatthe studymakesa theoretical to the literature.
contribution Theauthor
wouldnotliketo viewthisworkmerelyas a theoretical
exercisebutratheras a meansof resolving
facedbysub-Saharan
problems AfricaSMEsin thecontextof SAPsandglobalisation.

1.4ConceptualFramework
Thissectionpresents
theconceptual frameworkwithinwhichthestudywascarriedout(Figure1.1).
The Conceptual Framework aidedin developingandselectingrelevantresearchquestionsand
andin identifying
realisticmethods, threatsto thevalidityof theresearch
potential The
conclusions.
Framework
highlights to eachother.The
the mainthemesof this researchandtheirrelationship
framework
conceptual is usefulfor discussing of theeconomic
impactsof globalisation processes
andSAPson SMEs,Centralto thiswork,is the"FreeTrade"concept.Withfreemarketeconomy,
"emphasis
is on individual on the virtuesof marketcompetition
enterprise, the
andon restricting
" (Ravenhill,
roleof thestateto whatis requiredto ensurethatmarketscanoperatesuccessfully...
ed. 2005:p20).The"FreeTrade"concepthasbeenusedhereto understand in
the differences
andrealbenefitsandcostsof tradeliberalisation
perceived to SSAcountries, Malawi.
specifically

Tradeliberalisation
is just oneof thefourmainSAPmeasures whichthisstudyfocuseson.The
othersare domesticderegulation of the and
economy,monetary fiscalreforms,and supporting
sectoralinitiatives.
The mainpremisesof eachof thesemeasures below(World
are presented
Development
Report,severalyears).

1. Tradefiberafisation
In mostSSAcountries, trade
non-tariff barriers
playeda prominentrolein foreigntrade.Foreign
exchangeallocation
andimport-licensing
regulations
werethe keyinstruments usedto import
effect
In additionto protecting
substitution. domestic theseinstruments
industries, policyrnakers
endowed
withpowerto directscarceresources
suchas foreignexchangeto areastargetedby government
Tradepolicyreformhasbeencentralto the adjustment
objectives. programmessupported by the
WorldBank(WB)loansandIntemational Monetary
Fund(IMF)programmes
sincethe 1980s. It has
beenarguedthat,if tradebarriersareremoved, from
competition abroadwouldforce firmsto cut

4
 costs, improvequality and seek new ways of producingand selling their goods (World Bank
1987a).

Figure1.1:ConceptualFramework

EconomicGlobalisation sub-SaharanAfrica economies

/ Economic
Integration

Trade ForeignDirect
Investment(FDI)
IF
Highlyuneven ..........................
(Westerndomination)
........................
...
........................

.........................
Someintegration
of
Asianeconomies FREET
4 ..........................

-increasein investment dueto:

firms -shrinkingmarketshare
-competitive
-increasein productivity -increasedcompetition
facilitating integratio -expM growth -increasein impOs
intotheglobal -economicgrowth -poordomestic policy
economy growth
-industrial -otherexternalities
e.g.
debt,lackof FDI
IF -jobcreation
14.......................
....
Africalargelypassedby -accessto markets
overseas ,,_poor
infrastructur/

...........................
...........................

Movetowards increased
lntegratioý ; iarginalisation
.....

Theshiftfromimportsubstitutionto exportorientationnecessitates
a changein foreigntradepolicy.
As such,tradeliberalisationassumesthe mostimportantplacein debateson structuraladjustment

and it is intendedto shift resourcesto the exportproducingsectorsandawayfromthoseproducing

for the domesticmarket,The presumptionis that tradeliberalisation
will raisethe growthof exports
and importsalthoughthe implicationsfor the tradebalanceandbalanceof paymentsare uncertain

5
 becausethis dependson the relativeimpactof liberalisation
on exportand importgrowthand
pricesof tradedgoods(Santos-Paulino
andThirlwall
2004).

2. Domestic
deregulation
Poor growthperformance, high levelsof unemployment
and declininglivingstandardsare
A shift awayfrom government
attributedto the highlyregulatednatureof SSA economies.
of the economyto a moremarket-base
regulation policyregimeis seento createan 'enabling
ýovernment
environment' (butnotexclusively)
especially for smallscaleenterprises.
Removal of
controlsshouldimprovethe businessenvironment,enableentrepreneurs to respondquicklyto
emergingmarketopportunities thatimproves
andpromotecompetition andproductivity.
efficiency
Domestic
deregulation andbusiness
of theeconomic environment takesa highprofilein theMalawi
SAPs.

3. Fiscalandmonetary
reforms
Monetaryand fiscalpolicyobjectives
withinthe Structural Programme
Adjustment (SAP) include:
curtailmentof government spendingto reducethe budgetdeficit;removalof subsidiesto
(company
parastatals or agencyownedor controlled
wholly or partlyby the including
government)
foodsubsidies; interest
restrainton growthin moneysupplyto curbinflation;market-determined
rate policiesto achievepositivereal interestrates.Thesemeasuresare intendedto achieve
producefor the domesticmarket,
externaland internalbalance.Giventhat smallenterprises
stimulation
of domestic is
incomes thekeyto theirgrowth.

4. Supporting
sectoralinitiatives
SAP measurescombinedwith privatesectorand donorinitiatives,form the basisfor a small
enterprise
promotional
programme uponwhichgovernment and donor effortscouldbe focused.
The assumptions factorsare more
underlyingthese sectoralinitiativesare that supply-side
to small-scale
constraining enterprise factors.Supply-side
activitiesthandemand-side constraints
being:accessto andcostof finance;a restrictivebusiness
andregulatory
environment;inadequate
managerialand entrepreneurial skills; and poor communication and If
infrastructure. reform
measures,whicharesupposed to helpSMEsmovefromlow-productivityinformalsectorto higher-
formalsectoractivities,aresuccessfully
productivity theyarelikelyto openup new
implemented,
economicactivitiesfor smallenterprises.
However,the sizeandrelativeisolationof SMEshave
inhibited
theirabilityto achieveeconomies
of scaleandtheyfacetremendous in entering
difficulties
bothnationalandglobalvaluechainsdrivenby largetrans-national These
corporations. difficulties

6
 coupledwith other constraints,such as limitedtechnicaland managerialskills, insufficient
knowledgewithregardsto lawsandregulations and,moreimportantly, financing,
obtaining urgently
needto beovercome institutional
withspecialist support.

Aspresented in Figure1.1,thesemeasures,
in particular
tradeliberalisation, fortheir
werestudied
to integrate
potential SSAintotheglobaleconomy. Thesemeasures havebeenusedto analyse
theimpactof theSAPonSMEdevelopment in Malawi,Thefirstthreemeasures,whentheywere
formulated, theirimpacthasbotha directand
at theSMEsector,however,
werenottargeted
indirect
bearing
onSMEsinMalawi (seesection
2.6.2).

1.5SummaryandChapterOutline
Themainaimof this researchwasto analysethe impactof SAPsandglobalisation
on SMEsin
Malawiandto findout if the SMEswerebecoming in termsof exportgrowthandsee
competitive
howtheyresponded to changesin economicpolicyandreformmeasures by the IMF
prescribed
andWorldBank.Therestof thethesisis organised
asfollows:

ChapterTworeviewsLiterature
on globalisation
andSAPs and impacts
on sub-SaharanAfrilca
and
formedtheanalytical
frameworkfor theempirical Literature
workthatfollowed. reviewon economic
andsocialconsequencesof globalisation andtheoretical
at macroscaleprovidedthe contextual
frameworkwithinwhichthe researchon the studycountrywas carriedout. The chapteralso
providesup-to-date developments
policy
economic at level
international whichis intended
to keep
the readersinformedof up-to-date policychangesanddevelopments
economic in the millennium
years.

ChapterThreepresentsresearchmethodology work.Research
for theempirical techniques
used
are discussedandthe techniques socialsciencetools:a combination
are fairlyconventional of
structuredquestionnaire
and unstructuredinterviewsdesignedto focusthe researchon the
respondents'own experiencesof the economicpolicyand globalchanges,and how theyare
impacting
onthem.

ChapterFourprovidesan overview of economic in

developments
and political Malawifrom
independence
in 1964through
theinitiation the
of economic reformprogrammein 1981,
throughto
the1990sandmorerecent eventsof2000s.It reviews
thesuccessful performance
macroeconomic
through
to themid-1970s
andthesubsequent from
downturn
macroeconomic thelate1970swhich
gaveriseto theneedfor structural SAP
Specific
adjustment. measures in
applied Malawi
and

7
 implications
for thevariouseconomic sectorsarealsodiscussed
here.Up-to-date
information
on
Malawieconomic is alsopresented.
situation

ChapterFivefocuseson SMEsectordevelopment
in Malawi.The Malawiindustrialsectoris
presentedandthedevelopment, roleanddistribution
of SMEsarediscussedin thecontextof the
industrial
sector.Underlying
thediscussion
in thischapterarebaseline
surveyresultsof workthat
carriedout in the paston the characteristics
waspreviously anddynamics
of the SMEsectorin
Malawi.

ChapterSixpresents
thesurveyfindings.Empiricalinvestigation
of the was
research carried
out in
two phases,andthe chapterpresentsanalysisof the findingsfrombothphases.Responses to
in a structured
questions andto in-depth
Questionnaire unstructured weredescribed
interviews and
analysed.Analysisof the impactof globalisation
and SAPsis also in
presented this chapter.
Characteristics have beendiscussedand the business
of the enterprisesand entrepreneurs
operatingenvironment analysed.Analysisof the impactof constraintsand the regulatory
hasalsobeenpresented
environment here.

ChapterSevenpresentsdiscussions
of the researchfindingsbasedon the primaryresearch
undertaken. fiscalreformmeasures,
Tradeliberalisation, domesticderegulation
andglobalisation
arediscussed
inthecontext
ofthefindings.
Policyimplications inthischapter.
arealsodiscussed

Andfinally,Chapter
Eightpresents
overallconclusions
on the The
study. Chapter
alsodiscusses
the directionof futureresearchareaswhichcouldbe furthercarriedout.Personalreflections
and
finalremarksarealsopresented in thisChapter.

8
 ChapterTwo

TheoreticalConceptsand LiteratureReview

2.1Introduction
Alongsidethe processof globalisation, (whichmaybe
continuesa processof marginalisation
intrinsicto globalisation)
of largepartsof the developing frombenefitsof globalisation.
countries
Sincethe late1980s,developing havebeenimplementing
economies policyreformsof
economic
the StructuralAdjustment
Programme. the dynamicsof
This researchattemptsto understand
includingits promisesand its potentialpitfalls.Globalisation
globalisation, is not only creating
remarkableopportunitiesfor countriesto enhancetheirdevelopment, it is alsoposingbroadand
complexpolicychallenges notableamongthemtheproperhandling
for governments, of thecosts
of adjustment withtradeliberalisation.
associated Theprocessof economic imposed
restructuring
creditorson developingcountriessincethe beginningof the 1980s,and its
by international
havealsobeendiscussed
consequences in thischapter.

The rest of the chapteris organisedas follows:the secondsectiondiscusses

the conceptof
'globalisation'
as addressed impactandimplications
in theliterature, of theeconomic
globalisation
processare alsodiscussed;the thirdsectiondiscussesthe conceptof SAPs,beginning
witha
discussion
of the natureof African in
economies terms historical
of economic thus
origins, from

colonialpoliciesthroughimport-substitution
to neoliberal
policiesandthe varyingoutcomesand
consequences of SAPs; four
section discusseseconomicperformanceof SSAsince independence,
SSA integration
with the integration
globaleconomy,regional withinSSA itself and effectsof
openingupandForeignDirectInvestment
(FDI)arealsodiscussed;sectionfivesetsthecontextof
SMEs,manufacturing industryin SSAand discussesthe impactof SAPson the SMEsector;
in international
sectionsevenprovidesanup-dateon recentdevelopments andthe
policychanges;
lastsectionpresents
thechaptersummary.

2.2TheConceptof Globalisation
The conceptof globalisation
has gainedconsiderable in
strength recentyearsand its policy
implications It radiatesthe possibility
are not alwaysclearlyexplainedor understood. of a new
analyticalframeworkfor domesticpolicy makers,and in some instances,the concernsof
globalisationare motivatedby the commongood of humanity 2000).
(Helleiner Some view
globalisation
asa processthatis beneficial
andkeyto future
worldeconomicdevelopment
andalso
inevitableand irreversible.
Othersregardit with hostility,evenfear, believingthat it increases

9
 inequalitywithinand betweennations,threatensemployment
and livingstandards
and thwarts
socialprogress.Walkerand Fox (1996)said that the economicmapof the worldincludesan
increasingly
integrated
core,withpocketsof localdifferences
dueto domestic
intervention,
anda
largeperiphery
of developing which,whiledependent
countries uponthecoreinternational
market,
areonlylooselylinkedto it. Thus,thetrendtowardsgreatereconomic
integration
between
nations
is notuniversal.

2.2.1Definition and driving forces of Globalisation

Theincreasing
integration
of theworldeconomies of capital,information
througha combination and
technology
andtradeflowshasbeenreferredto by someas globalisation(Hoogvelt 2001,Stein
1999). Baylis and Smith (2001) define globalisationas the process of increasing
interconnectedness
between suchthatonepartof theworldmoreandmorehaveeffects
societies
on peoplesof societiesfar away.Someauthorshavedefinedglobalisationas the shrinkagein
spaceandin timethattheworldhasexperiencedin consequence of thetechnological
revolutions
in transport,communication,
and information
processing(Hoogvelt2001,Stein1999).Dicken
(2003),who says that Trans-national is arguablythe mostimportantsingleforce
Corporation
creatingglobalshiftsin economic
activity,andtheirstrategies
andoperationsaremuchinfluenced
by theforcesof technological
change,alsosupportsthisdefinition. needsto be made
A distinction
betweenglobalisation
andintemationalisation.
Mostauthorsagreethatglobalisation
of economic
differentfromthepasttrendsof intemationalisation.
activityis qualitatively Dicken(2003)saysthat
impliesa muchmoreadvancedandcomplexformof intemationalisation.
globalisation Thekey
feature,whichunderliesthe conceptof globalisation,
is the erosionand irrelevance
of national
boundaries
in marketswhichcan trulybe describedas global(Hoogvelt
2001).Fromthe extant
literature,the mainareasof changehavebeenadvances
in andthe fusionon information
and
technologyand telecommunications;
the rise of globalbusinessstrategiesand Trans-national
Corporations
(TNCs);new politicaleconomicstructures;new politicalimperativessuch as
economicliberalisation; investor
and the rise of the institutional
and deregulation;
privatisation
(Dicken2003,Hoogvelt2001,Stein1999),

Severalwritershavedistinguished
threehistorical (Marglin
stagesof globalisation andSchor1990,
OcampoandMartin2003,Rodrik2001b).Thefirststageidentifiedis theperiodbetween1870and
1913whichis markedby a highdegreeof capitalandlabourmobilitytogetherwitha tradeboom
thatwasa resultof reducedtransportcostsratherthanof freetrade,Thesecondstagewasthe
periodbetween1945and1973.Thisperiodsawthedisintegration of themacroeconomic regulation
in 1944at BrettonWoods,firstoil crisis,increasing
regimeestablished mobilityof privatecapital

10
andthe endof the "goldenage" (MarglinandSchor1990).Duringthis stagethereweremajor
effortsto developinternational for financialand tradecooperation
institutions and significant
of tradein manufacturers
expansion amongindustrial Thethirdstageof theglobalisation
countries.
processhasbeenproposed to occurfrom1973onwardsandhasseena gradualspreadof free
scene,operatingas internationally
trade, governingpresenceof TNCson the international
integrated production
systems, andmobilityof capital,whileat thesametimeimposing
expansion
selectivetradeprotection andtightrestrictions
mechanisms on the movement of labour.It is said
thatthethirdstagehasbeenfuelledbysuccessivetechnological
revolutions importantly,
most
and,
by advances thathavecutthecostsof transportation,
information One
andcommunication. of the
majordifferences between thefirstandthirdstageof globalisation
is thatthereis nocorresponding
of labourflows,whicharesubjectto strictregulation
liberalisation by nationalboundaries.Of allthe
focusesonthethirdstage,in particular,
thisresearch
stagesof globalisation, tradeliberalisation.

2.2.1.1Economicintegration,SSAand SIVIEs:an overview

The first avenueof economicintegrationfor mostcountriesis intensifyinginternational
trade.Over
the past 50 years,tradehas beena majorforcedrivingeconomicgrowth.Accordingto the World
TradeOrganisation(WTO),the volumeof trade has grownconsistentlyfasterthanthe volumeof

world outputsince the 1950s(WTO 1996).In the 1990salone,world trade grew at an annual
averagerate of 6.8%,morethan doublethe annualworld outputaveragegrowthof 3.2%(WTO
2005a).Worldtradegrowthreachedas high as 12%in 2000,one of the highestin the last decade
(Figure2.1).Years2000and2004weregoodfor bothglobaloutputandtradegrowth.In 2004the

outputand tradeaveraged5.3%and 10.4%respectively.In fact,

expansionof worldmerchandise
all regionsreportedfastereconomicgrowthin 2004.

Figure 2.1 Growth in volume of world merchandise trade and production

14
,0
12.0
10.0
% 8.0 m Production
6.0
0 Trade
4.0 11
2.0 2
0.0

1963- 1975- 1985 1990 1995 2000 2001 2002 2003 2004
73 84

Years

Source:WTO:InternationalTradeStatistics2005a

11
 Despitethis impressivetrendof growthin worldtradeoverthe years,withexportsrisingfrom
US$58billionin 1948to US$8907 billionin 2004(Table2.1),Africa'stradeperformance
hasbeen
of a downward
trendsincethe1960s.Itsshareof worldexportsfellfromabout6%in 1963to 3%in
2004whileimportsfell fromabout7% of worldsharein 1963to 2% in 2004compared
to Asia
fromthe 1990s.In fact,Africa'ssharein worldtradeactually
whichpickedup considerably
decreasedsharplyin thepastdecade(WTO2005a)andits sharein worldexportsfellfromabout
4.5%in 1983to 2.6%in 2004(Table2.1).

Table2.1Shareof merchandise
tradebyselectedregionsandyears(Billiondollars& percentage)

1948 1953 1963 1973 1983 1993 2003 2004

Exporis
Value(US$billion, currentprices)
World 58.0 84.0 157.0 579.0 1838.0 3670.0 7342.0 8907.0
ShareC/o)
World 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
NorthAmerica 28.3 24.9 19.9 17.3 16.8 18.0 15.8 14.9
SouthandCentralAmerica 11.4 9.8 6.3 4.3 4.4 3.0 2.9 3.1
Europe 31.5 34.9 41.4 45.4 43.5 45.4 46.1 45.3
Commonwealth States(CIS)
of Independent 1.5 2.7 3.0
Africa 7.3 6.5 5.7 4.8 4.5 2.5 2.3 2.6
MiddleEast 2.0 2.7 3.2 4.1 6.8 3.4 4.1 4.3
Asia 13.6 13.1 12.4 14.9 19.1 26.2 26.1 26.8
Other(Balancing
figure), 5.9 8.1 11.1 9.2 4.9
imports
Value(US$billion,currentprices)
World 66.0 84.0 163.0 589.0 1881.0 3768.0 7623.0 9250.0
ShareC/6)
World 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
NorthAmerica 20.6 20.7 16.2 17.3 18.5 21.5 22.7 21.8
SouthandCentralAmerica 9.8 8.3 6.0 4.4 3.8 3.3 2.5 2.6
Europe 40.4 39.4 45.4 47.4 44.2 44.8 45.4 44.8
Commonwealth of independent
States(CIS) 1.2 1.7 1.9
Africa 7.6 7.0 5.5 4.0 4.6 2.6 2.2 2.3
MiddleEast 1.7 2.0 2.3 2.8 6.2 3.3 2.5 2.6
Asia 14.2 15.1 14.2 15.1 18.5 23.3 23.0 24.0
Other(Balancing
figure)* 5.7 7.5 10.4 9.0 4.2

, Balancing
figures
rowaddedbyauthor
astheSharepercentage
figures
Insource donotaddto 100%
document
Source:WTO,International
TradeStatistics2005a

SSA'sshareof worldtradedecreased in
sharply the (Figure
1990s 2.2) the in
growth
and explosive
cross-bordertradeand investmentthat is beingwitnessedremainsheavilyskewedtowarda
relativelysmallnumberof countries.It has beenarguedelsewherethat opennessto tradeis
withgreaterinequality
associated in low-income (Ravenhill
countries There
2005). seems to be an
inequality
ever-growing betweenpoorandrichcountries. Thereis ampleevidence
of an unequal

12
structureof trade, productionand credit, which definesthe role and positionof developingcountries
in the global economy (Goldsmith and Mander 2001, Hoogvelt 2001). The United Nations
Conference of Trade and Development (UNCTAD) attributed the decline in SSA's trade

performance,to several factors which include general trends in global trade, the compositionof
Africa's merchandise trade, import-substitutiontrade policies, poor infrastructure,market access

and agriculturalpolicies in industrialcountries and trade policies over the past 20 years (UNCTAD
2004). As pointed out by Collier (2000), the high transaction costs, such as transport and

communication,renders the producers in the SSA region uncompetitivehence they are not well

placed in the global economicsystemwhen they open their economies.

Figure2.2Africa's sharein world trade overthe years (%)

8.0
7.0
6.0
5.0
Exports
4.0
3.0 -impoJ
2.0
1.0
0.0

1940 1950 1960 1970 1980 1990 2000 2010

Year

Source:WTO,IntemationalTradeStatistics,2005a

on whatcanbeexpected
DollarandKraay(2004)attemptto answerthequestion to happenwhen
developing liberalise
countries tradeandparticipate
morein the trading
global system.Fromtheir
tradehas contributed
gatheredevidencethey arguethat greateropennessto international to
the
narrowing gap between However,
richandpoorcountries. they that
acknowledge there will be

somelosersamongthepoorin theshort-run, protection

whicheffectivesocial can easeso thatall
in the long-run.DollarandKraay(2004)attributeotherfactors,suchas
benefitfromdevelopment
poor links
transportation withincountries the that
and coast, contribute to growinginequality
rather
thattradeliberalisation.
In theiranalysistheyconcludedthaton average, is
globalisation
greater a
forcefor povertyreduction.However,it has beenarguedelsewherethat, the playingfield in
international
tradeis not levelas therestill remainrestrictions imports
against of Africa's
products
(Oxfam2005).Africa'stradeis concentratedin a narrowrangeof primarycommodities,
and,within

13
this narrowrange,Africa'smarketsharehas beenshrinking.The shareof primarycommoditiesin

worldexportssuchas food and raw materials,whichare oftenproducedby the poorestcountries,

has declined,and this reflectsthe overalldownwardtrend in the world (Figure2.3). For SSAthe
declinedfrom 89%in 1970to just 24%in
exportshareof primarycommoditiesin all merchandise
2000.Tradein primarycommodities
suchas coffee,cocoa,cottonand sugar,for whichmostSSA
countriesdepend on, has been sluggish,and an UNCTAIDreport revealedthat SSA barely
participatesin trade in market-dynamicproducts(UNCTAD2003a). While appreciatingthat
agricultureis a very importanteconomicsectorfor developingcountrieslike Malawi,as this is
traditionallythe areain whichthey haveenjoyedcompetitivetradeadvantages,it has beenargued
that the compositionof whatcountriesexportis importantandthe strongestrise by far has beenin
goods(UNCTAD2003a).
the exportof manufactured

Figure2.3:Shareof PrimaryCommodities(excludingfuels)in all merchandise

tradevalues,Exportsin selectedregions(1970-2000)

100
90
80
70
60
010 50
40
30
20
10
0
1970 1975 1980 1985 1990 1995 2000

5-yearinterval

World---*- SSA Asia EastEurope

Source:UNCTAD Commodity
(2003a), Yearbook
1995-2000

Exportof manufactured
goodsplaysa verysignificant in (IMF
integration
role economic This
2000).
viewwas acknowledged in a WorldBankstudy,whichreportedthat successful are
globalisers
thosedeveloping
countries,whichhave managedto breakintoglobalmarketsfor manufacturers
and servicesand recognisedthat for manylow-income is
globalisation
countries, not working
(WorldBank2002a).Therefore dueto lackof significant products,
manufactured Africahas been
missingout on the largeexpansion
of international
trade.Even indications
recent are thatAfrica

14
hasbecomeevermoremarginalised
fromtradeat the globalleveloverthe pastthreedecades,and
thatAfrica'sshareof worldexportshasdroppedby nearly60%sincethe 1980s(WTO2005a).
In general,the worlddemandfor exportproductsof crucialexportinterestto SSAhas beenfalling

while heavy relianceon primarycommodityexports has kept SSA vulnerableto marketand

weatherconditions.Furthermore,
mostSSAcountrieshavethrivinginformalmanufacturing
sectors
that mostlymeet local needsat low prices.For now, these countriesmay needto concentrate
effortson primaryproducts,wherethey havea comparativeadvantage,but in the long run a shift
towardspromotionof manufacturing of
and export manufacturingproductsmay be requiredfor
Africa in order to achieve rapid productivitygrowth. The importanceof manufacturingand
is widelybeingrealisedand it is consideredto haveseveraladvantagesover the
industrialisation
primary sector development:industrialisationreduces risks and vulnerabilityto long-term
deterioratingcommodityterms of trade; the industrialsector has more forwardand backward
linkageswith othersectorsespeciallyagricultureand mining;it has the possibilityof technological
transfer;and,in generalindustrialisation in
independence
ensureseconomic the long-run(Kapunda
2005). However,it is clear that West Europetogetherwith NorthAmericaaccountfor over two
thirdsof worldmanufactured
exportswhileAfrica'soverallsharestill remainsat under1% (Figure
2.4).

Figure2A Regional
Shareof Manufactured
Exports

1.3%1.5%
1.3%
2004 49.2% 30.4% 15.0.9%

3.8%
1,20loo
8%
Year 1 115.5%14 .
2002 45.5% 28.8%

3.2'/.1.20/6
8%
.
2000 42.3% 30.0% 17.8

-T
-I--
0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0%

States/CIS E MiddleEast 0 Africa

m WestEurope [] Asia [3 NorthAmerica [:] LatinAmerica 0 Central& EasternEurope/Baltic

Source:WTO,InternationalTradeStatistics2000,2002,2004a
Note:DataforAfricarefersto thewholecontinent,includingNorthAfrica

wasaround35%
Althoughthe totalshareof developingcountriesin worldexportsof manufacturers
in 2004,whenthe shareis studiedcloselyit is mainlythe Asianeconomieswhichare doingwell,

15
 with30%of totaltradein 2004,whereas Africaas a wholefarespoorly,at lessthan1%in 2004.
Thereis a generalconsensusthatAfrica'smanufacturers
areyetto makeanysignificant inroads
intotheworldmarkets.
An explanation offeredby Collier(2000)as to whyAfricahashadsucha
comparativedisadvantage
is that the policyenvironment in Africais lessconducive
to efficient
thanpolicyenvironment
production He arguesthatthe policyenvironment
elsewhere. has been
hostileto manufacturing
particularly singlesoutthepolicieswhichhavethe
activityandspecifically
effectof raisingtransaction
costs:

With hightransactioncosts,a transaction-intensive activitysuch as

manufacturingis disadvantaged both absolutelyand relativeto the
transactions-exports
of agricultureandnaturalresources. Thiscanbe
seenmostdramatically in thecontextof verypoorpolicyenvironments,
whichcausenotjust a declinein the economy but its reshaping away
fromtransaction-intensive (Collier2000:p1l9).
activities

Collierarguedthat Africa has a productivity

disadvantagein termsof locationand capital
endowment andpoorpolicyenvironment. He pointsout thatthe costof information
is veryhigh
resultingin hightransaction it shouldbe notedthatthereis no
However,
costsof manufacturing.
forSSA'slowparticipation
singleexplanation in worldtradeandcountryexperiences
havediffered.
In some,a rapidgrowthof importcompetition
associated andtradeliberalisation
withglobalisation
has been a contributing especiallyin skills in
factor. In others,low levels of investment,
development
andtechnology,accompanied byweakinfrastructure exchange
andovervalued rates
havemeantthatAfricanindustrial
enterpriseslosttheirmarketsharebothat homeandabroad.It
shouldbe notedthat,up untilthelate1970s,mostdeveloping countries
pursueda policy of import
further
substitution, discussed in section2.3.1.2,
whichcalledfor high tariffs
protective to force
to buydomestic-made
consumers of imports.
at theexpense
products

Intheinitialstagestheimportsubstitution forAfrica,withmanufacturing
wereencouraging
policies
valueadded(IVIVA) growingat morethan8% perannurnin the 1960s(WorldBank1989a).
However,
in thelong-run,
thisindustrialisation did
policy notleadto independence
economic or
technical It depended
efficiency. onimportsof intermediateinputs,
sparepartsandequipment, and
wasvulnerableto shortagesof foreignexchange as export commodity pricesfell andoil prices
rose.AsshowninTable2.2,theaverage annualgrowthof the MVA in theSSA region fellto below
2%inthe1980s
anddidnogoabove3%inthe1990s.

16
 Table2.2:AverageannualgrowthIn Manufacturers
ValueAdded(%)
1980-85 1985-90 1990-95 1995-00
Industrial
counties 2.0 2.9 1.3 2.8
Europe& CentralAsia 2.7 0.6 -11.1 4.2
sub-SaharanAfrica 1.9 1.8 0.1 2.6
LatinAmerica
& Caribbean . 0.3 1.0 1.9 3.0
MiddleEast& NorthAfrica 6.4 4.4 4.0 4.6
SouthAsia 6.6 7.6 7.0 4.8
EastAsia 7.8 9.3 11.3 7.7
Source:WorldBank,WorldDevelopmentIndicators2004a

SSA'sstructureof outputvalueaddedas a percentage Product(GDP)has

of GrowthDomestic
hardlychangedat moreor lesson a rangeof 12%to 15%between2000and2005(Table2.3).
However,as pointedout by Tribe(2002),interpretationof statisticsrelatingto development
of
sectorsis difficult,andshouldbe treatedwithcaution,dueto the fact thatsome
manufacturing
agricultural
andmineralexportscontaina significant valueadded,which
amountof manufactured
maynotbereflected
in theindustry
valueaddedfigures.

Table2.3: Structureof Outputfor SSA

ValueAdded as a% of GDP
1990 2000 2001 2002 2003 2004 2005
Agriculture 19 17 15 18 17 16 14
Industry 34 30 29 29 31 32 39
ofwhich
Manufacturing 17 14 13 15 14 15 12
Services 47 53 57 54 52 52 47
Source:
WoddBank,
WorldDevelopment
Report,various
years

For SSA as a whole,the industryoutputgrew at 9.4% between1965and 1980,dropped

to 1.2%in the 1980sandonlystartedpickingup againin thelate1990s(Figure2.5).
considerably
Fromthispictureit couldbe arguedthatmostmanufactured
products,which aredemandedby the
international
markets,werealready being in by
produced greatquantities Southand EastAsian
economieswhich were experiencing
more rapid trade growththan SSA duringthe 1990s.
Furthermore,
theneighbouringSSAcountrieswhichcouldhavebeenpotential
exportmarketsmay
have been producingsimilarproductsso that there was even more competitionamongst
themselves.
Growththroughincreasein export-manufacturiing
might havebeen too
already latefor

17
SSAmanufacturers
andprimarycommoditiesby themselveshavenot beenenoughto promotethe
kindof growthas that is beingexperienced countriesof SouthEastAsia.
by the newlyindustrialised
It shouldbe notedthatthereis considerable
variationsin industrialcharacteristics
amongcountries
within the SSA region itself such that the decline in manufacturingoutput (referredto as de-
industrial
isation)is not even. Thus, there is a great diversitywithin the continent,with some

countriesfallingin the 'newlyindustrialised

countries'and othershavingvery smallmanufacturing
sectors, all growing at varying rates (Tribe 2002). For example in Ghana and Uganda,
outputgrew,as opposedto decline,from 2.5%and-3.7%(1965-80)respectively
manufacturing to
3.9%(1980-90)in bothcases;whereasthatof Kenyadroppedfrom 10.5%to 4.9%duringthe same

periods(Table2.4). However,it has been notedelsewherethat there has beenvery substantial

positiveindustrialdevelopmentin SSA as a wholeover the last 15-20years,and others,Uganda
and Ghanafor instance,have experienceda substantialrecoveryfrom a periodof economic
decline(Tribe2000a).

Figure2.5: Growthof IndustryOutput(averageannual% growth)for

SelectedRegions(1965-2004)

12

10

%6-

4-

0
--- ----- --
1965-80 1980-90 1990-00 2000-04
-2
Years

ast Asia & Pacific LatinAmerica& Caribbean m MiddleEast & NorthAfri

S'outh Asia sub-SaharanAfrica

Source:WorldBank,WorldDevelopmentIndicators,variousyears

sectoris not competitivedueto: lackof policywhichpromotestechnological

Africa'smanufacturing

capacitiesor specificknowledgeneededto enhanceefficiency;lack of policieswhichencourage

18
 innovation
andeconomies of scaleleadingto technologically
inefficient
firms;hightransaction
costs
whichincludehigh tariff and non-tariffbarriers,high internaltransportcosts,poor telephone
infrastructure
systems,andunreliable facilitiesfor essentials
likewaterandelectricity.Whilethere
are somedynamicenterprises in Africa,the vast majorityfail to link into sourcesof dynamic
industrial themuncompetitive
growth,rendering the In
within openmarketeconomy. orderfor the
SMEsto benefitfromtheopportunities it alsodepends
whichcomewithanopenmarketeconomy
to a greaterextenton whattheSMEcancreate,manageandproduce.
Thebusiness
environment
in whichthe SMEsoperateis alsogoverned
by a numberof otherfactorswhichincludefinancial
and legalregulatory frameworks, overallmacroeconomicpolicies,industrialstrategyand policy,
of accessto factorsof production
availability andinfrastructure.

Table2AGrowth of Output(averageannual% growth)

SelectedSSACountries
Industry Manufacturing
1965-80 1980-90 1990-00 2000-04 1965-80 1980-90 1990-00 2000-04
Benin NA 3.4 4.1 6.5 NA 5.1 5.8 5.9
Ghana 1.4 3.3 2.6 4.1 2.5 3.9 -3.2 2.0
Madagascar NA 0.9 2.4 NA 2.1 2.0 1.4
-0.2
Togo 6.8 1.1 1.8 8.2 NA 1.7 1.8 7.6
Zambia 2.1 1.0 -4.2 8.9 5.3 4.1 0.8 5.9
Nigeria NA 1.0 5.1 NA 0.7 1.1 8.8
-1.1
Malawi 6.3 2.9 2.0 0.1 NA 3.6 0.5 -0.8
Kenya 9.8 3.9 1.2 3.5 10.5 4.9 1.3 2.5
SouthAfrica NA 0.7 1.1 2.0 NA 1.1 1.6 1.7
Mauritius NA 10.3 5.4 2.9 NA 10.4 5.3 2.0
Uganda 5.0 12.2 7.0 3.9 14.1 5.0
-4.1 -3.7
Source:
WorldBank, WorldDevelopment
Indicators,
various
years
NA=datanotavailable
fromthesource

Globalisation
and liberalisation
have the
raised competitive that
pressures enterpriseshave to face,
especially
smallones. SME industries
in SSA arefacing than
pressures
competitive
greater in the
past as a resultof the openingup of previouslyprotecteddomesticmarketsto manufactured
importsandintensification in exportmarkets.Dueto tradeliberalisation,
of competition on theone
hand,importpenetration has increasedin local marketsand on the otherhandnew export
opportunities
areopeningup. Given the sizeof the African there
market is a need to the
realise
opportunities
offeredby both regionaland global Opportunities
integration. for firmsas well as
possibilities of themare notdefinedsimplyby keymacro-economic
to takeadvantage variables,
butalsodependon howthefirmsareinsertedin bothlocalandregionalproduction
anddistribution
SMEs,that are orientedtowardsthe localmarketandare
networks.ForAfrica'smanufacturing
inter-firmlinkagecanbe thefirststeptowardscloserintegration
increased
uncompetitive, withthe

19
 Existence
worldeconomy. of inter-firm
linkagesbetweenenterprises
as a resultof subcontracting
as wellas otherformsof networkingandco-operationwithinan areais termed'clustering'
andit
has beenarguedthat 'clustering'contributes
to the capacityof SMEsto compete(Pykeand
Sengenberger 1992,Schmitz1992).

Mostof theindustrial in
enterprises Africacanbecharacterised
assmallor, morefrequently,
micro.
The 'missingmiddle'betweenlargeenterprises and smallinformalmanufacturingactivitiesis
linkagesin Africa.Micro-enterprises
arguablythe rootcauseof the lackof forwardandbackward
employonly a handfulof workers,who are often familymembersor relatives.Such micro
in manyrespectsaremorelikehousehold
enterprises Survivalratesarelowandthese
activities.
smallandmicroenterprises rarelygraduateintothe formal Therefore
sector. thereis a need for
integration
collectiveefficiencythroughhorizontal linkswith
andtechnological
andorganisational
largefirms.

Ontheonehandtherearelarge-scale whichin termsof technology,

enterprises organisation
and
belongto the globalsystemcentredin the wealthyNorthbut spreadingits
scaleof operations
tentaclesinto everycountry.Theselocaloutpostsof the globalsystemoftenproduceexport
of localSMEs,which
of onekindor another.Ontheotherhand,thereis a multitude
commodities
are basedon localmarkets,usuallyproducingsimpleconsumptiongoods, formal trainingand
education little,
matter andmostof the unitsinvolved
arefairly They
small. are local
in thesense
that their system characteristics
are based on local needs, resourcesand other local
circumstances.A presence between
of networkconnections theseglobalandlocalsystemsshould
surelyfacilitatethe integration
of SSAcountrieslike Malawiinto the globaleconomicsystem.
Accordingto Cho (1994)subcontracting systemswhichcontinue local and forms
traditional of
shouldbeconnected
organisations to globalcorporations.

It has alsobeenarguedelsewherethat entrepreneurs

usenetworksas a sourceof information
aboutmarketsandtechnologies edgeovertheir
thattheyhopewillprovidethemwitha competitive
rivals(Barr2002).Information
on technology, and
outputmarketsstandards how function
markets
doeshavea directeffecton productivity
and mayhelpentrepreneursbecome
morecompetitive
andimproveoutputquality.In theory,entrepreneurial
networks aremeantto facilitate
the process
of economic
growthby helping the entrepreneur
captureof knowledge
externalitieswhichmay be
usedin conjunction the factors
with other of capitalandlabour,
say,in the (Barr
process
production
1995).Datafrom Ghanaianmanufacturing
sectorsuggestedthat networksare potentially
very

20
importantin determiningeconomicoutcomes(Barr1995).Thus,the networkscan affectenterprise

performanceby providingentrepreneurswith informationaboutthe worldespeciallytechnologies

which will have a direct effect on its productivity,and about markets,how they functionand
standardswhichto complyto, whichwouldhelpenterprisesbecomemorecompetitive.

As wellas the marginalisation beingreflectedin theirsmallshareof worldtrade,

of SSAcountries
outputandforeigninvestment, enterprises,
anduncompetitive it is alsoexacerbatedby Africa's
debt.
external
unstable In 1970total debt
external for SSAstoodat US$1
1billion
andby 2003it had
goneup twentyonefold to (Figure
US$231billion 2.6).The debt
external owed by
declined small
amountsbetween2000and2002,probablydue to the HeavilyIndebtedPoorCountryinitiative
in 1996(furtherdiscussed
relief,whichwaslaunched in section2.6),whensomecountries
reached
a decisionpointandhadbegunto gettheirdebtreliefin phases.

Figure2.6: SSA'sDebtBurden- Total ExternalDebt,1970-2005

(US$billion)

inn

1970 1980 1990 2000 2001 2002 2003 2004 2005

Year

Source:WorldBank,GlobalDevelopmentFinance,variousyears

However,it can be seenthat in generalthe debt burdendoesnot seemto havedeclinedoverthe

in
past years,reflectingpoor performance economicactivitygrowth.Despitethe cash injections

providedby the loans,no indebtedAfricancountryhas sincerelyprosperedand any prospectsof

21
economic recoveryandgrowthis beingsacrificed of debt.Recentdevelopments
byservicing onthe
issueof debtarefurtherdiscussed
in section2.6.

Economic is of considerable
globallsation importance
now,suchthatregulators
andpolicymakers
needto beawareof itsvarious implications, needto beapplied
andanypolicysuggestions within
its context.
Government policyis nowinfluenced
anddictated flowof
by thefreeandmassive
It hasbeencontended
capitalworldwide. thatthosecountries approach
withanopenmarket are
saidto be morelikelyto prosperin theglobaleconomy both
as capital, human
andfinancial,
increasingly
ignores (Krueger
boundaries
national 1998).
Somearguethatgreater
openness ofand
interdependence
betweennationaleconomies for poorer
provideswonderfulopportunities
but alsochallenges,
countries, as mostof the poorcountries by
arestillfeelingmarginalised
2002).Thefollowing
(Milanovic
globalisation sectiondiscusses
some of thedebateswithinthe
literature, andimplications
ontheimpact ofeconomic
globalisation, toSSA.
withregards
especially

2.2.1.2Impactandimplicationsof EconomicGlobalisation
Thesocialconsequences implications
andgeo-political are
of globalisation far-reaching,
particularly
in the developing (Kiely
countries and Marfleet
1998).In Africa'scase,not onlydid theylargely
but havearguablybeenovertumed
missthe tide of globalisation, by it to the detriment
of their
It
economies. has been that has
argued globalisation failed to the
transform of
structure African
andmighthaveactuallyexacerbated
economies someof its structural
weaknesses (Ghosh1999,
Power 1997),It is also very apparentthat entire countrieshave been destabilisedas a
consequence oftenresultingin theoutbreakof socialstrife,
of thecollapseof nationalcurrencies,
ethnicconflictsandcivilwar (PeckandTickell1994).Thereis evidencethatthe world'sincome
distribution
hasworsenedin theeraof globalisation
(Milanovic2002).It hasbeenarguedby some
that the secondwaveof globalisationcreatedthe thirdworldand whereas
marginalisation the
presentwaveof globalisation the
perpetuates third world 2001).
(Davis However,LatinAmerican
countrieshaveshownrelativelygoodperformance in comparisonwithotherdevelopingcountries
duringtheearlyyearsof globalisation, highratesof percapitaof growthalthough
experiencing still
lowerthantheglobalrate.It is saidthatthepace,however,sloweddowninthefinaldecades of the
20thCentury(Ocampo
andMartin2003).

CollierandDollar(2002)haveassessed the impact andproposed

of globalisation an agendafor
actionto enhancethe potentials
of globalisation
andprovide for
opportunities poor and
people to
moreintegrated
Theyarguethatit reducespovertybecause
reduceandmitigaterisksit generates.

22
economiesgrow faster,and this view is supportedby Kiggundu(2002b)who arguesthat
the besthope,opportunity
offersthe poorandoppressed
globalisation to get out
andpropensity
andstayoutof povertyandto enjoyfreedom.Hearguesthatsupportforeconomic is
globalisation
basedon therealisation
thatit enablesnations,
governments,
societies, andindividuals
enterprises
to createmorewealthandgeneratemoreincomethroughmoreefficientmodesof production,
andexchange.Dollarand Kray(2004)arguedthat greateropenness
consumption accelerates
GDPgrowthperformance
anddoesnotincreaseincomeinequality within but
countries thattrade
liberalisation
impactsfavourably countriesis
on growth.The key challengefor the developing
for the development
thereforeto createand sustainan enablingenvironment and competitive
of theproductive
performance exportbase.
theirmanufactured
sectors,andstrengthen

Tradeandinvestment areat theheartof globalisation

andit hasbeenarguedthattradegoeshand
in handwithfastergrowth(LindertandWilliamson2001).BothincreasedtradeandincreasedFDI
growth(DollarandKraay2001).Formostof thedeveloping
are relatedto accelerated countries,
tradeandinvestment to alleviatepovertyamongcitizensandto catch
providethebestopportunity
up with the developedcountriesin termsof wealthcreation,incomegeneration and raising
standards to theWorldBank,abolitionof all tradebarrierswouldboostglobal
of living.According
incomeby US$2.8millionandlift300millionpeopleoutof povertyby2015(WorldBank2001).

As for businesses, is
globalisation an important business
emerging to
relevant
mandate all
businesses. Economy,
It is an Information to an Industrial
as opposed business
Economy concept.
Moderntechnology and communicationenablebusinesses
to in
operate multiplecountrieswith
diverseshapesandformsof organisation
and (Teece
control In
1986). innovation
addition, in areas
financialservicesand transporthas loweredthe
such as computing,telecommunications,
transactioncosts associatedwith conductingcommerceacross internationalboundaries.
raisesmanypracticalissuesand concernsfor the individualbusinessenterprise.
Globalisation
Foreigncompetitioninsidehomemarketshas steadilyincreased,as has foreigninvestment
throughmergersand joint ventures.Companiesare lookingto global marketsand even
dramaticreorganisation
undertaking (Porter1998b).Against
to becomegloballymorecompetitive
the backdrop
of growingcompetition
andglobalisation, are
countries increasingly about
concerned
howconducive theirbusinessenvironments to
are private investmentandbusinessdevelopment
andhowtheystandregionally
or globally(Batraet al.2003).

Globalisation
hasalsobroughtout anxietiesfromotherangles.Forthedeveloping there
countries
comingin, beinguncompetitive,
are anxietiesaboutbeingshutout of markets,distantinvestors

23
 degradation,
environmental socialdislocation
andinternational in power.Therearealso
imbalances
in rich countriesthoughdifferentin nature:terrorism,inequalities
anxietiesaboutglobalisation
lossof manufacturing
withinrichcountries, jobsto low-wage beingsomeof them.There
countries,
suchas globalinequality,
arealsoglobalanxieties thus,therichergettingricherwhereasthepoor
are gettingpoorer,globalwarming,powerof governments, labourand capital.Dicken(2004)
arguesthatit is important
to recognise as a causalfactorin
cannotbe regarded
thatglobalisation
development ratherwithintheumbrella thereareparticular
notionof globalisation processes
which
will havecertainplaceandtime-specific
context.Hearguesthatthesameprocesscanhavevery
differentimpactsbothspatiallyandin relationto diversegroupsof people.It hasalsobeenargued
elsewherethat globalisation shouldnot be viewedas a reliablesubstitutefor a domestic
development
strategy(Sanchez2003).Sanchezsaysthat policymakersneedto designand
implement strategynotonlyto benefitfrom,butalsoto helpcounteract
an activedevelopment the
negativeeffectsof the immutable Thus,theyneedto pursuebothactive
forcesof globalisation.
liberalisation
and activedomesticdevelopment policies.Anotherconcernvoicedby criticsof
globalisation, interdependent
is that in today'sincreasingly globaleconomy,economicpoweris
shiftingawayfromnational towardssupernatural
governments such
organisations astheWTO,
the
European Union(EU),andtheUnitedNations(Kuttner1996).

2.3TheConceptof StructuralAdjustmentProgramme
Theconceptof Structural
Adjustment
Programme crisisof SSAin
to theeconomic
wasa response
the 1970sandwasintroduced to tacklestructural
specifically in Africa.
problems
andmacro-policy
It is a processby whichthe IMFandWBbasetheirlendingto developing economieson certain
conditions, pre-determined in orderto meetits long-term
by theseinstitutions needsof efficient
of factorsof production
utilisation to ensuresustainedgrowth andhence be able to the
repay debts
owedto theseinstitutions (Woodward fromthebeginning
1992).Therefore, of the 1980s,IMFand
WBprescribedeconomic policiesunder"structural programme",
adjustment whichwasa condition
fordeveloping
countries
obtainingnewloansfrommultilateral Countries,
institutions. whichrefused
to accepttheFund'scorrective faced in
difficulties
policymeasures, serious their
rescheduling debt
newdevelopment
and/orobtaining loansandinternational
assistance.

The main elementsin adjustmentprogrammes have centredroundthe followingobjectives:

Balanceof Payments(BoP)position;reductionin domesticfinancialimbalances,
strengthening
including
lessgovernmentdeficitfinancing;
elimination
of price in
distortions various of
sectors the
economy; of domestic
promotion savingsin publicandprivatesectors;domestic deregulation
and

24
tradeliberalisation
andtherebyimproving followfroman
exportlevels.Thesepoliciesgenerally
economic philosophy Thisideologyclaimsthatthemarketis themostefficient
of 'neo-liberalism'.
for thedistribution
mechanism of goodsandservicesin society,thatprivateproperty
andcapitalist
economicprinciplesare the most efficientmeansfor productionof goods,and that state
interference
withtheworkingof themarketandcapitalist shouldbeminimised.
production

The resultshavebeena seriesof measuresincludingdramaticwavesof privatisation,

a reduction
in the state'srolein economicplanningand policymaking,andoftendramaticcutsin government-

suppliedsocialservicesin accordancewith the dictatesof structuraladjustmentpackages.Some

analystssee the developingcountries'debt crisisof the 1980sas a criticalturningpointin global
economicrelations(McMichael2000).McMichaelarguesthat the debtcrisiscreatedthe objective
conditions,institutionalbasis,politicalinstruments,and ideasnecessaryto steamrollerthe poorer
countriesinto the
accepting neoliberalconsensuson the value of trade liberalisation
and fiscal
discipline.Neoliberalism while SAN provide
thus providesthe ideologicalbasisfor globalisation,
the policy mechanismsfor creating an economiccontext at the nationallevel conduciveto
globalisation.

Beforediscussing
theimpactof theSAPs,it is thoughtimportant
to presentthecontextwithinwhich
the adjustment
measureswereapplied.Therefore,a briefhistoricalbackground, the natureof
sincethe 1960sis presentedin the
Africaneconomiesand Africa'seconomicperformance
following
sections.

2.3.1Historicalcontextof SSAEconomies
MostSSAcountries aresmall,poorandopeneconomies witha rapidlygrowing of
population 514
in
million 1990to 725 in
million 2004at an averagegrowthrateof 2.5% duringthatperiod(World
in SSAliveandworkin theruralsector,povertyin
Bank2006b).A largenumberof thepopulation
all its dimensions
is widespread,
andlivingconditions
areextremely World
difficult. Development
Indicators (2004a)showedthatpovertyrateshadbeenfailingin all regionsexceptSSAin 2001.
datashowedthattheshareof peoplelivingon US$1perdaywas44%forSSA
Thelatestavailable
in 2002compared to 31% for SouthAsiaand 11% for EastAsia& Pacific(WorldBank2006b).
Although,overall,extremepovertyin developing fell
countries from 40% in 1981to 28%in 1990
and 19%in 2002, SSA'ssharestill remainsabove40% (Figure 2.8).It has beenestimatedthat
morethan600millionpeoplewillstillbetrappedin povertyin 2015,mostof themin SSAandSouth
Asia (WorldBank 2006b).Humanresourcesare still criticallyunderdeveloped, and lack of

25
institutional is alsorampant.
capability Production, affectedbyanarrayof human,
whichis severely
physical,infrastructural
andtechnological including
constraints, thevagariesof weatherconditions,
is largelyin the primarysector.Commercial on importedfactor
activitiesarecruciallydependent
inputs,andexportsarebasedononlya few,mainlyprimary, exportcommodities.

In orderto set the contextand understand

the presentpositionof SSAeconomies,
one must
backtrack shouldnot be underestimated
as far backas to the colonialera.Effectsof colonialism
becauseonewayor another,colonialism impactedon Africaneconomies andtrade.It hasbeen
arguedthatthisis stillhappening
todaythroughneo-colonial to exploit
thatcontinue
powerrelations
poorercountriesandregions for the benefit
material of theirwealthier (Ashcroft
counterparts et al.
1995).In thisstudy,threedistinctive
periodshavebeenidentified withregardsto historical
policy
analysiscontext:the colonialperiod;firstdecadesof independence;andthe morerecenteraof
macroeconomic adjustment.Thefollowing discussthepoliciesandtheireffectswithin
sub-sections
eachof thesedistinctive andtheirimpacton small
periods.Colonialpoliciesarebrieflydiscussed
industriesof Africaneconomies with mainarguments given in the context of Malawi.
This is
followedby a briefdiscussion
of import-substitution
andpost-colonialpolicieswhichwereadopted
duringthe first decadesof becomingindependent.
Lastly,Africaneconomicperformance
since
independence
throughto theyearsof macroeconomic is
policies
adjustment
structural discussed.

2.3.1.1SSAandthe Colonialera
It hasbeenreported Africaincluded
thatpre-colonial small family
groups of hunter-gatherers,
larger,morestructured
groupsand heavily
structured
clangroups,whose tradenetworkextended
asfarasChina(Walter 1973).
In 1482thePortuguese the
established first
of many trading
stations
alongthe coastof Ghanawithchiefcommodities beinggold,ivory,spicesandslaves.The
Europeandiscoveryof in
America 1492
led to development
great of theslave in
trade, thecoastal
regions
of Africa,
whichwasphased outin Europeand from
America theearlynineteenth
century.
Frommid-19th
CenturyEuropean explorersbecame in
interested the
exploring heartof Africa
and
theareafortrade,miningandothercommercial
opening By
exploitations.theend of thecentury
thecontinent
waswellexploredleadingto thewayforcolonisation Inthelate-1991
whichfollowed,
CenturyEuropean
powersoccupiedmostof Africa,
creatingmanycolonial leaving
nationstates
onlytwoindependent Liberia
nations: andEthiopia(Map2.1).

1885to 1945wasa periodof highimperialism

withseveralkinds For
organisation.
of colonial
instance
in KenyaandZimbabwe, anelitecaste
established
whichwerewhitesettlercolonies,
systemwithmaster-slave between
relationship the whiteand blackandthe whitesexpropriating

26
vast areas of the best farmland.The degreeof colonisationdifferedfrom state to state. Other
coloniserswere limitedto small numbersof administrators, Directrule
tradersand missionaries.
colonies(Senegal,as an example)and indirectrulecolonies,suchas NigeriaandBotswana,relied
heavilyon traditionalAfricanrulers.Colonialregimesdevotedonlythe resourcesneededto provide
the minimuminfrastructureand social servicesto accomplishthis end. Schooling,health and

relatedsocial serviceswere restrictedto those segmentsof the populationdeemedpotentially

beneficialto the Europeancapitalists.Only 5% of Africanswere allowedto be educatedin
missionaryschoolsand it is believedthat they receivedthe western-style
educationnot to become
leaders of their own countries,but to assumesubordinatepositionsin the colonial system.
Removalof the hub of politicalpowerfrom the local populationunderminedthe authorityof the
kinshipsystem.All welfareactivitiesweredirectedto meetingthe interestsof the non-indigenous
populationsandthesealone(MacPherson
1982).

27
European
motiveswereto acquireandcontrolnewmarketsandobtainrawmaterials fromAfrica.
Theyestablished
an exporteconomythat extractedraw materialsand returnedmanufactured
goods.Governments supplyof labourfor European
ensuredan adequate throughthe
enterprises
introduction
of taxationschemesandthismadeit necessary for Africansto seekemployment to
earnthecashtheyneededto paythetaxes.Tradewasorientedtowardsthe Metropolis andthis
economic developed
activity at the expenseof indigenous It
populations. oftenforcedindigenous
they couldnot competewith the large
peopleinto wagelabour,their land was expropriated,
commercial white farmsand it createda dependency whichin mostcountriesstill persists.
European powerstookadvantage of themilitaryandtechnological
weakness of Africato exploitthe
wealth.Theincentive
mineralandagricultural forcolonialists
wasto expropriate rentsasquicklyas
As a resultof lackof politicalcontrolby Africansand
possibleratherthanthinkof the long-run.
systematic expatriationof wealth,Africancountriesbecameproducers valuethat
of an economic
was lostto its leaving
people, the countries dependent
structurally (Gann
andunderdeveloped and
Duignan1969).

It has beenarguedthat colonialpoliciesundermined and villageindustriesin

bothhousehold
severalways(Tripp1989).
One importantfactor,
whichplayeda significantrole,was the direct
of independent
suppression in urbanareas.Earlycolonialpolicies
artisancraftandtradeactivities
were directedat preventingthe African from
population developing
urbanroots.Prohibiting
independenteconomicactivityandownershipof urbanlandandpropertywaspartof this policy
implemented
throughlocalcouncil.In otherwords,indigenous could
artisans not from
benefit the
growthof urbandemand in to in
order grow numberor makeato transition from purelyhousehold
basedproductiontowardssmallurbanworkshops. Thesuppression of retailtrademeantthatsmall
enterprise trade
rural-urban linkagesdid not develop.
Sincethe populationin theAfricanlocations
or townships to
wasmeant provide labour to
services the economy,
colonial independent
economic
to
activityas well as situationsconducive suchactivitieswas heavily (Tripp
regulated In
1989).
thosecountrieswherelabourmigrationsystemsemerged(Zimbabwe, MalawiandZambia),the
blackruralareas'rolein thewidereconomy to
wasrestricted the of
export labour, their
reducing
to subsistence
owneconomies in bothagricultural
production activities.
andnon-agricultural

Colonialruleoftenled to regionalspecialisation
so that regionsor even whole became
countries
focusedon producing a specificrawmaterialor food crop for for
export, the
example commodity
dependence ontobaccoandteain Malawi.Ona continent of household-based
agrarianeconomies
with very little long-distance for export,and
trade,colonialismimposedcash-cropproduction

28
mineral-extraction, supposedto comelater,Africawascolonisedfor exploitation
withmanufacturing
and the aimwas to maximisetheirresources.For instance,localpeoplewereencouragedto grow
cotton to keep the cottonmills of Englandgoing, not to enrichAfricans.Colonialgovernments
formulatedphilosophiesand policiesin relationto native,labourand land,and thesepolicieshad

effectson Africa(Gannand Duignan1959,Hailey1938).Leastproductivepartof landwas left to

the Africansand the rest was taken by the Europeansettlersand peoplewere ordered(forced
labour)to cultivateeconomiccropswhichEuropeansreliedon (Gannand Duignan1959).It canbe
said that colonialismleft a legacyin mostof Africa,as economiclife still largelyrevolvesaround
agriculturalcycle that remainsacutelydependenton capaciousweatherconditions.International
flowsof people,capitalinvestment,aid and debt repaymentsalso continueto reflectpastColonial
ties (Ashcroftet al. 1998).

2.3.1.2Firstdecadesof independence:
import-substitution
throughto neoliberalpolicies
Thecolonialoccupation aftertheendof WorldWar11whenall colonialstatesgradually
continued
formalindependence.
obtained Asdiscussedin theprevious
section,colonialstatestructures
were
gearedtowardsexpandingexport productionof taxableprimarycrops and minerals.At
independence,
Africangovernmentsinheritedthis policyand were relyingon peasantexport
production for revenueandgrowth.Newleadersreliedon ruralnotables,
andmineralproduction
weresecuredthroughthe chainsof patronage
whoseallegiances stretchingfromthe Ministers'
realisedthatthissystemwasnotworkingas therewasnot
officesto thevillages.It was,however,
enoughpatronageto go aroundand unmanageable oppositionby the excludedwas growing.
Centralised
bureaucratic President
regimeswerethencreatedin whichan all-powerful controlled
patronage
systems
withthehelpof a bureaucracy
central andarmy(Allen1995).

Thedevelopment towards
effortsweregeared Governments
transformation.
structural wereon a
spreeof buildingschools,clinicsandotherphysicalamenities, all understringentstatecontrol.
However,thesegovernments were still expectedto earn their revenuesas primaryproduct
Surpluses
exporters. accumulatedfromagriculturalsectorwere to be to
applied infrastructure
and
otherrequirementsof import-substitution Backedby rapideconomic
drivenindustrialisation. growth
and nationalisation
of a foreign-dominatedprivatesector,massive investments weremade in
infrastructure,
fromroadconstruction
to newimport-substitution which
enterprises werehanded
overto the parastatal As
sector. regards to industry,
the newlyindependentAfrican
governments
oftenassumeda control-oriented
policysincethe industries by
established whitesettlerswere
monopolistic in
or oligopolistic nature. Through measures,
administrative foreignexchange

29
 investment
allocation, andthe like,governments
regulation gainedconsiderablecontrol.Lackof
lack of familiaritywith mass-
trust, sometimescombinedwith politicians'and bureaucrats'
industry,
manufacturing of dealingwithminorities,
andwithpoliticalconstraints createda restrictive
business
environment than
rather a supportive governmentindustrialisation
policy 1990).
(Riddell In
somecaseswheretheexpatriate community leftat thetimeof independence,thisledto a virtual
collapseof industries.
Africanisation
of economicactivitytook to degree
place a significant in many
butoftenprimarily
countries, infarming,trade,transport, industry,
andrealestate.Inmanufacturing
however,thisprocesswasmuchslowerandin manycountries (Ettema1987).
notveryextensive
Thepolicyto industrial development in the 1960sand1970sin Africawasof Import-substitution
(IS).ISrelatesto 'infantindustry'(newlyestablished
activities) conceptandthisgenerally
promotion
involvesfactorymass-production
of consumergoods.Import-substitution (applied
policies both
beforeandafterindependence)
weredirectedtowardprotecting from
factoryproducers
domestic
importsthroughtariffsor quantityrestrictions.
competing Andas foreignexchangebecamemore
and morescarce,policiesfollowedwhichincreasingly regulatedforeignexchangeallocationto
licensed barriersto entrybysmallindustrialists
therebyincreasing
producers, andtraders.

Thehighprioritygivento industryimplieda relativeneglectof agriculture, by

oftenaccentuated
worsening resultingfrompriceandtaxationpolicies.Oshikoya
termsof tradefor agriculture and
Mlambo(2002)arguedthatthefavouring of industrymeantdiscriminating even
againstagriculture,
thoughthe agricultural
sectorwas the mainemployeras well as the dominant in
exporter most
Africancountries.It is believedthat the mannerin whichpoliciesof import-substitution
were
pursuedin mostSSAcountries industries,
fromthe1960sto the1980slefta legacyof inefficient as
wellas missedopportunities whichlackedsufficientlocalmarkets,exhibited
as manyindustries,
lowlevelsof capacityutilisation, to seekoutexternalmarkets(Belshaw
andlackedmotivation and
Livingstone
2002).It has beenarguedthat import-substitution in mostAfrican
industrialisation
countriesdid not developinto moreadvancedstagesdue to the relativelysmallsize of the
domesticmarkets(Riddell1990).As a result,monopolistic marketstructure
and oligopolistic
emerged
witha few largeenterprises,
someof them independence.
after
nationalised It canbesaid
to Africanenterpriises
thatalthoughduringthe colonialperiodthe spreadof industrialisation was
deliberately did not stimulatesmallenterprisedevelopment
repressed,the import-substitution
either,as it remained in
concentrateda few units,
manufacturing dependent
heavily on imports
and
withlittleinducement
to learnandspreadeconomic
opportunity.

30
Althoughsoonaftergainingindependence mostSSAcountries economic
experienced growth,the
1970s,growingdebitof the 1970shit thecontinent, acutefinancialdistress,
provoking aggravated
by declinesin exportearningsdue to fall in commoditypricesand oil curtailmentby the
Organisation
for the Petroleum
Exporting
Countries(OPEC)whichledto theglobalcrisisin 1974.
Duringthat period,termsof tradefor Africanagricultural
products declined andloansfromboth
publicandprivatesectorsadvanced withcripplinghighinterestrates.All thedevelopment
efforts
came to a stop as governmentsstruggledeconomically.Furthermore, SSA economic
backwardness
discouragedanygreat influx flows
of privatecapital from As
abroad. a Africa
result,
became areain theworldwithtotalexternal
themostindebted debtrisingfrom40%in 1980to 79%
in 1994(Castells
1998).

Production sector,whichhadshownmuchprogressin the earliertwo decades,

in the industrial
grewlittlefrom1980,andagricultural growth.SSA's
outputcouldnot keeppacewithpopulation
foodproductionper capitawhichstoodat 90% in 1980, declined to 84%in 1990(FAO 1995).
Recentindications onlystartedto recoverin the2000sreachingup to 90%in
arethatproduction
2003butstillgrowingat a slowerpacethanpopulationgrowth(FAO2006).Dailypercaputcalorie
supplyin 1988 wasat around 2QOO to
calories,equivalent the levelof 1965,
whichis far below
Consequently,
minimumnutritionalrequirements. becamewidespread
hungerand malnutrition
(WorldBank 1989d).The energysupplywas at around2207caloriesin 2002(FAO2006).
Decontrolof foodprices,removalof consumer andincreasing
subsidies especially
unemployment,
sincethe 1980s have the
all weakened purchasing powerof Africa's They
consumers. simply
cannotaffordto buyfoodfor a normaland healthylife. In turn malnutrition
and under-nutrition
reducepeople'sabilityto workbydrainingthemof energyhencefurtherperpetuates
poverty.

in
The WorldBankattributed"structural"factorsas the rootcauseof the economicstagnation
duringthe 1970s.TheWorldBanksingledout poordomesticpoliciesas the
Africaexperienced
mainfactor,in aggravating
Africa'seconomic
crisisduringthis Such
period. policieswerecitedas
overhauled
currencies,heavygovernment spendingand trade
inward-looking policy (Husainand
Faruquee1994).The WorldBank(1989c)suggestedthat the originsof the problemsin the
industrialsectorin SSAcouldbe tracedbackto highlevelsof protectionandto the erroneous
perception thatdevelopment
is to
equivalent industrial Lopes
growth. (1994) pointedout thatthe
internalstructuralproblemsand the externalfactorsimpedingAfricaneconomicgrowthwere
exacerbated by domesticpolicyinadequacies
anda newapproach for in
development Africawas

31
sought.Theindustrialisation by"neoliberalism"
dreamandmoneylentto supportthiswasreplaced
andthissawtheendof "thedevelopment
state"strategy.

Neoliberalism Thatcherwaselectedto the British

wasrevivedin the early1980safterMargaret
governmentand RonaldReaganin the UnitedStatesof America(USA),as theywerestrong
proponentsof it. Neoliberalism frameworks
development
and other mainstream draw their
conceptualroots from neo-classicaltheory.The neo-classictheory uses profit and utility
as corebehavioural
maximisation assumptionsandthegeneralequilibrium markets
of competitive
economy(Schumpeter
as an exampleof a well-functioning 1954).TheNeo-classical economics
schoolof thoughtbelievesthatfreemarketsusuallybringaboutanefficientallocation
of resources,
andthatgovernment interference
will leadto an inefficient
allocation
of Neo-classical
resources.
economics
underpins development
thetheoryof neoliberal reform.

Neoliberalism,
as neo-classical
economics, seesmarketsasoptimally efficientmeansof organising
Stateintervention
economies. forcompetition,
is seento disturbthenaturaltendency specialisation
andtradeto generate
economic Hence
growth. theneoliberal
economic favour
policies anoutward-
oriented,exporteconomy,organisedentirelythroughmarkets,alongwith privatisation, trade
liberalisation
andlimitedstatebudgetdeficits.Thisset of policiesbecamethe standardrecipe,
appliedby globalgovernance
institutions
to supplement of nationalor cultural
regardless
countries
include:ruleof the markets,thus
(Peet2002).The mainpointsof neoliberalism
circumstances
greateropenness trade,no pricecontrols,totalfreedomof movement
to international of capital,
deregulation;
goodsand services;cuttingpublicexpenditure; of state-owned
and privatisation
is used interchangeably
enterprises.It shouldbe noted that sometimesneoliberalism with
globalisation, whendiscussing
especially liberalisation
market
global andfreetradepolicies.

Theneoliberal have
policies also been to by
referred someas the Consensus,
'Washington a term
whichwasused by John Williamsonin 1989to to list ten
refer a of policyrecommendations for
thosecountries
willingto reformtheireconomies (Williamson1989).Thetenpolicyprescriptions
JohnWilliamson's
reflecting interpretation
of the 'WashingtonConsensus'
were: fiscaldiscipline;
redirection taxreform;
of publicexpenditure; financial
liberalisation; a single,competitive
adopting
exchange rate;tradeliberalisation;
elimination
of barriers
to foreigndirect
investment;
privatisation
of state-owned deregulating
enterprises; marketentryandcompetition; secure
andensuring
propertyrights.The'Washington Consensus' was thoughtof as thelowestcommondenominator
policyadvisebeingaddressed
bytheWash to LatinAmerican
institutions
ington-based as
countries

32
of 1989 (Williamson2000).Althoughthe term 'Washington Consensus'is sometimesused
interchangeably policies',JohnWilliamson
withthe phrase'neoliberal it
refutes andsaysthatthe
originalinterpretation
wasneverto implypolicieslikecapitalaccountliberalisation,
monetarism,
supply-side economicsor minimal-state whichare all essentialneoliberalideas
intervention,
(Williamson 2000).Althoughthe ten-pointpolicypackagewas originallydesignedas a reform
agendafor LatinAmerica, facedbythe
it quicklybecameseenas a modelforsolvingtheproblems
widerdevelopingworld.It emphasised
macroeconomic discipline fiscal),
(particular a market
economy andopenness at leastwithrespectto FDI.Theneoliberal
to theworldeconomy, policies
or the Washington
Consensuswereimposedon thedeveloping worldby the IMFandWBunder
theguiseof structural
adjustment.

TheIMFandWBintervened
on the faced
problems by the developing by
countries introducing
a
reorientation
of economic in in
policies, particular theform and
of stabilisation SAPS. SSAcountries
hadno choicebutto complyas theyweredebtorsafterall.As alreadydiscussed, theessenceof
the approachto the SAPSwasthe 'neo-liberal' notionthat States must divest from
themselves
in the economyandprovisionof socialservicesto makewayfor free-market
directparticipation
All barriersto tradeincluding
exchange. exchange tariffsandpublicownership
controls,protective
hadto be removed
to allowfortheoperation
of globalmarket Agriculture
forces. key
became again
as it wasbelieved
thatthiswouldstimulate
thereassertionof the"comparative of rural
advantage"
Africa'scashcropswithinthe globaldivisionof labour(Freund1998).The WB and IMFwere
centralto the processof dictatingthe globalcapitalism's
new termsas they were the major
creditorsof SSA.It has beenarguedby somethat this createda situationwherebySSAhad
parallelgovernments byinternational
controlled lenderagencies 1989).
(Hutchful

It shouldbe pointedoutthattheinitialoverallSAPobjective
wasto dealwithBoPproblems andas
a debt management strategyfor developing Later
countries. on this modelwas criticisedfor its
inabilityto deliverpromised growth
economic impact
andsocial asdebt to
continued mount(Comia
et al. 1987).Inthe1990s,theIMFandtheWBrespondedto thecriticismsbyofferingsomesupport
in theformof micro-credit,
socialsafetynetsandsocial funds(Vivian 1995).However, to
attached
the supportwere'conditions'whichthe countrieshadto adhereto in orderto tap intothesocial
funds.Theyincludedprivatisation deregulation
domestic
of publicenterprises, andliberalisation
of
trade.Thesehave sincebeen promotedas globaldevelopment policiesfor SSA with trade
as an importantelementof the SAP.Green(1995)liststhreestagesof the SAP
liberalisation
development policies:

33
 Stage1: EconomicStabilisation
(through to reduceBoPdeficitand
cuttingpublicspending
reducemoneysupply;inflatIncontrol;raiseinterestrates)

Stage2: StructuralAdjustment
(privatise liberalise
publicenterprises; trade,investment
and
finance,thusletthemarketoperatefreelywithnostateintervention)

Stage3: Export-ledgrowth
(encourage
foreigninvestors
inorderto bringincapitaland
technology bygovernment
unhindered andto generate
regulation
foreignexchange to repaydebts)
necessary

Thesepoliciesarebasedon theassumption throughfreetradeis

integration
thatglobaleconomic
themosteffective wayto promote growthwhichwouldbenefitsociety.However,it hasbeenargued
thatpolicieslikepriorpublicexpenditure
cuts(inorderto stabilisetheeconomy)
on infrastructure
of
transportlinks,institutional servicescouldhavethe effectof reducing
creditand small-farmer
outputs,whicharethedominantSMEproductsin developing
agricultural countries(Mosleyet al.
1995).It has also been arguedthat trade liberalisation
works better if industryis already
competitive worksbetterif thereis a privatesectorthatis able
on exportmarketsandprivatisation
and willingto takeoverthe publicsectorsassets.Mosleyet al. arguedthat infantindustryin
developing shouldhavebeenprotected:
countries

The poorerthe country,the morelikelyis suchendogenous market

failure (e.g. under-utilisationof productiveland, inabilityof small
business-men to borrowon commercial terms,lackof accessto the
marketby producersof tradables...) to constitutea constrainton
production (Mosley et al. 1995:p3l1).

Thus,SMEsmostunderpressurefromthe competition industry

of modern may not be in a good
positionto takeadvantage
of the newopportunities througheconomic
whicharebeinggenerated
integration.This may be becauseof deficienteducation,lack of knowledgeof the new
lack of capitalor simplybecauseof locality.In orderfor SMEsto developand
opportunities,
graduateintosignificant
industrial
andcommercial in a freemarketeconomy,
enterprises theyneed
to be competitive.
Thetradeliberalisation
policycouldhavebeeninappropriate to the economic
contextof SSA.

34
Thefollowing
sectionsdiscussthebenefitsandshortcomings of theradical,
of themajorelements
comprehensiveand innovativereformprogrammes, and the economicand socialtransitionof
developing duringtheeraof theneo-liberal
countries of theSAP.It alsoreviewssome
experiments
of the theoretical andempiricalevidencein orderto reachsomeconclusions
arguments on the
of themacro-impact
question andadjustment
of stabilisation policieson poverty.

2.3.2Consequences
of SAPmeasures
Malawiis one of the developingcountriesthat adoptedstructureadjustmentpolicyreform
measuresfrom the beginningof the 1980s(furtherdiscussedin ChapterFour),and specific
measurestakenas part of SAPshavedirectlyand indirectlyaffectedthe development
and
performance
of smalland micro-sized in the country.The reforms,in the nameof
enterprises
SAPs,concerned sectorsandnotablytheindustrial
alleconomic sectorwhichis calleduponto play
anincreasing
roleasthestategradually fromproductive
withdraws infavourof theprivate
activities
sector.

Dueto the pervasiveness,

dominance and prolongednatureof the stabilisation
andadjustment
policies,SAPshavehadwide-rangingconsequences,notonly for the macroeconomy but alsofor
incomesof the poorandfor thesocialsectors.Underthe SAP,demand-reducing policies,which
includecuts in government (isesin taxation,reductionsin realwagesand credit
expenditure,
Thesepoliciescut intorealincomesby reducingemployment
restraint,areencouraged. andreal
wagesof thosein employmentandraisingpricesof consumptiongoods, as are
prices liberalised.
Contraction lowers
of overallspendingalmostcertainly the well beingof the poorest(Helleiner
1995).In hisstudyof theimpactof the 1980sadjustment
on the poor, found
Morley,
Samuel that
outputper capitafell by over 10%,realvalueof the minimumwagefell by over25%,andthe
numbersof the poorpeopleroseby almost20%.However, some (Columbia
countries and Costa
Rica)managed to bothreducepovertyandimprove
distribution
of incomeduring
the 1980s
(Morley
1992,Morleyand Alvarez1992).Columbiaavoideda recessionduringits stabilisationand
period;eventhoughits growthwasnotasrapidas in previous
adjustment it reducedboth
decades,
povertyandinequality.
Theseresultsstandin starkcontrastto theexperience
of almosteveryother
countryin LatinAmerica.Someanalystshaveemphasised thepartplayedbyopenness andexport
orientationas the mainvariablesaffectinggrowthand that lackof socialcapitaland deficient
politicalinstitutions
havebeenthemainproximate (Azam
causesof slowgrowth et al.2002).

Thereare conflictinghypotheses on poverty.

regardingeffectsof adjustment Reviews
of IMF
programmes conductedby staff membersconcludedthat in general,Fundprogrammeshave

35
improvedratherthat worsenedincomedistribution(IMF 1986).This view is supportedby
Srinivasan measures,by eliminatingimbalances
who arguedthat adjustment and attaininga
andefficientdevelopment
sustainable path,arelikelyto havea positiveimpacton thewelfareof
thepoor(Srinivasan
1988).It hasalsobeenarguedthattheSAPhasnothada negative impacton
thepoor,contraryto widespread (Sahn1994).In a studyon theimpactof tradepolicy
perceptions
reformsin Cameroon,
Gambia,Ghana,Malawi,Madagascar, Niger,Tanzania,
Mozambique, and
Zaire,Sahnconcluded
thattherewasno evidence harmedthepoor.And
thattheseprogrammes
he contendsthat,in fact,the evidenceshowsthatthe poorhadbenefitedin countriesthatfully
adopted
adjustment
programmes.

Thisis viewis supported

bySharer(1999)whoalsocontends thatmanySSAcountries havemade
substantial
progresswitheconomic Sharerpointsoutthatin order
reformsin the 1980s.However,
to raiselivingstandardsandlift theirpopulations will needto
out of poverty,Africaneconomies
growfasterthantheyarecurrently doing.Incontrast,
someanalystshaveexpressed concerns over
problemsstemminglargelyfrom the fallingwageshareassociated with currencydevaluation
(Pastor1987,Taylor1983).Othershavearguedthattheeffectswill dependon the natureof the
economy,and on the policypackageadopted(Bourgignon and Morrisson1992,Demeryand
Addinson1987).It hasbeenarguedthatgrowthof incomepercapitahasbeenlimitedandaftera
to reducepoverty(Morley1995).
decadeof reformpolicieslittleif anyhasbeenachieved

Mostmarketsof developing have

countries been liberalised
significantly andthis has drastically
demandin favourof imports,whichhavemadebiginroadsinto
changedthestructureof domestic
theirmarketsanderodedtheviabilityof domesticmanufactures. It hasbeenwidelydocumented in
literature
thatgreatertradeandfinancialintegration
of thedeveloping hasresultedin the
countries
worsening
of theirBoP positionanddomestic
economic
growth (Ghosh 1999,
Hoogvelt Stein
2001,
1999).Rodrik(1997b)arguedthatinadequate
implementation and
of reforms have
reversals
policy
to
contributed the low of
credibility African the
affect
reforms,whichnegatively desired
response in
investmentsandexports.A WorldBankreportpointedoutthattradetaxesarestillhigherin Africa
thanotherdeveloping
regionsand that biases
anti-export continue to in
prevail mostcountries
hasnotgonefar enoughor
(WorldBank2001).Thereportalsopointsoutthattradeliberalisation
lockedontoa specificobjective,
suchastheexpansion
of exports.

Oneof themeasures foreffectivenessof the SAPsis Gross

Domestic Productgrowth(WorldBank
1994),and a largepartof mostof theSSAcountries' GDPis derivedfromtheagricultural -
sector,

36
withinwhichmostSMEspredominate,
andis the mostdominant
sourceof SSAexportearnings.
TheSAPpolicyobjectives didnotincludeindustrialisation otherthantradeliberalisation.
strategy In
thepast,industrialisation
strategyin mostAfricancountries
discriminated
againstSMEsand,today,
wheretechnology
andorganisational is lacking,tradeliberalisation
competence effortsthatabruptly
removeprotectionmayonlycausea dropin manufacturing outputs.As SIVIEs are dominantin
thesecountries, to exploreto whatextenttheSAPpolicies,in particular
thisthesisattempts trade
liberalisation,
haveimpacted uponandsupported thedevelopment of theSMEsectors.

Expansion of SME marketsbeyondborders of SSA in the

andparticipation global economyis
required aspartof thedevelopment
process aremeantto
fortheSMEs,andtradereformpolicies
facilitate
economic However,
integration. it hasbeenarguedthatthetradereforms,whichAfrica
embarkedon,havehadmodest gainsin selected andhavemetlowacceptance
countries, and
insome(Mwaba
reversals 2003).Mwaba
alsoargues havenotbeenadequate
thatthereforms and
thatSSAneedsto adoptdeeper policyandpractical
andsignificant inorderto increase
measures
theirparticipation in worldmarkets.
andintegration Thiswouldbea majorsteptowardsreversing
themarginalisation andmovetowards
ofthecontinent theachievement
ofsustainlong-term
growth
(Mwaba 2003).Hefurtherarguedthatwhileopening an economy to trademaynotprovide the
desiredquickfix, the removal
or relaxation importandexportrestrictions
of quantitative and
exportsand growthand pointsout that trade
loweringof tariffswouldresultin increased
liberalisation forAfrican
neednotspellcatastrophe economies
as feared.
widely 2003).
(Mwaba

On anotherangle,Edwards(1984)arguedthat appropriate of structuraladjustment

sequencing
reformis considered for
essential the to
programme have outcomes.
successful Goingback to the
firsttwo stagesof the SAPdescribedby Green(section2.3.1),sincethe 1980s,countrieshave
beenimplementing economic policiesfollowedbystructural
stabilisation suchas
reformmeasures,
tradeliberalisation,
privatisation,
exchange ratedevaluation,in no particular and
order at different
paces. It hasbeen foundthatthis has difficulties
approach posedpractical andinspired research
effortson theoptimalsequence the
of reformmeasures (Edwards 1986a, Corbo et al. 1987,
Smith
andSpooner1989).Mosleyet al. (1995)interpolated onthesequencing
suggestions of thespecific
SAPmeasuresandcameupwitha possiblesketchof sequence, in
presented 2.7.
Figure

Differentcountrieswererecommendedto followdifferentSAPreformsequence, dependingon

countrycircumstances,by the WorldBank,and countriesdid not necessarily
implementthe
in the recommended
measures order.For instant,Malawiwasadvisedto implement
the specific

37
 in
measures the orderof: 2+ 4a, 4b, 5a but hadonly implemented
2 by
followed 0 by 1990
(Mosley
et al. 1995).

Figure2.7:A possiblesequence
for a liberalisation
programme

Liberaliseimportsof essential
.
capitalandintermediate goods

2. Devaluate
theexchange rate
level
toa competitive

3a. Promoteexportsthrough 3b, Removecontrolson level

non-traditional
exportsubsidies, and - of internalinterestrateso as to
exportprocessingzones,export achievepositivelevelsin real
insuranceschemesand terms;widenscopeof developmen
government-sponsored marketing banklendingto includesmall
farmersandbusinessmen

4a.Reduce publicsectordeficit 4b.Reform marketing

agricultural
to a levelthateliminatesreliance and soastoincreaseincentive
to
onforeignnon-concessional farmers
tosellsurplus
I
sources of finance, butdonot
allowlevelof realdevelopment
spending tofall

5a.Liberalise
otherimportsand 5b. Removepricecontrolsand
Rationalise
tariffstructure and othermeasuresto stimulate
Privatesector

6. Removecontrols
on
capitalaccount
external

Source:Mosleyet al. (1995)

werejust pickingandchoosingwhateverorderof the measures

It seemsthe adjustingcountries
thattheythoughtsuitedthemat thetimeandat ownpace.Sohere,alreadyit canbeseenthatthe
implementation
process itself
wasdistorted
andhence the impact
andoutcome wouldbe different
fromwhatthe policywas intendedto achieve.For example,worsening
of BoPand increase in
indebtnessof countrieslike Cameroonand Senegalis partlyexplainedby prematuretrade

38
liberalisation, beforethenecessary
undertaken exchange rateadjustment
was (Deverajan
achieved
andde Melo1987).However, it shouldbenotedthatappropriate of theSAPmeasures
sequencing
wouldbe country-specific,
Thus,removalof non-tariffbarriersshouldlargelybe confinedto
intermediate
inputsandcapitalgoodsat first andtradeliberalisation in a
shouldbe undertaken
country-specificmanner.Countrieswithstrongindustrialbase,suchas Kenya,across-the-board
liberalisation
of consumerimportscan leadto unnecessary (Riddell,1993).It
de-industrialisation
has also beenpointedout by Husainand Faruqee(1994),that reformmeasuresshouldbe
attemptedsimultaneously
and consistently
as there is between
a close relationship import
liberalisation,
publicenterprise financeandfinancial
reform,government sectorreform.

Nevertheless,
thegeneralconsensus fromtheliterature
emerging is thatstructural has
adjustment
theintended
notproduced andeventowardstheendof the 1980s,theIMFitselfbegun
outcomes
(WorldBank
to expressconcernsoverthe overallgrowthandpovertyimpactof its programme
1989b).In the late 1980s,the UnitedNationsInternational Fund(UNICEF)
Children's advocated
"Adjustment
witha HumanFace"as an alternative
set of policiesdesignedto protectthe poor
duringadjustment
(Comiaet al. 1991).Soonafter,theIMFandW13 theneedto take
acknowledged
intoconsideration
the socialconsequences In
of adjustment. a joint for
studyprepared the IMF's
development in 1989,the IMFandWBadmittedthattherewasa declinein percapita
committee
incomesaccompanied
byworsening indicators,
social in
particularly SSAandLatin They
America.
said that someof the poordid benefit,but manyvulnerablegroupswerehurt by measures
associated (IMF/WB
withadjustment 1989).The reportalsosaidthatby the mid-1980s,it became
clearthatgiventhetimeandeffortrequiredto turndeeplytroubledeconomies around,it wouldbe
morally,politicallyand economically to wait for resumedgrowthaloneto reduce
unacceptable
poverty.In majorityof casesSAPsprovedto haveveryseriousconsequences. Openingup of
economies andcostof livingrose
did not havethedesiredeffect,ratherpovertylevelsincreased
(Willis2005).Thereis a consensus
thatalthoughSAPsmaynothavecausedpovertyin a direct
didnotleadto povertyreduction
sense,theycertainly 2002).TheUNDPhavedescribed
(Mcllwaine
the 1990sas a decadeof despairfor manycountriesandthat54 countries in
werepoorer 2003
thantheywerein 1990(UNDP2003).

2.4EconomicPerformance of SSAsinceindependence
SomeanalystshaveviewedAfrica'sgrowthperformance in relationto stagesof politicalregimes
and havearguedthatthe economicperformanceof Africahas been affectedby different policy
choicesmadeby the variouspoliticalregimes(Nduluand O'Connell1999).Duringthe post-

39
independence
period,whenmostof thesecountriesadoptedsingle-partypoliticsand authoritarian
tradeand investment
inward-looking
regimes,emphasiswas on the importanceof market-failure,
Nduluand O'Connellpointedout that,although
policiesandthe needfor state-ledindustrialisation.
economicgrowthwas adequateduringthat period,policydistortionsandstructuralweaknessesin
the fiscalandBoPpositionwhenthe shocksof the 1970s
the publicsectorhadalreadyundermined

and early 1980s arrived. Inwardpoliciesfailed to improvethe living standardsin Africa, and
et al. 2001).
the effectsof the externalshocksof the 1970s(Devarajan
exacerbated

It has beenarguedthat thosecountriesthat sustainedappropriatemarket-based

economicpolicies
experiencedpositiveeconomicgrowthduringthe 1970sand 1980s(Sachsand Warner1995b).
However,when comparedto other developingregions,real per capita GDP has been poor for
Africaas a whole,below2%fromthe 1980swhenthe policychangeswerefirst introducedfor most

countriesup until2003.Africaas a wholehadthe lowestpercapitaGDPgrowthrateof 2.4%in the

worldin 2005.Althoughtherehavebeenfluctuationsandnotfast enoughpercapitagrowth,overall
the trendhasbeensteadilymovingin the upwarddirection(Figure2.8).

Figure2.8: Realper capita GDPgrowth rate (%),selectedregions

8-

7-

6-

5-

4-

3-

2-

1-

0-
19 -96 1997 1998 1999 2000 2002 2002 2003 2004 2005
-1 tenyear
average
F- -- --sý
Affica w Central& EasternEurope-ok- DevelopingA ia

Source:IMF,WorldEconomic
Outlook2005e

40
NduluandO'Connell
(1999)arguedthatAfrica'srelativeeconomic in thelate1980s,
performance
deteriorated
furtherwiththepressures
andinternal for
movements The
democracy. 1990s
sawthe
fromone-party
transition ruleto democracy
for someSSAcountries, has
andwherethetransition
takenplacesmoothly therehasbeena broadtendency
towardsrapidgrowthforseveralyearsafter
1995.Successful is by to
reform underpinned a strongcommitment goodgovernance and thisis
essentialfor rebuildingbusinessconfidence
(Devarajan
et al. 2001).Devarajan
et al., in their
analysisof ten African how
investigating
countries foreign policy
aid affectedeconomic in Africa,
showedthatsuccessful reformers(Ghanaand Uganda)hadgrownwell in the 1990sandnon-
reformerssuch as Nigeriaand Democratic Republicof Congo,had gonebackwards rapidly.
Devarajanet al.( 2001)foundthatpolicyformation
is primarily
drivenbydomestic
politicaleconomy
althoughthestudydid notshowanyrelationship between institutions
formaldemocratic andgood
economic
policy.

TheWorldBankclassifiedthe developing
economiesinto four on
categories the basisof trade
stronglyinward-oriented;
orientation: inward-oriented;
moderately moderateoutward-orientedand;
Thetradeorientation
stronglyoutward-oriented. wasthencompared withaveragepercapitagrowth
over three periodsand the resultssuggestedthat outward-oriented grew
countries fasteron
ones(WorldBank1987a).Howeverthis doesnotcontrolfor other
averagethatinward-oriented
factorsand opennessmay capturethe joint influenceof trade regimeand other sound
macroeconomicpolicieswhichalsoinfluence Thus
growth. theimpact
of SAPsperse couldbeless

pronounced rolein somecases.Slowgrowthhasbeenattributed

butstillplaya significant to other
factorslikeas low
naturalfactorssuchas limitedaccessto thesea,tropicalclimate,demographic
life-expectancy
andhighnaturalresource dependence.Fukuda-Par (2004)hasarguedthatorigins
crisisin developing
of the povertyandeconomic countriesare notjust poorgovernance
or poor
macroeconomic but
policies, ratherthe difficulties in
of competing the markets.
global SAPs were
designed
essentially on the that
assumption import-oriented
growthstrategies could be
effectively
switchedto market-driven,
outward-oriented strategies
simplyby eliminating downsizing
inflation,
thepublicsectorandopeningupto foreigntradeandcapital.Sofartheprogramme hasfailedto re-
establish climate(Akitoby
pro-investment et al.2004).

Dataandliterature
revealwidedisparities
in economic of SSAcountries
performance overthepast
decades.Whilethe majorityof thesecountrieshave performedpoorly(Collierand Gunning
1999a,b),Botswana andMauritiushaveexperienced
steadygrowth and convergingto highincome
levels,therebycatchingup with SouthAfrica(Mehranet al. 1998).It is worthmentioningthat

41
 timeseriesfor developingcountriesaregenerallysparseand,whenavailable,they
macroeconomic
are typicallyannual.Ideallyto test the effectof growth,one wouldlike to haveboth a long time
seriesas well as a reasonablyuniformcross-sectionof data. Nevertheless,
the generalpicture,

exhibitedrisinginflation,low (andoften negative)GDPgrowthand stagnatinginvestmentratesin

the 1990s(WorldBank 1998a).Africa'sinflationmorethan doubledfrom 8.5% in 1967to 1975

period(IMF 1991)to 17% in the 1975to 1984periodand increasedto over 30% in the period
between1991and 1995.The inflationdid not fall backto below10%untilafter2003whenit came
downto 7.8%,and recentlythe gap seemsto be narrowingbetweenAfricaand developingAsia
(Figure2.9).

Figure2.9: SSAand DevelopingAsia: Inflation 1975-2004

40 -

35 -

30 -

25
-
%
20 -

15 -

10 -
IIP
5-

0 ---------- --T

1975- 1985 1987 1989 1991 1993 1995 1997 1999 2000 2001 2002 2003 2004
84
Years

0 Africa 0 Developing
Asia

Source:
IMF,WorldEconomic
Outlook,
various
years

The economicperformancein SSAis affectedby highratesof inflationand inflationis a constraint

on growth becauseit increasesuncertaintyabout macroeconomic environment,which disrupts

investmentand savings decisions. A classical view is that high uncertaintydue to bad

42
macroeconomic policyreducesthe efficiencyof pricemechanism and this disruptseconomic
decision-making
andslowsdownproductivity growth(Pindyck
and Solimano 1993). Fischer(1993)
suggeststhatuncertainty
reducesdomestic investmentandgrowthbyinducingcapitalflight.

Despiteunderperformance of the 1990sandearly2000s,recentindications

arethateconomically
thingsarelookingupforSSA.It hasrecentlybeenreportedthatAfricaneconomies their
registered
highestoverallgrowthin eightyears,of morethan5%, in 2004(AfDB/OECD 2004).Thiswas
attributedto risingglobalcommodity of its oil production,
prices,expansion propitiousweather
conditions
andsteadilyprudenteconomic AnotherOECD/ADB
policies. jointreportsaysthatAfrica
is currentlyexperiencing in manyyearsandthatsolidgrowthis
its besteconomicperformance
at a slightlylowerrateof 4.7%in 2005(OECD/ADB
to continuein 2006,although
expected 2005a).
UNCTAD alsorecentlyreportedthatin 2005growthin developing wasrapidandmore
countries
broad-basedthanit had beenfor manyyearsbut goesfurtherto say thattheseratesare still
insufficient
to attaintheMillennium
Development
Goals(UNCTAD
2005).

2.4.1SSA:Integrationwith the globaleconomy

Thecurrentglobalisation
waveof the1980supto todayhasbeenfocusing
on integration
of therich
countriesandat the sametimehasseena largenumberof developing openingup to
countries
foreigntradeandinvestment.
It is withoutdoubtthatwithbetterpolicies,
Africacantrademoreand
benefitimmenselyfrom full integrationinto the globaleconomyas globalisation offersnew
includingexpanded
opportunities marketsandacquisition
of newtechnologies
andideas.A large
groupof developing mainlyfromEastAsia,havebrokenintoglobalmarketswhilemany
countries,
of SSAcountrieshavebecomeincreasingly sufferingdecliningincomesandrising
marginalised,
2001).ChhibberandLeechor(1995)on theirstudyon Ghana's
poverty(LindertandWilliamson
drewon lessonsfrom EastAsianeconomies
economicperformance They
growthexperiences.
arguedthat the SSAcountrieswouldneedto focuson education, and buildingof
export-push
public-private
partnershipin orderto accelerate
growthandreduce and
poverty, this wouldhelp
themto integrate
intotheglobaleconomy.

Findings
fromWBstudieshaveclaimedthatmoreopencountries havehadfastereconomic growth
no increasein inequality,
andexperienced thusintegrating into the world
themmoreeffectively
economy(WorldBank2002a).Thisis supportedby Wade(2005)whoarguedthatglobalisation
explainsdifferences
betweencountries, havea betterrecordthan
andthatmoreopeneconomies
lessopenonesor thosewhoopenslowly.However,evidence showed
elsewhere that it wasonly

43
thosecountrieswhichhavebeenableto developthe exportof manufactureswhichhavefared
intothe
betterin the openeconomy(Oxfam2002).It hasbeenarguedthateffectiveintegration
is
worldeconomy not just a matterof openingup as evidenced by the fact thatmost SSA who
openedup fromthe 1980s marginalisation
are still experiencing ratherthan (Oxfam
integration
2002).UNCTAID thisto the fact thatthesecountriesstill relyon primarycommodities,
attributed
whichare continuously declinein marketpricesof the products,
sufferingdueto significant and
failureto shiftproduction
intotechnology-i
ntensiveproducts(UNCTAD 2002b).

themainvehicleforAfrica'sparticipation
Traderemains andinternational
in theglobaleconomy
One
tradeis the first avenueby whichmostcountriesfeel the impactof economicintegration.
indication
of increasing
globaleconomic is
integration the importance
growing of tradein theworld
economy and the importance flows
of privatecapital to developing that
countries have liberalised
theirfinancialmarkets. tradeis animportant
Merchandise of
part trade
global and indications
recent
arethat SSA merchandisetradeincreased from42% of GDP in 1990to 55%in 2004(Table2.5).
AndalsoFDlinvestment flows
andprivatecapital wentup fromthosefigures
of 1990in 2004and
thiscouldbedueto thefactthatmoreandmorecountries havebeenopeninguptheireconomies
asyearshavegoneby.

Table2.5:Integration
withtheglobaleconomy

Merchandise GrossprivateCapital
Trade flows FDIInvestment(%of GDP)
(%of GDP) (%of GDP) NetInflows NetOutflows

1990 2004 1990 2004 1990 2004 1990 2004

EastAsia& Pacific 47.0 71.1 5.0 9.4 1.6 2.5 0.2 0.1

Europe& CentralAsia 49.7 70.9 5.3 18.8 0.3 3.5 0.0 0.9

LatinAmerica& Caribbean 23.3 44.6 8.0 10.4 0.8 3.0 0.1 0.7

MiddleEast& NorthAfrica 42.9 55.1 4.9 0.3 1.1 0.0

SouthAsia 16.5 27.9 1.4 5.4 0.1 0.8 0.0 0.2

Africa
sub-Saharan 42.4 54.7 51 9.5 OA 2.2 0.0 0.3
Indicators
Source:WorldBank,WorldDevelopment 2006b
= datanotavailable
..

44
However,theseare not sufficientindicationsof SSA integrationinto the globaleconomybecause

other indicatorstell a differentstory. For instanceFigure2.8 showsa declinein per capitaGDP

growthfor Africa in the period2004 and 2005,and there has been a rise in numbersof people
livingin extremepovertyin SSA.SSA'sshareof merchandise
exportswhichstoodat 2% in 1990

remainedthe same in 2004 (Figure2.10). Overalldevelopingcountries'shareof world exports

increasedby 11% from 1990to 2004and EastAsia & Pacificwas the biggestgainercapturingan

additional7%. For Africa, a share of less than 3% in world exportsand less than 3% of FDI
investment,evenwith the openingup of economies,showshowlittle integratedit is intothe global

economy.

Figure2.10:Shareof WorldMerchandiseExportsby developingregionsCle)

12

10

:1
MR-W

East Asia & Pac4fic Europe & CentralAsia Latin Amenca Middle East & North I South Asia sut. Saharan Afnca

Caribbean Africa

M 1990 0 20011

As noted,the industrialsectorin mostSSAcountriesis largelybasedon the processingof primary

productswhosepriceshavebeenin decline.Othercountriesin the developedworlddo not suffer

same problemsas those of SSA on competitiveness becausethey are 'innovation-d
riven',
competingin a wide rangeof industriesproducinguniqueproducts.Production
and exportof
is
manufacturers not well developed in most SSA.Although relianceon primaryproducts in
previousyearsworkedwellfor SSAin termsof growth,theeconomic is differentnow
environment
as factorendowments havechanged.Population growthanddegradationof naturalresourcesare
amongstthosefactorsthatwilldictatepositionof SSAin theexportmarkets.Theprincipleat work
is that,in theabsence
of traderestrictions, thatcanbenefitmostfromtradearethose
thecountries

45
withgoodfactorendowments, andgeographical alsoneedto be acknowledged
circumstances in
the lightof tradeliberalisation.
Agricultural-based
development
cannotbe entirelyrelieduponas
semi-arid
andvagrantweather do poseproblems
conditions forprimaryproduction.

Furthermore SSAhasbeenexperiencing protectionism

of markets
of the developedcountries
despitechanging macroeconomicpolicies
andopeninguptheireconomiesso they increase
could
theirsharein international
trade.Thereareserious
issuesassociated
withmarket export
access,
subsidies,
resultingfromprotectionism behaviour
of developedcountries 1999).
(Michalopoulos
Globalisation
as it relatesto tradeis aimedat reducing in
protectionismorderto
or eliminating
a level-playing
maintain fieldof alltrading Butif youaresmallandpoor,youaresubject
nations. to
negotiating
pressuresfrompowerfulforcesliketheUSAandEuropean Union(UnitedNations
1999).
Andalsosomeof theproduction standardsimposedonthepoorcountries of theSouthact
andbarrier
assomesortof protection (whetherintentionally
ornot)to international
trade.

As SSAeconomies
becomemoreopenandinvolvedin international to foreign
trade,compliance
andinternational is alsobecoming
standards moreprominentan underlyingfactordrivingexport
success.Compliancemechanisms includeInternational for Standardisation
Organisation quality
standardsand other industry-specific
and environmental standardssuch as Sanitaryand
Phytosanitary by the WTO
(SPS)standardsin the food industry.Oneof the areasaddressed
Uruguay
Roundof tradenegotiations
wasto putin placeSanitary
andPhytosanitary and
measures
on Technical
agreement Barriersto Trade(TBT)for memberstatesto complywithwhereexternal
tradewasconcerned. TheSPSwereput in placeon the basisthatimported products
agricultural
are safeanddo not poserisksto human,animaland planthealth(WTO2004b).Membersare
encouraged to useinternational
guidelines wheretheyexist.Failureto meet
andrecommendations
international
standardsfor goodsandto complywiththeWTOSPSagreementcaninhibitmarket
accessto exportmarkets.Non-compliance
affectsthe performance of thedeveloping
economies
likeMalawibecausetheyhavean impacton agriculture,
whichis the backboneof the economy.
Thesemeasurescouldbe seenby less developedmemberstatesas disguisedbarriersand
on international
restrictions tradeandusedto shieldtheirowndomestic from
producers economic
On the other hand,the measurescould be strategically
competition. used to enhancethe
competitive or individual
positionof countries if resources
enterprises, permit.

However,
developing faceimportantchallenges
countries of SPSandTBT
in the implementation
due to technicaldifficultiesand resourceconstraints.
agreements Concernswereraisedat the

46
DohaMinisterial
Conference
in 2001regarding of variousWTOagreements,
the implementation
including (WTO2001a). Evenif developed
theSPSmeasures countries to
were grantdeveloping
countriescompletefree accessto their markets,supply-sideconstraints,
such as standard
compliance,wouldhinderthemfromenjoyingsignificantgainsfrom the full access.Non-tariff
are on the rise and this is a challengefor developing
barrierssuchas 'Standards' countries,
especiallyexportersof mainlyagriculturalproductsand thoseventuringinto exportingmore
processproductsasthey lacktrained
manpower to
andequipment address these barriers
non-tariff
andto complywithEU/WTO commitments andrequirements. theEUrequires
As an example, that
testsandcertifiedbeforetheycanbeexported
to Phytosanitary
plantsliketobaccobesubjected to
the EU region(hftp://Www. for the exporting
cec.eu.ino. This has cost implications
expoft-help.
countryas it needsto establish
a naturalplantprotection to inspectgrowingcropsand
organisation
on
report pests and them.
control TheSSA countries
may be equipped
not sufficiently in termsof
manpower and alsothereare
to carryout rigorousanalyticalworkto analyseWTOproposals
overcostof compliance
concerns whichmayimposebudgetburdensondevelopmentbudgets.

A bigquestionstillremainsas to whymuchof thedeveloping still

economies remain in
excluded,
termsof economic fromtheglobalisation
convergence, Somehavearguedthatevenwith
episodes.
goodpolicies,a landlocked country,like Malawisimplywill not be economically
malaria-infested
As
competitive. wellasopeningtrade,
geography for
alsomatters growth. Transport coststo OECD

marketsare higher
thanthe tariffon theirgoodsdueto (Limao
adversegeography andVenables
2000).AdsesandGlaser(1999)focuson openness in the senseof accessto seaportsandrail
There
services. is literature
stressinggeographical
positionas a factor long-term
governing
economicdevelopment (Bloomand Sachs
andwhy Africahas not benefitedfromglobalisation
1998,Gallupet al. 1998).Tropicallocationanddemographic
burdenareamongst them.

Africa,is saidto haveloweragricultural

Thetropics,especially compared
productivity to the mid-
latitudeswheremostof humanity resides.A lot of SSAis extremely
vulnerableto drought,hasthe
highestvariancearoundannualaveragerainfall,anda lot of coastalEastAfricais hot andarid.
Moreto thepoint,transportation livewithin
is mostdifficultin Africa:only19%of Africa'spopulation
100kmof thecoast.Furthermore, thereis alsospecialdiseaseburdenin tropicalAfrica,involving
infectious
andparasiticdiseasessuchas malaria.It hasbeenarguedthatthe poorgeographical
anddemographic
endowments in Africain turncausepolicyfailureandhindergoodgovernance
(BloomandSachs1998,Davis2001,Gallupet al. 1998).CollierandGunning thatsince
concluded
of marketshas enabledonlythosedeveloping
the 1980sintegration countrieswith reasonable

47
locations,policies,institutionsand infrastructure
to harnesstheir abundantlabourto give
themselves a competitive advantage in somemanufacturersandservices(CollierandGunning,
1999b).However,a UnitedNationsDevelopment
Programme
(UNDP)reporthas arguedthat
shouldnot be an impediment
geography as it can be overcome
by betterroads,communication
anddeeperintegration
withneighbouring (UNDP2003).
countries

Communication
Information, andTechnology (ICT)alsoplaysanimportant
rolein today'seconomic
integration.
However,
notall countries'Information,
CommunicationandTechnology infrastructure
is welldeveloped
andthis couldbe onereasonwhysomelessdeveloped in SSAare
countries
beingmarginalised
as theycannotkeepupwithnewtechnologies andmarketinformation
andare
In an increasingly
remotelyplacedgeographically. global-knowledge-based
economy,information
can be vital toolsin helpingSSAcountriesto becomemore
technologies
and communication
bothregionally
competitive, andglobally.SSAcan harnessICTto moveup the valuechainand
competemoreefficientlyso as to promotebroadereconomicgrowth.Table2.6presentsselected
dataon information andtechnology for 2003.As Malawiis the
accessin selectedSSAcountries
focusof thisstudy,Malawi'sICTdatais highlighted.

Fromthetableit canbeseenthatthereis a variationin thelengthof timeit takesfora business

to
just obtaina telephone
line.Forinstance,in Malawiit takesan averageof 75 dayscompared to
SouthAfricawhereit takesabouta week.Malawifirmssufferthe longestperiod(55 hours)in
durationof telephone
outagesandthisobviouslyhasimpacton businessoperations
andcontact
withcustomers Malawihasonlyonetelephone
andsuppliers. a
operator, secondone in
licensed
2003,wasnotyetoperationalin 2005,andthereareonlytwomobilephoneoperators witha totalof
260,000subscribers. of which8 were
As for the internet,thereare 19 licensedinternetproviders
in 2003withanestimated
operational 13,000subscribers 50,000to 75,000users
andanestimated
in total(UNDP2005a).All dial-upconnections
to theinternetaretreatedas localcallswhichmay
be a discouragement for profit-ddven internetserviceproviders for someindividuals
butaffordable
in thecountry.Withlownumbers of telephone, mobilephoneand internet
users, of
application ICT
to enabledevelopment canhardlybe achievedandbusiness woulddefinitelystruggleto compete
globallyandinteractwithinternational
suppliers
andpotential
customers,

Table2.6alsorevealsthatnotmanyfirmsin MalawiandSSAin generalusetheWorldWideWeb

andsuppliers.In fact it is lessthan35%of the firmsin mostof the
to interactwithcustomers
countries here.However
presented throughemail(67%)thanBenin
Malawihasa higherinteraction

48
 (36%),Mali(42%),Tanzania(58%)andUganda(39%).Furthermore, of ICTand
thedistribution
relatedinfrastructure
is unevenandinfavourof urbansettlement
in Malawi.

Table2.6: Informationand Technologyindicators in selectedSSAcountries,2003

Zambia Benin
11111118118M Kenya SouthAfrica Mail Tanzania Uganda

Delaysin obtainingmaintelephoneline
(days)
connection 74.61 54.79 130.97 80.59 6.58 50.95 18.32 25.38
Telephone
access:fixedmainlines
(per1000people) 7 8 9 9 103 6 4 3
Mobilephonesubscribers
(per1000people) 18 26 30 76 413 30 44 42
Faults
(per1000mainlines) 59.60 124.90 6.20 149.10 48.20 177.60 24.00 16.60
Unavailable
telephone
services
(days) 10.26 23.55 16.60 28.75 4.40 8.76 37.42 10.49
Durationof telephone
outages
(hrs) 55.29 11.04 6.07 20.20 3.35 10.26 9.20 14.79
Dailynewspapers
(per1000people) 2 22 5 8 25 1 3
Households
withtelevisionset
N 2 26 20 19 54 15 14 6
Accessto personalcomputers
(per1000people) 2 10 4 13 82 3 7 4
Intemetusers
(per1000people) 4 20 12 45 78 4 9 7
FirmsusingWebinteraction
with
(%)
clients/suppliers 23.27 27.18 24.87 32.00 70.81 28.57 23.48 10.00
Firmsusingemailto interactwith
(%)
clients/suppliers 67.30 83.50 35.53 78.42 98.34 41.83 58.43 38.67
Firmsusingnewproduction
technology
N 37.97 49.76 60.57 49.57 31.97 47.33

Source:WorldBank,EnterpriseSurveyQueryOnlineDatabase,2003c

.. =data not available

Communicationnetworks
andrelatedservicesareconcentrated in themajorurbancentresandthis
excludesover85%of the population
that livesin ruralareas.Withmostpeoplebeingpoorand
residingin the ruralareaswhereelectricalpoweris alsolimited,communityradionetworkhasthe
highestpotentialof reachingthesecommunities. Thereare 15 radiostationsand one main
television
stationwithothersubscription-based
commercial and
satellite cabletelevision in
services
Malawi,largelyavailable
to theurbanpopulation.
Circulation is in
of newspapersalsoconcentrated

49
thecapitalcityandmainurbancentresandneverreachestheruralcommunitieswithpovertyand
remoteness beingthe barriers
principal to to
access mostof theseforms Clearly
of communication.
with underdeveloped information
media, the MalawiSMEs (which have
are mostlyrural-based)
verylittlechanceof receiving information
up-to-date technologies
on newproduction andmarkets
outsidetheirlocal let
areas aloneinternational As be
markets. can seen from Table2.6,only38%

of the Malawifirmswereusingnewproduction in
technology 2003.
Malawi
has limited
access to
andservicesandthehighcostsof thoseservices,particularly
ICTinfrastructure international
calls
andhigh-speed in thisinformation
internetaccess,whicharecrucialto firmcompetitiveness and
technology
age,areunderdeveloped.

As for communication Malawiis saidto havea goodroadnetwork

in termsof transportnetworks,
andrailwayserviceswhichconnect importsandexportsto important
portsof Beiraand in
Nacala
Mozambiqueand portof Durban in SouthAfrica.However
it has been that
reported the roads
themselves
are in bad is
physicalshapeandroadmaintenancenotup to (AfDB/OECD
standards.
2006).Forthosepartsof thecountrywheretheroadsarein poorconditionit meansthatdomestic
transportcostis muchhigherandhencethe benefitsof a moreliberalised markethavenot yet
their
reached producers High
andconsumers. transport
costsarerecognisedas oneof the major
factorsthatmakeMalawi's in
uncompetitive
goods domestic
andinternational
markets.

Malawiis 860Kmto the nearestseaport,Nacalain Mozambique, fromthe Capital,Lilongweand

there is only 717 Krn operationalsingletrack public railwayline extendingfrom near the
borderin the Southof the countrythroughto Salimain the Centralandthengoes
Mozambique
WestthroughLilongweto Mchinjiand the Zambianborder.Mostof Malawi'sforeigntradeis
conducted viaSalima,a porton LakeMalawi, is by the
which connected railwith seaport of Nacala.
for
Therailtransportis mainlyusedto carryfreight,andit usedto be the mainmodeof transport
Malawi'sforeigntradebeforethe linesto BeiraandNacalapMs in Mozambique
wereseverely
in the 1984/85civilwarin Mozambique.
damaged throughthe
Whenthetransportcommunication
transitcountryof Mozambique experienceddisruptionby the civil war, Malawiwas cut off
andthisaffectedtheinternational
economically tradeflow.

Asforairtransport,
therearea totalof 43 airportrunways
of whichonly6 arepaved
and this
again
is a constraintto businesses for a landlockedcountrywhich needsall modesof transport
communications in
it can get order to link up with the restof the worldand to be competitive.
Furthermore, have
services
airfreight beencutandthereis moreusageof hub
regional for
airports

50
 flightlinks.Thereare no directlinksbetweenMalawiand Europe,whichalso
international
to
contributes thehigh costof airfreight
services
outof Malawi
(AfDB/OECD2006). Most SMEs In
Malawimainlydependon the road network.Unfortunately Is
the transportinfrastructure
in
concentrated towns
cities,
major andurban and
centres the
along roadswhich
mainconnecting
that
means many SMEs in
are remoteareasandhence Impact
on their
performance. is
Transport
factorto theMalawieconomy.
a verysignificant Forexample In thecaseof agricultural
export
most
commodities, entrepreneurs just
will to
resort subsistence
agriculture
anddomesticproduction
as theycannotabsorbinternational
transport
costs.Costof shippinggoodsIs toohighforSMEs
andinterest
charges andgoodsin transitcausedisruption
on inventories of domesticproduction
of inputsandlossof ordersdueto Inability
dueto non-arrival of goodsto
delivery
to effectreliable
ThisresultsInworsening
markets. termsof trade,reducedexportcompetitiveness andexportrage
andvolumes.

Fromthedatapresented in Table2.6,it canbe saidthatMalawi,likemostotherSSAcountries, Is

notwellintegrated
intothe globaleconomy in termsof ICTpartlydueto its landlocked
natureand
due
partly to being the in
oneof poorestcountries theworldandhence
cannot to
afford its
maintain
roadinfrastructure to otherpadsof thecountryandto afford
to properlyconnectruralpopulations
newadvanced forms of communicationsuchas the Internetandemail,and television The
media.
is essentialtowardsachievingInternational
processwithinSSAcountriesthemselves
integration
fortheireconomic
competitiveness growth.

Althoughtradehasbeenopened up,forthoselandlocked
countries therestillexiststhe
likeMalawi,
issueof naturalprotection
of hightransport
costs.Landlocked from
suffer
countries 'remoteness'
whichcauses delaysandpoorcommunication
greater markets
withoverseas and input
suppliers,
andaffectsdevelopment for The
potential export. landlocked have
countries to dependon transit
coastalcountries costs,asthecasefor Malawi,
andthisraisestransportation andconsequently
increasesthepriceof Imported goodsandlowers
thepricereceived for
domestically thus
exports,
is relatedto distance.
competitiveness therealityIsthatsomeInvestors
Furthermore, mayseeno
reasonwhytheyshouldlocateina land-locked whenthereIsa neighbouring
country transitcoastal
countrywherelabouris they
ascheapand wouldnot incurhightransportcosts.So it canbe said
thatevenwithtradeliberalisation,
theland-locked
natureof thepoor compounded
countries, by
relianceon productionof primarycommodities,
poseproblems for bothlocalproducers and
investors.
external

51
It hasalsobeenarguedelsewhere thatopeningup to international in
tradehasledto an increase
the gapbetweenthe nationalincomeof the poorandrichnations(Ravenhill 1993).Economy is

much more complexthan just free

advocating free
markets, tradeand minimalgovernment
intervention
andthisdoes lead
notnecessarily to economic
growthor A
development. studybythe
betweentradeliberalisation
UNDPon the relationship and highgrowthratesin IndiaandChina
followedratherthan precededhigh growthin thesecountries
showedthat tradeliberalisation
(UNDP2002).Thomas(2005:p336)arguedthatthesefindingssuggestthat,"thefreetrademantra
whichstill dominates
IMFMB/WTO policyon howto promoteglobaleconomicintegration(and
development)
therefore be
maywell misplaced". Shearguesfurther
thatstates
need to be mindful
in theirapplication andnot seeit as an endin itselfwhichwill necessarily
of tradeliberalisation,
bringthedesiredresults,

Themostimportant is thatit increases

effectof globalisation and'thosewhorealign
competition
their practicesmosteffectivelyto InformationAge Standards the
can reap most (IDC
benefits'
2001:35 andUNIDO2001c).However,manydeveloping do nothavethenecessary
countries and
sufficient
resources, to in to its
andcompetenciesmanageglobalisation order maximise
capacities
benefits
potential its
andminimise inevitable
unintended
adverseconsequences. (2002b)
Kiggundu
suggested that theseeconomies to
need establishpublic-private both
partnerships, domestically
andinternationally,
in orderto managethe variousdimensions The
of globalisation. international
community,businesses,institutions have to
and governments a role play to facilitateeffective
intherestof theworld.
globalisation

2.4.2SSAandRegionalIntegration
In recentyearsmanySSAcountries willhelpthem
havetaketo thestancethatregionalgroupings
integratemoreintothe globaleconomyandas suchfree-trade groupings havebeen growing in
Thus,in orderto boosttradeamongAfricancountries,
numbers. regionaleconomiccommunities
havebeencreatedoverthelastfewdecades.
Theseinclude,Economic Communityof WestAfrican
States(ECOWAS), CentralAfricanMonetaryand Economic (CEMAC),
Community the Economic
Communityfor CentralAfricanStates(ECCAS), (EAC),Southern
EastAfricanCommunity African
CustomsUnion(SACU),Southern
AfricanDevelopment Marketfor
(SADC),Common
Community
Easternand SouthernAfrica(COMESA). The importance of economicco-operationfor Africa
derivesmainlyfrom the opportunities the marketsof individual
that emanatefrom integrating
in size,of mostof the countries,hasbeendescribedas a
countriesin the continent.Smallness
majorobstacleto Africa'seconomic development (ADB2000).Therationaleis that,withregional
free-trade the
groupings, export
marketwill widenthe total for
market a country's like
producers

52
 It is believedthatcollaborative
SIVIEs. territorial
effortsacrossspatial in
boundaries Africawould
allowforaggregate benefits
economic (Adedeji
andoveralldevelopment 2002).

Theregional groupings
weremeant to foster
or actas buildingblocksfor regional in
integration
Africa,buttheyseemto befailingto do so.Someof thefactors,highlighted for
asreasons the
failureof theregional
groupingsin Africainclude:
lackof political to
will establish intra-
effective
institutions
national andto implement
agreedtreaties
andprotocols;
overlapping and
memberships;
inadequate for
mechanismsequitable sharingof costsandbenefits
of integration 2002).
(Adedeji
Theproblem is thatthereareso manyregional bodiesin Africa,someof whichare
cooperation
andcausing
overlapping spheres
conflicting of jurisdiction,where different in
organisationsthe
sameregionhavethesamemandate or wherea country, likeMalawi, belongsto twoor more
that different
organisations arepursuing policiesat a particulartime(ARIA 112006). Malawi is a
memberof bothSADCand COMESA both whoseagendas include promotingregionalintegration
tradedevelopment
through and declaring
ultimately freetrade in
areas thefuture.

Indications havenotmetexpectations
arethatmostof theseintegrations andthatmuchremains to
be doneto achievethedeclaredobjectives. Overall,tradeamongstAfdcancountriesaccountfor
trade,thelowestof anyworldregion(ECfA2002).Andalsothe
lessthan20%of theirtotalexternal
averagepercentage
of SSA total
countries' exportswithineachof thedifferent
economic is
groups
lessthan20%(Figure2.11).Theregionalgroupings
offeradvantagesof certaintyandimproved
access,whichis an attdbuteof multilateral thoughfora limitedrangeof commodities,
negotiations,
that
considering mostof these countriesproducesimilar typesof goodsand hence limiting
the
tradebetweeneachother.By producing andnot processed
andexportingsimilarrawmaterials,
goods,thereis verylittlethattheywouldbe interested
in importing
from A
oneanother. WorldBank
tradeis dominated
studyreportedthatintra-African sellinga handfulof
by a handfulof countries,
products.ExcludingSouthAfrica,onlyfive SSAcountries,Coted1voire,Ghana,Kenya,Nigeria
andZimbabwe of all intra-Africa's
providethree-quarters goodsaccount
exports,andmanufactured
foronly15%of suchtrade(WorldBank1998b).

In additionto producing inefficient

poorinfrastructure,
similarproducts(andmainlyrawmaterials),
transportandcommunication systemare a majorcauseof Africa'slow and
competitiveness low
levelsof inter-country
trade.As discussed
before,the infrastructure networks
andcommunication
arenotthatstrongin Africa.Thecontinent's
railwaysandroadsoftenleadtowardstheportsrather
thanlinkcountries For
acrossregions. instance,
it hasbeen that
argued because
of hindrances
to
tradewithinAfrica,exportsfrom Tunisiaand Cameroonoftenfind theirwayto Frenchwarehouses
beforebeingredirectedto each othersmarkets'shelves(UnitedNations2002).In orderto allow
trade to flow regionally,investmentin physicalinfrastructure,railway,roads, power lines, air

wouldbe necessary.Althoughthere has beena formationof so

servicesand telecommunication
manyof the regionaltradegroupings,it does not necessarilymeanthat the transportcostswould
reduceas thereareotherissuesinvolved.Problemswhichhavebeenidentifiedin the
automatically
sectorinclude:slow processof the creationof autonomous
regionaltransportand communication
roadagenciesandboardsto manageroadfundsandto ensureco-ordinated
roaddevelopment
and
maintenance;lack of regionallyestablishedpolicyframeworkunderwhichgovernmentsand the
privatesectorshoulddeliverroad infrastructureand relatedservices;inadequateexpenditureon
rehabilitationof road infrastructure;road infrastructurein some countriesbeing poor due to
bombings(civil war) and neglect;some railwayshave becomeunsafefor the passageof trains;
failure of nationalrailwayoperatorsto providea reliable,predictableand cost-efficientservice;

congestionin someseaportsbecauseof mismanagement;

and inadequatesecurityat the seaports
hencepoor safety leadingto high insurancepremiums(Vogelaarand van Dijk 2003).All these
issueswouldhaveto be resolvedbeforethe membercountriesstartedto realisethe benefitsof
integratingtransportnetworks

Figure2.11:Exportswithin African Regions,2004(as average% of countries'total

exports)

20
18.1
18
16
-
14 12.8
-
12 10.2
-
10

8
6.0
6

ECOWAS ECA COMESA SADC

Regionalgroupings

Source:UNAfrica Renewal

54
Forland-locked likeMalawi,workingtogether
countries at regional
withotherandcoastalcountries
is imperative.
levelin orderto lowerthehighcostof transport, A greaterregionalintegration
would
stoneto broaderintegration
bea stepping intotheglobaleconomy.
Regional is virtually
cooperation
importantforSSA'seconomic andfutureinternational
development trade.Through
cooperationand
integration, andtradingblocksmakemoreefficientuseof collective
frameworks
regionalplanning
capital,labourand naturalresourcesof memberstates.The economies of scalein productive
investmentssuchas forlargeinfrastructure
andutilitiesprojectsreducecost.Wherethelandlocked
countries
cooperate they
closely, can benefitfrom low-cost
anefficient-run, transport They
corridor.
wouldneedto fostera transportcorridorunderwhichjoint interestscanmosteasilybe pursued
(Livingstone
2002).

In recentyearstherehasbeena renewed
emphasis ascrucialto
on buildingregionalinfrastructure
Africa'sintegrateddevelopment 36). SADChas currentlymeasuresin placeto
(EVA 2004:
integrate infrastructure
transport states.Andalsoworkis underway
andservicesacrossitsmember
to improve linksthatarein poorcondition,
thequalityof transport providing
corridors,
alongregional
outletsto theseafor the landlockedmembercountries (SADC2006).TheCOMESA is alsoin the
processof implementing to improvethetransportandcommunication
programmes systemsof the
regionandworkingtowardsharmonising
roadtransit All
charges. theseinitiatives they
should be
implemented,
successfully be
would of great benefit to landlockedcountrieslike Malawi.For
instanceMalawiwouldbenefitfroma reduction
in transitcostsandan increasein numberof road
andseaportaccessthroughwhichit cantransport
networks itsgoods.

It hasbeenarguedby the Economic for Africa(EVA),thatthe extentto whichthe

Commission
regionalcommunities be to for
canreally considered actascatalysts effectiveregional is
integration
actuallya functionof theextentto whichAfricanmember harbour
states commitment
political (ECfA
2002).It seemsthatdespitepronouncements bypoliticians
forregional ties,therealityon
economic
thegroundfor tradersremainsdifficult.Forinstance,it hasbeenknownthatcustomsofficialsand
tradersdifficultby makingthemunpackeverylittle
policeat roadblocksmakelifefor inter-country
packageandtherebydelayingtheirjourneysfor hours(UnitedNations2002),The inter-country
tradein SSAis conducted and drivenby the needsof informalindigenous tradersratherthan
formalonesandyet it hasbeenreportedthatthecurrentintegration in
efforts Africaaredesigned
anddrivenby a preferenceforformalratherthaninformaltrade.Theinformalsectorwouldneedto
betakenintoaccountif integration
is to succeed.However,the2002EVA annualreportpointsto
the EastAfricaCommunity
as beginning the informalsectorintoits activities(ECfA
to incorporate
2002).

Ultimately,
thecreation
of regional
markets in Africawouldenhanceindustdal as
efficiency larger
marketsallowexploitation
ofeconomiesof scale.Ithasbeenargued integration
thatregional would
offerbesthopeforSSAto integrate
furtherwiththerestof theworld(ADB2000).Widerregional
markets for bothproducers
wouldopenup moreopportunities andconsumers, beyond thesmall
(of
markets some)withintheirborders.
Mobility
acrossbordersandharmonised policiescouldspur
fastereconomicgrowth greater
andprovide toattractinvestors.
opportunities Althoughit mayseem
a longwayyetforcountries to benefitfromregional
likeMalawi it
co-operation, initiatives
seems
areinplaceanddiscussions
areunderwayforsolving someoftheproblems.

2.4.3SSA:Openingup andFDI
Withthehelpof moderntechnology
in transport businesses
andcommunication, and flows
financial
movethroughtheworldallowinginternational
tradeandFDIto growsignificantly
overthe lastfour
decades.FIDIis drivenby broad-based economicpolicyreformsand it was expectedthat
the
accelerating paceof deregulation
liberalisation, and privatisation FIDI
wouldattract to Africa
(IMF 1999b,WorldBank 1997c).Privatisation
of state-owned has
enterprises been, and is
becoming andmanycountrieshaveusedthischannelto attract
an avenuefor foreigninvestment
FIDLMkandawire(2001)arguedthatattracting
FIDIis thekeyto bringingtheresource gapof low-
incomecountries
andthatit the for
provides catalyst a 'lateindustrialisation'
driveto It
Africa. was
alsoarguedelsewhere paceof openingup to FIDIwill bringnotonlymorestable
thataccelerated
capitalinflowsbut alsogreatertechnological
know-how,higher-paying jobs,entrepreneurial
and
workplace (Prasadet al. 2003).Mostdeveloping
skillsandnewexportopportunities have
countries
beenopeningup theireconomiesto international
tradein orderto attractFIDIandmanyof them
havereformed tradepolicyin orderto qualifyas openeconomies. rolein
FDIplaysan important
accelerating
economicgrowth.Table2.7showsa selectednumberof SSAcountries by
classified
SachsandWarner(1995a)according
to openness
to international
trade.

SachsandWarnerdescHbed to beopenif averagetariffratewasbelow40%;average

aneconomy
quotaandlicensing of importswaslessthan40%;blackmarketexchange
coverage ratepremium
waslessthan20%;therewasno extremecontrolson exportsin termsof taxes,quotas,andstate
monopoly;andwasnotconsidereda socialistcountry(SachsandWarner1995a). According
to the

56
'SachsandWarner'criteria,not manyof the SSAcountries
wereregardedas openin 1990,and
apartfromMauritius
andBotswana theywereallbelow40%open.

Table2.7:Market-oriented
pro-growtheconomicreformInAfrica,
selectedcountries
Opennessto Yearof
International
trade Opening
ConsensusReformers:
Botswana 0.42 1979
Gambia 0.19 1986
Ghana 0.23 1991
Guinea-Bissau 0.17 1987
Mauritius 1.00 1968
Uganda 0.12 1988
Partial
Reformers:
Benin 0.04 1965-90
Cameroon 0.00 1965-90
Kenya 0.12 1965-90
Madagascar 0.00 1965-90
Malawi 0.00 1965-90
Mali 0.12 1965-90
Mauritania 0.00 1965-90
Nigeria 1.00 1965-90
South Africa 0.00 1965-90
Zambia 0.00 1965-90
Source:
SachsandWarner
(1995a)
Note:
1=ahigh degree 0 lowdegree
ofopenness, ofopenness

It canalsobeseenfromthetablethatMalawiwasoneof thelatereformersandhada zerodegree

of opennessin 1990.Mostof thecountries
havebeencarryingoutthe reformsinconsistently
and
ially.It hasbeenarguedthattimeliness,
parl: sustainability are
andconsistency for
crucial investor
confidence.Thusinappropriate
designandimplementation policiesmayprolongor
of adjustment
instability
to macroeconomic
contribute andthusaffectFIDI(Offerdal1996).It has
anduncertainty
beenarguedthat thosepoor countriesthat have followedstandardmarket-based economic
openingto international
policies,including moreintegration
trade,haveexperienced andeconomic
growth(SachsandWarner1995b).

However,
despiteSSAcountries
openingup theireconomies withpolicyadviceof
andcomplying
the paceof liberalisation,
accelerating deregulation the recordof the past
and privatisation,
decadeswithrespectto reducingpovertyandattracting
FDIto SSAhasbeendisappointing andit
hasbeensuggested thatthe exclusiveemphasison market-ofiented
reformandgovernanceas
determinants
of thesizeof FDIflowsto Africais (UNCTAD
misleading 2005). Although 35%
about

57
of globalFDIwentto developing lessthan2%of it, half
in 2004,theSSAregionreceived
countries
of whatit wasinthe1970s(Table2.8).

Table2.8: Shareof FDIInflowsto developingregions(%),1970-2004

1970-1979 1980-1989 1990-1999 2000 2001 2002 2003 2004

Countries
Developing 25.3 22.7 30.4 18.2 26.9 23.2 30.7 35.9
Africa 4.4 2.3 1.5 0.6 2.4 1.7 2.7 2.8
NorthAfrica 0.7 0.9 0.5 0.2 0.6 0.4 0.8 0.8
sub-Saharan Africa 3.8 1.4 1.1 0.4 1.8 1.3 1.9 1.9
LatinAmerica& the
Caribbean 13.6 7.9 11.1 7.0 10.8 7.6 8.9 10.4
Asia& the Pacific 7.4 12.5 17.7 10.5 13.7 13.9 19.2 22.8

Source:UNCTAD,Handbookof Statistics,variousyears

Simplyadoptionof opentradedoesnotguarantee
integration countiesintothe
of thedeveloping
by manypoorcountrieswhichhaveopenedup theireconomies
globaleconomyas evidenced
sincethe 1980sbuthavefallenbehindin termsof bothincomelevelsandstructural
developments
(Dowrick
andDeLong2001).It hasbeenarguedthattheoutcomeof increased intothe
integration
worldeconomyneednot be dueto changesin tradepolicyonlybut alsoreliablepropertyrights,
strongruleof lawandmacroeconomic
stabilityarealsoassociated
withmoretradeandFDI(Dollar
andZoldo-Lobaton 2001).

Other factorssuch as marketsize and growth,resourceendowments and infrastructural

developments are alsosignificantdeterminants
of the patternof FDIflowsto Africa.Limaoand
Venables(2000)have even argued,on the extreme,that for some countries,continued
marginalisation is a reality.Theyarguethatdueto disadvantages of location
they probablyhave
littlerealisticprospectsof developing.AttractingFDIthroughgreateropenness anddownsizingof
thestateshasnotbeenempirically proven.AscanbeseenfromFigure2.12,countries likeZambia
andNigeriahadmuchmoreFDIstockinflowas a percentage
of GDP in 1990thanMauritius
and
Ugandawhichwerecategorised
as moreopeneconomiesduringthattime.

It has beenreportedby UNCTAID that extractionof Africa'snaturalresources accountsfor the

unevenspreadof FIDIflowsacrossthecontinent. Thosecountries by
classified theWorldBank as
have,on average,accounted
oil-andmineral-dependent of annualFIDI
for closeto three-quarters
flowsoverthepasttwodecades(UNCTAD 2005).ThiswouldexplainwhycountrieslikeZambia,

58
Nigeriaand Botswanashowedhigherpercentagesof FDI inflowstock as these countrieshave
As a resultof reforms,Africahasbecomemuchmore
copper,oil anddiamondminesrespectively.
4attractive'as a locationfor miningFDI.Forexample,Maliwhichhadoneof the lowestpercentages

of FDI stock inflow in 1990,did not have a large-scale

miningsector beforethe 1990s,but has
been
recently to
reported host flows
considerable of FDIas hasTanzania 2004).
(Campbell

Figure 2.12: Inward FDI Stock as % of GDP, selected SSA countries

Zambia

SouthAfrica

Nigeda

Mauritania

Mali

Malawi

Madagascar

Kenya 2004,

Cameroon 01990

Benin

Uganda

Mauritius

Guinea-Bissau

Ghana

Gambia

Botswana

0 20 40 60 80 100

Source:UNCTAD,EconomicDevelopmentin Africa 2005

The singularfocuson attractingFDI throughgreateropennessseemsto havedrawnattention

awayfrommorefundamental determinants of FDIflowsto Africa- namelymarketsizeandgrowth,
and
resourceendowments infrastructural
development.Particularcombinationsof geographical,
historicaland structuralfeatureshave traditionallyattractedFDI into enclavesof export-oriented

primary with
production limitedlinkagesto the rest of the Lall
economy. (2004)pointedout that

59
 in skills,technology
investment andinfrastructure
is neededif countries
areto successfully
attract
FDIandintegrate intothewiderdevelopment
moreeffectively strategies.

2.5SSA:SMEs,Manufacturing andIndustryperformance
underthe policychanges
sectorin Africaneconomies
The manufacturing has beendescribedto consistmostlyof small
largefirmswithnotverymanymedium-sized
alongside
companies modernfactoryfirmsin between
(OECD/ADB 2005b).Manyof the small enterprisesin Africa are informaland use simple
andhaveverylittleaccessto finance,whichhamperstheiremergence
technology andeventual
growth.The OECD1ADBreportfurtherreportsthat SMEsin Africaare very weakand this is
attributedto smalllocalmarkets,underdeveloped andverydifficultbusiness
regionalintegration
conditionswhich includecumbersome dubiouslegal
officialprocedures,poor infrastructure,
systems,inadequate
financialsystemsandunattractive it
tax regimes.Underthesecircumstances
is nothardto comprehend
whytheSSASMEsarefindingit difficultto competein theglobalising
economy.

Whendiscussing industryandSMEsin SSAit shouldbebornein mindthatSSA

themanufacturing
countriesare heterogeneous
in termsof population,
levelof economicdevelopment, per capita
incomeand in sectoralcomposition of the economy.Some countrieshave a very small
(suchas SouthAfrica,Mali).
sector(likeMalawi)andin othersit is moresubstantial
manufacturing
Someof themhavesufferedfromwaranddroughtandsomehavejust recovered fromconflicts
(Mozambique,
Uganda).Table2.9 presentsselectedstatisticsfor a numberof SSAcountriesin
2003,showinghowvariedtheeconomiesareandalsopresenting withinwhichthe
a macro-context
SMEsandindustrial
sectorunderthepolicychangesis discussed.

Fromthedatain Table2.9,it canbe seenthateventhoughMaliis tentimesas bigas Malawiin

termsof surfacearea,theirpopulation
sizesaremoreor lessthe same.Butregardless
of similar
sizes,Malireceiveda bit moreoversees
population development compared
assistance to Malawi,
in 2003.Also,in comparison MalawihadthelowestGDPper
to theotherselectedSSAcountries,
capitaandthelowestFDInetinflowsin 2003.However, trade
Malawihadthehighestmerchandise
of GDP (66%)comparedto the other countries,althoughperformance
as a percentage of
manufactured poor(12%).
exportswasrelatively

60
 Table2.9: Selectedstatistics for selectedSSAcountries,2003

Benin Kenya WaW_ SouthAfrica Mali Tanzania Uganda Zambia

Surfacearea(sq.km) 112,620 580,370 118,480 1,219,090 1,240,190 945,090 241,040 752,610

Population,
total(tothe
nearestmillion) 8 33 12 46 12 37 27 11
OfficialDevelopment
Assistance
US$(mill) 293 514 518 625 543 1,704 976 581

RealGDPgrowth(%) 4 1ý 4.4 28 7 6.3 7.1 4.3

GDPpercapita(US$) 517 1,037 156 3,489 371 287 249 417

Inflation,GDPdeflator
(annual%) 6 7 9 4 1 6 10 20
Merchandise
trade
(%of GDP) 37 41 66 47 47 33 29 58
Exportsof goods&
services(%of GDP) 14 24 27 28 27 18 12 21
Primaryexports(%of
merchandise
exports) 92 76 88 58 60 82 91 86
Manufactured
exports
(%of merchandise
exports) 8 24 12 42 40 18 9 14
Totaldebtservice
(%of exports) 8 16 9 6 5 7
IndustryValueAdded
(%of GDP) 14 17 16 32 26 16 21 27
FDI,netinflows
US$million 48 82 10 ý70 132 254 202 172

Source:WorldBank,WDI2003
= data not available
..

2.5.1SSA:the Manufacturingindustry
For most of the SSA countries the private sector is predominantlyagriculturalrather than

manufacturing.It is said that Africa has a comparativedisadvantagein manufacturingand that

manufacturingindustryin these countrieshas alwaysbeenfocusingon relativelylow-technology
industrialactivitiesfrom the beginning,whereassome writers have arguedthat SSA has been
(a declinein manufacturing)
experiencingde-industrialisation It
decades.
in recent shouldbe noted
here that in the literaturethere seem to be different definitionsand interpretationof 'de-
industrialisation'
(Jalilianand Weiss2000,WorldBank1994),resultingin differentinterpretation
of
statisticalevidenceregardingwhetherSSA'sde-industrialisation
is the effector reasonof SAPand
tradeliberalisation,
hencea diversityin views(Jalilianet al. 2000).

61
Ononeside,it hasbeenarguedthatSAPshavehadharmfuleffectson SSAindustry, wipingout
baseforfuturegrowth(Lall1992,Stein1992).Stein(1992)arguedthat
partsof industrial
important
theWB/IMFpolicieswerelikelyto de-industrialise andforcethemto relyon resource
countries and
exports.Bennell(1998)alsoarguedthat all thoseindustrialenterprises
agricultural whichwere
heavilyprotectedthroughimport-substitution
policies,wouldnot be ableto surviveunderopen
economyconditionsas some of them stood very little chanceof becominginternationally
Indicators
competitive. from by
an analysis Noorbakhsh
andAlberto (2000)
showthat,in general,
therewasverylittleprogressmadesince1980-85andthat therehasbeena worsening of the
situationin 1991-94.
Theyarguethatthegapbetween hasbeenwidening
SSAandothercountries
overtime,leadingto marginalisation
of industry
in Africa,evenwhereSSAis improving.

Ontheotherside,it hasbeenarguedthatSSAwasnoteven'industrialised'beforetheSAPshence
no particular In
regionalproblems. their Jalilian
study, andWeiss found
(2000) little for
evidence
anysupportfor thede-industrialisation's in
problem SSAthatwasmorethan was
what happening
else.Theyarguethatwhatis beingobservedcouldbe the shrinkingof inefficient,
everywhere
previously
protected,
activities
andreallocation in a directionin linewithcomparative
of resources
advantage.And also,a surveyby Grenieret al. (2000)on the Tanzanian sector
manufacturing
couldnotdrawinferences
for de-industrialisation, of thesector
butshowedthatthe performance
despitea significant
goodin the 1990s,withno evidenceof de-industrialisation,
wasreasonably
degreeof tradeliberalisation.

In theanalysisof importtradein Uganda,

Rudaheranwa (2000)arguedthattransaction costs,such
as higherprotectionfromnaturaltradebarriers,transportandcountrylocation,are someof the
reasonswhytheeffectsof tradeliberalisation
areoftennotobserved,
asthey affecttradeflows,He
claimsthatevidencein theirstudydoesnot supportthe argument leadsto de-
thatliberalisation
industrialisation. did not contract,but appearedable to increase
Sectorsopento competition
efficiency(Rudaheranwa 2000).Thisargument
supportsthe WorldBank,whopreviously argued
that availableevidencesuggeststhat countriesthat made large improvements in their
macroeconomic policieshad far exceededratesof industrialgrowththan thosethat adjusted
(WorldBank1994).
policieslessintensively

In othercases,likeGhana,declinein manufacturing to mismanagement

industrywasattributed of
the economy,leadingto shortagesof foreignexchangeand poor maintenance of equipment,
includingseriousmarketdistortions,as opposedto trade liberalisation
(Tribe2002).Tribe

62
 fromGhanaandUgandashowinga strongrecoveryin manufacturing
evidence
presented output
between1980sandmid-1990s in However,
industries.
as a resultof capacityutilisation existing
Tribealsopointsoutthatthereis littleevidence
yet thattradeliberalisation withthe
is associated
positivetransformation
of themanufacturing
sector.

In theory,opennessand exportorientedpolicies,and focusingon productswherethey have

comparative andwithstronginfrastructural
advantages for
supportshouldyieldpositiveprospects
the SSAcountriesin termsof enlargingthe marketstheyserve.However,it has beenargued
elsewherethattheconceptof IS,forinfantindustry, shouldnot have been abandoned in
completely
the ageof tradeliberalisationandexport-oriented development (Tribe2000b),Tribearguesthat
exportdevelopment is likelyto be an integralpartof industrial
development in SSAandthatsome
formof infantindustrypromotion
in theseeconomiesis neededas otherwise
de-industrialisation
wouldbe experienced dueto competitive Andthiswouldbe reflectedin
fromelsewhere.
products
thepoorperformance
of theseeconomies.

On the otherhand,JohnThoburn(2002)arguedthatthesecountriescouldstill usesomeshoft-

termprotection
againstimportsin a positiveway.He givesexamples
of the textile in
industries
Zimbabwe andNigeria,wheretheindustryhasbeenprotected import
against Thobum
competition.
arguedthatthe textilefirmshavebeenableto usethe protectedhomemarketas a basefrom
whichto exportat leastmarginalsupplies.Healsogivesan exampleof Indonesia
where thereis
evidencethat homemarketprotectionallowedfirmsto plan betterand to take advantage of
frequentperiodswhentheworldpricesroseabovethedomestic for textileproducts.
price particular
However,
Thoburnstresses to a fullyopen
thattheconcernis on howbestto achievethetransition
economy
andsays:

Thereis no argumentfor long-term protection againstimports.Onceaneconomy is able

to competein worldmarkets,thereare greatadvantages to consumers of havingfree
trade,andtherearebenefitsto the economymoregenerally fromimportsof technology
and investment goodsthat growingforeignexchangefinance.However,premature
openingto foreigncompetition withoutthe establishment of a soundindustrialbaseand
institutions
market-supporting is as likelyto retarddevelopment asto promoteit (Thoburn
2002:286).

It had also, previously,been arguedby Tribe (2000b)that since SSA countriesare late
industrialisers,
theremaybe a possibility growth,hencetheneedto put
of industrial
of stagnation
policiesin placewhichwouldrestrictsomeimportsthroughtariffsandquotasin orderto givethe
domesticinfantindustriesa chanceto get established. Tribesuggestedthat policyintervention
measures couldincludepublicsectorsupportfor pre-investment of
or marketstudies,construction

63
 factories,
advanced of industrial
provision sitesandmanpower traininganddevelopmentandthat
suchmeasureswouldhelpin thepromotion of infantindustry, stagewhentheyare
at a vulnerable
justbeingestablished,
inorderforthemtocatchupwiththerestoftheworld.Heargues
that:

Withoutany form of infant industrypromotionsub-Saharan Africa

dueto inability
mightindeedsufferrelativecle-industrialisation
countries
to deal with the thresholdor barrierproblemsat the point of
of newfirmsor plants(Tribe2000b:52).
establishment

However anyformof government interventions

wouldneedcarefuldefinition
andclosemonitoring
to ensurethatotherwellestablished It shouldbe notedthatit is not
firmsdo nottakeadvantage.
clearcut thatSSAindustries'performancehasbeenpooras a resultof SAPs.Noorbakhsh and
Paloni(2000)showedin theiranalysis,
of SSAmanufacturing
industryperformance,thattherewas
an improvementin theshareof manufacturing
GDP,shareof manufacturedexportsin totalexports
exportsin worldmanufactured
andaverageshareof the countries'manufactured exportswhich
theysaidwereof littlesignificance
whenthe rateof growthof manufacturing
was almostzero.
NoorbakhshandPalonifoundnoevidence butarguedthatthe
thatSAPcausedde-industrialisation
negativeresultsof SAPsin Africamayderivefromthe failuresof the programmeto takeinto
accountof otherdimensions.Theysupportthe viewthatindustrialdevelopmentin SSAis more
difficultthanelsewhere
dueto poorinfrastructure,
insufficient
humancapitalandentrepreneurship,
smallandfragmented
markets(Noorbakhsh
andPaloni2000).

2.5.2SSA:the SMEsectorunderSAPs
Thecontinuingeconomicreformprogrammesimplemented haveledto a
bymanyAfricancountries
rapidgrowthof smallandmicro-scale
enterprises takeadvantage
as privateentrepreneurs of the
relaxedeconomic SSAcountries
environment. adoptedandimplemented SAPmeasures at varying
degreesandperiodsandoverdifferentlengthsof times,andthiswouldhavevaryingeffectson
theireconomic
andSMEperformances. Table2.10compares implementation
of somestructural
adjustment
measures in selectedSSAcountries,
whichwouldimpact trade
on poverty, andSME
As can be seen,somecountrieswerealreadydeeplyengagedin the processof
performance.
structural
adjustment in thepre-1995period(Ghana) hadbarelystartedto
whileothers(Tanzania)
implement it duringthattime.Suchvariationin economiesmeanstheimportanceof, composition
androleof SMEsis likelyto varyconsiderably
andthiswill haveto be takenintoaccountwhen
carryingoutcomparisonsandby no meanscanoneassumea priorisimilarimpactsandreactions
acrossallsegments.

64
 In selectedSSAcountries
Table2.10:Selectedpolicymeasures
South
Ghana Kenya MalavA Tanzania Uganda Zambia Africa
PolicyMeasures:
Macroeconomic
reforms Yes Yes Yes Yes Yes Yes Yes
Structural
(SAP/Economic
Programme)
Adjustment pre-1995 1989 1987 1999 pre-1995 1996

in costof Business
Reduction Yes Yes Yes Yes Yes No No
registration/licensing pre-1995 2000 pre-1993 1999 1992 n/a n/a

Effectiveruleof Law Yes No Yes No No Yes Yes

2001 n/a n1a n1a n/a 1996

Taxeslowered/simplified Yes Yes Yes Yes Yes Yes Yes

995
pre-1 Post-1999 pre-1995 1999-01

Removalof barriersto Yes No Yes No Yes Yes No

pre-
financialprovision pre-I995 n/a 1990-03 n1a 1995 n1a

Extensiveprivatisation Yes No No Yes Yes Yes No

pre-1995 n/a n/a 1992 1996/98 n1a

foreign
Simplified trade
procedure Yes Yes Yes No Yes No Yes
pre-
1995 1992 1990-03 n/a 1995 n/a 1994/95100101
Source:WorldDevelopment
Indictors Indicators,
PolicyMatrix
1999, WorldBank
=datanotavailable
..
n/a= notapplicable

However,
it shouldbe notedthat,in general,adjustment havedonelittleto change
programmes
has been
Africa and allow greaterintegrationinto the globaleconomyand manufacturing
formostof thesecountries
regressive (UNCTAD
2003c).

2.5.2.1SAPimpacton SMEperformance
Although
theSAPwasnotformulated
withSMEsor industrialisation in
specific its
mind, impact
on
the SME performance cannotbe overlookedbecause,as discussedin previoussections,
industrialisation
andinternational
tradewillplayan important SSAintotheglobal
partforintegrating
economy. Therefore, it is important
to discusshow the SAP measures,such as financial
liberalisation,
tradeliberalisation on theperformance
cutshaveimpacted
andpublicexpenditure of
theSMEs,bothdirectlyandindirectly.

65
 facedby smallenterprises
The policyenvironment to a largeextent,theirabilityto
determines,
contribute to the processof development throughgrowthin theirnumbers,sizeandproductivity.
'Policies',in this case,referto the rulesthat influencehow resourcesare allocated(whether
actionsthat
budgets)andmorebroadlyto government
directly,throughmarketsor in government
affectpeople'scapabilities Profitable
andbehaviour. investment
maybe lostbecause:
policiesare
biasedagainstsmallenterprises(forexample in obtaining
difficulties facedbysmall
importlicenses
firms);marketimperfectionsconstrainingsmallfirm accessto resources; andsocialandcultural
mores inhibiting
theparticipation in
of certaingroups small businesses(forexample In
women). the
past,and to some extentnow,policieshave tendedto favourlargefirmsin terms of licensing
obtainingcreditfrombanksandtax incentives.
permits,specialconcessions, Littleet al. (1987)
arguedthatup untilthe 1970s,mostdeveloping countrygovernmentshadshownlittleconcernfor
enterprises
small-scale and that industrialisation
was promotedthroughregulatingtrade,using
investment
incentives
suchas interestratemanipulation public
andcreditcontrolandundertaking
sectorinvestments,
allwhichdiscdminated
againstSMEs.Littleet al.furtherarguedthat:

Iftherehadbeenmuchconcern forsmall-scale
enterprises,
waysmight
havebeenfoundtooffsetthedisadvantages imposeduponthem,even
withoutthemajorchange toa ratherfree-market
economywhichwould
haveremoved thebiascaused bythetradeandindustrialisation
regimes
actually (Littleet.al 1987:
adopted p2).
Policyreformtocorrect
suchdistortions field'wouldyielda moreefficient
andcreatea 'levelplaying
allocation
of resources
and,quitelikely,
generatemore employment and a more equalincome
distribution
than a policyregimefavouringlarge-scale investments.
capital-intensive Most
developing-country
governmentsarenowencouragingentrepreneurshipandputtingpoliciesin
placein orderto develop
theirSMEsectors, to someextentthemainaimis to relieve
although
povertyandnotnecessarilyfor industrialisation A by
purposes.recentreport theOrganisationfor
Economic Co-operationandDevelopment (OECD) hasarguedthatencouraging
entrepreneurship
andfacilitating
the rapidgrowthof innovative jobs,
SMEsis an effectivemeansof creating
increasingproductivity
andalleviatingpoverty(OECD2005a).Thereportfurtherarguesthat
identifying
andimplementing an increasing
policiesthatcanachievethesegoalsis becoming
forgovernments
priority ofalltypesofcountries.

Beforediscussing
theSAPpolicyimpacton SMEs,it is important
to notethattheorderandtiming
of specificSAPmeasures
alsoplayeda parton the impactandoutcomes of the policychanges.
Theresearcher
hasputtogetherin Table2.11whatsomeof theeffectson SMEscouldbe when
measures inappropriately.
aresequenced

66
 Table2.11Impactof Inappropriate of structuraladjustment
sequencing measures

Measure Measure Objectives Possible impactonSMEs(directandindirect)

Budgetary cuts Tokeepfiscaldeficitlowin Thiscouldprejudice servicesandinfrastructure on which
in public orderto avoidfuellinginflation. the government dependsin orderto stimulateexport
spending, supplylateron in theprogramme. TheSMEsmightnotbe
aheadof any to
able expand their marketshare beyond their local
other boundariesdue to high transportcosts and poor
measures communication roads hence not able to participate in
globaleconomic activityastherearenolinks.
Import Toincrease of
availability If carriedoutaftercurrency devaluation, it is notof much
liberalisation intermediate inputsinorderto usebecause if currency valueis relatively low,SMEsmay
encourage growth and not be able to afford importing the inputs anyway. This
development of manufacturing measuremightalso increasecompetitive pressures on
industry. inefficientfirms.Someof the SMEsmay be inefficient
because the infrastructural supportsystem is not there in
thefirstplace.
Across-the- In orderto encourage outward- If carriedout beforerealdepreciation, it couldincrease
boardtrade orientationof production and to imports, whichwill out-compete domestic production (of
liberalisation enable increases in the importsubstitution consumergoodssuch as textiles,
efficiencyof localoutputthrough footwear)and lead to a rapid exhaustion of foreign
greatercompetition. exchange reserves. It mayresultin closureof someSMEs
as they cannotcompeteagainstthe cheaperimports,
leadingto unnecessary de-industrialisation (Riddell1994).
Without programmesthat will increase technical,
management & investment capabilities in thesector,trade
liberalisationmightworkagainstthem,
Currency To raise the profitabilityof Without credit-supportsystem in place for SMEs,
devaluation importsubstitutes as well as devaluation makesit less affordablefor manufacturing
exports. SMEsto importinputsof raw materials, Thismayalso
dampen overalldemand.
Pricesand To forcesupplyanddemandto If implemented beforedepreciation of the realexchange
Market become the determinantof rate,profitability of tradedgoodsdoesnotincrease, which
Deregulation pricesin allmarkets, forefficient is a disincentive to SMEproducers. Also,if carriedout
allocationof scarceresources. beforepublicenterprise reform(privatisation), pricesand
marketsremainmonopolistic, which still discriminates
SMEs
Liberalisation To promote competition among If thereis no mechanism for providingcreditto small
offinancial financialinstitutionsto make industries, therewill be inadequate creditavailablefor
markets themmoreefficient andimprove promoting exports. Andmoreover enterprises borrowing at
resource mobilisation, and also (commercial) high interest rates are likely to default.
reducerigiditiesthat existedin
allocation of credit by
liberalising
interestrates.
Privatisation Expectedto foster efficiency, If currentmanagers of publicenterprises havenot got
encourage newinvestment and propermanagement andentrepreneurial skillsbeforehand,
free public resources for localentrepreneurs might not develop and not be able to
infrastructure andhumancapital manage thesmallenterprises efficlently.
investment.
Capital To promote Foreign Direct Thismaynotbesuccessful if publicspending hasbeencut
account Investment to complement local considerablybefore hand such that there is:
liberalisation investment underdeveloped infrastructure, particularly transport &
telecommunication; inadequate water& powersupply. And
also if thisis carriedoutwhen an economy is notstable
yet,andaccess to foreign exchange for importing Inputs
is
andcapitalgoods notproperly in place, FDl might not be
attracted.

67
As discussedbefore,despitethe countriesbeingrecommendedspecificpolicyimplementation
somedid not necessary
sequencing, followtheseandwerepickingandchoosingpolicieswhich
thesepolicies.As a
theyfelt suitedthemandsomeof themstill havenotyet fullyimplemented
resulttheimpactoneconomicperformance andSMEswouldvaryfromcountryto countryalthough
thegeneralconsensusfromtheliterature
is thatthesepolicieshavedonemoreharmthangoodto
the developing
economies.For Malawi,the impactis furtherdiscussedin section4.5.1.5,and
indeedsomeof thepolicyimpactsin Table2.11hold.

Eventhoughtradeliberalisation
has a numberof advantages
in termsof its growth-enhancing
potentials,thereare a numberof risks,whichcannotbe ignored.The exposureof domestic
industries
to competition affectsbothSMEowners
fromabroadas a resultof tradeliberalisation
and workers.As a resultof increasedcompetition,
unlesscountriesare able to matchthe
productivity
of their into the
or move otherproducts, wagesof
competitors their may
workers be
affected.Manufacturing
adversely tendsto bedominated in theformalsector
by largecompanies
the in
where wages general tend to be higher
than in the informal And
sector. if the linkage
openingup of trade
betweentheinformalandformalsectorsis weak,as in manySSAcountries,
thedisadvantages
willaccentuate in theinformalsector.
of thoseemployed

Tradeliberalisation, to leadto greater

thoughexpected competition
andtherefore firms'
increase
andgivethemgreateraccess
efficiency to intermediate
inputs,hashadsomeindirect impacton
SMEs.Fromthe Malawiexperience, mostSMEshaveseena quickwayof makingmoneyby
engagingin pettytrading
ofcheapgoodsfromChinaandotherneighbouring
countries,ratherthan
engagein manufacturing Theopening
themselves. up of tradehas in
resulted influxof imports
forcing
somelocalmanufacturing toclosedownbecause
enterprises theyarenotyetwellequipped
to compete
internationally
(MalawiGovernment2000b).Thiswouldof coursebe confirmed
or
disputedif it waspossible thefailedSMEsthemselves
tosurvey failureof
tofindoutif theyattribute
theirbusinesses toSAP.

SAPshavealsoimpacted
on SMEs,via the economic whichhasbeencreated.For
environment
examplecutsin publicspendingon infrastructure,
wherebytransportandcommunication
system
suffers,hasseensomeSMElinksto markets(bothwithinandacrosscountryborders)beingcut
off therebytheirmarketsharereducedandhencenotmotivated at all.Mostof the
to be innovative
developing countrieshaveverysmallinternalmarketsfor manufacturersandaccessto external
marketsis vital,as hasbeenthecasefor thedevelopingAsianeconomies. However, it hasbeen

68
arguedthateconomic integrationcannotguarantee enlargement of marketsfor industrial
products
(Sutcliffe1971).Sutcliffearguedthat, due to problemsof transportationof goods withinthe
developing
countries, barriersto trademaynotitselfbe an answerto enlarging
merelyremoving
the marketsunlessimprovements
are madeto the transportation
systemswithinand between
countries.

Staleyand Morse(1965)arguedthat in regionswheretransportsystemis poorlydeveloped,

productssuitedto the needsof localpeopleshouldbe the competitive
basesuponwhichsmall
producers themselves
shouldestablish Thesmallfirmsgaina largerrelative
in localnichemarkets.
rolein developing followingdemandassociated
countries, withlowerincomelevels,frommarkets
segmented moreby inadequate transportandcommunication. Thusthe smallfirmslargelyserve
smalltotalmarkets.StaleyandMorsesuggested thatwheretherearegoodlocalroads,regional
firmsshouldbe ableto achieveadequatedeliverydensities
in movinggoodsto farms,construction
sitesandruralhouseholds,
building
a local that
position withstandscompetitionfrom distantfirms
(StaleyandMorse1965).Thiswouldhoweverhaveimplications
for a country'sinternaltradeas
wellas regionaldevelopment. arefavouredby localpeopleandreadilyavailable
Theproducts and
can competesuccessfullyin domesticmarketsagainstimportedgoods,needinglittle or no
butbythesametokenpossess
protection, littleexportpotential.

In termsof financialliberalisation,
bankshavetendedto operatelargelyascommercial
enterprises
hashada direct
withtheaimof makingprofitsandlendingat marketinterestrates.Thismeasure
impacton SMEsin that mostof themcannotaffordcreditfrom the banksand they haveno
to allowthemto takeup bankloans,furthermore
collateral therearenotmanyotherinstitutions
set
up to carterfor SMEfinancialneeds.Andalso,in caseswherecountrieshaveexperienced high
inflationratesthroughcurrencydevaluations,
SMEshavefoundit veryexpensive
to purchase
necessary SAPshavebeen
inputmaterialsfromothercountries.Whetherdirectlyor indirectly,
blamedfor poorperformance in someSSAcountries
causingde-industrialisation
and,arguably,
(Lail1992,Stein1992).

Whileacknowledging
thatSAPsalonecannotbe totallyblamedforthenegativeexperiences
of the
SMEsin SSA,butby thefactthattherelativepricesandincentive changes,
environment withthe
introduction
of SAPs,thisaffectshowSMEsbehaveandrespondin orderto prosperandsurvivein
thisnewenvironment (Noorbakhsh andPaloni2000).In additionit mustalsobe notedthatbefore
theSAPs,SMEswerediscriminated againstbytheimportsubstitution which
policies favouredlarge

69
monopolisticand state-owned And
enterprises. further it
more, may take timefor the SMEs to
realisethe positiveeffectsof SAPs,allowingfor time lag betweenimplementation and actual
realisationof benefits,as seenfrom Table2.10 mostcountriesimplemented
SAPs,affecting
business from
environment, aboutmid to late It
1990s. hasbeen that
shownelsewhere therehas
sectorin SSAduringthe 1990s(Tribe
beena fairlysteadygrowth,on average,of the industrial
2002).

2.5.2.2SIVIE
operatingenvironment
andexperiencesin selectedSSAcountries
Table2.12drawsdatafrom2003firm-level including
surveysfromsevendifferentSSAcountries,
Malawi,which have implemented
similar macroeconomicchangesand yet show different
2003surveydatahasbeenoptedto be usedin thiscasebecause
performances. it coincides
with
thetimeframeof thefieldsurveyworkcardedoutforthisstudy.Thecomparison between SMEsin
differentcountriesfirstlyrevealsa variationin timerequiredto starta businessin the selected
In Malawiit takesa weeklongerthanin theneighbouring
countries. but
Zambiato starta business
two and half weeksless than in Kenya.One explanation
wouldbe that since muchmore
enterprisesrelyon bankfinancing in Kenya(28%)compared to 5%in Malawi,it is probably
quicker
to starta businesswithinternalfundsthanin situations likeKenyawherea biggernumberhasto
waitfora bank'sdecision.Nevertheless it stilltakeslongerin BeninthanMalawito starta business
andyet theybothheavilyrelyon internalfinancing,hencetherecouldbe otherreasonsfor the
differences
in times.Thetablealsorevealsthatobtainingfinanceto starta business is difficultfor
most SSAcountrieswhosesmallenterprises indicatedthat lessthan 15% obtainfinancing from
bankswiththe exception of the
of Kenyawhereit was28%.Thisreflectsthe poordevelopment
financialsectorformostof them.

Corruption
is alsoof concernfor mostof thesecountries.The data revealsthat over 30%of
in the majorityof the countrieshaveto paya bribeof somesoft to get thingsdone,
enterprises
reachingas highasover70%in Kenya.Kenya,MaliandZambiaarethemostcorrupton thatfront
in comparison
to 22%in Malawi. The data also indicatesthat Tanzania,Malawi,Kenyaand
Ugandahavelowcapacityutilisation. Lowcapacityutilisationcan indicatedemandconstraints or
lackof availability
of inputsonthesupplyside.ForMalawi,a smallmarketsizewithlowpurchasing
poweris the mostlikelyreasonfor the low capacityutilisation.Qualityof infrastructure
playsa
crucialpartin firm productivity. in Malawireportedabout76%lossof
Thesurveyedenterprises
salesdueto poweroutages, Outof thedomestic
thehighestof mostof SSAcountries. sales,none
Companies
aresoldto Multi-National (MNCs)in Malawi,andverysmallpercentages for theother

70
 of Zambia's
withtheexception
countries smallenterprises salesto
whichsell19%of theirdomestic
MNCs.Noneof thesurveyed in Malawiexported
smallenterprises to the22%of
directlycompared
and28%ofKenya
Zambia
neighbouring (Table
2.12).

Table2.12:SMEcharacteristics,comparisonof selectedSSAcountries,2003

South
Benin Kenya Malavd Africa Mall Tanzania Uganda Zambia

Timerequiredto starta business(days) 63 60 42 38 42 35 36 35

Expectedto givegiftsto get operatinglicence 40 0 0 8 16 3
Expectedto givegiftsto get importlicence(%) 37 0 0 3 6 0
Paysbribesto getthingsdone(%) 60 71 22 2 58 30 32 50
BusinessFinancing:
Internalfinancing 85 48 83 67 89 82 87 65
Bankfinancing(%) 5 28 5 13 4 4 2 9
Informalfinancing 3 3 7 2 1 4 3 2
SMEsusingwebinteraction
withclients/suppliers
N 14 14 6 53 17 5 2 30
ISOCertification
ownership 0.75 0 25 1 2 13
Capacityutilisation(%) 58 55 53 75 72 51 56 59
Skilledproductionworkers(%of workforce) 52 27 21 41 46 53 22 28
SMEsSpendingon machinery/equipment (%) 9 4 3 6 9 21 3 17
Averagetimeto claimimportsfromcustoms
(days) 8 8 5 8 17 5
Domesticinputs(%of inputs) 72 66 76 54 83 86 49
Importedinputsdirectly(%of inputs) 13 17 18 18 7 6 40
Firmsimportingdirectly 28 24 38 21 18 10 57
Firmsexportingdirectly 8 28 0 31 9 6 6 22
Nationalmarketshare(%) 11 16 11 25 18 12 16 23
DomesticSales(%of totalsales) 95 90 100 92 95 96 98 85
Customers,% of domesticsalesto:
Government 10 2 8 5 5 5 4 8
MNCIn the country 4 5 0 7 4 2 5 19
Largerdomesticfirms 14 19 11 41 7 7 13 20
Othersmallfirms/individuals 66 66 81 45 81 83 73 39
State-owned enterprises 5 6 3 3 3 4 13
Shareof netprofitsremlinvested
in the lastyear 51 46 52 92 38 37 33 71
% Valueof saleslostdueto electricityoutages 7 11 76 0.7 1 10 4 4

source:WorldBank,DoingBusiness
2003b
= datanotavailable
..

Whencomparing thetoptenconstraintsto businessproductivity the

or growth, data that
revealed
costof finance/access formostof theSSAcountries.
to financerankedin thetopthreeconstraints
Taxrates/administration
andcorruptionfeaturedhighaswellfor mostof themandthedatashows
that in generalmostenterprises
in that regionface similarproblems.However,enterprises
in

71
Malawilargelyconsidermacroeconomic
instability
as the greatestobstacleto theiroperation
and
growthcompared to KenyaandTanzania
whichrankedthisconstraint assixth(Table2.13).

(identifiedby smallenterprises
Table2.13:TopTenConstraints as majoror verysevere
selectedSSAcountries,countryrankingof problems
South
Benin Kenya Wad Africa Mall Tanzania Uganda Zambia
Cost of finance (interestrates) 4 2 2 6 1 3 1 1
Tax Rates 1 3 5 7 5 1 2 3
Macroeconomicinstability 6 1 2 6 3 2
Accesstofinance(collateral
requirements) 3 3 5 2 4

Electricity 6 8 4 7 5 7
Corruption 5 1 8 10 2 5 6 6
Tax Administration 2 7 10 6 4 7
Anticompetitiveof informalpractices 4 3 8
Skills & Educationof available
workers 5 6 1 9 9 9 9
Regulatorypolicy uncertainty 7 8 10 8 10 4
Customs& trade regulation 8 10 9 7
Crime,theft & disorders 7 4 8 10 5
Transport 9
Access to land 4
Labourregulation 3
Businesslicensing& operating
permits 9
Telecommunications 9 10
Legal system 10 8
Source:WoddBank,EnterpriseSurveys2003c

In additionto theseinternalconstraints,
thereare externalformsof constraints,
suchas market
protectionof developed countries,in the formof 'regulations' earlier.It appearsthat
discussed
althoughtradepolicyreformshaveled to failingtariffs,theyhaveled to growthof newformsof
are beingrequiredandthis has particular
As discussedin section2.4.1,'Standards'
protection.
implications
for SMEs.One mightquestionwhetherthe sametypicalcategories usedfor large
companiesshouldbeappliedin caseof SMEsor if theyneedspecificstandards in
asmanagement
SMEsis ofteninformal
andtheylackresourcesandtechnical skills.

Standards,
whetherin processes or products,are becoming important
an increasingly qualifying
for participating
requirement in the globalproductmarketsandglobalvaluechains.Suppliers of
TNCs(includingSMEs)are requiredto meetcertainglobalqualitystandards in orderto satisfy
customers. comesfrombothfinalbuyersandTNCscontrolling
Thus,thedemandforstandards the
globalproduction
systems. canbe quitehigh
Theproblemfor SMEsis thatthecostof compliance
to servetheTNCs.As wellas gainingfromthetransferof
astheywillneedto developcapabilities

72
newtechnologies thoseSMEsoperating
andcapabilities, withinthe supplychainof multinational
can benefitfromgreatermarketopportunities.
companies It has beenarguedthatalliancesare
prevalentin globaloligopolies, betweenfirms,
servingas vehiclesfor the transferof technology
achieving of scale,buildingtechnical
economies skillsandaccessing skillsandresources
markets,
(Yoffie1993).

Thereare issueswith the entrepreneur strategieswhichalso play a

skills and management
significantrole in the performance
of SMEs.Fromthesediscussionsit can be saidthatwhile
macro-economic suchastradeliberalisation,
policies, areimportant for
in creatingthepre-condition
they
growth, be
maynot sufficient.There is that
evidence efficiency withwhich firmsoperatesis
importantin understanding
whetherthey can be successfulexporters(UNIDO2001a).SME
managers in SSAcountries havebeendescribedto lackthetechnicalandmanagement capability
(broughtaboutby tradeliberalisation)
to respondto newrelativeopportunities andto adjusttheir
inputsto minimisecost and increasesupply(Lall
utilisationof capital,labourand intermediate
1992).Managersand workersof thesecountrieswill haveto learnto use new technologies
by thestandards
efficiently of industrial andthistakestime,as it is a processof learning
countries,
by doing.Therefore,
in additionto the SAPpolicies,thereis a needfor policieswhichimprove
efficiencyat firm-level.A similarargumentalso appliesfor financeand market.Entrepreneurial
skillsandproperbusiness alonearenotenoughif the marketis notthereandif thereis
strategies
not enoughfinanceto run the businessand marketthe products.In the age of economic
allthesefactorsinter-link
globalisation, andimpactupontheperformance
of theSMEs.

TheProblems
of SMEsoftendirectlyrelateto theirsizewhichmakesit difficultforthemto acquire
goodqualityinputscheaply,enskilltheirworkers,gainaccessto financerequiredto servedistant
marketsandto expandtheiroperations
andto acquiretherequired However
technology. thiscould
be overcomewhentheyclustertogetherin orderto benefitfromcollectiveefficiency.Working
throughnetworksand corporation,SMEscan benefitfrom
togetherwith other enterprises,
economiesof scaleand economiesof scopeand thus can overcometheir disadvantageof
Formanyyears,inter-firm
smallness. hasbeendiscussed
cooperation but
strategy,
as a corporate
it hasbecomemoreimportant
in recentyears(Lawrence 2002,Silverman
et al. 2002,Schilling and
Baum2002).Cooperating
withotherfirmsprovidesmanyadvantages, accessto scarce
especially
likenewtechnologies,
resources products, thatwillnotbe otherwise
skillsandknow-how available
(Narayanan2000,Silverman
andBaum2002).

73
2.6RecentInternationalPolicyDevelopments: post-SAPs
Neo-liberal
adjustment for lendingfunds
policiesarestilla keypartof theWBandIMFconditions
althougha newpolicygroupedunderthe nameof PovertyReduction Strategyhasemergedin
recentyears.Governmentsof thesepoorcountries are requiredto producea PovertyReduction
Strategydocument
in orderto qualifyfor fundingandworkingtowardsforgivenessof someof the
debts.TheWorldBankandIMFlaunched in
(HIPC)initiative
theHeavilyIndebtedPoorCountriies'
1996andanextension of it calledtheEnhanced hadaninitial
HIPCinitiativein 1999.Theinitiative
list of 42 countries,Malawiincluded,andaimedto offersomesoft of wayout of the burdenof
debts.
unsustainable

The HIPCincludesthreedistinctstages(Figure2.13).Firstly,countrieshaveto qualifyfor the

byhavingdebtlevelswhichtheW13
initiative, andthisis thepre-
andIMFdefineas 'unsustainable',
decisionpoint.Secondly,
countrieshaveto preparean interimPovertyReductionStrategyPaper
(PRSP)andreacha 'decision
point',at whichtheybeginto debt In
receive relief. thethirdandfinal
stage,countriesare requiredto preparea full PRSP,basedon consultations
with civil society
anddonors,in orderto promotea participatory
organisations to
approach nationaldevelopment
(WorldBank2004b).They also haveto complywith numeroustriggerconditions,including
implementation
of an IMFProgramme,
whichis nothingnewconsidering
thattheconditionalities
arenotfarofffromthoseof theSAP.At theendof thisstage,theyreacha 'completion
pointwhere
a portionof theirdebtswouldbefinallycancelled.

Theunderlying
hypothesis
for PRSPshadbeenthatthe SAPsweremissinga crucialingredient,
Although
nationalownership. thePRSPinitiativeitselfcamefromWashington,
it wasbelievedthat
PRSPswouldenablea newtypeof partnershipbetweenrecipients
anddonors,withtherecipients
takingthelead(WorldBank2000b).TheOverseas Institutehasbeenat theforefront
Development
of the researchandpolicydebate,regarding
PRSPs,fromthe startandhas beenofferingmany
insightson the experiences
withthe PRSprocess,summadsed by Booth(2003a).Drawingon
onstudyof PRSPexperience,
evidence, fromsevenSSAcountries (Benin,Ghana,Kenya,Malawi,
Mali,RwandaandTanzania), DavidBooth(2003a)concluded thatownershipon thefirstdimension
waslowin all cases.Booth(2003b)arguedthatlow-levels
of 'nationalownership'
mayaffectpolicy
effectiveness
andsustainability.

It has alsobeenarguedelsewhere,
that althoughconsultation have
processes in
occurred the
formulation
of the PRSPs,the voiceof marginalised has
groups beenverylimited,
henceit has

74
beensaidthatthe PRSPsarenotverymuchdifferentfromSAPs(Bradshaw andLinneker2003,
Power2003).ThefactthattheinitiativeitselfcamefromWashington,seemedto havebeenseen
BootharguedthatthePRSPinitiative
as a problem. andincentive
putin placearoundit hadnotyet
beensufficient fullnationalownership,
to generate evenin termsof theprocess.Hefurtherargued
that the mostcriticaldimension wouldbe the mainstreaming
of nationalownership of poverty
reduction,in the senseof articulating
the goalsof the strategywith budget,and then using
incentives
budgetary toforceMinistries
anddistrictsto payattention
to them(Booth2003b).

Figure2.13HIPCProcess

Decision poin Floatinq completion

requirements point requirements

13. Post-compýllet:
iio:
n:point

Source:adaptedfrom the World Bankwebske

Availableat: http://sfteresources.
worldbank.orq

Followingon the HIPCinitiative,it was reportedthat by 2003,onlyeightcountrieshadso far

receivedsubstantial debtwrite-offunderHIPCand that the programme was failingto restore
to
countries debt 'sustain I
abiity' evenaftercompletingtheirpassagethroughHIPC.However, on
thepositivenote,it wasreportedthatthe HIPCinitiativehadreducedannualdebtservicing for 26
by
countries anaverageof 40%, et al.2003).InJune2005,a
althoughnotsharedevenly(Greenhill
groupof eight wealthy (G8)
countries proposedthat the three institutions,
multilateral IMF,

75
 Development
International Association Fund,cancel100%
of theWBandtheAfricanDevelopment
of debtclaimsoncountries
thathadreached HIPCinitiative.
pointundertheIMF/WB
completion

it is highlyunlikely
Although furtherprogress
thatsignificant on low-incomecountrydebthas been
madeby now(2006), arebackon theglobalagenda.
at least'aid'and'poverty' In recentyears
therehasbeengeneralconsensus aboutthe urgency in the developing
of povertyreduction
economies andtheimportance of moreandbetteraidtocombat InSeptember
poverty. 2000atthe
UNMillennium
Summit,theUNagreed to adopta setof eightobjectives for
targets
incorporating
poverty
reducing of human
andothersources deprivationandpromoting development,
sustainable
termedthe 'MillenniumDevelopmentGoals'(MDGs), of international
whichwerethe outcome
conferences the1990s,
throughout to beachieved
by2015(Development
Goals2003).Oneof the
targetsof theMDGsis to address
thespecialneedsof leastdeveloped which
countries include
tariffandquotafreeaccess
forexpofts,
enhanced programmeof debtreliefforandcancellation
of
bilateral
official debt,andmoregenerous development
official assistanceforcountries
committedto
poverty
reduction.Furthermore,
the Millennium
UN's Project
(2005),
ledby Sachs
Jeffery for
called
increasein publicinvestments,
capacitybuilding,domestic andofficial
mobilisation
resource
development Itcalledfora doubling
assistance. to US$135
oftheassistance billionin2006risingto
US$195billionby 2015to financepublicinvestment (Sachs
in humancapitalandinfrastructure
2005a).

Manyobservers have,however,
cometo theconclusion that,on presentterms,thereis verylittle
likelihood
thattheMDGobjective,
of halvingworldpovertyby 2015,willbeachievedbythatdate.It
is alsobeingrecognised,
throughcontinued from
pressure campaigners Live
suchas rockstars, 8
concerts,
politicians activists,thatthe HIPCinitiativehasnotsolvedthedebtcrisis
andgrassroots;
by 2015.TheUNrecentlycalled
andthatmoreneedsto be doneif the MDGsareto be achieved
for a renewedcommitment backedby practicalactionif the MDGsare to be
to cooperation
achieved (UNDP2005a).Thereportclaimsthat,fouryearson,stillnothingof substance hasbeen
achieved. Richcountrytradepoliciescontinueto denypoorcountries andpoorpeople a fairshare
andthatlimitingthepotentialthroughunfairtradepoliciesis inconsistent
of globalprosperity witha
to MDGs.The Department
commitment in its
of Tradeand Industryof the BritishGovernment,
whitepaper,pledgedto a commitmentto maketradeworkfor the MDGs(DTI2004)andto assist
the developingcountriesto seizethe opportunities
and manage the threatsfrom increasing
globalised TheDfIDpointedoutthatit is encouraging
markets. thattradeis beingbetterintegrated
intocountries'
povertyreduction (DfID2005a).
strategies

76
Anotherpolicyinitiativethathascreatedhotdebatesat tradetalksat theWTOministerialannual
meetingshasbeentheissueof tradeprotectionism againstthedeveloping by
countries the North.
The tradenegotiations Agenda,at the 4t' WTO
seriouslystartedwith the DohaDevelopment
meeting
ministerial in 2001,with a in
promiseof reducingagriculturalsubsidies developing
countriesandtearingdownthetradebarriersthathindermarketaccessforAfricangoods,withina
negotiated framework.
multilateral Progress
so far hasbeenverylimited,especially
on agricultural
Althoughone of the WTO'sremitsis to promotefreeingup of trade between
liberalisation.
members,it has beencriticisedfor beinginfluenced
by the viewsof Northerncountriesat the
expenseof theSouth.In September 2003,at theWTOmeetingin CancOn, Mexico,thefocuswas
ontheinequalities
in protectionism, in agriculture
particularly andthemeeting withoutany
collapsed
agreementas someSouthern of the USandEuropean
countriesrefusedto agreeon proposals
Union.Failureof theMinisterial
talksin CancOn a majorsetbackforAfricancountries.
represented
However,at the6thMinisterial
Conference,in December2005,in HongKong,an end-date(2013)
for allexportsubsidies
in agriculture
andsolidduty-free
accessfor 32 LDCmembers wassecured.
Andalso,recently, andfor more
theWBhascalledfor removalof tradebarriersin richcountries,
development
effective in orderto correctinequality
assistance (WorldBank2006a).

Thereis a generalagreement thatdevelopment is not simplyeconomicgrowthbut alsocritical

changesin socialrelationsandinstitutions
(BarnesandSheppard 1992).It has
1992,Nicholaides
beenarguedthat if development
conformsto neo-classical for market-led
prescriptions growth,
unrealistic
policyrecommendationsarelikelyto be made,as hasbeenthecasefor SSA(Winiecki
1993).Theneoliberaldevelopmentstrategieshaveso far produced resultsin many
disappointing
developing Povertyhasremained
countries. widespread whileemphasison marketopenness has
madestatesvulnerable to thesideeffectsof globalisation, flows
suchas surging of privateshort-
termcapital.In a policydocumentby BurkiandPerry(1998)theyarguedfor goingbeyondthe
'Washington
Consensus'. Theyimpliedthatthe reformshadnotbeeneffectivein reducingpoverty
in human
and inequalityand arguedfor the needto focuson improvingqualityof investments
development, development
promoting of soundandefficientfinancialmarkets, legaland
enhancing
regulatory andimproving
environment thequalityof publicsector.TheIMFhasalsoconfirmed
that
growthhasbeendisappointing (Singh
incomplete
andthatthereformswereunevenandremained
et al. 2005).Krueger(2004)alsoexpressed failureof thesereforms,whichshesaidweremeant
well,triedlittleandfailedmuch.In 2005,theWorldBankproduced which
a report the
emphasised
needfor humility,policydiversity,selectiveandmodestreformsandexperimentation (WorldBank
2005d).Someof the neo-liberal policyfailuresnotedin the reportwere:thecollapsein outputin

77
 making
countries from
transition communismto frequent
market; financialcrisesin LatinAmerica,
EastAsia,RussiaandTurkey;theLatinAmericarecovery
of thefirsthalfof 1990swasshort-lived;
andSSAfailedto takeoff despitestrongpolicyreforms,
improvements
in thepoliticalandexternal
and
environments foreign
continued aid.

Thegeneralconsensusis thatthingshavenotworkedoutthe waytheywereintended,andnow

arethinkingof whatshouldreplacethe'Washington
analysts/economists It hasbeen
Consensus'.
Consensus'
suggestedthat a 'post-Washington be endorsed,comprising
an expandedreform
agendaemphasisingcrisis-proofingeconomics,second regenerationreformsand policies
inequality
addressing andsocialissues(Kuczynski 2003).It seemsthat,whilethe
andWilliamson
WashingtonConsensus provideda goodmixtureof reformsto bothstabilisethe economyand
encourageprivatesectoractivity,it did very little to help resolvestructuraland institutional
on growth.Theemphasisis nowon the needfor governments
constraints to ensurethatstrong
domesticinstitutions in
andpoliciesare placebefore
openingup theireconomiesto flightyforeign
capital(Easterly
andLevin2003,Rodriket al 2004).

AnotherWorldDevelopment can do to improvethe

Reporthas focusedon whatgovernments
investment
climatesof their in to
societies order increase
growthandreducepoverty Bank
(World
2005b).The reportarguedthat a good investment climateis centralto growthand poverty
reduction jobs,
anda viableprivatesectorcreates providesgoodsandservicesneeded to improve
Thereportswentfurtherto saythattoooftengovernments
livingstandards. stuntthesizeof those
by creatingunjustified
contributions risks,costs(suchas weakcontractenforcement, corruption,
infrastructure
crime,unreliable andinefficient Development
andbarriersto competition.
regulation)
is notgoodwithouta goodinvestment climateanda buoyant hence
privatesector the Bank'sfirst
pillarof the overallstrategyfor povertyreductionis improving climatesof these
the investment
(WorldBank2005b).It is believedthat increasein politicalpluralismcombinedwith
economies
greaterunityamongdonorslookspositivefor continuation of Africa'sgrowthrecoveryandthat
politicalfreedomwill enhancethe environment
for capitalaccumulation and growth(Nduluand
O'Connell 1999).

Manyotherorganisations
andindividuals agreethatall the effortsandinitiativeso far havenot
beenenoughandarenotprogressing at a quickenoughpaceto helpmassesof peoplewhoarein
desperate
needof poverty
alleviation
and thatmanycountries arestillburdened withdebt thatthey
cannotdo anythingfor theirown people.Thatis why in 2004a UK allianceof charities,trade
unions,campaigning groupsand celebrities,underthe nameof 'MakePovertyHistory',was

78
launchedto driveforwardthe struggleagainstpovertyand injustice.The MakePovertyHistory
document
(MPH)manifesto callsfor urgentpolicychanges onthreecriticalandlinkedareas:trade,
debtandaid (MPH2005).Thedocument callsfor the richcountriesto endexpoasubsidies that
damagethelivelihoods aroundtheworldandthat'tradejustice'andnot
of poorruralcommunities
to open
thatthe IMFandWBstopforcingpoorcountries
'freetrade'is needed.It alsodemands
to tradewithrichcountries
theirmarkets asthisis obviously
notworking. On theissueof MPH
debt,
requestedthatdebtof thedevelopingcountriesbe cancelledin full by fairandtransparentmeans
andthatthe IMFandWB these
stopmaking jump
countries hoops
through in to
order for
qualify
debtrelief.As regardsto aid,thedocument
pointedoutthatmoreinternationalaidis requiredand
proposed thatat leastUS$50billionperyearbe deliveredin orderto eradicate
povertyandthat
focusshouldbeon people'sneeds(MPH2005).

to theMPHmanifesto
In addition document,July2005sawthebiggesteveranti-poverty movement
underthe bannerof 'makepovertyhistory.It is believedthat over225,000peopletookto the
streetsof Edinburgh actionto end
to callon worldleadersto actat theG8summitanddemanded
Rich
poverty. countriesresponded to this by to
massmovement agreeing cancelmost of thedebt
of 40 poorcountries
andpromised US$50 billionmoreaidby 2010(Oxfam 2005). that,
Following in
December 2005,theIMFin its pressreleaseannounced to take
a 100%debtrelieffor 19countries
effectearly 2006 and these be
countrieswould monitoredunder the Debt
Multilateral Relief
Initiative(IMF2005b).It shouldbe notedthat,at the time,Malawiwas not amongstthose19
as it wasnotqualifiedyet.However
countries theG8areyetto deliveron theirpromiseof a trade
dealthatworksfor the world'spoorestpeople.No newfinancialcommitments weremade at the
2006G8 summitin St. Petersburg andtherewereno seriousoffersby the USAand Europeto
ontrade.
poorercountries

2.7Summary
TheIMFandWorldBankhavebeenplayinga keyrolein Africaneconomic policieseversincethe
late 1970s(Elbadawi1992).Theseinstitutions
havein factby nowgainedan unprecedented and
pervasiveinfluence in Africancountries,
overpolicy-making whichhasobviously
stimulateda lively
andat timesveryheateddebatein academicandpolicy-making Colonialism
circles. subordinated
SSA'sdevelopment to the needsof strongereconomiccentresand nothingseemsto be any
differentnow.It hasbeensuggested that
elsewhere the to
successor post-colonial is
sovereignty
the neo-colonial in whichthe Westernpowersassumedirectandopen-ended
vassalage control
overthe administration,
securityandeconomicpoliciesof deteriorated
states the
under banner
of

79
the UnitedNationsandvariousdonors(Plank1993).Africafindsitselfin a situation,shapedby
bothits longestablished and by the termsof its currentsubordination
weaknesses whereit is
forcedto slot intothe roledefinedby capitalandits functionaries
beyondit borders.Underthe
debt,marketliberalisation
existingglobalcapitalism, as a conditionof aid andpredatory
outside
forcesarepartto thecontinued of SSA.
marginalisation

As regardsto tradeliberalisation,
the effectsare notagreedandcertainlyare not uniformfor all
placesandtimes.Developing feelthattheyhavenotbeengivenenoughmarketaccess
countries
in developed barriersin the
andtheycontendthattherearestillmanytariffandnon-tariff
countries
Northto the potentialexportsof the developing in mostof
Industryhasnotdeveloped
countries.
ApartfromSAPs,therearealsootherreasonsgivenforthefailureof theindustrial
thesecountries.
developmentin SSA which include poor infrastructure,insufficienthuman capital and
smallandfragmented
entrepreneurship, markets,geography and naturalresourceendowments
(UNIDO1996).As regardsto de-industrialisation,
thereis still debateaboutwhetherit is dueto
opencompetitionresultingin displacinginefficientindustriesor due to lackof competitiveness
whereby Asianeconomies arepenetrating AfricanmarketsmakingSSAopentradepolicytoolittle
toolate(Belshaw
andLivingstone 2002).

Despiteall the policychangesoverthe years,the problemof masspovertypersistsandis once

againto the forefrontof politicalagenda.Morerecentinternational
debatesand negotiations
suggestthata newstagehasbegun.Although havebeengoing
all thesedebatesandnegotiations
on,for severalyearsnow,at theWTOMinisterial
annualConferences, has
progress
no significant
beenmadein termsof any notablechangesin the livesof the pooror beingableto access
developed markets.External
countries' debtalsocontinues to beoneof themajorobstacles to the
development Africastill remainsthe mostindebted
effortsof Africa.In spitethe HIPCinitiatives,
relativeto its growthnationalincomeandstillfacesthedangerof beingleftbehindbythe
continent
rapidchangesbeingbroughtaboutbytheforcesof globalisation.

80
 ChapterThree

ResearchMethodology

3.1Introduction
Thischapterdiscusses
theoverallapproach
to studyingtheresearch
topicandparticular
research
techniqueswhichhave beenemployedand adapted.All the methodological issuessuch as
information
coverage,
population sought,howthisinformation howit wasprocessed
wascollected,
and interpreted,
includingreasonsfor the chosenresearchtechniques
and rationaleare also
discussed.Thestudyapproach, methodsandotherdesigndecisionshavebeenguidedby the
researchobjectives
specifiedin ChapterOne.TheConceptual
Framework presentedin 1.1,
Figure
ChapterOne,was viewedas the mapof the territorybeinginvestigated
andthe focusof the
conceptsdiscussedin ChapterTwo.The
fromthe literatureandtheoretical
researchoriginated
frameworklinksconceptto empiricaldata,anddeductive reasoningwas usedto movefromthe
largecontextof theoryto generate 7).
(Appendix
in thequestionnaire
thespecificquestions

As the centralthemeof thisstudyconcernsconsequences reform

andeconomic
of globalisation
measures, on the development cameup withthe
of the SMEsectorin Malawi,the researcher
following
basicquestions
to aidin developing
theresearch
objectives in
outlined One:
Chapter

9 Howhavethe SAPs,in particulartradefiberafisation, impacted

andglobalisation on small
in Malawi?
andmicroscaleenterprises
9 HowhavetheSMEsresponded
to theadjustment
measures?
0 What
sortof inter-firm have
relationships emerged
asa resultof competition?
Is theneweconomic of 'freetrade'favourable
environment for
ornot sustained and
growth
developmentoftheSMEsector?
Is therean altemative for developing
strategy thesectorandwhatcantheinternaland
externalinstitutionsdo in order to achieveglobal economicintegrationrather than
marginalisation?

Afterexamining
and refiningthesequestions, outlinedin
the aim and the objectivestatements,
ChapterOne,wereclarifiedandwerethoughtto be researchable The
andworthinvestigating.
wereformulated
questions as a wayof explicating
anytheoreticalassumptionsand the
orienting
to the researchobjectives.
researcher for the choiceof
The objectiveshad directimplications
andtoolsthatwereusedto obtaintheinformation.
methodology

81
It wasdecidednotto hypothesisetheobjectivesdueto thesmallness andit wasfelt
of theresearch
thatit wasnotnecessary testingof hypothesis
to carryouta statistical with
asoftenrequired large-
A
scalesamplesurveys. precisestatement was
of objectives thoughtto be as
quitesufficient, long
it
as wasclearon howandwhatwas being The
investigated. had
objectives directimplicationsfor

andtoolsthatwereusedto obtainthe information.

the choiceof methodology Theresearcher is
thatthemethods
confident in thefollowingsectionshelpedin meeting
optedforanddiscussed the
objectives.
research

3.2StudyApproach
Theempiricalresearchworkwascarriedout in twophases:PhaseI involvedinformalinterviews
withkeypeople in bothgovernmental
andnon-governmental and
organisations; Phase11 involved
structuredinterviews Phaseone was a fact findingexerciseat policylevel
with entrepreneurs.
whereasphasetwo was the mainsurveyon entrepreneurs. A positivisticapproachto data
in
collection the secondphaseof the studyas opposedto humanistic
approachwhere human
judgment,perceptionandemotionsplayimportantrole,was adopted.The researchhad all the
as set out by TribeandSummer(2004):the goalwasto
of 'positivist'approach,
characteristics,
howSMEsin Malawihavebeenaffectedbyglobalisation
seekoutthetruthor reality,regarding and
SAPs,throughempiricalevidence; wasindependent
the researcher of the researched
andwas
objective;and althoughthere was somequalitativeinformationgathered,the researchwas
predominantly Positivistis identified
quantitative. withstructured andpowerinequalities
approach
betweenthe researcher The approachwas structuredin a way that the
and the researched.
weregiventhepowerto discussandinformwhattheythoughtandhowtheyfeltthe
respondents
SAPsandglobalisation
hadaffectedtheirSMEs.

Thisstudywasregarded asa socialresearchandassuchit involved

'engaging'
withthe In
world.
simple is a wayoffindinganswers
terms,socialresearch to suchquestionsas'whatis happening',
'whyisit happening'
and'howdoesthataffectpeople'.
Blaikie
defines research
social as'exploring,
describing, explaining,
understanding, predicting,
changing someaspect
orevaluating of thesocial
world'(Blaikie
1993,p.4).Thisviewis supported byGilbert(2001)whonotesthatsocialresearch
should notonlybeconcerned witha descriptive
'factgathering' butwithunderstanding
exercise the
socialsituationin whichresearcheris involved,andit hasto be locatedwithinan academic
discipline
whichoffersperspectivesandmethods. threeingredients
Gilbert(2001)prescribed to
socialresearch: designof methods
of theory;
construction data;andcollection
forgathering of the

82
data,andthesearethestepswhichhavebeenfollowed in thisstudy.Thethreestagesin relationto
in thefollowing
thisstudyhavebeendiscussed sections.

3.3TheoreticalContext
which underliethis study.Evencarefully
This sectionsets out the theoreticalassumptions,
collectedresultscan be misleading if the is
underlyingcontextof assumptions wrong.The
conceptualcontextis a keypartof thestudydesignandpresentsthetheorybehindthisresearch.
Theorylinkstogetherelementsin a causalprocessto producea moregeneralexplanation of
thathaveto beobserved.
particulars Theconceptual
framework in ChapterOneargues,
discussed
on the one hand,
that SME performance
andcompetitiveness
wouldimproveandSSA be more
integratedin the globaleconomyif SAPswere applied,and on the other hand attributes
of SSAeconomies
marginalisation in particular
to SAPmeasures, As seenfrom
tradeliberalisation.
thediscussionsin ChapterTwo,someanalystshavearguedthatdueto tradeliberalisation,
sub-
SaharanAfricais beingintegrated whilstotheranalystsclaimedthatit is
intotheglobaleconomy
beingmarginalised
evenmore.

Figure1.1in ChapterOnepresents,
diagrammatically,
themainissuesandkeyfactors,concepts
or
beingstudiedandthepresumed
variables amongthem.However,
relationship theexplanations
of
betweenthe conceptsshouldnot be considered
the relationship as mutually because
exclusive
Thus,as discussedin ChapterTwo,as well as the SAPsimpactingon
theoryis multi-causal.
SMEs,thereareotherfactorswhicharenotdirectlyassociated withSAPssuchas infrastructure,
geographicallocation,socialcharacteristics,
education levels,entrepreneur
businessmanagement
skills,businessstrategies,marketingskills,type of productsbeingmerchandised,whichalso
impacton theperformance
of SMEs.Therefore
thisresearch
alsoincludes
analysisandintegration
of theseothervariables.

Figure3.1presentsa simplified andit shouldbe notedthatthe

causalmodelof SMEperformance
factorsare not exhaustive.
Analysisand discussionof the entrepreneur surveyin this study
integrates
thesecausalfactorsin studyingthe impactof globalisation
andSAPs on the SMEs in
Malawi.International
tradetheoryassumesthat increasedopennessto tradewill leadto more
integration
andthatis whythe 1980ssawa significant
shiftin development policiesfromstate-led
It hasbeenarguedfromthe discussions
to market-led. in the literaturethatjust openingup of an
economy is notenough.Themodelof international tradeassumes thatthereis fullemployment
of
whichis leastrealisticin SSAcountriesandthateconomies
all factorsof production, haveequal

83
influencein their trade with each other, In reality there is unequalexchangebetweenprimary

economiesandproductsof the advancedindustrialeconomies.

producingunderdeveloped

This study attemptsto link the 'open-marketleads to global integration'theoryand SME

performance to the data evidencegatheredfrom Malawi.Beforediscussing the methodsfor
gathering between
thedata,therelationship thetheoryanddatais discussed.

3.3.1LinkingTheoryto Evidence
Theorycomespartlyfromevidenceandpartlyfrombeliefsandideas,andsomeresearchintends
to findevidenceto backthe theoryup or otherwise.
In this study,all the theoryhascomefrom
Literature,
andthetheoretical of previousworkcitedin the literaturereviewformthe
perspectives
researchcontext.In orderto findtheevidenceto supporttheanalysisof the impactof SAPsand
on
globalisation SMEs in Malawi, withinthe discussedtheoretical
context,data was required.
a diagrammatic
Wallace(1971)presented isationof therelationship
conceptual between
theoryand
data (Figure3.2). The modelbringstogetherelementsof inductionand deductionthrougha
processof movingfromobservationto theoryandfromtheoryto observation.
It is possible
to enter
cycleat anystage,withhypotheses,
thescientific observation, or theories,
generalisation
empirical
buteachis connected to theothers.Ontheinductive develops
sideof themodel,researcher theory
andinterpretive
outof thedescriptive processwhereason thedeductive buildsa
side,researcher
studyoutof an established framework.
theoretical In this research,
a theoretical from
framework,
whichthisstudyis built, througha deduction
wasestablished to beginwith.
process

84
 Figure3.2:Conceptualisation betweentheoryanddata
of the relationship

Inductivemethods Deductivemethods
Theory
Forming
concepts Deducing
consequences;
Developing
propositions Makingpredictions

Empidcal ')
generalisations I Test I Hypotheses

Inducing
generalisations; )4--ý Drawing
samples & devising
Estimating
population Observation instruments
measuring

Source:Blaikle,NAH (1993)

Somewritersrecommend a mixedstrategy,of quantitative

andqualitative methods,
research in
therelationship
studying between theoryanddata(Brannen 1992,Creswell2002).Theseresearch
areoftenbestusedto address
methods differentquestions andthesplitbetween
andpurposes the
twomethodsis no longerasobviousas it usedto be sincemoreandmorestudiesarenowusing
multipleresearchmethodsin theirstudiesthan before.As discussedin section3.2 the overall
approachto this studywas positivistic
and the main(secondphase)surveywaspredominantly
(oneof thecharacteristics
quantitative duringthefirstphase(fact
However,
of positivistapproach).
findingphase)of thestudythedatacollected
wasqualitative.

Thestrengthof qualitative methodderivesprimarily

research fromtheinductive itsfocus
approach,
on specificsituationsor peopleand its emphasison wordsratherthannumbers.The method
typicallyinvolvesstudyinga relativelysmallnumberof individuals
or and
situations the
preserves
individuality
of eachin analysisratherthancollecting
datafromlargesamplesandaggregatingthe
dataacrossindividuals or situations.It is suitedfor understanding
the meaning,situationsand
actionsfor participants
in thestudyandaccountsthattheygiveof theirexperiences. Thishelped
theresearcherto try andunderstand of how
partof thereality.Thismethodhelpsin understanding
makesenseof eventsandhowtheirunderstandings
participants It is also
theirbehaviour.
influence
suitedfor understanding
the particular act,andthe influence
contextwithinwhichthe participants
thatthiscontexthasontheiractions

85
Issuesof theoryandevidencealsoleadto how
considering 'objective'
or 'detached'
oneshouldbe
in research of factsis notstraight-forward
work.It hasbeenarguedthatobservation andinvolves
and
somesubjectivity interpretation
for examplein decidingwhichcategories responsesshouldfall
in. Wallace(1971)arguedfrom a positiviststandpoint,that socialrealityis open to outside
observationand can be objectivelystudiedratherthan be constructed
by the perceptions
and
experiences its The
of members. researcher adoptedas muchobjectiveprocedures as onecan in
describing
andexplainingthereality'outthere',andthroughdeductive
process,theoretical
notions
guided the observations that were made.Deductivereasoningwas used in arguing from the
generalto thespecific,thusfromthewiderproblembeinginvestigated
to specificconcepts related
to one anotherthroughcausalmodel.Suchconceptswerethenoperationalised into indicators.
Thusthe unseenwereinvestigatedthroughvariables
whichareobservable and
andmeasurable
then interrelated weredesignedwhich
throughcausalmodels.Reliableresearchinstruments
reducedinterviewerbiasto producedatawhichis standardised. hasbeen
As noted,nohypothesis
madeor testedin thisstudybutinsteadtheresearcher within
questions
cameupwithresearchable
theSAPcontext,
outof theresearch
objectives,
whichwereusedonsurveyed
entrepreneurs.

Fromthe surveyedentrepreneurs,
observations estimated,thus
were made and parameters
movingtowardsthe inductiveside of the model. Inductiveresearchbeginswith specific
observations
and movestowards the development
of generalpatterns that emergefrom the
appearssolidbecauseit is groundedin 'facts'andtherefore
subjectsunderstudy.Theinduction
empiricistand has been used becauseit fits in with this study,evolvingfrom researchers
experience to literaturereviewandthento fieldstudy.Thecyclewasenteredat thetheorystage
throughformingconcepts wherethestudyhasbeenbuiltoutof a conceptual
framework. Fromthe
empirical (evidence)
findings consequenceswerededuced.The impactof SAPs by
wasmeasured
analysinginformation fromtheentrepreneurs.
gathered
andopinions

Therehavebeensomedebatesin the literatureregardingthe methodsuse in measuringthe

impactof SAPsandflawsin the approaches
havebeenpointedout.HowardStein,in his paper,
discussed
five methods,
whichcan be usedin assessing
the impactof structural the
adjustment:
'before and after method,the 'control-group'
approach,the modifiedcontrol group',the
'decomposition' (Stein1999).Thefirstcompares
methodandthe'withandwithout'simulations the
changesin the meanvaluebeforeandafteradjustmentto seeif therearestatistically
significant
changes.Thesecondcompares macro-economic performance for
variables programme andnon-
programme Thethirdapproach
countries. to controlfor
is sameas thesecondonlythatit attempts
differences
in theexternalenvironment
andinitialconditions
whencomparing programme andnon-

86
programme countries.The fourthmethoduseseconometrics between
to test the relationship
specificpolicychanges andoutcomeby poolingdataof countries
undertaking similar
quantitatively
thefifthapproach
whereas
measures, relieson Computable-general-Equilibrium
(CGE)simulations
andSocialAccounting
Matrix(SAM)modelsandusesmorestructuralist Stein
assumptions. points
outhowflawedthesemethods areandarguesthat:

Thefirst approachdoesnot adequatelydifferentiatethe impactof non-adjustment

factors
such as terms of trade from the influenceof adjustment.The secondapproachsuffers
fromthe sameweaknessas well as the complexityof determiningwhichcountriesfits in
withwhichcategorysincemanycountrieshaveimplemented someadjustmentpoliciesbut
not others.The third approachovercomesthe first problembut not the second(Stein
1999:9).

Steinfurtherarguesthat althoughthe 'decomposition' approachfactorsout impactsof non-

adjustment it doesnotsortoutrelativemeritof individual
variables, policieswithinthe He
package.
arguesthat the 'with and without'approachutilisesstatic social accounting for
frameworks
determination
parameter andcausesproblems whenmovingfromsimulations to populationsbeing
modelled.Elsewhere,
Mosleyet al. describedthree'yardsticks'
that are availablefor assessing
impactof the Bank'spolicies:planversusrealisation;
withversuswithout;andbeforeversusafter
(Mosleyet al. 1995).Theyarguethattherelationship
between tellsusverylittle
planandrealisation
aboutthe impactof the Bank'sprogramme
as theremaybe otherreasonsfor outcomeof the
targetedperformance.Theyalsoarguethatthe beforeandaftermethodis no bettereither,as
differences
in performance
mayonceagainbedueto anynumberof extraneous influencessuchas
oil crises,changesin worldprices,seriousdrought,andso on,whichare nothingto do withthe
variablesunderanalysis.Mosleyet al. pointoutthatthe 'beforeandafter'methodcanshowwhat
happened butnotnecessarily
answerwhy.Asfor the'with'and'without'method,theyarguethatit
affordshopeof separating
outinfluences of programme fromthatof extraneous butthere
variables,
has to be two countrieswhichare identicalin all aspectsexceptfor the fact that one is a
programme andtheotheris a non-programme
country.It hasbeenarguedthata numberof studies
carriedout usingthesemethodshavepresentedrathercontradictory evidenceof the effectsof
(MosleyandWeeks1993).
adjustment

However,
sincethisstudyexamines
effectsof globalisation country
on a particular
andadjustment
asopposed between
to comparison countries,themethodwhichaffordstime,resources,
scaleand
achievementof theobjectives
of thisresearchis the 'beforeandafter method.Thechoiceof this
methodis supportedby Goldstein(1986)whopointedoutthatthe methodis usefulto showwhat
happened
withinprogramme Theappraisal
countries. methodology
of the'before
versusafter'path,

87
presentedin Figure3.3, whichis a slightmodificationof the modelrecommended
by Mosleywas
followed(Mosleyet al. 1995).

Figure3.3: SAPappraisalmethodology

SAP objectives
BoP deficit correction,GDP growth,export levels increaseetc,

Proposedanalytical ethods(Mosleyet al. 1995)

jn
Beforevs. After Plan vs. Realisabo
1ý

Singlecountry comparison
of variablessuch as export (assumptionhas been made that Malawi
growth, SME competitiveness, implementedmost SAPs at time 1995)
GDP growth etc.

Inference (measureof performance,of exports say, at survey time 2003)

It shouldbe noted that even thoughthe SAPs were first implementedin 1981 in Malawi,most
individualswere not awareof themthen and hencehad not madeuse of the advantagesthat the
free trade policy providesuntil the politicalchangesof 1995. This is the reasonwhy, in this
the assumptionhas beenmadethat Malawiwasfullycomplacentwithmost
appraisalmethodology,
SAPs,includingtrade liberalisation,by 1995,However,1981has beenused as the dividingand

analysispointof the 'before'and'after'periodsof SAPsas implementation

of thesepoliciesactually
startedin 1981in Malawi.

The measurement
and analysisof the impactof SAPswas basedon the informationandopinions
gatheredfromentrepreneurs
themselvesthroughrelayingwhatthey haveobservedeitheroverthe
yearsafter 1981or over the years after 1995.It did not mattervery muchwhetherthe opinions
referredto periodafter 1981or 1995as not all the SAPswere implemented,in Malawi,in 1981
anywayor soon after that, They have beengradualover the yearsand someof the reforms,like
privatisation,had not been completedtill recently.The aim was to get informationon 'what'the

88
 observedas changes,in theiropinions,andthendrawinferences
entrepreneurs lateron as to
why, whichcouldbe becauseof the SAPs themselves or the implementation
processitself,
or
some otherfactors
overthe And
years. in anycasethe'why'questionis morecomplex
thananyof
the three appraisalmethodsdescribed.The comparisonsof macro-economic performance
variablesand socio-economic for
indicators the periodbeforeand after (pre and post 1981)

adjustmentprogramme weremadeandhavebeenpresented in ChapterFour.

Theresearch to establishtherangeof opinions/views

attempted SAPs,globlisation
regarding and
were askedto
withinthe discussedconceptualframework.Entrepreneurs
SME performance
describethe mainchangesrecordedin termsof production, investments,
employment, product
range,exportsandimports,sincebeingawareof the'freetrade'policy.Theempirical
investigation
askedquestionsyieldingbothquantitative data,suchason theproportion
andqualitative of output
exportedand variousmotivationsfor export. Data was thereforeobtainedon particular
characteristics
of firms by
undertaken
andactivities them(yielding data),
nominalor category on
or impactof variousfactors(suchas the importance
the importance of inter-firm for
collaboration
enhancing competitiveness)providingordinalmeasures,and on firm performance in termsof
employment.Findingson enterpriseinvolvementin internationaltrade and sourcesof
wereassessed.Production
competitiveness changesand technological wereclosely
upgrading
examined in thedomestic
andcompetition marketandinter-firm
linkages
wereanalysed.

Theresearcher tookthedevelopment of international to meanmoving

competitiveness the
towards
abilityto sellin exportmarkets without
subsidy andto meetimportcompetition
withoutprotection.
'Export' is animportant factorasempirical haveconsistently
analyses shownclose linksbetween
economic
growth
andexportgrowth(Fosu1990,1996).Inthecurrent if
era,
economic is
Malawi to
it
grow, mustnotonly its
diversify into but
exports otherareas mustalsomakeprogress in
Thesurveyprobed
manufacturing. ontheexportsidethrough
competitiveness aboutthe
questions
of firmsandwhether
exportpropensities exportsaccount for an increasing
shareof output.In
addition,
responsesweresought onthesignificance
of thediffering of tradeliberalisation.
impacts
Dueregard paidto thepurpose
wasparticularly the the
of survey, accuracy requiredin theresults,
thecost,timeandlabourinvolved,
andotherpracticalconsiderations. funds
Since andtimewere
invariably
limited,theaimthroughout Andas mentioned
wasto utilisethemto bestadvantage.
before,
thefieldworkwascarried
intwophases:

89
Thefirst phase:fact finding
information
Duringthis phaseof the investigation, wascollectedby meansof informalin-depth
interviews
with key government and NGO officialsin August
2002 procedure the
(selection for
is
participants discussed
in section3.4.2).No structured
questionnaire
was used for these
discussionsand this helpedto establisha relativelycomprehensive
body of perspectives.
Outcomes andfindings,whicharosefromtheseinterviews, the researchfocusand
determined
designfor theenterprise
surveywhichfollowedin thesecondphase.Theinterviews
werecarded
out with peoplein leading for
positionsresponsible economicand SME sector in
development
andnon-g
government in Malawi.Fourgovernment
overnmentalorganisations andthree
ministries
(NGOs)werevisited(seeAppendix
mentalorganisations
non-govern 3 for listandbriefdescription
foreachof them).Theparticipants
of activities weremainlyeconomic policymakersand
planners,
SMEadvocates, Thisphasehadtwomaingoalsto achieve: firstly,to gaininsightintotheimpactof
globalisation on the SMEsector(factfinding)as perceivedby different
and tradeliberalisation
actorsotherthan the entrepreneurs themselvesand to find out what strategiesthe Malawi
Government and NGOshad put in placein orderto developthe sector;andsecondlyfor the
findingsto aidin decidingkeyissuesto focusonduringthesecondphaseof thestudy.

Thesecondphase:enterprisesurvey
Theenterprise overa four-month
surveywasconducted from
period September
to 2003
December
andcoveredbothinformalandformalsmalland microscaleenterprises,
operatingin the most
representative of activitiesin Malawi.A questionnaire
sub-sectors was used for face-to-face
interviews
withentrepreneursanda researchassistant(RA)washiredto conductthe interviews.
Thediscussion the
regarding issuesand implications
of usingan RAto carryout the interviewsis
insection3.5.1.2.
presented

3.4.SurveyCoverage
Oneof themethodological considerations is
of surveys regarding to
whom collect from.
information
Thefirststepwasto definethepopulationto be covered.In thisresearch, refersto
thepopulation
all (bothformalandinformal)
smallandmicro-sizedenterprisesin Malawifromwhicha samplewas
drawn.Malawiis dividedinto threeadministrative North,
regions: Central
and South whichare
furthersub-divided
into27 districts(Map3.1).Therearefourmajorurbancentresin whichreside
about13%of thepopulation:
Lilongwe,
Blantyre,
ZombaandMzuzucityin Mzimba
district.

90
 Map3.1: Malawi- AdministrativeRegionsand Districts

J-1

KM
100

NationalCapital a Districts Lake

NorthernRegion
0
main survey

CentralRegion
I n area

SouthernRegion

Source:CreatedusingMapViewercomputersoftware

Onlya fewindividuals duringthefirstphaseof thestudyandtheywerebasedin

wereinterviewed
districtsof LilongweandBlantyre.Thesedistrictsweremainlyselectedfor
the twoadministrative
reasonsthattheyarewhereheadquarters for mostgovernment
andnon-govern mentalofficesare
locatedand wheremostkey officersare based,and this was also very convenientfor the
researcher.It waseasierandtime-effective
to concentrate
on onegeographical areawhereone
couldeasilymovefromoneoffice/building for
to theotherwithouthavingto travellongdistances
thenextinterview.

as it was difficultto makeany contacts

The numberof interviewscoveredwas not pre-determined
It was a caseof findingwho was responsible
beforehand. for what and decidingwhichstaff

91
memberpositionwasrelevantto thestudyandseeif theywerefreeto be interviewed thereand
thenor at a latertime.Mostof thestaffwereawayon holidaysasthevisitwasdonein Augustand
as noticegivento them
forsomeof thosewhowerearoundit wasverydifficultto getan interview,
was very short.As a resulttwelvein-depthinterviews were conductedin total: 9 from the

governmentdepartments and 3 from NGOs.However, findingsand viewsof those interviewed

have been treatedas representativesince they are backedby informationgatheredfrom

government'spolicyand strategydocuments,economicand otheranalyticaldocuments,

which
duringtheinterviews.
wereobtained

Forthe secondphaseof the survey,onlya sampleof enterprises to

wasplanned be interviewed
andthis raisedsomequestions regardingwhicharea/districtsto coverandas to whethercertain
areasin a districtshouldbe includedor not. Interviewing in a districtor areawas
all the SIVIEs
goingto be time consumingandcostly,and unduly
spreadthefieldwork.Taking
thesefactorsinto
it
consideration,was decidedthat the surveywouldconcentrate on from
samples one or two
administrativedistricts,chosenon the premisethattheywouldnotbe toocostlyor geographically
difficultto workthe wayround.It wasdecidedthatthesedistrictsweregoingto be Blantyreand
Zomba,purelyselectedon a convenience basis,althoughan insignificant
numberof entrepreneurs
werealsointerviewed
from otherdistricts
of the The
country. sampledentrepreneurs were fairly

spreadin areassurrounding andindustrial

thecommercial of
concentrations thesedistricts.

3.4.1SampleSize
Withthe decisiontakento surveya sampleof SMEsfromthe selecteddistricts,the questionstill
remained regarding Accurateanswersto the
exactlyhowmanysubjectswereto be interviewed.
researchquestionsare hardly until
possible a good dealof information to
relating the survey is
According
provided. to Moserand Kalton(1971),
a sampleneeds to beof anadequate sizefor it to
be representativethe if
and generalisations
of population areto be madefromsurvey The
findings.

numberof subjectsin the depended

investigation on a numberof factorsconnected with the
research
andwhich needed to be bornein mindandweighted
up by the in
researcher theprocess
a decisionaboutthenecessary
of reaching literature(Alasuutari
sizeof thesample.Mostresearch
withinthe
1995,Becker1998,Mason2002)noteaccuracyof results,numberof sub-divisions
sample,responserateandresources
available the
as mainfactors
to takeinto when
consideration
deciding
samplesize.

Firstly,dueto an elementof 'luck'in termsof whogetsincludedin thesample,anysamplemight

In orderto achieve
produceresultswhichare differentfromthe 'true'resultsof the population.

92
greateraccuracyone mightneedto increasesamplesize and thereare statisticalprocedures
whichcanbe usedto calculatewhatspecificsamplesizewouldbe necessary
to achievea given
levelof accuracy(Cicourel1967,Marsh1982,MoserandKalton1971,Weber1949).Thisfactor
wasnotusedfordetermining thatthemethodwouldhavecomeup
samplesizeon theassumption
witha largersizethantimeandmoneyavailable
wouldhaveallowed.

Secondly,a samplemayinitiallylookquitelargebut mightproduceonlyverysmallreturnsin

relationto specificsub-divisions.
In thisstudy,initialintention
wasto be ableto subdivide
sampled
accordingto enterprisetype like tailoring,construction,
enterprises furniture-
food-processing,
making,basketweavingandaccording to entrepreneur suchasage,sex,education,
characteristics
employment, businesstrainingand so on. A cross-tabulation of these variablesmeant five
factorsby five personalfactorsresultingin twenty-five
enterprise of the data.Fora
subdivisions
smallsamplesizethis meansfew casesin eachsub-division andsomecellsendingup empty
is
which hardlyan adequatebasisfor makinggeneral s. A big samplesizewasneededto
isation
in theanalysiswereadequately
ensurethatsubdivisions cateredfor. Initially,the problemof sub-
divisions bya selection
wasplannedto beovercome procedure
calledquotasampling, in
described

wasgoingto takelongerandbecostly.
section3.4.2,butintheendit wasdecidedthatthisprocess

Thirdly,thenumberof originalsamplemaynotequalnumberof responses

thatarefinallyobtained
whichcan be usedin the research.The samplesize neededto havean allowancefor non-
evenin thecaseof conducting
responses face-to-face Andlastlythesizeneededto be
interviews.
tailoredto meetthe constraints
of timeand moneyavailablefor it. Basically,if cost andother
practicallimitations
did notenterintothe picture,therewouldbe no basicdifficultyin determining
samplesizerequiredfor achievinga givenprecision,but this simplicitydisappeared
withmoney
andtimelimitations.
Theissueof responseratewasnotverycrucialto calculation
of the sample
size,sincea decisionhadbeenmadeto takea 'snowballing' to entrepreneur
approach selection
untiltherequired
numberof unitswasachieved.

Initially,
thesurveyinterviews
wereplanned to becarriedoutface-to-face This
bytheresearcher.
wasthought of asa goodapproach for probing anyissuesor concerns
furtherandforclarifying
whichentrepreneurswouldhave.It wasworked that
out maximum number of weeksthat be
could
takenofffull-time bytheresearcher,
employment, was Thus
three. sample size was by
determined
threepractical interviews
andassumptions:
considerations outbytheresearcher
wouldbecarried
herself,
henceonlyoneinterviewer
wouldbeavailable;
fieldwork be
would covered overa three

93
weekperiodsuchthatinterviews
wouldbecompleted that
overthattimespan;andit wasestimated
about45-50interviews
wouldbeconductedperweek.

A combination of thesefactorssuggested
an aimof about135interviews
in totalwithinthegiven
timelimit.It wasthendecidedthatthe plannedsamplesizewouldbe of the order135to 175
entrepreneursdeterminedmainlyby thenumberof interviewers couldbe
andhowmanyinterviews
managed in thetimeat theinterviewer's
disposal.Unfortunately, wasnotableto go
theresearcher
outherselfforthefieldworkin thesecondphaseof theinvestigation
dueto financial as
constraints,
the researchwasself-funded. It workedout to be moreeconomical
to employan RA,whowas
in face-to-face
alreadyexperienced interviews,
hadpreviouslyundergone
socialsurveytraining
throughthe MalawiCentrefor SocialResearchandwas alreadybasedin Malawi.However,a
decisionwasmadeto keepthesamplesizeto thesamerangeof between135and175as it was
withoutdoubtthat this samplesizewouldensurethat all aspectsof relevance
to the research
wouldbecovered.
questions Thisdecisionis supported
byanargument
by Descombe
that:

The use of surveysin socialresearchdoesnot necessarily

haveto
involvesamplesof 1,000or 2,000people Whateverthe theoretical
...
issues,the simplefactis thatsurveys arefrequently
usedin small-
...
scale researchinvolvingbetween30 and 250 cases (Decsombe
1998:24).

Descombe reckonsthatas longas a sampleis madeup of morethan30 peopleor events,it is

in socialresearch.
adequate Onthatbasis,achieving
a samplesizeof 135interviews
wasgoing to
givegoodresults.In theenda totalof 147entrepreneur
interviews
were which
achieved, is within
the originaldesiredrangegiventhe financialconstraints.
Therewere71 entrepreneurs
sampled
fromBlantyre, 62fromZombaandtherestwerespreadamonga fewotherdistricts.

3.4.2Sample DesignandSelection Procedure

Onewayof increasing precision
of a random sampleis to increase
itssize.Although,an increase
in samplesizewillincrease
precision of thesample it
results, willnoteliminate or reduceany bias
in theselection
procedure(ClarkeandCooke2004,Harper 1966). is merely
Stratification a wayof
dividing
thepopulationintoa number of sub-groups
andallocating the sample between thesesub-
populations
referred to asstrata.Stratification
doesnotimplyanydeparture fromtheprinciple
of
randomnessasa random sample is selected
withineachstratum. A simplerandomsamplewould
provideunbiased estimatesof measurable precision, be bettered
but it couldalmostcertainly
through byensuring
stratification thatspecialgroups, locations,industry
arecorrectly
represented
inthesample.

94
3.4.2.1SamplingTheory
in everydaylife andthe majoradvantage
The ideaof samplingis neithernewnor unfamiliar of
is
sampling,as againstcompletecoverage, savingson money. This in
sectionexplains fairly

general terms the principles sampling

underlying One
theory. of theobjectives
of a samplesurvey
is to generally
estimatecertainpopulation A sampleis selected,
parameters. statisticis
therelevant
calculated,and this statisticis usedas an estimateof the desiredpopulationparameter.As
basedon sampleresultsarealwaysprobability
statements a decisionto coveronlya
statements,
sample,ratherthaneverymemberof a populationmeansleavingthe field of description
and
(MoserandKalton1971).Knowledge
certaintyandenteringthatof inferenceand probability of
someof thepopulation members wouldbe lackingandanyconclusion
aboutthepopulation
must
begivenin termsof probability.
If worthwhile areto be
relatingto thewholepopulation
conclusions
madefromthesampleit is essential
to ensurethatthesampleis freefrombias,andtheproblem
of
biascanbe solvedby takinga randomsample.A randomsampleis a sampleselectedin sucha
waythateveryitemin the population
hasan equalchanceof beingincluded. Therearevarious
in researchandstatisticsliterature(Clarkeand
methodsof obtaininga randomsampledescribed
1998,Murphy1967),buttheyall dependon the selectionbeingwholly
Cooke2004,Denscombe
determinedby chance.Probablythe bestmethodof randomselectionis to numberall the items
andthenallowa computerto throwouta seriesof randomnumbers
whichwill identify
the itemsto
beusedinthesample.

Occasions the of a
oftenarisewhen selection purerandomsample not is The
feasible. obstacles
arisewhensuch a samplewouldentailmuchexpensivetravellingfor the interviewers,
when
taskandwhenall theitemsin
'huntingout'thepeopleselectedwouldbe a longanduneconomical
thepopulation arenotknown.However, in
as pointedout manyresearchliteratures, care
great has
to be takento ensurethat a samplepopulation (ClarkeandCooke2004,
is trulyrepresentative
Harper1966,MoserandKalton1971).In verylargesurveys,statistical
samplingtechniques are
employedin orderto producea sample,which is as far as possible,representative
of the
population are thenmadefromthefindings.In smallstudieslike
as a wholeandgeneralisations
this one,one can onlydo the besttheycan with as muchas timeandmoneyallows.As Bell
argued:
are dependent
All researchers of subjects,and it will
on the goodwilland availability
probablybe difficultfor an individualresearcher
workingon a small-scale projectto
achievea true randomsample.If that provesto be the case,you maybe forcedto
interviewanyonefromthe totalpopulation whois available
andwilling at the time (Bell,
1999: 126).

95
Suchwasthecaseduringthefirstphaseof thesurveyastherewasnosampling
framefromwhich
a randomsamplecouldbe selected.In addition,the researcher had questionsin mindwhich
individualsin only certainwork positionscouldprovideanswersfor and hencethe subjects
interviewed by a method,
wereobtained known
whichdoesnotembodythefeatureof randomness,
sampling.
aspurposive Purposive is a methodof sampling
sampling wherebysamplesareselected
on thegroundsof convenience
andaccessibility. by DenzinandLincoln
Thismethodis described
(2000)as a methodwherebyresearcher beingstudied
seeksoutgroups,settingsandindividuals
fromwheretheyaremostlikelyto befound.DenzinandLincolnalsopointedoutthatmanysocial
researchersemploypurposive, andnotrandomsamplingmethodsas it is moreconvenient.And
as notedearlieron,forthisstudyit wasa matterof interviewing andwilling
whoeverwasavailable
at thetime.Withregardsto thesecondphaseof thesurvey,a combination techniques
of sampling
wasuseddueto timeandfinanciallimitations.

In orderto overcomethe constraints,

whichmakerandomsamplingimpossible,Harper(1966)
suggested somewaysof thesamplingprocesssuchasmulti-stage
andcluster In
sampling. a multi-
technique
stagesampling thecountry,say,is dividedintoa numberof areas,andrequirednumber
of coverage byrandommeans.A randomsampleof thetargetpopulation
areasareselected within
eachof theseareasis theninterviewed. Althoughthetechnique means the has
interviewer to travel
to differentpartsof the country,oncein an appropriate areainterviews can be carriedout with
virtuallyno furthertravellingand this bringsthe cost of the surveywithinreasonable bounds.
Clustersampling
is usedwhenit is theonlywaya samplecanbefoundandin clustersampling,
the
countryis dividedup intosmallareas,muchas withthemulti-stagemethod.It is to
advantageous
be ableto confinethe speciallistingto an areaor group.Interviewer
thenvisitsthe areasto
interview
everypersontheycanfindthatfits thedefinition
given(entrepreneurwithmicroor small
sizebusiness,
in thiscase). Clustersamplingtechnique wasappliedin the secondphaseof the
surveyas it wasmoretimeandcosteffectivethanrandomsampling,
Hadall unitsof enquiry,both
formalandinformalentrepreneurs,
beenlistedon a convenient (sampling
register frame),oneway
wouldhavebeento picka randomsamplefromthe entirelist. However,
of sampling thiswould
havespreadthesamplealloverthewholedistrictswithconsequent
highfieldwork
costsandmuch
inconvenience.

3.4.2.2SampleSelection
Afterselecting
thesurveydistrictsthe nextstagewasselectionof entrepreneurs to be interviewed
fromtheselected areas/clusters.Theaimwasto visitnaturally clustersof enterprises
occurring and
by focusingon theseclusters,it wasthoughtthatit wouldsavea greatdealof timeandmoneyon

96
 to andfromvisitingenterprises
travelling throughout
scattered the lengthandbreadthof theland.
However,it was very difficultto find concentrations
(clusters)of enterprises
as mostof them
operatefromhomehenceappropriate
methodwasto askpeoplein an areaif theyknewanybody
runninga business
andseeif theywereavailable
to be interviewed.
Thisis theapproach
referred
by Denscombe
to as snowballing usedfor picking
(1998),and it was the selectionprocedure
Withthismethodeachindividual
entrepreneurs. interviewed wasaskedto nameotherpeoplewho
theythoughtwouldberelevantto beinterviewed
forthepurposes Thesamplethus
of theresearch,
in sizeuntilthe minimumnumberof 135entrepreneurs
snowballed wasreached,andthereafter
untilresources
wereexhausted.Thisapproachhasbeenarguedfor by somewritersin that'our
timeandaccessforfieldwork
arealmostalwayslimited.If wecan,weneedto pickcaseswhichare
easyto getto andhospitable
to ourenquiry'(Stake1995:
4).

3.5DataCollectionMethods
Thestudydesignwasdirectedtowardsachieving
the researchobjectiveswithrequiredaccuracy
Thesubjectmatter,the unit of enquiryandthe scaleof the survey
andwithingivenresources.
like
governthe choiceof data collectionmethod.For an educatedsectionof a population,
professional mightbe adequatebut for generalpopulation
groups,a mailquestionnaire entailing
manycomplicatedquestionswouldcall for personalinterviewing
whichmight vary from the
formaltechniquedownto informalconversations.
standardised, In social surveys,the main
methodsof datacollectionare observation,
mailquestionnaire Surveys
interviews.
andpersonal
alsogenerallymakesomeuseof documentary information, data,documents
thus,statistical and
historicalrecords.Themaindatacollectionmethodsfor thisstudywerepersonalinterviewsand
documentary by thefactthatmostsmallenterprises
sources,governed andthe
arenotregistered
mailaddresssystemis notwelldeveloped
(MalawiNational
GEMINI2000).

Figure3.4is a presentation
of datasources
fromwhichanswers to theresearch
questionswere
A combination
obtained. of different of datacollection
sources methods wereusedin aneffortto
measure quantifiable aswellaslesseasilymeasured
aspects aspects.These informal
included in-
depthinterviews, interviews
structured anddocumentary
sources
of Criteria
data. for the
measuring
economicdevelopment uponthe traditional
and growthof a countryare mostlydependent
macroeconomicmodelsandtheirindicators,
andas suchthe mainsourcesof datawerethe
National Office,National
Statistical EconomicCouncilandMinistry
of Commerce
and Industry
and
WBindicators.
Macro-economic indicators
in twofieldsof socio-economic
andmonetary-fiscal
areveryusefulintracking
measures trendsofthecountryovertime.

97
 Figure3.4 Researchobjectivesand data sources

Objectives DataSource

Information
anddatagatheredfrominformalinterviews/discussions
with
2 Government andNGOkeyofficials,as wellas policydocumentsas
datasources

2
DatafrompastSMEstudiescarriedoutin Malawi
3 withSMEentrepreneurs
Interviews usinastructured
auestionna

Before going into the field, the necessarybooks and journal literature,past investigationsof

relevantofficial reportsand statisticswere consulted.Findingsfrom these sourceshave been

presentedin ChaptersTwo, Four and Five. The literaturereviewed,made awareof available
existingwork alreadyundertakenin this area of researchand this helpedto identifykey issues,
crucialquestionsandobviousgapsin the currentstateof knowledgein the researchtopic.The aim
was to avoidrepeatingresearchthat had alreadybeenconductedand to providea foundationon
whichto buildnewresearch.

The informationfrom the differenttypes of documentssupplementeddata, which was obtained

throughinterviews.It is possiblethat answersto some of the questionsthe surveyintendedto
covercould be obtainedfrom the availableinformation,but then documentaryanswersprovidea
check on the accuracyof survey results. It was necessaryto carry out a survey since past
conductedfor entirelydifferentpurposesfrom this one, did not suit this research's
investigations,

purposes.Moreover,the full data set from previousstudiesis not generallyavailableto an outside

researcheranyway.

3.5.1Interviews
As said, personalinterviewingwas the maindata collectionmethodfor this study.The researcher
iscussionswith the governmentandNGOofficialsduringphaseI andan
carriedout the interviews/d
RAconductedinterviewswiththe entrepreneurs
in the surveyphase11.

98
3.5.1.1PhaseI Interviews
Forthefirstphaseof thesurvey,interviews andinformal,
wereunstructured were
noquestionnaires
used,butonlya numberof keypointsaroundwhichtheinterview in
wasbuilt.Theywere'informal'
hadsomefreedomto alterthe courseof the interviewas opposedto
the sensethatinterviewer
form.All
'formal'whereset questionsare askedand answersare recordedin a standardised
interviewstookplaceat respondents' interviews
placesof work.The methodof one-to-one as
opposed to focusgroupdiscussions
was favouredbecause wereeasyto arrange,and
one-to-ones
also opinionsand viewsexpressedthroughoutthe interviewstemmedfrom one source,the
interviewee.
This madeit fairlystraightforward to locatespecificideaswith
for the researcher
specificpeople.

Beforethe interview
commenced in thediscussions, weremadeandpurposeof the
introductions
researchwasexplainedto the respondent (Appendix
2). It wasalsoexplained
thatanyviewsor
findings,discussed wouldbe presented
withindividuals, anonymously,suchthattheycouldnotbe
tracedbackto interviewees.
Allconversation forthe
theofficiallanguage
wascarriedoutin English,
country.A copy detailingstudyobjectivesand Conceptual (Figure1.1) was also
Framework
Aftertheintroductions,
to therespondent.
presented from
verbalconsentwasasked theindividuals
withtheinterview
to commence if it wasacceptable
andrequested theconversation.
to tape-record
Unfortunately
all butoneinterviewee
did notwantto be tape-recorded
suchthatnote-taking
was
to allforgathering
theonlymodeacceptable theirviews.

Themesof theresearchwereintroducedto startoff thediscussion

andthenletting
theinterviewees
developtheirideasand pursuetheirtrainof thoughts.Emphasiswas placedon interviewee's
thoughtsandallowingthemto 'speaktheirminds'wasa betterwayof discovering thingsabout
complexissues.Theinformants to talkaboutthesubjectmattersunderresearch
wereencouraged
framework
andtherewasno pre-determined for recording
answers
or views 4
(Appendix for oneof
theinterview Theresearcher
transcripts). the
doubtfulpoints,to rephrasing
confinedto elucidating
respondent's wereobtainedfrom
opinionsandto probinggenerally.Differentitemsof information
thedifferentrespondents,
whichmadeit a bit harderto compareandaggregate theresultslateron
duringdataanalysis.At the end of eachinterview,intervieweesprovided copiesof documents,
whichtheyfeltwouldberelevantto thestudy(fulllistof thedocuments
is giveninAppendix6).And
as pointedout,information
fromthesedocuments a
provided check on the accuracy of the survey
andperspectives fromtheinterviews.
obtained Thedocuments alsoformed a background
statistical
againstwhichthesignificance
of thesurveyresultswouldbejudged.

99
3.5.1.2Phase11Interviews
in social researchinterviewscarriedout the
A male assistant,competentand experienced
surveyandworkedunsupervised.
entrepreneur Thedecisionto hirea RAto carryoutthefieldwork
of the second
phase
wasbased on financial
and timeconstraints
as it worked out lessexpensive,
to paysomebodywhowasalreadyin Malawi,withyearsof experience,fullycomprehends thelocal
languageandunderstoodthelocalculture,ratherthatto fly outtheremyselfas I wasself-funded.
He was selectedmainlyon the basisthat he had previouslycarriedout severalsimilartype
interviews
underthe Centrefor SocialResearch(CSR)in Malawi.In thiswayit wasassuredthat
the RAwouldunderstand into
the natureof thistypeof workandwouldnot distractparticipants
areasof inquirythatwereof no relevance.
TheRAwasgratefulfor themoneyandexperience
of
beinginvolvedin thisprojectashewasunemployed
atthetime.

TheRAwasgivenadequate briefing(duringthefirstphasevisit)aboutthepurpose
of theresearch
wasgivento discussethicalconsiderations
andan opportunity andconsentas wellas to discuss
Nodoubtthismayposesomequestions
the questions. thequalityandreliabilityof the
regarding
datagiventhatthe RAonlyhada partialunderstanding On
of myrequirements. theother it
hand,
couldbe arguedthat,absence of complete knowledge Anyhow,the
mayhavecreatedimpartiality.
RAhadreceived formaltraining,in gathering
socialdata,fromtheCSR.Hewasthoroughly briefed
on issuesregarding
dataqualitymanagement,
whatsoftof follow-up questions
andsupplementary
and discussions
to ask and thereweretelephoneconversations the surveyperiod
throughout
betweenthe researcher
and RA. The surveywas cardedout over a four monthsperiodand
completed werebeingmailedin batchesfrom Malawiwhichmadeit easierto
questionnaires
constantlymonitortheprocessandresponsesandcommunicate feedback to theRAwhenneeded.
In additionthequestionnaires intothelocallanguage
andalreadytranslated
werestructured ready
forusebytheRA.Thisprocessensuredthatthequalityof thecollected
datawasenhanced.

Therearebothdisadvantages andadvantagesto usingan RAto carryoutfieldworkon behalfof

It is possiblethattheRAcouldhavebroughttheirownviews,on thesubject,to the
theresearcher.
interview
andpresented theinterview in sucha waythatwasleadingto therespondents.
questions
It shouldalsobe appreciated
thattheRAhimselfis onlyhumanandthereis nothingstopping
them
frombeingsubjectiveandinfluencingtheresponses Orit couldalsobethat
fromtheentrepreneurs.
the RA himselfmisunderstood
the questionsand meaningsof otherwords,thoughin local
language,
andhenceobtainresponses Furthermore
to the questions.
whichwerenot pertaining
someresponses couldhavebeenbetterprobedhadthe researcher carried out the work herself.
Anotherdisadvantage
for placingall the interviewresponsibility
on the RAis that if is
she/he nota

100
 individual
trustworthy theinterview
theycouldendupcompleting themselves,
questionnaires which
wouldinvalidatethe surveyresults.Whilstacknowledgingtheseissues,it shouldbe emphasised
had all the confidence
that the researcher in the RA and therewas no doubtthat he hadthe
integrity
skills,
necessary to
andabilityandexperience carryout the Interview
workon herbehalf,

andaboveall trustwasplacedon himas muchas trustcouldhavebeenequallyplacedon the

hadsheconducted
researcher theinterviews
herself.

Themainbenefitto be gainedfromusinga RAis thatno emotionson the partof the researcher

playanyroleduringtheinterviews
(Ellen1984).Sidaway(1992)arguedthatregardless of whether
one is local or not, the unequalrelationbetweenresearcherand researched
often remains.
Unequalpowerbetweenthe researchedand me could,possibly,have had some negative
consequences for thefieldwork.Respondents whattheybelieved
couldhavetold the researcher
shewantedto hearor equallytheresearchercouldhaveprobedthemto tell herwhatshewanted
to hear,influenceresponses in someways.Thedatacollectednot onlydepended on whatthe
werewillingto reveal,but alsothe appraisalof, andthe trusttheyplacedin the RA.
informants
However,carryingout the surveyoneselfobviouslyaddsdepthandcolourto the datacollected.
Withoutdoubt,if financeandtimewerenotconstraints,
it wouldhavebeenmoreadvantageous for
herself.
to carryouttheinterviews
theresearcher

Beforetheinterviews sufficientbackground
commenced, information
wasprovidedto respondents
aboutthe research,thus theywereinformedof the purposeof the research,how information
gatheredwouldbe usedand that the interviewwas voluntaryhencetheywerenot obligedto
respondto anyquestions
thattheydid notfeelcomfortablewith(seeQuestionnaire in 7
Appendix
forexactwording).
Gratitude
wasexpressed at theendof aninterview
to allparticipants.

Whenworkis finalised,
a summarised reportof thethesisis to bemadeavailable
to thepeopleand
institutions
whichsupportedthis work.However,for the entrepreneurs,thereis the issueof a
to accessto thereportbecauseonlythosewhocanreadEnglishwouldbe ableto read
restriction
thereport.Plansarein placeto producea summarised
reportof the in
results, the language,
local
samewayasthequestionnaire wastranslated, It is hopedthat
forthebenefitof theentrepreneurs.
theywill benefit,in the long-term,
frompolicychangeswhichmaybe broughtaboutas a resultof
thisresearch.

101
3.5.2Questionnaire
Design
of somekind,andthe framingandarrangement
Mostsocialsurveysusea questionnaire of
is
questions the
perhaps most work.
planning
substantial Using
a standard in
questionnairethe
survey
entrepreneur wasopted for because
it is a good way of collecting types
certain of
information
quicklyandrelatively
cheaplyasopposed to in-depth
interviews,
whichrequiremore
time.It hasalsobeensaidthata studycanbemorereliable
if similarresults
are the
using
obtained
samequestions andaskedin the sameway(Gilbert2001).Afterdecidingon exactlywhat
information
wasneeded fromtheentrepreneurs,
to becollected it hadto beensured
thata well
designed
questionnaire
wasproduced thatwouldgivetheinformation
needed, tothe
beacceptable
andthatwouldgivenoproblems
subjects at analysis
andinterpretation (Descombe
stage 1998).
TheConceptualFrameworkandtheresearch guidedthedesignof thequestionnaire.
objectives
Afterseveral
attempts in orderto remove
at wording andto ensure
ambiguity thatsubjects
would
whatwasbeingaskedandalsoto ensure
exactly
understand wouldbeableto
thattheresearcher
classifyand analyseresponses too
without muchdifficulty,
the questionnaire
was produced
(Appendix7).

Smith(1975)arguedthatquestionnaire
wordingis a significant
factorin surveyresearchand
suggeststhat theremustbe a sharedvocabularybetweenresearcher and respondent.For
inthis there
example study, wereconcerns the
overwhether respondents wouldunderstandorhow
theywouldinterpret
theconceptual
wordsof 'globalisation'
and'structure It
adjustment'. hadto be
madesurethatbothresearcher
andentrepreneurshadthesameunderstanding andinterpretation
theresultswouldbe distorted
of thewordsotherwise thingsto different
if theymeantdifferent
people.Thus,in orderto minimisethe problemof misjudgement
of the impactof 'SAP'and
bytherespondents,
'globalisation' thesewordswerenotpresented astheystand.Their
straight,
definitions,
instead,
were into
turned questions this first
and was pilot-tested on a group to
similar
theonethatformedthepopulation the in to the
of study order gaugewhat understanding and was if
requiredmakethenecessary
adjustmentstothewording toensure wouldnotbefar
thattheresults
off frommeanings
anddefinitions Notmanylocalswouldknowthemeaning
in theliterature. of
globalisation
orstructural hencetheneedtowordthequestions
adjustment insucha waythatthey
weresimpleandstraightforward
andat thesametimebein thecontextof thedefinitions
of the
conceptsin thestudy.Thequestionnaire to checkthatall questions
wasalsopilot-tested and
instructions
wereclearandto enableresearcher
to remove
anyitems,whichdidnotyieldusable
data.Thepilotwascardedoutthroughmailingoutthequestionnaireto theRAin Malawiwho
conducted thetestinterviews
on a fewindividuals he
whom could findand who were to
willing

102
 Theresponses
participate. for usein themain
to revisethequestionnaire
enabledthe researcher
survey.

Information
wasgathered of ownersandenterprises,
on characteristics environment,
operating
impact
ofstructural
adjustment
measures,
enterprise andhowentrepreneurs
operations responded
to themeasures.Thequestionnaire
includedbothopenandpre-coded in
questions to
order give
freedom
respondents to decideonaspect,formanddetailof theiranswers
andalsogivethema
listednumberof answersfromwhichto choose.In somecasesresearcherhadnotbeenableto
determine
reasonably in advance the
what maincategories be
would such thatit wasbest to have
openquestionsto whichanswerswerecodedlaterononcetherangeanddistribution
of answers
becameclear.Andalso,inclusion inthatinformation
hasitsadvantages
ofopenquestions provided
is morelikelyto reflectthefullrichness
bytherespondent of theviewsheldbythe
andcomplexity
(Descombe
respondents 1998).Mostquestions andhadtickboxedfor easeof
werestructured
analysis hadbeendesigned
andsomequestions to givetherespondents to givetheir
opportunity
ownviewsonthetopicbeingresearchedto The
or raisea grievance. questionnairewas designed
in English
butanother wasproduced
version translated
which the version
original into
directly local
language
forinterview
purposes.

3.6DataProcessing,AnalysisandInterpretation
Althoughfieldworkis the centralstageof a survey,an enormous
amountof work to
remains be
doneafterthe rawdatahasbeengathered.Soonafterthe fieldworkwascompleted, processing
and analysisof the materialsfollowed.Completed
questionnaires
were for
scrutinised errors,
omissions
andambiguous beforetheywerereadyfor codingandinputtingontoa
classifications
database.Analysis,usuallyinvolvingcalculationof statistics,followedafterthe databasewas
Datawasprocessed
completed. on a PersonalComputer using Package
Statistical for the Social
Sciences(SPSS)softwareto createtablesandcross-tabs. haddifferent
Sincethe questionnaire
typesof questions
whichincludedlisted,category,scale,grid,verbal/open
andrankingquestions,
the responses different
required in
ways which to be analysedandpresented. Some of the data
collectedusingthequestionnaire
wasquantitativehenceunitof analysiswerenumberswhereas
someof it hadto becodedandquantified
beforeanalysis.

Information duringthefirstphaseof thesurveywasqualitative

gathered andhenceunitof analysis
werewords.Thewordshadto bequantified andcodedbeforeanalysis.As theaimof thein-depth
interviews
wasto get a holisticperspective,
vadableswerenot isolatedas viewswere seen 'in
context'.LincolnandGubacommented
thatqualitative thatrealitiesarewholes
researchassumes

103
which cannotbe understood in from
isolation their context
and they cannot be fragmented for
separatestudyof theirparts(LincolnandGuba1985).Sinceconversations were recordedin note
form,thematerialhadto betranscribes byindexing
responses the
withrespectto theoryunderlying
All
research. the responses
werewrittenonto a sheet
separate and in
scanned orderto see
themes.Issueswerecategorised
whethertherewereanyrecurring intoconcepts
of Globalisation,
SAPs,Tradeliberalisation,
and Competition. to dealwith the
Contentanalysiswas necessary
of commoncriteriaweregroupedtogetherin the analysis.
material,andcategories Theanalysed
datawasthenreviewedin the lightof researchquestions.
Responses fromthefirstphaseof the
studyprovidedusefulpointersto typesof issueswhichwerefollowedup in the SMEinterviews.
Andsomeof theresponses provided to illustrate
usefulquotations certainpointsin thereport.

For the secondphaseof the studythe unitsof analysiswere entrepreneurs After

and enterprises.
data analysis,findingswerepresentedand interpreted.The resultshavebeenpresentedin tables,

cross-tablesand graphsin ChapterSix. Sincethe samplewas selectedin a non-randommanner,

of resultshavebeentreatedwithcaution.
anygeneralisations

3.7Reflexivity,ReliabilityandValidity
Reflexivity the between
concerns relationship the researcherand the socialworld (Descombe
1998).It suggests cannotachieveanentirelyobjectivepositionfromwhichto study
thatresearcher
theworld.Theresearcher that the
acknowledge onecannotstandoutside socialworldthatsheis

studyingandhencewasawareof howshewouldbeperceived to
as what extent shehadinfluence
ontheresults.Explanation
anddescription
of howresearcher
gainedaccessto informants
and how
to themis detailedin the abovesections.Theresearcher
researchwasexplained takesthe view
thatdatais notjustsomething
'outthere'to becollectedbutas something
createdthrougha social
process.Thedatawasgatheredthrougha socialinteraction betweenresearcherrinterviewer
and
informants
so thatthe researchitselfis a creativeprocesswhichresearcherherselfis partof. As
notedbefore,the entrepreneur
interviews werecarriedout by the researchassistant,andit has
beenpointedout that sometimesusingan 'outsider'mightbe betterplacedto heara pieceof
information
whichto theresearcher
herselfmightbetoomundane or tooobviousto registeras an
important
factor(Descombe
2003).TheRAapproached witha freshmind/clean
theentrepreneurs
sheetwithoutattached meaningsto theconceptsaswouldhavetheresearcher, outa
aftercarrying
literaturereviewon the concept.But thenas said,the RA is alsohumanandwouldnot stand
entirelyoutsidethe informantsthat he was interactingwith. However,by using a standard
questionnairefor all meantthat interviewsand responseswere from the point of view of
respondents
andnotfromtheRA'sownwayof seeingthings.

104
The researcherwas mindfulof the importanceof reliabilityand validityof measuresand
Readersandusersof thisresearch
procedures. will be askinghowaccuratearethefindingsand
of whatactuallyexistsandthe extentto whichthe methodsarereallymeasuring
representation
whatwasintended to be measured.Reliability theextentto whichthesurveywouldgive
concerns
consistentresultsif appliedby differentresearchersmorethanonceto the samepeopleunder
standardisedconditions.Thequestionnaire includeda repetition fromprevious
of questions similar
studiessothatcomparisons couldbemadebetween studiesovertime.Validityof theresearch
was
assessedby lookingat evidence,at howthe researchwas carriedout,whetheranythingcould
have interferedwith the researchprocessand confusedthe results,and the natureof the
This was one of the reasonsfor
connectionbetweenthe evidenceand the generalisations.
thepre-structured
adopting towardstherespondents
approach asthismethodhasa highvalidityas
it is standardised However,
andcontrolled. thisapproach couldbe artificialsincesocialinteraction
is morecomplex. Thus,it mayproduceresults,whicharehighon internalvalidity(causalinference)
butlowon the externalvalidityin termsof generalising Small-scale
to a widerpopulation. studies
usingin-depthinterviews
witha handfulof informants maybe lowon internalvaliditybuthighon
externalvaliditybecause
theyrelateto peoplein everyday This the
settings. was casewiththefirst
phaseof the surveywherein depthinterviews With
werecarriedout on a handfulof individuals.
internalvalidity,theconclusions investigation
arecorrectwithina particular or withinthecontextof
to
a specificsettingsand this is moreimportantin this studyas the aim is not necessarily
generalisefindingsbutmakeinferences.

3.8Summary
The choiceof the researchmethodology was guidedby the researchaims,objectivesand
availability A positivistapproach
of resources. to the research
wasadoptedwherebyrespondents
weregiventhepowerandfreedomto discussandinformtheirviewson SAPsandglobalisation
and
howtheirbusinesses havebeenaffected. The'before'and'after'SAPappraisal
methodwasopted
for asthisaffordedtime,financialresources theintention
andscaleof theproject,furthermore was
to showwhatwashappening
withina particularcountryof study,Malawi.As a socialresearch,
threestepswerefollowedin thestudyprocess.Firstly,thetheoretical
contextwas from
discussed
theliterature,
followedby thedesignof researchmethodology
and surveymethods,and lastlythe
of thedata.Concepts
actualcollection wereformedat thetheoryconstruction
stageand from the
datafindingsdeductions
weremade.

105
Fieldworkofthesurvey outintwophases.
wascarried Thefirstphaseinvolved
in-depthinterviews
witha number keygovernment
of relevant andNGOofficers
(purposively in Blantyre
selected) and
districts,
Lilongwe andthiswascarriedoutbytheresearcher
herself.Nostructured
scheduleof
wasusedand
questions thediscussions by
wereguided theconceptual in
framework 1
Figure
.1-
Note-takingwas the mainmodeof recording the discussions.
The information,
whichwas
was
qualitative, latertranscribed,
quantified
andcoded beforebeinganalysed.The from
findings
thisphasehighlightedthe issuesto be takenintoaccountin thedesignof thesecondphase
questions.

Thesecondphaseof thesurveyworkinvolvedstructuredinterviews
witha sampleof entrepreneurs
in the country.Thesamplewasdrawnfromtwomaindistrictsof Zombaand
of smallenterprises
Blantyrewhichwereselectedfor easeof travelbetweeninterviews.
Thenumberandsizeof the
of timeandfinances,The
to be includedin the samplewaslimitedby availability
entrepreneurs
sampleunits were purposivelyselected through by
snowballing, simplyasking around for
entrepreneurs
whowereavailableandwhowould be kind to
enough want to be includedin the
study.Theinterviews
wereconductedby a welltrainedandqualifiedresearchassistantusinga
structured
questionnaire intothelocallanguage.
whichwaspre-translated

The keyfactorsandconcepts,presentedin ChapterOne,guidedthe researchquestionsin the

design
questionnaire In to
stage. addition questions
on SAPs other
andglobalisation, factorssuch
as educational skillsand training,inter-firmlinkages,finance,market,and
levels,entrepreneur
infrastructure,
whichalsoaffecttheperformanceof enterprises,werealso included asquestionsfor
analysis.Respondents wereaskedto indicatechangesovera periodof timeas observedand
bythemselves.
understood Although
thequestionnaire
included most
questions,
someopen-ended
andassuchmostof thedatagathered
of themwerepre-coded fromthisphasewasquantitative.

Dataandinformationfromofficialdocuments sourceswereusedto complement

andstatistical and
the information
supplement anddata
All the information
andviewsgatheredfromthe individuals.
weregatheredas evidencefor the analysisof the MalawiSMEsin the contextof SAPsand
is confidentof the reliabilityandvalidityof the results,andthatthe
Theresearcher
globalisation.
objectives
setoutwereachievedthroughthediscussed methods andtools.

106
 ChapterFour

Malawi,Historicaland EconomicDevelopments

4.1Introduction
Thischapterdiscusses
the Malawieconomyandeconomic policyin lightof thechallenges
posed
by SAPsand globalisation. has significantimplications
Globalisation for Malawi,a landlocked
changesin the
of Africa,far fromthe centresof worldcapital.Dramatic
countryin thesouth-east
international
contextsince the 1970s and globalprocesses have been the
affecting Malawi
domestic deregulation
policyanddomestic in Malawihasprofoundly alteredthedomestic economic
is thereforeusedas a toolto examinethe
Globalisation
contextwithinwhichthecountryoperates.
contextof Malawi'sdomesticeconomic
policiesandhowit has beenaffectingthe economyand
activities.
economic

is
The chapteris organisedas follows:the secondsectionintroducesMalawi,andinformation
of the country,majorhistoricaldevelopments
providedaboutthe physicalgeography andsocial-
economicissues;the third sectionpresentsdetailedinformationabouteconomicpoliciesand
sinceindependence
performance up to the periodof economiccrisis;sectionfourdiscusses
the
Malawipoliticalandeconomicreformsof the 1980s,highlighting policy
major in
developments the
agricultural
and industrial
sectors;on theimpact the
of reformmeasures on the Malawi
economy is
in five;
presented section sectionsixprovides
an updateon policiesandthe Malawi in
economy the
2000s;sectionsevensummarises
thechapter.

description,HistoricalbackgroundandSocio-economic
4.2.Geographical characteristics
Thissectionprovides background
a historical contextin orderto
to Malawiandsetsthebackground
understandwhy Malawi is what it is today the is
andwhere country coming fromin terms of its

economic make-up. location,

Geographical politicalhistoryandpopulation presented
characteristics
in thefollowing
sub-sections.

4.2.1Geography
andHistoricalbackground
Malawiis situatedin thesouth-east
of Africa(Map1.1)andstretches
overa totalareaof 118,484
sq. kmof which20%is coveredby LakeMalawiandothersmallerlakes(Moyoet al. 1993).The
andbordered
countryis landlocked by threeothercountries: in thenorth,Zambiaon the
Tanzania
westernsideandMozambique
in thesouth-east.

107
In 1891Malawi(thenNyasaland)
becamea Britishprotectorate under Africa's The
colonisation.
Nyasaland
protectorate for
wasnot a profitableasset the Britishas the areawasunsuitablefor
practices
agricultural andlessthan500Britishfarmerslivedin the protectorate
of Europeans, at
anyonetime(Pryor1990,Quinn1994).Thesesettlersmainlylivedin thesouthernregionof the
countrywheretheygrewtobaccoand tea on largeplantations.Duringthe colonialperiod,the
by Africansmallholder
centralregionwascharacterised whilethe northernregionwas
agriculture
heavilydependent frompeopleworkingin the minesin SouthAfrica(AfricaWatch
on remittances
1991).In orderto strengthen
the economicpositionof the colony,in 1954a federationwith
NorthernRhodesia (nowZambia)andSouthernRhodesia (nowZimbabwe) came into The
effect.
was stronglyopposedto this federationbecauseof the racistpracticesin
Africanpopulation
SouthernRhodesiaandbecausetheyfearedthatpossibleeconomic gainswouldonlybenefitthe
Britishsettlers.

In 1958the strugglefor independence

startedin Malawi.
Thefirst nationalelectionswereheldin
1961andwerewonby theMalawiCongress Party(MCP).In 1963thefederation
of Rhodesia
and
Nyasaland
was dissolved.On 6 July 1964Malawibecamean independent state underthe
leadership
of KamuzuBanda.In 1966Malawibecamea one-party At
state. the endof the British
colonialperiod,Malawiwasleftwitha dualisticagricultural
economyunderwhichlargeexpatriate-
managedestatesproducedtea, tobaccoand cottonfor export,whilelocalsmallholder farmers
produced
subsistence A
maize. smallcommercialand industrial
centrein the region
southern had
beenestablished,
whichincludedcement,bottling,tobaccoprocessingand transportrelated
activities.Thecountryhadno substantial
mineralresourcesandits mainassetsweremoderately
fertilesoils,goodwaterresources
anda climatefavourable Therewasnodirect
forcropproduction.
accessto thesea,capital,technology,
skilledlabourandmanagerial
capability.

In March1992Banda's wasfacedwithanunprecedented
regime fromwithinthe
formof criticism
fromvariousPressureGroups,Bandafinallyagreedto a referendum
countryandwithpressure in
October1992ontheissueof multi-party
systemof government. tookplacein June
Thereferendum
1993anda majorityof peoplevotedfor multi-party
variant(vanDonge1995).Parliamentaryand
electionswereheldin May1994and werewon by UnitedDemocratic
presidential Front(UDF)
party,whichwastherulingpartyat thetimeof writingof thisreport.

108
4.2.2Populationdistributionandgrowth
In 2005the populationof Malawiwasestimatedat around12.9millionwitha populationgrowthrate

of 2.2% per annurn(WDI 2006b).The southernregionwhere Blantyre,the country'scommercial

and industrial
city is locatedhas 50%of the Lilongwe
population. is the capitalcity and it lies in the
The
centralregion, northernregion,with 11% of the is
population, the poorestand leastdeveloped

of the country'sgeographicalregions.Accordingto the WorldDevelopmentIndicators,83%of the

populationresidedin ruralMalawiin 2005,althoughurbanisation
wasgrowingrapidlyat an average
rate of 5.7% per annumbetween1990 and 2005 (WDl 2006b). It has been reportedthat the
populationdensityof Malawiin 1964was four timeshigherthan the averagefigurefor all African
countries(Hooker 1970).
The density
population nearlytripledduringthe following from
decades 38
in 1970to 109in 2005andwas threetimeshigherthanthat for SSAaverageof 32 personsper sq
krnin 2005(WIDI2006b).

Sincethe 1970snearlyhalfof the populationof Malawihasalwaysbeenunder15yearsof age

(Table4.1).In2005lifeexpectancyat birthwasrelatively to 51 yearsfor
lowat 40 yearscompared
SSAaverage,and36%of the adultpopulation
wasilliterate.InfantMortalityRatewasstilloneof
thehighestin theworldalthough
it declinedfrom189deathsper 1000livebirthsin 1970to 110in
2005 (Table 4.1). Malawi is one of SSA countriesseverelyaffected by the Human
Immunodeficiency
Virus(HIV)andAcquiredImmuneDeficiencySyndrome (AIDS)epidemicandit
wasreportedthatHIV/AlDSprevalencerate,amongstadultsaged15-49years,rosesignificantly
from1.6%in 1987,whenthefirstincidents closeto
to 12.2%in 1995butstabilised
wererecorded
14%between2000and 2005,this beingbelowthe reported20-30%southernAfricanaverage
(UNDP2005b).

TheIMFexpressed concerns in the1990sthatasthecountry wasmovingintothe215tcentury

therewasno appreciable progressmadeon socialindicators
since independencein 1964(IMF
1998).
Today,Malawistillranksamongst thepoorest in theworldwitha GrossNational
countries
Product(GNP)of US$161 percapitain 2005,ascomparedto a GNPof US$744 averageforall
sub-Saharan Africacountries.External
debtwasestimated at US$3.42billion
in 2005,
up from
US$1.56billionin 1990(Table4.1).Highpopulation
density, droughts,
intermittent diseases,
small
land holdings,traditionalagricultural
techniques and pervasivepovertyall contributeto
deforestation,
overworked soilsandlowagricultural
output.

109
 Table4.1: Malawi,StatisticalTrends,1970-2005

1970 1975 1980 1985 1990 1995 2000 2005

Population
(million) 4.5 5.2 6.2 7.2 9.5 10,11 11.51 12.9
Populationdensity(inhabitants
persq.km) 38 44 52 61 80 85 97 109
Average annualpopulationgrowthrate(%) 2.7 3.2 3.1 4.4 3.8 1.4 2.5 2.2
Populationstructure(%oftotalpopulation):
population
age-group0-14 46.7 47.3 47.5 47.6 46.7 44.6 46.2 47.3
population
age-group 15-64 51.0 50.5 50.2 50.0 50.7 52.3 50.9 49.7
ages65andover 2.3 2.2 2.3 2.4 2.6 3.1 2.9 3.0
Population (%oftotal):
distribution
ruralpopulation 94.0 92.3 90.9 89.7 88.4 86.7 84.9 82.8
urbanpopulation 6.0 7.7 9.1 10.3 11.6 13.3 15.1 17.2
Lifeexpectancy(atbirth) 40.8 41.8 44.9 46.0 45.7 43.1 40.4 40.2
HIVpopulation prevalence(%)(populationaged1549) 9.3 12.2 14.4 14.1
Rate(per1000livebirths)
InfantMortality 189 171 157 150 146 133 117 110
rate(%ofages15andabove)
Adultliteracy 30 37 42 44 52 62 64 64
GNPpercapita(US$) 220 230 170 180 170 170 161

Totalexternaldebt($million) 122 821 988 1,558 2.140 2,239 3,418

Urbanpopulationgrowth(annual%) 6.5 7.7 6.2 6.8 7.0 6.0 5.1 4.8
Accessto improvedsanitation(%of urbanpopulation) 36 52 55 57 60 62 64 66
Forestarea(%of totallandarea) 41.4 34.7 36.2 27.2
WorldBank,WorldDevelopment
Source: Indicators,
variousyears
= datanotavailable
..

factors
4.2.3Environmental
degradation
Environmental is a seriousproblemin Malawias thepopulation to growand
continues
exertpressureon the limitedresources. Thepopulationof Malawiwasonly4 millionin 1966and
todaytheestimateof 13 millionpeopleimpliesthatit hasmorethantripledin lessthan40 years.
Thecountryhasmoderate fertilearablelandwhichcoversonlyhalfof the country'slandsurface
and mustbe cultivatedwith only one shortrainyseasonper year.The pressureon landhas
increasedsuchthatthereis an increasein the cultivation
of marginalland,morefragilesoilsand
Forest
steeperslopes. areawhichwas 41 % in 1990 wasreduced to 27% of totallandareain 2005
deforestation
withaverageannual of 0.9%comparedto 0.6% for SSA between1990 and 2005
(WDI2006b).Asmoremarginallandcontinues
to bebroughtintocultivation,
moresoilerosionand
declining is
productivity being
experienced.

Therainfallis seasonalandextremelyvariable,andthecountryhasexperienced severedroughtin

succeedingyearsin the 1990s.Useof fertilizer,inter-cropping use
strategies, of hybridseedsand
otherinnovations are beingadoptedat a fasterrate than Some
expected. districts, in
particularly

110
the southernregion,havepopulation
densityof over400 personsper squarekilometre in arable
landareas,makingMalawioneof themostheavilysettledcountriesin Africa.In mostpartsof the
southernregiontherehas beenmassivedeforestation suchthat fuel wood,whichis the main
sourceof energy,is in shortsupply.It hasbeenarguedthat a combination
of poorsoils,useof
marginalland,high population has
densitiesand an increasein the rate of forestdestruction
exacerbatedenvironmental in
pressure the southernregionof the country 1996).
(Kalipeni With
populationpressure,the intensityof internalmigrationis growingand movement
is generally
towardsthe urbancentresof BlantyreandZombain the southernregion,and Lilongwein the
centralregion.Urbanisation has exceededsanitarycarryingcapacityin these cities. With
growingat a fastrate,accessto improved
urbanisation from60%
facilitiesonlyincreased
sanitation
in 1990to 66%in 2005(WDI2006b).
of urbanpopulation

4.3Post-independence
EconomicTrendsandPolicies
Thissectiondiscusses
policiesandeconomic trendssinceindependencestartingwiththeperiodof
inward-oriented
andimportsubstitution
policiesthroughtheWBpoliciesof economic reformto the
early1990swhenit wasrealised
thatthereformpolicieswerenotworkingandtargetssetoutin the
1980swerenotbeingmetandtherewereunsatisfactory
outcomes.

4.3.1TheMalawiEconomybeforeSAPs
Followingindependence
in 1964Malawi'sdevelopment
strategywasaimedat achievinggrowth
throughestate-ledagriculture,public investmentin infrastructure,
inward-looking
oligopolistic
industrial in foodproduction.
activityandself-sufficiency Theeconomy wasrunthrougha complex
betweenthe corporate,financialand parastatalsectors.At the centreof these
relationship
interactions
wasthePressHoldings, a large,privateholdingcompanyownedby thePresidentwith
in virtuallyeverysphereof theMalawieconomy,
equityinterests including in
majorityshareholdings
thecountry's banks.Othertwoimportant
twocommercial Development
Agricultural
parastatals, and
MarketingCorporation(ADMARC) and the MalawiDevelopment (MDC)also held
Corporation
sharesin thebanks.Press,witheasyaccessto financialresources, heavily,domestically
borrowed
andabroad,oftenunderGovernment (Mhone1987).Growthstrategydepended
guarantees upona
highimplicittaxationof the smallholder in parastatals.
sectorwithsurplusesusedfor investment
Whilethiscausedthesmallholder
sectorto stagnate, becametheengineof growth
theparastatals
(Pryor1990).

The Malawieconomyitselfwas characterised

by threemainsectors:the colonialestatesector
which produced40% of the country'smerchandise exports(mainlytea and tobacco);the

ill
 sectorproducing
smallholder for a
providing
subsistence, marketed food surplus,andproducing
exportcrops amountingto 50% of merchandiseexports;
and a labour reserve sectorwhich
estate
supplied labour
andmigrant labour
to The
countries. economy
neighbouring was, andstillis,

predominantly lacks
agricultural, mineral capital
resources, and skilledlabourand a
possesses
limitedsmalldomesticmarket(McCracken the post-
1988).With regardsto theseconstraints
independence development strategyfocusedon an export-oriented, agro-basedand labour-
intensiveexpansion industriialisation
pathwithimport-substituting roleand
playingonlya secondary
to
restricted a narrowrangeof consumergoodswhichwerealreadyafforded a highdegreeof
naturalprotection land-locked
bythecountry's position.

In thecountry'sfirst majorpost-independence document,

strategy the Malawi placed
government
highestpriorityon the development sectorvia increasedproductivity,
of the agricultural with a
particularpolicyemphasison improvementsin the smallholder
sector (Governmentof Malawi
1971).In orderto supporttheexpansion the
agriculture, second
of export-oriented highestpriority
wasplacedon the developmentof transport,
communications,
marketing infrastructure
andother
formsof necessary Thedevelopment
physicalinfrastructure. planplacedthemanufacturing
sector
in a subsidiary to
role agriculture and the
stressed development
of both import and
substituting
industries.
export-oriented Thefocuswason: privateinvestment,includingforeign labour
capital;
intensity; the
andon selectiveuseof tariffs, than
rather quantitative in
restrictions, to
order provide
domesticmarket securityfor producersoperatingclose to the marginsof international
competitiveness
ratherthan to prop up the inefficient.
In many the
respects policiespursued
throughto the mid-1970s
werein accordance
withthe broad
government's development
strategy
The
outlinedabove. traderegimewasdetermined
by theoverriding agricultural
aimof stimulating
exchangerate competitiveness.
exportsand emphasiswas placedon maintaining Table4.2

someof
provides keyindicators
of the Malawi
economy the before
period
at post-independence the
SAPs.

Malawihad a GDPgrowthrecordsincethe mid-1960s,closelyrelatedto growthof agricultural

Over
sector. 1967-73
periodGDP at factorcostgrewat 4.6% growing
with agriculture at 2.8%
to 6.4% in 1974-78due to policyof estate
duringthat sameperiod.The GDP accelerated
expansion GDP
andagricultural was alsomuch higher
at 5.8% 4.2).
(Table Afterthe oil shockof
1979and the severedroughtof 1979180crop growingperiodof Malawi,
the GDP growthrate
declinedto 0.8%andagriculturalgrowth the
mirrored overall
growth performance, to a drop
sharp
-
of -3.9%.In 1967-73, 44.4%to Malawi'sGDP,fallingto 38%bythe 1979-81
contributed
agriculture

112
 industry's
Meanwhile
periods. shareremainedfairlysteadyat around11%. Thedomestic
savings
ratewas8.2%between1967 and1973 androse to 18.3between 1974and 1978butdeclined
to
13,2%between1979 and 1981. Malawi'sinvestmentand savingsbehaviourwas closely
withthe growthof estatesandother
associated financed
investment by taxing
implicitly the
sectorthrougha producer
smallholder pricepolicy.

fromaroundIndependence
Table4.2Malawi:Economicstructureandperformance

1967-73 1974-78 1979-81

RealGDPgrowthrates 4.6 6.4 .0.8

PercapitaGDPgrowth 2.7 3.2 -0.6

to GDPratio
Investment 20.0 29.6 27.0

Currentaccountdeficitto GDPratio -8.9 . 12.7

-11.7

bysector(%of GDP):
GDPdecomposition
Agriculture 44.4 40.8 38.0
Industrya 11.0 11.4 11.8
andMining)
(Manufacturing 11.4 11.4 11.8
Infrastructure
h 11.6 12.6 13.4
anddefence
Publicadministration 11.7 8.7 9.8
Othersc 21.3 26.5 27.0

Averagerealgrowthrates
Agriculture 2.8 5.8 -3.9
Industry 5.3 6.7 2.8
andMining)
(Manufacturing 5.5 6.7 2.8
Infrastructure 8.2 2.6 .2.2
anddefence
Publicadministration 0.1 5.7 8.2
Others 5.0 7.6 -2.6

Totalsavingsratio 8.2 18.3 13.2

Priceinflationrate 12.5 8.5 4.0

Realgrowthrateof imports 8.7 6.1 4.6

Realgrowthrateof exports 5.9 11.9

-0.7

includes
aIndustry mining
manufacturing, &quarryingandpublicutlities(electricity, etc)
services,
water,sanitary
Includes
bInfrastructure transport
construction, andcommunication
cOthers trade,bankrinsurance/real
Include estateservices
andunspecified
Source:WorldBank- Malawf CountryAssessment Evaluation
reports,variousyears

4.3.1.1Prices
Duringthe highgrowthperiodof the 1970s,the averageannualinflationratewasabout9%,and
this beganto changedrastically
withthe intensification
of the war in It
Mozambique. is notclear
whatlevel
the rateof inflation but
wasachieved, it hasbeenofficiallyestimatedto be as high as
33%bythebeginning of 1989 (World
Bank1990a). While
consumer prices werefreer,owing to the

113
strongbusinesslobby behindthem, producerprices,particularlyfor smallholders,
were suffering
the samedownwardtrendsas did real wagesin the 1970s.The periodbetween1977and 1979
saw the worst downswingas Malawi'sterms of trade fell by nearly 35%, as the civil war in
forcedMalawito use alternative,morecostlyroutesand portsfor her exports(Figure
Mozambique
4.1).

Internally,the natureof the growthin agriculturewas not analysed,particularlyin termsof which

sub-sectorwasstagnating,but muchof the declinewasdue to a drop in tobaccoandtea prices,in
particulara 36% fall in the 1979-80auctionprice of fuel-curedtobacco(Gulhati1989).Other
elementsof the declineincludeda rapidrise in the importpricesof capitaland intermediate
goods
andinflationin the countriesthatwereMalawi'stradingpartners.

Figure 4.1 Malawi: Terms of Trade, 196D-80(index 1980--lW)

160
140
120
100
80
60
40
20
011 --T 7 r--- 7 7-- TITTI

'Al

Termsof Trade - Exportprices - hport prices'

Source:WorldBank,1987a

It shouldbe notedthatADMARCplayeda criticalrole in the pricingof agricultural

productsin
Malawi.ADMARC's
mandatewas to providea marketfor all the cropsgrownby smallholder
farmersby buyingat govern
ment-approved withdistributing
prices,andwasalsoentrusted creditto
thosefarmers.However,ADMARCdepressedproducerpricesand transferred the surplusinto
estate Studies
development. commissioned in theearly1980srevealed
thatpartof thestagnation
outputcould be explainedby the depressedpricesat whichADMARCwas
in smallholder
that output(Kyddand Christiansen
purchasing 1982).Sincethe smallholders
had no formal

114
channelfor lobbyingfor higherprices,theirresponsewasto moveoutof thisunproductive
activity
andsomeof themhad to leasetheirland, in
particularly the 1980s,
andseekpaidemploymentfrom
estatefarms.Othersavoidedhavingto dealwithADMARCby acquiringthe statusof an estate,
which them
allowed to growburley
tobacco
andsellit directly
on theauctionfloors.

4.3.1.2Incomes,WagesandEmployment
Mostincomein Malawiis generated
from the saleof agricultural
produce,and the growthof
incomeshad been restrainedby the wage incomesand salariespolicy pursuedsince
(Ngalande-Banda
independence 1989).Thewageincomesandsalariespolicyhadrequired
thatall
incomes
bemadeuniform,in orderto discourage Theeffectof thispolicy
turnover.
rapidmanpower
hasbeenlessthansatisfactory
in safeguarding againstmanpowerlossesto in
othereconomies the
regionand in ensuringeconomicstability.The wagerestraintpolicywas intendedto stabilise
productioncosts, sustaininternational and generateadequateemployment
competitiveness
(Kandoole1989).In orderto ensurethe successof the minimumwagelegislation,
all union
was renderedineffective,
representation not by disbandingthe tradeunions but by tyingtheir
hierarchy
to thatof thepoliticalsystem.Theobjective from
labourers
of protecting being underpaid
wasneverfulfilled,andsincethelegislation labourat all levelsof skills,
failedto fullycompensate
regionalmigration
continuedto be a problem,evenwiththestartof SAP.As a result,obtaining a
contractin SouthAfricanmineswasstillattractive
for bothskilledandunskilled
workersin Malawi
anda greatnumberof labour
Malawi's force migrated to South AfricaandothersouthernAfrican
duringthisperiod.
countries

4.3.1.3AgricultureandFoodProduction
In theperiodbeforetheSAP,Agriculture for 55%of the MalawiGOP,withtobacco,tea
accounted
andsugaras the mainexports.Themainstaplefoodfor the countryis maizeandricein some
andbeansarebothgrownfor cashandfood.somefamiliesrearcattle,goats,
areas.Groundnuts
pigs,sheepandchickenfor foodandsale.Duringthe periodbeforeeconomic
reversals,maize
production wasgrowingat an averagerateof 3.2%per annum.Thesuccessof agriculture
was
reflectedin othersectors,suchas manufacturing, 5.5%
whichgrewat around between 1967 and
1973risingto 6.7%in the periodbetween1974and 1978(WorldBank1982).The increasein
industrial
outputwasdueto theintroduction
of importsubstitution
industries,
expansion of domestic
demandandexportorientedlightindustries. policyduringtheyears
Theresultsof the agricultural
followingindependence
wereveryencouraging
up until1981when Malawi negative
experienced
GDPgrowthratesbetween1979and 1981.With the rise of oil pricesin the 1970sMalawi's
economy andthisaffectedtheagricultural
sufferedmajorsetbacks sector.

115
4.3.1.4TheIndustrialSector
In the thirtyyearsfollowingindependence, the Malawiauthorities economic
chosea centralised
approach emphasising state in
intervention Thisinterventionist
all sectorsof theeconomy. policyof
the Malawigovernmentresultedin the nationalisationof most privateenterprisesand the
of a largenumberof industrialunitsunderpubliccontrol,andthis periodsawthe
development
Thus,the industrialsectorwas dominated
creationof severalstatemonopolies. by parastatal
monopolies suchastheADMARC, involvedin agro-processing theMalawiDevelopment
industries,
(MDC)andthe PressCorporation
Corporation Limited(PCL)whichwas90%ownedby President
KamuzuBanda(Burdette1990).Thishighlycentralised of themajorindustries
ownership createda
situationof statecapitalismresultingin a geographical
concentration
of mostestablishments
locatedin a fewurbancentres,andalsocombined withpoweranddecision-making,
wagescould
bekeptlow.

Malawi'sindustrial
sectorhasalwaysconsisted
of twosub-sectors: industries
agro-processing with
industries;and import-
an exportcomponentof tobacco,tea, sugar and cotton-processing
substituting
producers
of intermediate
materialsand final goodsfor the domestic As
market. in
manyAfricancountriessouthof the Sahara,the sectorcomprises
the modemindustrialsector
recognisedbythestateandan informalsectoroperating
on themarginsof legality.Malawiis nota
vocationandits comparative
countrywitha strongindustrial are
advantages limitedandsubject to
of the climate.In addition,the domesticmarketand purchasing
the uncertainty powerof the
aretooweakto justifythepresence
population of largeindustrial
units.Another
importantissueis
thenatureof linkagesbetween
theSMEsectorandthelarge-scale sector.It
formalmanufacturing
wasfoundthatmostSMEstendto useinputsgenerated by natureandhencehaveweakbackward
withthelater(Helmsing
linkages 1986).

It can be saidthat priorto politicalchangesof 1994the manufacturing

and industrialsectorof
Malawiwas dividedinto two segments.On the one hand,therewas a largeenterprisegroup
composed of giantmultinationals, andheavilyprotected
stateenterprises, andsubsidised
private
industries
whileon theotherhand,therewasa massof ruralsmall-scale oftenfamily
enterprises,
run,involvedin handicrafts It is thesesmallenterprises
andsimplemanufacturing. who mainly
supplyruralconsumerswithsimple,inexpensive madeoutof localresources.
products

116
4.3.1.5ExternalDebt,ExchangeRateandBalanceof Payments
Malawi,likeotherSSAcountries,
requiredextensive for infrastructural
resources andothercapital
after
projects gaining Much
independence. of the capital
was raisedby borrowing,which,in the
1960sand1970s,wasmostlyconcessional.
Withtheonsetof the problemsof the Malawi
1980s,
has had to rely evenmoreheavilyon borrowing, this time increasingly terms.
on commercial
interestrates in the late 1970sand early 1980s
Thereforethe sharp rise in international
represented shockto the Malawianeconomy.Malawi'sdebtserviceratio
a severeexogenous
stoodat 20.3%over1978-80 to 8%over1972-74(Gulhati1989).However,
compared throughout
the 1970s,whenthe realgrowthof the economywassignificant,
Malawi'sdebtremained
small
to the1980sand1990s.
compared

from Britain,Malawiadoptedits own currency,the Malawi

afterits independence
Immediately
currencyknown
poundwhichwaspeggedto theBritishpoundsterling.In 1971,a new,decimalised
as the kwacha
was introduced,
whichwas initially
peggedat 2 kwacha
to the pound In
sterling.
1973,followingthe floatingof the poundsterling,Malawiswitchedto a basketpeggingregime
(Harvey1983).Thepurposeof peggingwasto avoidwidefluctuations
of the kwachaexchange
rate.The Malawikwacha(MK)wasde-linkedfromthe poundsterlingand initiallypeggedto a
basketof the BritishpoundandUS$up until 1975whenit waspeggedto IMF's
trade-weighted
SpecialDrawingRights.From1984to 1994the MKwastiedto a weighted
basketof currencies
of
Malawi'sthensevenmajortradingpartners:USdollar,Britishpoundsterling,Germanmark,South
Africanrand,Frenchfranc,Japaneseyen,andthe Dutchguilder(beforethe introduction
of the
Eurocurrency). After1994theforeignexchange liberalised
marketwascompletely andtheMK was
allowedto freely
float to forcesof demandandsupply(RBM2000).
according

Withregardsto balance of paymentsindicators,

likemanyotherdeveloping
countries,Malawi
deficits
registered in itsBoPinthecurrent throughout
account thepost-independence Upto
period.
the middleof the 1970s,thesenegativebalances offsetby long-term
wereusuallyadequately
capitalinflows(KyddandHewitt1986a, b),butthedeficits
hadbeengrowing overtheyears.The
in theexternal
firstsignof a weakening sectorcameat theoutsetof the1978-81crisis,whenthe
BoPcurrent deficitexploded
account fromUS$61.7 in
mill 1977to US$150.1 in
million 1979 andto
US$257 in 1981(Figure
million 4.2).

Overall,it canbesaidthattheMalawieconomy healthy

wasrelatively the
upuntil late1970s.
It can
be said that it was duringthe periodbetween1964and 1978that Malawiexperiencedsome

117
economicsuccess (Acharya 1981). The strong economicperformancewas attributedto a

of
pursuit
successful an labour-intensive
agro-based,
export-oriented, development
strategyunder
which industrialisation
import-substituting playeda secondary
role. Policies in
implemented pursuit
of this strategyincluded:public sector investment
in physicalinfrastructure,maintenanceof a
competitiveexchangerate, low tariff levels,restraintof wages and incomeincreaseswith a lead
comingfromthe public encouragement
sector, of foreigncapitaland restrainedfiscaland monetary
policiesin orderto containinflationand international
preserve competitiveness.

Figure4.2 Malawi:Balanceof paymentsindicators, 1965-85(US$million,

current prices)

150
-

100
-

50
-

E
-100 -

-150 -

-200-
-250

-300

0 Current
aocwt balaicem NetCOW inlow

Net Capitalinflow excludesofficial developmentassistance

Source: IMF, Balance of Payments Yearbook (various issues)

4.3.2Theperiodof economiccrisis, 1979-81

of the Malawieconomywasshort-lived,
The positiveassessment owingto externaleventsthat
in worldoil pricesandwarin Mozambique
beganin 1979.Increases destabilised At
theeconomy.
the sametimefailureto reversestagnation
in the smallholder madethe
of agriculture
sub-sector
economy to externalshocks,as it couldno longerfallbackon thissub-sector
vulnerable (Kyddand
1982).Consequently,
Christiansen outputplunged,andfor thefirsttimesinceindependence GDP
growth
negative
registered rates fromthe mid-1980s. It is evidentthat1979markedtheendof a
of
period strong growth
economic andthebeginning
of a of
period difficulties.
economic

118
A fallin thepriceof tobacco,Malawi's
majorexportproduct(PryorandChipeta1990),ontheworld
marketcoincided withan intensificationthe in
of war neighbouring Mozambique, Malawi
cutting off
fromits accessto the sea andincreasing transportcosts.Furthermore,interestrateson foreign
commercial loansincreased and
substantially a drought
partial in the southernpartof thecountry
causeda declinein earningsfromfoodexportsandforcedtheMalawigovernment to spendscarce
foreignexchange on foodimports.However,government revenuefailedto keeppacewiththe
growthof expenditure and resortedto domesticborrowing,
whichby 1980amounted to MK62
to MK9millionin 1977(WorldBank1982).Overhalfof thedomesticborrowing
millioncompared
was beingusedto financefiscaldeficitwhilstextensiveinternational wereusedto
borrowings
financeprestigeprojectssuchas newMalawiCapitalofficesbuildingsandPresidential
palaces,
andalltheseexpenditures heavilyonthebalance
impacted of payments 1991b).
(Harrigan

The government acknowledged thatthe BoPcurrentaccountdeficitcouldno longerbe funded

withtheIMF.TheIMFagreeda twoand
undertheexistingpoliciesandhenceopenednegotiations
halfyearStandbyloanof US$32.9millionin June1979,andtheloancamewithconditions
which
includeda rangeof short-term
demandmanagement measures: restraint;
expenditure
government
increasein governmentrevenue increase
through in impoý
excise, andpetroleum increase
duties;
in interestratesandceilingson totaldomesticcredit,government borrowing.
creditandexternal
Howeverfurthershocksin late 1979,closureof externaltransportroutesthroughMozambique,
was unableto adhereto the Standbyconditionsandthe
drought,meantthat the government
fellapartin early1981.Thecombination
arrangement of externalshocksanddomesticpolicyledto
a growingBoPcurrentaccountdeficit,a wideningbudgetdeficitand declininginvestment and
growth.ThisledtheMalawigovernment
to requestforhelpfromtheWorldBank.

4.4TheEconomicandPoliticalReforms(1981onwards)
The WorldBank,throughits diagnostic workon the macroeconomic disequilibria
and structural
problemsof Malawi,identifiedsix structuralweaknesses
in the economy:the slowgrowthof
exports;the narrowness
smallholder of the exportbase,in particularthe increasedrelianceon
tobacco;dependence
on importedfuelandon a decliningstockof domestic
fuelwood;the rapid
deterioration
in parastatalfinances;the increasingbudgetdeficitsof the late 1970s;and the
inflexible
systemon government administeredpricesandwages(WorldBank1981b).TheMalawi
government'sstrategyfor tacklingthecrisisthatemergedin 1979provedinadequate as it failedto
bringaboutthe necessary reformsin areassuchas themarketing produceandthe
of agricultural
investment
strategies
of some industriies.
Andit waswiththisbackdrop thatMalawiwasprescribed

119
 Adjustment
policyreformsbytheWorldBankandIMF,underthebannerof Structural
theeconomic
Programme.

Themajorthrustofthemacroeconomic the
since
policies 1980shasbeen directed
at restructuring
theeconomy. thatarenowin placecanbestbecharacterised
Thepolicies as drivenby theSAP.
Theycoverthreebroadareas:agriculture,
industry the
and external sector.Policy changesin
beganin 1982,whenthehandling
agriculture of producebytheADMARC cameunder reform.The
newpolicies,whichwereintendedto makethesmallholder sub-sectora morevibranteconomy,
liberalising
involved themarketingof smallholder
producethereby
allowing theADMARC to face
fromprivate
competition traders(Scarborough
1990).A furthermovein theagricultural
sectorwas
onthetypeof exportcropsthatcanbegrownbysmallholders.
of restrictions
relaxation Untilthe
smallholders
mid-1980s, werenotallowed to growburleytobacco independently,andtheWorld
Bankproposed thenewpolicyin orderto spreadthebenefits
of thislucrative
cropto smallholders
andHamet1990).
(Patchett

In the areaof industrialpolicy,Malawibeganto aggressively

pursueone of the mostmarket-
orientedregimesin thesub-Saharan relaxedmostimport
region(Kaluwaet al. 1991).It gradually
restrictionsand also some exportrestrictions(MalawiGovernment1998).In addition,the
Government
developed
an investment
codethatintendedto encourage whohave
entrepreneurs
the capacityto investin areasin whichexportgoodscan be generatedand incentiveswere
providedfor indigenous Since
entrepreneurs. the facing
majorconstraint is
smallentrepreneurs
cash flow, a numberof agencieswere set up, such as the SmallEnterpriseDevelopment
Organisationof Malawi,the Development
of MalawianTradersTrust(DEMATT) andthe Malawi
Unionof SavingsandCooperatives, all aimedat assistingindigenous to breakinto
entrepreneurs
varioustypesof industries
(Scarborough1990).

In theexternalsector,foreignexchange Firmsno longerhadto applyfor foreign

wasliberalised.
exchangethroughthe ReserveBankof Malawi(MalawiGovemment 1998),and this role was
passedon to the Commercial
Bank.Thegrowingandmanufacturing
of exportcommodities were
encouraged,andtheexchangeratewasbeingmanaged
in sucha wayas to maintainstabilityand
(MalawiGovernment
retainMalawi'scompetitiveness 1998).Macroeconomicpolicieswerethus
gearedto makingMalawimoremarketorientedandcompetitive,
bothintemallyandexternally.
Thesepoliciesare extensions policiesof the IMFand the WorldBank,
of the market-oriented
implemented
bymeansof theloansthatthecountryreceived.

120
The reformeffortswere supportedby WorldBanklendingfrom 1981to1990throughthree
Adjustment
Structural Adjustment
Loans(SALs)andtwoSectoral forIndustry
Loans(SECALs) and
(1990),andby four IMFStand-byor Extended
TradePolicy(1988)andAgriculture FundFacility

and Enhanced Structural

AdjustmentFacility
(ESAF) from
arrangements 1979to In
1995. 1996
form
another of SAP, by
supported the World Bank, the Fiscal
Restructuring
and Deregulation
Programme(FRDP)wasapproved for Malawi.All thesereformmeasuresarefurther in
discussed
turnin thefollowing
sub-sections.

4.4.1StructuralAdjustmentLoans
the SAPthroughprovision
TheWorldBanksupported of threeconsecutive Adjustment
Structural
Loansbetween1981and1987,whichcarriedeconomy-wide reformconditions 1992).
(Cromwell
wereto targetfive generalobjectives:
The reformconditions improvement of the BoPposition;
adjustmentof price incentivesand income policy; strengtheningresourcemanagement;
the
rationalising government investment and
programme; institutional
improvements (WorldBank
1981b).A moredetailedpresentation
of theSALprogrammein Malawiis givenin theAppendix1-

Malawi's
firstSALwasapproved inJune1981andprovided US$45millionfortheperiod1981-84.
Thisloanwasintended BoPandresource
relatedto agriculture,
to solveproblems management
andalsoto improvethemanagementandfinancial
practices in thepublicand
of keyinstitutions
privatesectors. SALI emphasis
ForBoPposition, wasplacedon increasing export
smallholder
cropproductionwhichwastobeachievedthrough annual reviews
ofsmallholderproducer in
prices
orderto increase exportparitylevels.Thecontribution
pricestowards to BoPwas
of agro-industry
to beachieved
through of theMIDC
reforms andPressHoldings, themto undertake
to enable new
investments.
Studieswerealsocommissioned of ADMARC
on efficiency marketingandstorage
Intermsof priceincentives
operations. andincome theMalawi
policies, wasrequired
government
tocarryouta review
ofthepricecontrol
systemto improve andcarryoutmorefrequent
itsflexibility
tariffincreases
parastatal in linewithcostincreases.Withregards
to resourcemanagementreform,
thegovernment wasto lookat itsbudget if it
andsee could increaseits including
revenues a 15%
increase exciseandimportduties(WorldBank1981
in allspecific b).ForSAL1,a largenumber of
conditions to theconducting
related of studies,
reviews inputsto
andplanswhichwereto provide
SALoperations.
subsequent

121
SAL11wasapproved in December ThesecondSAL
1982for US$55millionfor theperiod1984-86.
findingsof somestudiesconducted
incorporated underSAL 1.The was
government to
asked revise
the estateextensionand management underSAL1.Specificconditions
trainingprogramme on
consumer pricede-control
weredefined,
placing on
emphasis to
measures increase
government
revenues. Under
SAL 11,
pricede-control
wascardedout on a substantialnumberof In
items.
the
addition, Department
of Bodies
Statutory was requiredto carryout an annualreviewof
financesandimplement
parastatal tariffincreases
wherenecessary.A newcondition
addedunder
SAL11wasthe removalof government fertilisers.
subsidyon smallholder Therewasto be a 60%

reductionin fertiliser
subsidysuppliedby ADMARC to smallholdersin 1984-85and subsidy
by
elimination 1985-86. Extended
Under FundFacility
programme with IMF, thegovernment
was
asked to devise
specific
measures to improve
buoyancyof thetaxsystemandgovernment revenue
to remainat the currentratiowithrespectto GDP.In orderto assistwithpublicsectorresource
a
management,reviewof the Public
annual SectorInvestment (PSIP)
Programme with the Bank

staffwasto be carriedout.The government's for debt was

system external monitoring requiredto
strategydeveloped
anda borrowing
be operational in orderto achievea 20%debtserviceratio
(WorldBank1981b).

SALIII wasapproved
in December In manycases
1985for US$70millionfor the period1986-87.
the thirdSALrepresented of the policiesinitiatedunderprevioustwo adjustment
a continuation
loans.Thegovernmentwasto continuereviewing cropand inputprices,andfertilisersubsidies
wereto be phasedout.The of
programme consumer
pricede-control
wasto be by
completed the
endof 1985.A three-year
PSIP,revenueandexpenditure andexternalborrowing
projections, plan
were to be by
reviewed the Bank,and also was
activeexchangerate management to be
maintained.In additionto continuation
of previousmeasures, of thetaxsystem,with
a restructuring
initialchangesto be implemented in the 1986-87budget,was to be carriedout; measuresto
stimulate
competitionandexportswithinthe industrial
sectorwere to be put in ADMARC's
place;
rolewasto be redefined
alongwithattemptsto stimulateprivatetradingin smallholder agricultural
budgetrequiredto be givena 'programmatic
markets;and government content',emphasising
and
performance output Bank
(World 1981b).

4.4.2SectoralAdjustmentLoans
fourthSALideawasabandoned
In 1987a proposed dueto thefailureof SALsI- III to generate
growth, anda
sustainable new to
approach lending,
adjustment the Adjustment
Sectoral Loans
to besignedoff by 1990,wasproposed.
(SECAL) Thiswasto addresssomeof thecountry'smore

122
deeplyrootedstructural
problemsandwasthought to be a muchmoreIntegrated to
approach
thantheSALs(Mosley
policies et al. 1991).Theadjustment wereto comefromthe
initiatives
Malawigovernmentitself,supported
by,ratherthanimposed,
bytheWorldBank.Thegovernment
thattheestate-led
realised andimport-substitution
exportexpansion nolongeroffereda
policies
viabledevelopment SECAL
strategy. commenced in 1988andto beginwithwasgranted to the
TradeandIndustrysectorundertheIndustrial
andTradePolicyAdjustment
Credit(ITPAC).Itwas
acknowledgedthatpriceliberalisation to
needed be closely
sequenced
with trade in
liberalisation
orderto stimulate andto increase
competition theprivatemanufacturing to
contribution
sector's
exportrevenues(World
Bank1989e).

Policymeasures in a free-tradepositionto reducethe generaltariff

wereaimedto put exporters
level,andalsoa comprehensive
taxreformstructure wasundertaken to facilitate
the drive.
export
Therewasno officialprogramme for Malawito followalthoughthe government wasexpectedto
reducethe fiscaldeficitthroughincreasedtaxesandtariffs;limitcivil servicewagebill; reduce
capitalexpenditures;
andimprove
budgetary monitoring
underthe IMFshadowprogramme. This
programme includeda 20%devaluation
of the Kwachain February1987anda further15% in
January1988.Whenthe ITPACcommenced,
it includedthe initiationof an importliberalisation
programme; eliminationof importand exportlicenceson variousgoods;removalof exclusive
clausesin theIndustrial
protection Development Act;andimplementation
of thefirst of
phase a tax
reformprogramme.

The principalaim of ITPACwas to changethe marketstructureof the industrialsectorby

increasing Thisreflectedthe Bank'sacknowledgement
competition. thatpreviousSALreforms,in
particularthe strengthening
of companies suchas Pressand MDC,hadintensified
the sector's
import-intensive
oligopolisticstructure(World Bank 1987c).SALs, with their emphasison
agricultural
export:
-ledgrowth, had ignored
generally the to
potential forgeinternal
market linkages
usingtheindustrial
sector.Thecentralcomponentof ITPACwastradeliberalisation, complemented
by:flexibleexchangeratemanagement andreformof foreignexchange allocation;gradualfiscal
deficitreduction
andtax reform;furtherpricecontrol;exportandsmall-scale promotion
enterprise
andincreased in thefinancialsector.
efficiency

Major liberalisation of the trade regimeunder ITPACtook place via a phasedthree-year

liberalisation
of the foreignexchange system,whichremovedtheneedfor priorforeign
allocation
exchangeapprovalfor a widerangeof imports.The liberalisation
coveredmostraw materials,

123
spareparts,intermediateand goods,
capital and a limited
rangeof consumption To
goods. support
thetradeliberalisation,
thegovernmentalsoagreedto expandtheOpenGeneralLicensesystem
beyonda list of 85 importscoveredin mid-1988.
Hence,certaincategories
of goodsandgoods
fromcertaincountries wouldno longerrequire licenses
import from the Ministry
of Industry
Trade,

andTourism.BoththeBankandFundaccepted thatthethreeyearimportliberalisation
programme
wouldplacepressureon the BoPCurrent
Account
and the
regarded ITPAC its
credit, co-financing
to
whichamounted US170$,
as key to
resources helpbridgethe finance
associated gap (World
Bank1988d).

A comprehensive
tax reformprogramme
wasalsoundertaken
whichinvolved trade
rationalising
taxesso as to reducedomesticprotection
andencourage Thebroaderaimof
efficientproduction.
thereformprogramme wasto shifttheburden
of from
taxation international
trade and to
production
domestic
tradeandconsumption. Someanalystsbelievethat,by 1990thistaxreformprogramme
loweredtax ratesandraisedtax revenueas a percentage
hadsuccessfully of GDP (Shalizi
and
Thirsk1990).

OtherITPAC
measuresdesigned domestic
toincrease market included:
competition of
revision the
IndustrialDevelopment
government's Act to eliminateclauseswhichguaranteedexclusive
monopolyrightsin decontrol
activities;
certainproduction of priceson low grademeatand
petroleum; a
and commitment to the
strengthen base
resource and institutional for
support small-
scaleoff-farmindustries.
The final
elementof ITPACconcerned financial Monetary
sectorpolicies.
andcreditpolicieswereto bemonitored bytheIMFwhilstgovernment agreed,underITPAC, to
undertake to strengthen
reforms thefinancial
sector.Theseincluded: andstrengthening
updating
thefinancialsystem'slegalframework;improvingmobilisation
of long-term
domestic funds;
and
to small-scale
makingcreditmoreaccessible industry. aimedto ensurea
Tradeliberalisation
competitive basewhichwouldmakeuseof Malawi's
manufacturing relativelabourabundance,
through
particularly ofsmallandmicroscaleindustries.
thepromotion

In 1990ITPACwasfollowedby a secondSECAL,theAgricultural Programme

SectorAdjustment
(1990-92period).TheAgricultural
SectorAdjustment Credit(ASAC)provideda totalof US$170
loanandacknowledged
millionconditional that previousadjustment
effortshadfailedto address
thepolicybiaswithintheagricultural
sectoragainstsmallholders.Muchof the biashadintensified
duringtheearlieradjustment
periodasreflectedin landreallocation
andcropping and
restrictions in
tax
relativeprice, andinvestment (World
trends Bank1990c).
ASAC the
proposed in
increase land

124
rentsin theestatesectorandremoval
of thelegalrestrictions
against of
production
smallholder
burleytobacco,anexportcroppreviously forestateproduction.
reserved

4.4.3ExtendedFundFacilityandEnhancedStructuralAdjustmentFacility
Whenthe World Bank'sSALs and SECALswere being proposedand implemented,
other
measures suchas the ExtendedFundFacilityunderthe IMFStand-byprogramme werealready
of thesefacilitieswereto restorea macroeconomic
runningin the country.Themainobjectives
balanceand to improveeconomicgrowthand efficiency(Sijm 1990).The IMF-supported
in theearlystageswereaimedat reducingthe budgetdeficitfrom9.6%of
measures
stabilisation
GDPin 1979to 6.8%in 1981andcuttingbackvolumeof importsby 14%.In 1982,the IMF-
programme
supported attempted to furtherreduction financialimbalances
of thepersistent through
partialfreezingof publicsectoremployment,
revenueenhancement, and phasingout fertiliser
subsidies. Inadditionthegovernment agreedto furtherdevaluetheKwachaandseekrescheduling
of its publicandprivatedebt.Withthehelpof a three-yearIMFextended
facilityin 1983,emphasis
shiftedfromstabilisation
to a morebalancedmixof demandrestraintandsupply-side measures.
Theseincluded:government declines;wagefreeze;elimination
expenditure of fertilisersubsidies;
slightincreasesin revenue/GDP ratioandimportvolume.Publicfinancewasto be restructured
throughimproved budgeting planning,improved
profitability
andefficiency increased
of parastatals,
revenue fromtaxes,utilityratesandfeesforpublicservices.

In 1986,the IMF introduceda StructuralAdjustmentFacilityand subsequently

the Enhanced
Structural
Adjustment Facility,bothofferinghighlyconcessional
disbursement overa threeto four-
yearperiodto low-income
lessdeveloped countHes. Malawireceivedits firstESAFin 1988forthe
Thefocusof the programme
period1988-94. andthefiscal
waspartlyfiscalandpartlystructural,
objectivewas to reducegovernment Structuralobjectivesincludedliberalisation
expenditure. of
foreignexchange; gainsin smallholder
productivity agriculture;
reformof agricultural
marketing;and
financialliberalisation.
For the smallholder
sector,the intentionwas to raiseproducerprices,
increase
fertiliseruseandlift restrictions
onentryintocashcrops.

Anothercreditfacilityimplemented
wasthe Entrepreneurship
Development andDroughtRecovery
Programme (EDDRP)in the period1992-95.Thisaimedto createa favourable for
environment
development
enterprise andfocusedon taxincentives andmeasures to enablethecountryto cope
with problemsof drought.It was initiatedmainlyto mitigatedroughteffectsof 1992througha
provision.The IndustrialDevelopment
supplementary Act was repealedand replacedwith the

125
 Licensing
Industrial Act of 1992.Investors sectorno longer
andentryontothe manufacturing
license
manufacturing
required for
except a fewchemical Credit
products. wasabolished,
allocation
interestrateswereliberalised, Thisopenedup the
tariffswerereducedand ratesconsolidated.
and
economy increased
thedegree
of import from
competition manufactured
products.

In 1995the Malawigovernment
adopteda secondESAF programme rapid
whichenvisaged fiscal
adjustmentand governmentexpenditure.Structuralreformsfor this programmeincluded
of publicenterprises,
privatisation civilservicereforms,elimination on smallholder
of restrictions
access to landandcashcropsandliberalisationof agricultural
marketing.

4.4.4FiscalRestructuringandDeregulation
Programme
ThefirstFRDPfor Malawiwasapproved
in 1996andits mainobjective
wasto supportadjustments
in publicsectorand socialsectorsparticularly
on improvingthe efficiencyof the civil service,
improvingpublicexpenditure
controland rationalisation
of tariff The
and surtaxadministration.
programme also involvedan enactmentof the ExportProcessing ZonesAct in 1995as an
framework
institutional forthepromotion Theprogramme
of bothdomesticandforeigninvestment.
was also to focuson removalof remainingpricingand marketingconstraints
on smallholder
agriculture on privatesectordevelopment.
as wellas constraints Improvedaccessto cashcrops
andalternativemarketswasexpected to increasesmallholder
householdincomes,andexporters
helpingthe
were expectedto gain from increasedincentivesfor agriculturaldiversification,
economyreduce its dependence
on tobaccofrom66% to 50%by 2005 (WorldBank There
1996a).
werethreeFRDPs,implemented
in Malawi,between1996and2000.

It shouldbe notedthatsomeprogramme
activitiesbetweenthe WB and IMFwereoverlapping.
Traditionally,
IMFconcentrated demandmanagement
on short-term to stabilisetheeconomy
using
policyinstruments rate,creditceilingsandinterestrates,whilsttheBank
suchastherealexchange
concentratedon medium-term
supplied-side of theeconomy
policiesto changethestructure so as
to generatesustainable This
growthusingpoliciessuchas price,marketandtradeliberalisation,
becamemoreblurredduringthe 1980s,as the Fundincreasingly
used its extended facility
which
allowsfor disbursement
of loansoverthreeyearsandrepayment periodsof up to ten years,in
contrastto normalStand-byloansdisbursed
overa year(Bird And
1995). can be seenfromthe
discussions
above,the IMFalsohadmeasureswhichweretouchingon someissuesrelatingto
sector,fertilisersubsidies,civilservicereforms,whichonewouldpresumethatthey
smallholder
weretackledunderthe Bank'sSALsor SECALs.It has beenpointedout that this overlapin

126
 may
measures havecaused in
problems termsof timehorizons (Morsley
andobjectives et al
1991).

4.4.5Politicaltransitionandeconomicliberalisation
Malawi,like manyotherSSAcountries,
wascaughtin a worldwide
"newwave"of political
of the early1990s,followingthe collapseof communism
liberalisation in 1989.The great
dependence of Malawi Aidmeantthatit hadto payattention
onexternal to demandsfrommajor
donors,notablyUSAand Europe(linking'aid' to 'goodgovernance').Donorsweredeeply
withlackof progress
concerned in theareaof basicfreedom andhumanrightsin Malawi,
and
stressed
accordingly the for
need early implementationof appropriate
reforms. Malawi
Henceforth,
hadtopursue
political liberalisation
andeconomic simultaneously.

Politicaltransitionevolvedrapidlyanda newdemocratically
electedgovernment, led by the OF
cameintopowerin 1994.However, theruleof lawand
largelyrespected
whilethenewgovernment
thefundamental
freedomsof expression wasthoughtto
its politicalmanagement
andassociation,
be weakandadministrative
performancewasrenderedpoorby the WB (WorldBank1997b).In
creditsystemhadcollapsed,
addition,theagricultural maizeproduction was
profitability in decline,
sectorwas in disarray,industryfacedintensecompetitive
the estateagricultural pressurefrom
imports,andinfrastructure
wasdilapidated.
However, democratic
peacein Mozambique, transition
in SouthAfricaandin Malawiitselfandthechancefor a newgovernment
to takestockof thepast
reformprocessandin the lightof lessonslearntdevisea newstrategyplacedthecountryon the
cuspof changeandofferednewopportunities (WorldBank1997a).

With regardto economicliberalisation,

the economyhad severalfeaturesthat neededto be
liberalised. thepreviousheadof government
Forexample, ownedPressCorporation
stillpersonally
Company about30%of thenationaleconomy.
thatcontrolled Therewasalsothecaseof numerous
in varyingdegrees,by the statebudget.Althoughthe
that weresubsidised,
stateenterprises
previousgovernment to moveaheadwitheconomic
showedwillingness payingdue
liberalisation,
attention to theimportanceof macroeconomic fundamentals
stability,themacroeconomic werenot
fullyin place.Fiscalreformwasinadequate,tradereformwasnotcomprehensive, of
restructuring
wasinitiatedbutprivatisation
parastatals wasad hoc,andownership Giventhat
wasstilldistorted.
the countrydependson international institutionsand otherdonorsfor BoP support,the new
governmenthadlittlechoicebutto continuewiththeliberalisation
and ddve.
privatisation However,

127
 at thecentreof
itselffromthepreviousregimeby placingpovertyalleviation
it clearlydistinguished
itseconomic
andsocial (Government
agenda of Malawi
1998).

In theearlyyearsof thenewregime boththegovernmentandtheWorldBankwereableto take

the
stockof pastadjustment effortandderive lessons.
important Both judged
clearly to
efforts
past
hadfailedtochange
havefailed,sincetheadjustment thestructure and
of production The
exports.
Bankjudgeddisappointing to
performance have from
resulted of
a combination failure
policy and
shocks
exogenous (WorldBank 1997a).
One of thekey lessonshighlighted
by theBank was that
theold regimehadfailedto adequately removepervasive barriersto entryin markets thereby
discouraging sector
private investment andgrowth. In the
response UIDF promised to deepen and
the
accelerate liberalisation
and privatisation The
effort. aimwas to improve efficiency,redistribute
wealth,createemployment, increaseinvestmentandtechnicalchangeandimprove competition
andmicro
andsmall
enterprise (Government
policy of Malawi
1998).

Althoughagriculture, the
especially smallholder sector,was still regardedas it
important was
acknowledgedthatin viewof pressure
population on land,structuraltransformation
wasessential.
Exclusive be to Instead,
reliancecouldnot placedon agriculture reducepoverty. off-farmincomes

would be crucial.The new governmentplaced particular

emphasis on the development of
tourism
manufacturing, and miningto bringaboutthe much-needed At
diversification. the same
timethe interdependence
of farm and off-farmactivitieswas acknowledged.The strategyhad

povertyreducinggrowthas its principalaim, to be achievedvia smallholder

broad-based
anddiversification,
development Theprivatesectorandcompetitive
off-farmactivities.
particularly
markets wereto providetheengineof growthwitha reducedroleof parastalsandstate-sponsored
(World
privateoligopolies Bank1996b). Instead,the roleof the statewasto promotethe private
supporting
sectorwhilst socialdevelopment.The laterwas to be by of
achieved a re-odentation
and
publicexpenditure the introduction To
of moresafetynetprogrammes. providea frameworkfor
theabovethegovernment to followsoundmacroeconomic
promised policies,in particular,
control
of thefiscaldeficitanda competitive of Malawi1999c).
ratepolicy(Government
exchange

Tariffswerereducedfurther,and in termsof exchangerate policythe key aim was to restore

international to
competitiveness boost exports
andencourage This
diversification. wasassisted by
the removalof the exportlicensingsystem.Attemptsto reduceinflationwerealsocentralto the
policy,andthe government
externalcompetitiveness introduced fundamental reformin exchange
The
ratepolicy. kwacha
wasfloated
withthe by
old currencypeggingreplaced market-determined

128
auctionrate. At the sametime all restrictions
on external
current transactions
account were
on
andrestrictions
removed capital by
movements liberalised.
non-residents

4.5Impactof the reformmeasures

Thefollowing discuss
sections themacroeconomicimpactof theSAPand economicreformson the
Malawieconomyas a whole,andthenbrieflydiscussing
the impacton the smallholder,
estate,
industrial
external, andSME of
sectors the economyin turn.The impactis discussed
withinthe
contextof the themselves,
measures ratherthanseparatingout impact
of World Bank's
and IMF's

measures, as it is too to
complex them
separate out. Although the SAP for Malawiwas first

approved in June 1981 by theWB,implementation

was not in placeuntil1982.
It be
should noted
thatin thisstudytheperiodbefore1981is takento bethepre-adjustment but
period thediscussion
the
of adjustment impact the
covers from
period 1982as thatwastheyearwhenthefirstSALwas
inthecountry.
implemented
actually

4.5.1Impacton the Malawieconomyas a whole

Duringtheperiod1982to 1987,whentheSAPwasin place,the Malawieconomy
showedsome
signsof improvement as a resultof higher
export
pricesfor tobacco.
However, because of bad

weather in
conditions 1987 and influxof Mozambique
refugees,crop was
production disruptedand
fromother
in somepartsof thecountrysuchthatfoodhadto be imported
thisledto foodshortages
food
Although
countries. was
production highin the 1970s
and 1980s,
some studieshaveshown
thattherehavebeenchronicfoodshortagesat householdlevelevenin yearsof goodharvest
NSO1992).
(Malawi

hasledto deteriorating
landcultivation
Intensified of soilfertilitysuchthatfertilizers
haveto beused
toincrease In
production. fertilizer
Malawi, is importedandfarmershaveto buy
either it or getit on
loanfromthegovernment,andit is difficultfor mostsmallholder
farmersto obtainfertilizerand
hybridseedsoncreditwiththeendof fertilisersubsidypolicy.The1991National
SampleSurveyof
(NSSA)showedthatonly19%of households
Agriculture withlessthan0.7 hectareof landwere
usingfertilizer
whilethosewith between
holdings 0.7 and 1.49hectare,
only33% used fertilizer
(MalawiNSO1992).Theseotherfactorsaffected outputgrowth,despitetheSAP.
theagricultural

sectorgrowthratewas negative(-3.9%)during1979to 1981period

Althoughthe agricultural
to therealGDPgrowthrateof 2.1%during
to 6.3%in 1984,contributing
(Table4.2),it wasrestored
thatyear.It hasbeenarguedelsewhere thatmuchof the GDPgrowthraterecoveryin 1982-84
from
resulted domestic initiatives
policy whichwereindependent
of the SAL (Mosley
programme et

129
al. For
1991). 1981-82
instance saw an upturnof estate (a
performance sectorwhich waslargely
ignoredby the SAL policies),resultingfrom government'sown solutionto the financialand
managerial facing
problems a large of
number tobacco
estatesin the late1970s,
whichcontributed
GDPgrowthrateduringthatperiod.Therewasalsoa sharpincreasein maize
to thefavourable
prices
producer by the in
government,violation of SALI condition,
whichwasalsoa major in
factor

of
recovery thegrowth ratein the sector.
smallholder

1984,theeconomic
Following stalledas GDPdeclinedto 3.6%in 1985astheagriculture
recovery
outputgrowthfellto -9.7%in that year
same (Table4.3).UnderSAL 11,
the governmentwasunable
to continuewith its own smallholderpricingpolicies.The SAL policiesof suppressing
maize
producerprice and input subsidy(fertiliser)
removal,gave rise to a rapid in
deterioration
performance,
smallholder hence the sectors decline
to to
contribute GDP growth, andin addition
importsof maize.
therewasa needformassive

Table4.3Growthratesof GDPandits components,

1982-1986

1982-84 1984 1985 1986

rates(%)
RealGDPgrowth 4.6 7.6 3.6 1.06

realgrowthrates(%):
Average
Agriculture 5.8 6.3 -9.7 0.9
Industry
I 3.4 3.7 0.5 3.2
andMining)
(Manufacturing 3.4 3.4 0.5 0.9
b
Infrastructure 0.8 -5.6 18.9 -2.8
anddefence
Publicadministration 7.7 2.8 6.1 -0.1
Othersc 5.1 3.3 2.2 2.5

s includes
Industry mining
manufacturing, & quarryingandpublicutilities(electricity,
water,sanitaryservices,etc)
transportandcommunication
includesconstruction,
bInfrastructure
4Othersincludetrade,banktinsurance/real
estateservicesandunspecified
Source:WorldBank,Mala%vi CountryAssessmentEvaluationreports,variousyears

In additionto descriptivepolicy measures,there were also numericalprojectionsfor key

macroeconomic as
variables expectedoutcomes of the reformconditions with
associated theloans
(WorldBank 1981b,1983,1985).The projectionswere drawnup by Bankmissionstaff in
with
collaboration Ministry
Malawian of Finance
staffandMalawi
EconomicPlanning
Development
Division.

theplannedoutcomes
Table4.4presents of the adjustmentprogramme comparedwiththeactual
outcomes in
achieved theperiod Some
1982-88. of theindicators
in 4.4
Table havebeen presented
purposesandas can be seen,theoverallresultsarenotfavourable.
in Figure4.3 for illustration

130
 outputand grossinvestment,
Growthratesof GDP,agricultural all fell short of the planned
outcomes the large
wasparticularly
and shortfall in thecaseof GDP growth, which wasmuch less
Similarly,
thanwhattheBankhadpredicted. actualoutcomesfor thebudgetdeficitandtheimport

andexportgrowthratesfell of
short target by significant The
margins. actual of
performance both

merchandiseexportsand imports alsofell shortof programmetargetsoverthe 1982-88

period.
Onlyin the case of BoP currentaccountdeficitand the shareof Government development
in
expenditure GDP,did the of
outcomes
actual the threeSALs the
achieve targets
set.The GDP
7.6%
reached in 1984matchedby increasein export
growth from -8.6% in 1982 to 32.5%in 1984,

combinedwith in
decrease import growthin 1984,resulting in a reduction in the BoP current
from
deficit
account US$125 millionin 1982
to US$16.5 millionin 1984 (Table4.4).

Table4.4 Comparisonof Plannedto Actual Outcomesof Malawi'sAdjustmentProgramme,1982-88

PlannedOutcomes
1982 1983 1984 1985 1986 1987 1988
GDPgrowth 14.7 2.6 3.0 3.5 3.4 3.6 3.7
Agricultural
growth N/A 2.7 3.2 3.6 3.3 3.4 3.5
Grossinvestment (%)
growth N/A 20.2 13.7 9.8 3.4 2.8 3.9
RudoptdeficitM of GDP) NIA N/A NIA N/A 7.5 n/a n/a
Development (%
expenditure
of GDP) N/A N/A N/A N/A 9.0 n/a n/a
Balanceof payments
currentaccountdeficit
(currentUS$mill) 254.0 156.6 170.3 180.4 128.9 116.1 107.9
Merchandiseexportsgrowth
N 15.6 6.4 6.1 4.8 4.5 5.0 5.3
Merchandiseimportsgrowth
N 12.7 14.2 5.4 4.9 3.0 2.7 3.0
ActualOutcomes Assessment
1982 1983 1984 1985 1986 1987 1988
GDPgrowth(%) 2.5 4.4 7.6 -7.5 7.9 2.5 .2.4 notachieved
growth(%)
Agricultural 6.9 4.3 6.3 7.8 2.2
-9.7 -1.7 notachieved
Grossinvestment growth 24.1 14.7 -28.4 35.3 37.0 30.1 11.6 notachieved
Budgetdeficit(%of GDP) n/a n/a n/a n/a 12.5 n/a n/a notachieved
Development (%
expenditure
of GDP) n/a n/a n1a n1a 8.7 n/a n1a achieved
Balanceof payments
currentaccountdeficit
(currentUS$mill) 125.0 144.2 16.5 16.8 75.1 55.0 53.1 achieved
Merchandise exportsgrowth
N -8.6 4.3 32.5 19.5 -0.9 12.4 6.6 notachieved
Merchandise importsgrowth
N -18.7 0.1 -12.1 1.4 -13.1 15.5 42.5 notachieved
WorldBank,1981
Source: b,1983,1985,1987b
N/A=notavailable;
n/a= not
applicable

The IMF claimedthat the improvementin the deficit was attributableto the 'successful'
of thestructural
implementation programme
adjustment andtherestriction on importsin the 1980s

131
(IMF1998).Thelatterwasimplemented
by foreignexchange that
andthe requirement
allocation
deposit25%of thevalueof importswiththeReserveBankat thetimetheyplacedtheir
importers
A
orders. further
factorthat to
contributed the improvement
in thetradebalancewastheincreased
merchandise in export
exports, particular earningsfromtobaccoin the 1984(PatchetandHamet
1990).

Figure4.3: Selectedindicators: 1982-88actual againstplannedaverages

10 -
9-
8-
7-
%6-
5- %N

4-
3-
2-

o-
-- T-

GDP growthGross
(%) Agricultural
growth investment Merchandise Merchandise
N growth growth imports
exports growth
N

1982-88
Planned
average0 1982-88
Actual
average

Source: 1983,1985,1987b
1981b,
WorldBank,

Ad hoctax increases, tariffincreases,

withparastatal
combined boostedgovernment
temporarily
revenueandplayedan importantrolein the improved whilstthe SAL-guided
fiscalperformance
in budgetpreparation
improvement reducedgovernment
expenditure, However,
in 1982-88. thead
hoc tax increasemeasureswere havingdisincentive effectsin privateinvestment,and the
reductionin government resultedin cutbacksin development
expenditure hencethere
expenditure,
was an overall in
reduction investment
levels.
However, in mosttargets,
despiteunderachievement
the systemof budgetpreparationwasgreatlyimproveduponas wasgovernmentexternaldebt
monitoring The
capacity. Departmentof Statutory
Bodieswasstrengthened,
enablingtheparastatal
integrated
sectorto becomeincreasingly andMDC
financialplanning,
intothecentralgovernment's
andPresswerebothsuccessfully (Mosleyet al 1991).
restructured

132
 in the accumulated
Withregardsto debt,it wasbelievedthatthe acceleration externaldebtwas
broughtaboutpartlyto financetheSAP.Debtserviceas a percentage of exportswasonly8.7%in
1978,butby 1987it wasnearlyhalfof theexports(about49%)andrepresented 11%
nearly of the
GNP(Government of 1993).
Malawi By 1987the totaldebt stoodat US$1,363
millionwhichis
four
nearly times it
what wasin 1978(Kaluwa
et al. 1991).

theBoPcurrentaccountdeficitandthecentralgovernment
Although budgetdeficitremainedfairly

respectable 1987
between and1992, the consensus
general was thatthishadbeen achievedvia
excessivedemand and
contraction importcompression than
rather diversification
through of the
base,
positive
country's changes in the real of
structure output,andexpansion
of investmentand
(Bonongwe
output 1990,
Cromwell1992,King1990,World Bank 1989c).
Growth ratesof visible
importshalvedfrom46%in 1987to 23%in 1992(Table4.5).In the 1980s,devaluations
of the
kwachawereacceptedas realisticmeasures for restoringMalawi'sexportcompetitiveness
and
theflowof importsintothecountry.
influencing

Table4.5:KeyMacroeconomicIndicators:
1987-1992
1987 1988 1989 1990 1991 1992
%Growth RateofRealGDP
(1978factor
cost) 0.46 3.29 4.06 4.77 7.8 4.00
SmallScale (growth
Agriculture %) -0-86 0.50 0.16 -3.44 15.79 -25.33
(growth
Agriculture
Estate 1/6) 7.19 7.13 9.84 9.20 10-98 8.99
(growth
Manufacturing %) 0.94 3.27 5.00 8.50 3.00 2.69
%ofGDP
investment 15.40 18.70 20.20 19,10 20.20 19.80
BalanceofPayments:
Account
Current (US$
Deficit billion)* -0.03 -0.02 -0.14 -0.06 -0.15 -0.23
GrowthRateofExports 33.13 22.19 3.29 54.48 22.70 2.30
GrowthRateofImports 45.94 65.22 20.44 22.01 26.90 23.20
Government as%ofGDP
Deficit -7.43 -2.07 -2.10 -4.20 -2.30 -3.2
Government Development
as%ofGDP
Expenditure 9.24 9.47 6.70 6.10 6.60 6.90
rate%
infaltion
Price 26.80 31.40 15.70 11.50 11.90 22.70
Source: Government
Malawi EconomicReport, years
various
'IMF,
WEO Sept
database, 2006.
Different
source
usedasMalawi
Government thebalance
reported inMIK

objectiveof thedevaluation
Anotheroverriding wasto complywiththerequirementsof theSAP.It
wasalso thoughtthatdevaluations mightencouragediversification
awayfromtraditional
exports
exports.All indicationsare, however,that suchdiversification
towardsnon-traditional has not
and
occurred thatthe still
country relieson its threetraditional (tobacco,
exports tea and sugar)for
morethan90%of herexportearnings(MalawiGovernment
2005b).Failureof the SALsobjective
of the
diversifying predominant base
production
agricultural was shownbythefactthattheshareof
tea andsugar)in totalrosefrom77.7%in 1981to 83.0%in
the threeleadingexports(tobacco,
1988 (Chalira1993).In addition,the industrialsectorremainedimportintensive(WorldBank
1988c,e) andlargely in The in
oligopolistic marketstructure. privatesector generalsuffered from

of
effects aggregatedemand contractionin theformof credit
contraction
anddeclining
realwages
(WorldBank1988d).

In the 1990sthe countrywas still sufferingfrompooreconomicperformance, socialindicators,

incomedistribution
and institutionsbrought aboutby yearsof an elitistdevelopment
strategy.Its
growth
population ratewas one of the highest
in the worldbeingbotha causeandan effectof
and
poverty therewas an percentage
alarming of the infected
population withHIV.
Soil
erosionand
had reachedexcessivelevelswithshortagesof wood,waterandproductive
deforestation land
made worse by land
unresolved accessand ownership issues.The governmentfaced the
of managing
challenge an openeconomy that is to
subject intermittent
droughts andexogenous
shocks. Withdrought
and democracy
making the politicsof foodsecurityeven more the
pressing,
roleof ADMARC andthe in
government foodmarkets still neededto be The
clarified. WorldBank
initiallyadopted to marketliberalisation
approach
a sophisticated andtheroleof ADMARC:

Agriculturalmarketliberalisationis nota simplematterfor a numberof reasons.It is not

clear that liberalisation
effortsin a few markets will lead to economic gains for all
smallholder groups as long as there are impeffections
rigidities, and failures in other
markets.This is the well-known theoryof the secondbest...Furthermore, liberalised
markets arenotsynonymous withcompetitive markets, anda mereremoval of restrictions
will not necessarilyleadto optimalor efficientoutcomes, let aloneequityand poverty
reduction.(World Bank 1995, p.27)

Despitethisinitialcaution,tensionsrapidlyemerged betweentheBankandthegovernment
on the
paceof market liberalisation
and the
particularly roleof ADMARC.Heavyborrowing
by ADMARC

contributedto the inability

government's to meetthe publicsectordeficittargetandcreditceiling
targetof theIMF'sExtendedFundFacilityandsocausingsuspension of the IMFprogramme in the
country 1989).
(Gulhati The Bankpushed for a complete
government from
withdrawal agricultural
that
markets,advocating ADMARC be commercialisedand and
pdvatised that food be
security
takencare of by a NationalFood ReserveAgency,a Trust formedto run the country's
decentralised methodof intervention.
grainreserveona rule-based
strategic

Thegovernment
was accusedby many donors, the
particularly Bankand IMF, of intervening
in
in which
markets a manner crowdedout traders.
priivate The for
government its by
part,supported
a fewdonors, that
argued had
privatisation beentoo rapidandthatmarket had
liberalisation been

134
promotedmore with the objectiveof reducing fiscaldeficitthan promotingefficiencyand
However,
competition. in
partly responseto the abovementioned policiesandpartlyreflecting
favourable
weatheras bounced
agriculture back from the 1992 and 1994 droughts,
therewasa
growth
remarkable ledbythe In
sector.
smallholder 1995
and 1996 growthregistered
smallholder
andtheeconomy
43.6%and41.0%respectively by14.3%
asa wholeexpanded and10.9% (Table
4.6).Tobaccowasthedrivingforcein thisgrowthandthemajorcashinjection
brought
multiplier
totherestofthenon-farm
linkages ruraleconomy.

Table4.6:KeyMacroeconomic
Indicators:1993.1999
1993 1994 1995 1996 1997 1998 11999
RealGOP growth %
(1994factor
cost) 4.9 -12.3 14.3 10.9 5.0 3.3 6.7
Agricultural
growth % 31.3 -48.7 40.0 32.2 3.3 2.7 13.6
Smallholdergrowth% 51.8 -47.4 43.6 41.0 0.9 7.7 17.0
Estate
growth % 1.0 -51.8 30.3 9.6 11.2 -12.3 0.9
Manufacturinggrowth% -9.5 10.5 5.5 -1.4 0.6 0.3 1.6
rate%
infaltion
Price 22.8 34.6 83.3 37.6 9.2 29.8 44.8
Government %ofGDP
deficit -8.9 -16.2 -5.1 -7.9 -9.1 -4.4 NA
%ofGDP
Investments 32.4 26.8 13.9 9.6 9.8 11.4 11.6
TobaccosalesIVIT'000 133.2 97.6 129.6 128.5 158.1 134.4 110.0
Averageexchange rateIVIK$US 4.4 13.5 23.3 22.2 16.6 31.9 44.1
rate%
Interest
Bank
(Reserve Rate)
Discount 25.0 40.0 46.0 42.0 25.0 32.0 47.0
N/A=data
notavailable
Source:
ReserveBankofMalawi,
various
years

Duringthe 1990s,inflationrosefrom11.5%in 1990to 83.3%in 1995.Prudentpoliciesintroduced

in 1995reducedthe inflationto 37.6%in 1996andto 9.2%in 1997.However,
thedepreciation
of
the MK in 1998,led to the riseof inflationto 29.8%and44.8%in 1998and 1999respectively
(Table4.6).Highfiscaldeficitsbetween1994and1999necessitated borrowing
moregovernment
whichin turnledto highinterest Lending
rates. interest
ratesmovedfrom40%to 47%duringthat
Manufacturing
period. declined
growth from10.5%in 1994 to in 1996. factors
Contributing
-1,4%
included environment
poormacroeconomic andlackof fiscal High
incentives. interest
ratesactasa
disincentive to investment
andthereforeretardeconomic growthandworsenpovertyas the poor
in production.
to participate
failto raisecreditresources

fortheMalawicommodity
Themajorchallenges tradehavebeenpricecompetitiveness,
qualityand
Malawi
levels.
production priceshave beenhigherat a numberof marketsparticularly,
which

135
 Malawi's
rendered unattractive.
exports levels
Production low
remained and failed
Malawi to satisfy
requirements
export evenfor readilyavailable Quality
markets. has also beenvery with
critical
to
regards physicalappearance of commodities in
and somecaseschemicalcontent. There has

alsobeenpoorflowof marketinformationto those

smallexportersparticularly in The
ruralareas.
has
country not from
benefited international
and bilateral
tradeagreements either. The COMESA

agreement has let down some in

businesses Malawi and so has tradingwith At
Zimbabwe. the

writingof this were

report,efforts beingmade to ironoutthe 'misunderstandings'.
Malawi
wasalso
for
eligible another Africa
initiative, GrowthOpportunityAct, by the Americangovernment,to

provide SSA to
withan opportunity
countries tradewiththe United States
(US)in items.
selected
However, from SSA
competition moreadvantaged countries has beentoo stifffor hence
Malawi
the
missingouton chance to on
expand the it
market supplies.

4.5.1.1Policyimpacton the Smallholdersector

Asdiscussesin thepolicyreformsections,severalmeasures by theWorldBank
werepropagated
andthe IMFto improve the performanceof the farmer
smallholder sector,
which hada negative
of
averageannualgrowthrate -3.9% between1979 and 1981. The most important
policyactions
impacting
on this sectorwere:a pdcereform liberalisation
policy, of the of
marketing crops,the
of
restructuring ADMARC and a of
removal input subsidies
suchas that on The
fertiliser. price
reformsintroducedin theearly1980s aimedto increase income
smallholder and to diversify
export
ADMARC's
crops. producer times
cropswereraisedseveral
pricesof smallholder during
the 1980s

andtheearly1990s(Sijm1990).Higher it for to
pricesmade attractive smallholders sell foodand
crops
other than
rather keepingthem for homeconsumptionsuchthatbytheendof a seasonmost
became
smallholders buyers
of foodand hadto buy for
maize whichthey hadno money.The price
the
reformpolicyoverlooked problems
structural withinthe stagnatingsmallholdersector.Thesale
increased
of maize butthe of
production maizedid notincrease to
sufficiently feedthe increasing
There
population. was no in
increase theexport of smallholder
crops, important
another aim of the

pricereformpolicy,until 1990when, as part of the ASAC, the decided

government to allow
to
smallholdersgrow burley As
tobacco. discussed
in this
sections,
earlier in
resulted an increasein
cropsbutbecause
theexportof smallholder Malawiis oneof theworld'slargestproducers of burley
theincreasein outputledto a declinein priceson theworldmarketandthusto a decline
tobacco,
Unit1995).
Intelligence
in returns(Economist

takento improvethe performance

Overall,the SAPmeasures of the smallholder
sectorwerenot
The of
successful, production the increased
sector but
slightly at a lowerratethan the growthin

population to
leading a declinein growthratesper capitaand a in
decline maizeandtotalfood

136
 per
production (Government
capita of Malawi/UNDP 1993).
The liberalisation
of tradein crops
price
caused increaseswhich the
affected
negatively majority
of smallholderhouseholds as they
soldtheir at
maize a low
relatively priceonlyto buyit backat a muchhigher
pricelater
on.

4.5.1.2Policyimpacton the Estatesector

very few measureswere aimedat improvingthe
Duringthe periodof structuraladjustment
performanceof theestatesectorandtheexcessiverelianceon onlythreeexportcropsremained.
TheWorldBankconsideredthatmanymanagerial
problemshadto beovercome beforenewexport

cropscouldbe introduced.
These and
managerial otherstructural
problems
were, however,
not
and
addressed verylittlechangedin the towards
policies theestate (Harrigan
sector Despite
1991).
theabsenceof measures to improvethefunctioning
of the estatesector,it grewby 127percent
between1979and1993andby 40 percentpercapita,a muchgreaterincreasein sectoralGDP
sectorwhichgrewby 33 percentin totalandwhichhadnegativepercapita
thanthesmallholder
over
growthrates the (Government
period of Malawi/UNDP
1993).

4.5.1.3Policyimpacton the Externalsector

controlsoverimportsandforeignexchange
Tradepolicyreform,namelydismantling and
allocation
and
a rationalisation generallowering
of import
tariffshasbeen a feature
central of the economic
reform programme (WorldBank 1994).
As discussedin previous
sections,Malawi's significant
controlsin
tookplaceat theendof the 1980swiththeremovalof administrative
importliberalisation
the formof pHorforeignexchangeapprovalunderthe WorldBank'sITPAC.In parallelwiththe
policyenhancing the of
availability foreignexchange
and liberalising
its Malawi
allocation, was
advisedto devalueits as
currency its to be overvalued
exchangeratewasconsidered andthe
currencyhassincebeen devalued
substantially over the The
years. MKwas devaluedby 1600%
from4.4MKto 76.7MKto 1 US$between1993and2003(Figure4.4).

Thereare potentialsideeffectsof currencydevaluation

on inflation,employment, outputgrowth,
realwagesand income distribution(Cooper1971).However,a distinctionneedsto be made
betweennominaland realexchange rate(RER).
Thenominalexchange rateis a monetary
concept
thatmeasures the relativepriceof twomoneys,likeMKto US$,whereasthe RERmeasures the
relativepriiceof two goods and is defined
as the relativepriceof tradables
with respectto non-
RERis a goodproxyof a country'sinternational
tradables. as it correctsthe
competitiveness,
nominalratefor inflation.
In theory, devaluation
nominal throughthreemain
willaffectan economy
channels. it
Firstly hasan itu
expend effectwherebydomestic
re-reducing pricesriseandrealvalue

137
 (including
of all assets thedomesticmoney) is reduced.Expenditureon goods,including
tradables,
willreduce and so willthe tradedeficit.
Thenthereis the itu
expend re-switching whereby
effect the
relativepriceof to
tradables is
non-tradables altered.Expenditureswitchesawayfromtradables,
andproduction towards them.Dependingon which of these dominate,
effects demand for domestic
homegoodswill eitherriseor fall.Thirdly,nominaldevaluation
mayboostthe domestic currency
priceof intermediate
imported inputs,pushing up the supply for
schedules finalgoods(Edwards
is meantto increase
1986b).Overall,nominaldevaluation thedomestic
pdceof all tradablegoods,
andassets.
services

Figure4A Declineof the value of MalawiKwachato I US$over time

TimeInyears

1993 1994 1995 1996 1997 1998 1999 2001 2002 2003 2004 2005
0.00-

20.00-

40.00-

C*
60-00-

80.00-

100.00-

120.00-

Bankof MalavA,
Source:Reserve variousyears

Nominaldevaluations, whichraise the local currency'sprice of a $, causethe real rate to

depreciate,
at least initially.
If domestic
pricesthen increasemorerapidlythan worldprices,
however, in realterms.Andthis is whathappened
the localcurrencyappreciates in Malawifrom
thelate1980swheninflationbroughta significant of therealexchange
appreciation rateanda loss
Appreciation
of externalcompetitiveness. of the RERreducesprofitability
of any firm producing
goodssincethedomestic
exportsor import-competing costof producingtradablegoodsincreases.
Theaimis to keeptheexchange rateat a levelthatmakesit profitable
to investin exports,andto
the
maintain RER at a level
steady over long periods(Willet1986).Thiscanbe achieved through

138
changing the
of nominalrate, keeping deficit
budget undercontrolandrestriction
of moneycreation
RERhurtsexportsand if maintained
to restraindomesticpriceinflation.Overvalued for long
it
periods, has been argued that it can evenwipe out the infrastructure
ag(icultural and also
generatecapitalflight(Pfeffermann 1985). devaluation
Nominal will boostthe of
prices imported
inputsandconsequently domesticgoods.Overtimeit will resultin a large
the costof producing
increasein theRER.Thenas pricesof imported
goodsreactto thenominaldevaluation, theeffect
on the RERwillbe The
eroded.
partially aim is to a
produce realdepreciation.
Therefore,although
Malawimayhavesubstantially itscurrencyovertheyears,it couldbe forthereasonthat
devalued
in realterms,theexchange andmayevenhavebeenmoreovervalued
ratewasstillovervalued
thenbefore.

Nevertheless,a weakercurrencyis likelyto causea higherbalanceof trade.It tendsto increase

pricepaidfor foreign
goods andhence reduce demand for foreigngoods.But it is to
necessary
devaluethenominalexchange
rate to
periodically maintain incentives.
exporters' However, despite
thenominaldevaluations, has
exporting not improvedin Malawi.
Inadequate and
exportrevenues
foreigninvestmenthaveresultedin shortageof foreignexchangeto financeimportsneededto
achievegrowthandotherdevelopment targets.Whena businessrequiresimports,suchascapital
equipment or raw it
materials, reducesforeign
exchange to
available otherbusinesses.
If it yields
foreign
additional exchangeby exportingits it
output, benefits
other by
businesses providingmore
foreignpurchasingpowerand if thereare fewerbusinesses it
exporting means less foreign

as
exchange the has
situation beenMalawi.

Malawihasbeenexperiencing BoPdeficitovertheyearsanda deficitin a country'sBoP

persistent
suggeststhat a countryis spending a greater
amount of fundson foreignproducts than it is
from
receiving to
exports foreigncountries;and because it is sellingits currency (to buyforeign
in
goods) greatervolume thanthe foreigndemand for the currency, the valueof its currencyis
However,the argument,by the WorldBank,is that the decreasein valueshould
decreased.
encourage more foreign
demand for its goods
andhence increase
exportsin thelong-run.
Withthe
there
riseof exports, wouldbe an improvement in the currentaccountof a country'sbalanceof
paymentsand hence international
reserveswould rise and the exchangerate wouldsoon
(WorldBank1984).
appreciate

4.5.1.4Policyimpacton the Industrial/Manufactu

ringsector
Theimportance sectorforthe livelihood
of agricultural of mostMalawiansandthelittleimportance
to economic
attached other by
sectors the Malawi governmentoftenledto theneglectof attention

139
fortheindustrial sectors.Andasseenearlieron,adjustment
andservice policyreforms to
relating
in 1988,wellaftertheadjustment
sectorwerelaunched
industrial in 1981.Furthermore,
reforms
trade
substantial policyreformstook only
place the
since mid-1990s, hence
it is not to
possible be
asdefinite
abouttheimpactof the on
reforms industry
as it is withtheimpact ontheagricultural
sector.

of the PressCorporation
Therestructuring wasoneof the conditions
of the secondSAL,andthe
companybecamePressGroupLimited(PGL)withthe introduction of newguidelines
concerning
investments,
pricepolicyandsavingsto that
ensure it operatedon a commercial basis.By 1984,
of PGL was virtuallycompleted.However,it was still difficultfor common
the restructuring
Malawiansto establisha factoryor otherindustrialenterprise.The numberof establishments
remainedsmalland in 1988 only 407 were The
registered. 1991government budgetstatement
to
attempted breakdown the monopoly of the PGL and otherlarge througha complete
companies
of the investment
liberalisation environment in orderto encourageMalawianentrepreneurs
to
in
participate thissector Intelligence
(Economist Unit1995, Harrigan
1991
a, Kalua1992).

of industrial
Priceliberalisation products followed
startedin 1983when23 goodsweredecontrolled
by8 morein 1984and20othersin 1985(Gulhati1989).Thegovernment controlover
onlyretained
petroleum fertilisers
products, and This
sugar. policymade it possible for firmsto increasetheir
in
prices responseto increased costsbut to
contributed high inflation
and increasedthe costof
becausesalarieswerenot adjusted(Chipeta1993).Withthe
livingfor wageearnerssignificantly,
removalof control
exchange procedures mostinputsfor industryweremademoreeasilyavailable
and thisincreased
the of
efficiency theindustrial
sector.According to Chipeta(1993:114),'Industry
is reportedto be operatingat 50-60per cent of capacityup from20-30per cent beforetrade
liberalisation'. in 1991a foreignexchange
However, becauseof a
controlsystemwasre-instated
and
scarcityof reserves the of
procurement imported
inputsbecame
moredifficult
(Parkeret al.
1995).

Despitethenewpoliciestargetingat thedevelopment
of the industrial
sectorof theeconomy,
the
sector,which is stilldomestic-market-oriented,
has notdeveloped
owingto lowpurchasing
powerof
Malawians, lackof backwardand forwardlinkagesbetweenindustries, foreigncompetition
and
absenceof a capitalgoodssector.Only3%of manufactured goodswere in
exported thelate1980s
(Sahnet al. 1990),accountingfor only 6% of total exportsduringthe 1980sand early1990s
(UNCTAD 1991,UNIDO1987).A surveyby Frischtak (1990)revealedthatoperational
constraints
impedingindustrialresponseto adjustmentincludedworkingcapitalfinance,seasonalityof

140
demand,hightransportation
andrawmaterials limitson location.Effectsof
costs,andregulatory
thechanges stillhavebeenworkingthemselves
could,however, outat thetimeof thisstudy,buton
thewholethe Malawiindustrial in the 1990swasbelowexpectations
sector'sperformance despite

majorreforms.

4.5.1.5Policy impact on SIVIEs

reformshadsoughtto stabiliseMalawi'seconomyand increasecompetitionin
The macroeconomic
the domesticmarket, especiallyfor import-competing
producers.Measureswhich had direct
implicationsfor SMEs included devaluationof exchange rate to stimulate exports, price
deregulationof industrialproductsto stimulatemanufacturinginvestment,privatisationof state-

owned and
enterprises of
removal industrial
licensingrequirements
and reductionsin tariffs. In
these
principle, reformswould benefitthe SMEsin severalways: macroeconomicstabilitywould
improvebusinessplanningand investmentby reducinguncertainty;increasedcompetitionwould
favourthe mostflexibleexistingfirms and efficientnew firms that enter in responseto changing
incentives.

In practice,however,the impactof SAPswas mixed,as mostSMEswereill-prepared

to face
increasing Increased
competition. fromlow-costimportssqueezed
competition outbusiness profits
and it is doubt
without thatmostSMEsfaced a muchmorecompetitive afterstructural
environment
According
adjustment. to a studyon enterprises
small in fiveAfrican 70%of thesampled
countries,
in
smallscaleenterprises Malawi reportedfacingincreased (Parker
competition et al The
1995).
increased to forceSMEsto makeadjustment
wasexpected
competition in orderto survive,which
didnothappenformost.However
therewasa substantial
amountof newentryintothesector,asa
resultof thefreetradepolicyandpoliticalreforms(Parkeret al 1995).Byliberalising
importsand
reducing government control
overresources, thegovernmentimproved accessof theprivatesector
to inputs.However,Parkeret al'sstudyrevealedthatalthough importliberalisation
in Malawimade
importsmoreavailableto SMEsby removingpreviouslyrestrictivelicensingpolicies,currency
devaluationraisedthecostof importedinputs,favouringa shiftto domesticproductswhilea dropin
domestic
realwageseroded demand.It was alsoreportedthat68%purchasednewequipment,
50%changedproductmix,50%appliedfor a loanand26%increased importedinputuse,as a
the
resultof reform (Parker
measures et al 1995).

Outputfor SMEsincreased in theperiodin whichthecountryunderwent

substantially deregulation
in theruraleconomy significant
andundertook tradepolicyandpoliticalreforms,whichis 1995as

141
mostadjustment SMEs
affecting
policies were during
implemented thattime. Therewas a decline
in outputby 2.8%between1990and1994whichcouldalsobeexplained by droughts
of 1992and
demand
1994whichreduced datafromtwosmallbusiness
forgoods.However, surveys
enterprise
1994,2000)
(MalawiGovernment that
showed outputgrew by 332%between 1994and1998. The
dataalsoshowedthat value-added
of SMEsincreasedby 60% per annumbetweenthose two
And
surveyperiods. this be
could explained by
largely the increase
in numberof SMEsin Malawi
thatensuedin theperiodafter1994.Tradepolicyreformsandderegulation
followingliberalisation
the
of economy, did
therefore, notimpede
thegrowthof outputof small-scale sectorand
enterprise
mayhave it
helped by imports
promoting of intermediate
goodsandrawmaterials.

of the nationalcurrencyis thechangein priceof imports

of thedevaluation
A majorconsequence
Imported
and exports. goods become relativelymore expensive and exportedgoods become
cheaper.
relatively Small that
enterprises dependon imported
inputsand raw have
materials been
adversely (Bagachwa
affected 1993). In the Malawi
caseliberalisation
has hada strongereffect
of nationalcurrencyandledto an increasein theimportof competing
thandevaluation consumer
The
goods. availabilityof cheap goods is often by
caused thedumping of these on
goods theworld
by
market large-scale in
producers Asiaor Western Products
countries. aresoldat a verylowprice
areunableto compete
andsmalllocalproducers on price.

Tradepolicy,privatisation andgovernment
of parastatal macroeconomic policyareof relevance
herebecause theycanaffecttheprospectsfor privateinitiative
andsmallandmicroenterprise
Before
growth. implementationof SAP,controlswere widespread andvast majorityof firms
produced under conditions
of noforeign
or domestic andforeignexchange
competition, rationing
severely access
constrained to imports
of machinery,
spare parts
and raw Belief
materials. is that
andtradereformin particular,
in general,
liberalisation shouldhavea strongpositiveimpacton
And
productivity. indeed it hasbeen reportedthatin Malawi
most increased
firms after
productivity
economic (Parker
liberalisation et al. 1995).However, effectsof openingup to
regarding
trade,Harrison
international andRevenga (1995)arguedthateconomistshavenot reached a
consensus the between
on relationship liberal
tradepolicies
andproductivity.

in the roleof the stateledto a strongincreasein the numberof people

In general,the reduction
in informalbusinesses
involved (CallaghyandRavenhill 1994,Corniaet al. 1994,Nabuguzi 1994,
Shaw1992).It is withoutdoubtthatthestructural in Malawi,revised
reformsandpoliticalchanges,
the regulatory that previouslymadeit difficultfor potentialinvestorsto start-upa
environment

142
 to enterintotheSMEsector,butto sustainthe
As a resultit is easyfor Malawians
business.
it is
enterprise anothermatter.

4.6Malawi:BeyondSAPs
Thissection an
gives update
on policychangesin Malawiin recent
years,it be
should notedthat
someofthe do
events between
overlap theSAP yearsand the years 2000.
after Indicators
and the
discussion aredescriptive
presented ratherthananalytical
andhavebeenincluded to providean
updateonthe situation
economic
current andchangesin policy, have
which taken the
over
place
five both
past years nationally andinternationally.

discussed
initiative
Linkedin to povertyreduction in ChapterThree,theIMFestablished
a newtype
of to
lending low-income called
countries, the Poverty
Reduction
and GrowthFacility in
(PRGF)
1999.This facilityis meantto be IMF'slow-interest
lendingfacilityfor low-income countries
underpinnedby each own
country's povertyreduction Malawi
strategies. is oneof the countries,
to
whichsubscribed the PRGF its
through interimPRSP,
whichwasfirst launched
in April2002,
Theaimof thestrategywasto reducepovertythrougheconomic growthandempowermentof the
The
poor. firstreviewof the initiative
was in
completed October
2003andreportedunsatisfactory
implementation, Malawi'seconomic
rendering underthe interimPRGFarrangement
performance
Macroeconomic
disappointing. during2002were,as notedin the progressreport,
developments
RealGDPwaslessthan2% in 2002.On the otherhandinflationdecreased
belowexpectations.
from30%in 2000to lessthan 10%in June2003.However,high interestratescontinuedto
sector
private
constrain (IMF
development 2004a).

was extendedto December2004,the secondreviewcouldnot be

Althoughthe arrangement
completed due to fiscal the
rendering
slippages arrangementoff-track
andalsothatthe PRGF had
beenoff-tracksince2001.TheIMFblamedall theseproblems andpooreconomic performance on
weakgovernance and programme implementationon unstablemacroeconomic situation,which
by
wascharacterised largefiscal
slippages, domesticdebtspiralandlowdomestic
unsustainable
Stabilisation
investment. wasnotattainedandthe PRGFarrangementwasallowedto lapseafter
completing
only one This
review. led to suspension and to
of externalbudgetaryassistance
increased
resourceto borrowing
domestic to financelargebudgetdeficits.The suspension
of
budgetaryassistanceby donors in
resulted increased
domesticborrowing, to
whichcontributed
highinterestratesand a rise in domesticdebt (MalawiGovernment2004).A newgovernment
electedin July2004requested StaffMonitored
a twelve-month (SMP)fromtheIMFin
Programme

143
 to
order a
establish track that
record lead
could to there-establishment
of thePRGF
arrangement.
it wasagreedthatthecountrybeputunderSMPwhilstworkingtowardsa newPRSP,

Therehasnotbeenmuchchange overthepastfiveyearswithregards to theeconomic

structure.
Thesharein industry declined
actually in importance
relative andagriculture to account
continues
for36%of GDPwithanestimated 90%ofworkers stilldepending asa majorsource
onagriculture
of income. Despitehigher tobacco production,exportperformance did not improve,due to
temporary processing The
difficulties. importbillroseinresponse
tostronger domesticdemand and
Thereiseveryindication
higheroilprices. thattheMalawi economyis stillin a poverty
trapasover
halfthepopulation
remainsbelowtheofficialpovertyline(Malawi Government 2004).Also,the
of
population II million puts
people severepressureon landas land
arable is verylimited,
andis
intensified growthof 3.2%perannumaccentuating
by population the needfor programmes
to
fosterrapiddevelopment of off-farmemployment The demographic
activities. are
problems
compoundedby thehigh of
prevalence HIVIAIDS, has
which a devastating
impact
on theprime-
age force.
labour

stabilityhas beenbelowexpectations
in attainingthe macroeconomic
Performance andinflation
raterosefrom 9.6% in 2003to 19.9%in 2004(Table4.7) Overall
growthperformance has been
fundamental
very poor,signalling problemswith the enablingenvironmentfor privatesector
development. However,whilstperformingpoorlybetween2000 and2002 (GDP declining
to as low

as -4.1% in 2001)growth exceeded 4% in 2003and 2004.Inequalityof income is alsostill a

seriousproblem withjust 4.9%of totalhousehold incomeaccruingto the poorest20%(Malawi
Government 2004).

Table4.7:RecentMacroeconomic
Indicators:2000- 2004

2000 2001 2002 2003 2004

RealGDPgrowth% 2.0 -4.1 1.8 4.4 4.6

Exports(as%shareof GDP) 23.1 25.0 21.9 27.5 27.3
Imports(as%shareof GDP) 35.4 36.8 38.5 40.6 38.2
Balance of Payments debtrelieýMKbn
(before -7.1 -6.3 5.9 -5.4 -6.6
Manufacturing growth% -2.5 -14.2 .0.1 2.2 3.9
Realinterestrate% 53.6 24.7 28.1 39.3 N/A
DebtService as%shareof GDP 2.7 3.9 4.5 9.5 4.7
Government Revenue MKbn 16.0 21.5 24.7 24.7 24.9
rate%
PriceInflation 29.6 27.2 14.8 9.6 19.9
Exchange Rate(MalawiKwacha= $11) 59.5 72.2 76.7 96.8 108.6
N/A= datanotavailable
Source:ReserveBankof Malawi:Financeand EconomicReview,variousyears

144
MalawiowesUS$2.9billion,mostof it beingto theWB.Debtservicepayments between1996and
2001wereaveraging US$93millionperyear.It hasbeenarguedthatevenafterHIPCdebtrelief,
Malawiwouldstillhaveunsustainable theinitiativehashelpedeaseanearlierdebt
debts,although

overhang(IMF 2005b).
Performanceunder SMP wasbelieved to be withtheauthorities
satisfactory
committed stabilitysuchthatapprovalof a three-year
to macroeconomic PRGFarrangement and
additionalHIPCassistance
was recommended. The IMFexecutiveboardapproveda three-year
PRGFon 5 August2005to provideUS$55millionto supportthe implementation
of Malawi's
reform
economic The
programme. firstreview in
conducted September2005,
reportedsatisfactory
It washopedthatunderSMP,the HIPCcompletion
implementation. pointwouldbe reachedby
if
mid-2006, triggers
outstanding wereimplemented
(IMF2005b).

corruptionhas beengettingworseover the pastfive years.

As for the businessenvironment,
However,accordingto an IMF report,the Malawigovernmenthas recentlytaken steps to
implement policyforcorruption
a zero-tolerance andanticorruption
effortswerealsomovingahead
with someformer governmentofficials arrestedand being investigated
(IMF 2005b). This is
welcome newsfor growthprospectsif it provesto be a seriouscommitment.Those businesses
obtainingloans,costwas stillvery highas realinterest
rateon bankloans
werestillon the The
rise.
prohibitivecostof borrowing is relatedto government'slarge demand for creditto financethe
fortheprivatesector.Also,thereis a highlyconcentrated
budgetdeficit,whichcrowdsoutfinancing
financialsystemthatallowsbanksto chargewhatthe marketwill bearwhichindicatesthatthe
andis provingto be a bottleneck
financialsystemis stillunderdeveloped forgrowth.Problems
with
disadvantage
supplyarestillcreatinga competitive
electricity for localbusinesses.
Thegovernment
completed an extensivereviewof tax policiesand administration
in early2005with an overall
of
objective a fairand tax
competitive regime
withefficient Starting
administration. withthe2005/06
budget,sometaxrateswereto bereduced andthebasebroadened (IMF2005a).

developed
TheMalawigovernment for 2005to 2008,whichaimsto promote
a newprogramme
growthby fostering
a financially
soundandstablemacroeconomic andby undertaking
environment
structural
measures to improve
economic Policieswouldbeguidedbytheobjectives
efficiency. and
strategies
whichwere set out in the Malawi
PRSP (2003).Thegovernment wasalsoplanningto
barriersto trade by repairingand buildingrural roadsand improving
focuson international
international
rail links.
Theseimprovements, wereintendedto addressthe
to publicinfrastructure,
highcostof doingbusiness in Malawi.Alsoincludedin thegrowthstrategyis theinitiative
to bolster

145
non-tobacco The
exports. governmenthasalsoeliminatedall quantitative
restrictions
on Imports
and the trade with
agreement Zimbabwewas revisedand signed in March 2005 (Malawi
2005a).
Government

4.7Summary
Malawiexperienced growthin the periodbetween1964and 1974.From1979
strongeconomic
onwards,however,
the faced
country economic difficulties
leadingto incomecontraction
and a
powerof a largesectorof thepopulation.
declinein thepurchasing TheGovernment the
regarded
sector
estate as theengine
of growth, ableto generateeconomic developmentand increaseliving
standardsfor all Malawians
throughcreationof employment andgenerationof foreignexchange
throughthe exportof crops.It is apparentthatthisstrategyandthe large-scaleindustrialisation
by
processadopted the Malawi
government sinceindependencedid not bringaboutexpected
economicgrowth.1979to 1981 saw worseningof the economicperformanceand hencethe
Malawigovernment soughtadviseandhelpfromtheIMFandWB,andhelpwasgivenin thename
Programme.
Adjustment
of Structural

Between1981and1994,Malawiimplementedsixstructural
adjustment
programmes(SALsI to 111,
ITPAC,ASAC,ESAF)supported by the IMFand WB.Malawi'sSAPsconsistedof threemajor
measures
elements: fiscaldiscipline,
to establish suchascomprehensive in
taxreform,a reduction
government improved
expenditure, budgetary planning;
agricultural
reformssuch as an increase
in

producer of theroleof smallprivatefarmers,andgreaterincentives

prices,theexpansion for more
large-scale
efficient production
and; tradeliberalisation
such as the phasingout of importand
exporttaxesandexchange of thetariffstructure,
controls,a rationalisation anda devaluationof the
MK TheSAPsweremeantto rectifyinappropriate pastpoliciesthatwerebelievedto behampering
economic To
performance. offerthe increasing numberof Malawians thepossibility
of generating
of an industrialenterpriseand to stimulateindigenous
incomethroughthe establishment
requiredmeasuresto changethe structureof the industrialsectorwhichwas
entrepreneurship
donethroughtheITPAC.Asa resultof theSAPandpoliticalreformpolicies,
therearethousands
of
in
people
enterprising but
Malawi, very littlevibrantprivateenterprise.

the 1990stheMalawieconomy
Throughout remained to externalshocks,resulting
veryvulnerable
in considerable in GDPgrowth.Throughout
fluctuations the 1990sand up to now the Malawi
economic
growth indicator
has beenfluctuating.
Thestructureof exportsremained
rigidwithinthe
exportsof tobacco,tea andsugardominating.
sametraditional Malawihasa longwayto go to
reachtheMDGsandcannotdo so withoutexternalaid.In orderto implement
its povertyreduction

146
strategyand to boost
spending furtheron infrastructure
andthesocialsectors,it willhaveto relyon
increase
a significant in external
aid flows Themainframework
overthe medium-term. for donor
is
support its PRSP,
which was in
re-established 2005.Although
Malawiis nowa relatively open
data
economy, reveal serious
problemsin theexternal The
sector. countryis very
stillexperiencing
lowexportgrowth,highlyconcentrated
exportearnings, highdependency on foreignaid,verylow
andlowlevelsof foreignexchange
inflowsof foreigninvestment reserves(Reserve Bankof Malawi
2005).

147
 ChapterFive

in Malawi
EnterpriseDevelopment
Small-Scale

5.1Introduction
activitiesrequirelittleinvestment
Manynon-agricultural andas a resultanyindividual
or schooling,
can start-upa small business and generate some money. This has
accessibility madenon-
activities
agricultural popularamongregional plannersand non-govern
mental as
organisations they
see theseactivitiesas a for
panacea all sortsof problems in
experienced developing
countries,
poverty
notably and However,
unemployment. as a result
of globalisation
and SAPs,
small-scale
beforetheyareableto increase
of SSAhavebeenexposedto competition
domesticenterprises
and
efficiency and
competitiveness, it seems that
evident liberalisation withincreased
is associated
competitionfrom (Grenier
imports et al.2000).
Beforeanalysinganddiscussing theimpactof SAPs
in
andglobalisation the following
chapters, the micro andsmall sector development
enterprise in
Malawiis discussed andpresented in thischapterin orderto providebackgroundinformation
and
basic
relevant for
statistics thesector.

asfollows:thesecondsectiongivesdefinitions
Therestof thechapteris organised of fundamental
termsusedin thisandsubsequent thethirdsectiondiscusses
chapters; theroleandcharacteristics
and
enterprises
of microandsmall impactof structural
adjustmenton the SME section
activities;
in thischapteris froma surveywhichwascarriedout on
Thedatareferenced
foursummarises.
in
enterprises
microandsmall in
Malawi theyear2000.

5.2Definitions
It is thoughtimportantto beginby definingwhat entrepreneurship
meansbeforediscussing
Some
enterprises. scholarshave definedentrepreneurshipas a of
process creatingvalue by
bringingtogethera uniquesetof resourcesto exploitan opportunity 1998,vanVuuren
(Maasdorp
has threekey underlying
1983).In a strictsense,entrepreneurship dimensions:
Innovativeness,
and
risk-taking
calculated pro-activeness (Morris
andSexton,1996). As such,
entrepreneurshipIs a
variablephenomenon, with differentdegreesat any pointin time.The vital forcebehindthe
transformation
of certainEastEuropean freeenterprisesocietieshas
into successful
economies
beendueto entrepreneurship,whilesomeof the so-calledEastAsianeconomic miraclehasalso
to theestablishment
beenlargelyattributed andgrowthof an enterpriseculture.It is assumed
that
because of highilliteracy
andunemploymentratesin SSA,peopledo not have theentrepreneurial
qualities
and traits by
described theentrepreneurship As such,thisstudydid notlookfor
scholars.

148
such traits when selectingthe targetstudy population.The researchertook the view that
wasanyincomegenerating
'entrepreneurship' activity,eitherformalor informal.

Afterestablishing is in thisresearch,
whatentrepreneurship enterprisesaredefined
asbusinesses
in
engaged manufacturing, assembly
processing, andtradingactivities
or repair,servicing and
enterprises
agricultural marketing their The
products. term'industries'
hasbeenusedto cover
processing
manufacturing, of primary
products
andrelatedrepairservices byChutaand
asdefined
Sethuraman (1984).
Small-scale defined
areusually
enterprises asenterprises upto 50
employing
A
people. further is
sub-division alsomade intosmall-scale (10-50
enterprises andmicro-
workers)
with
enterprises lessthan10 workers (Liedholm1990,Livingstone
1991,ParkerandTorres1993,
UNIDO1991).Someauthorsdefinemicro-enterprises as businesses fewerthan5
employing
workers (Parkeret al.1995,
UNDID et al.1988). Someauthors thatthesesmallenterprises
maintain
arepart of theinformalsectorandthuscharacterisedbytheireaseof entry,theircompetitiveness,
theirrelianceon indigenousresources, theirlowtechnical
levelandbythefactthattheydo not
to regulation
adhere concerning
wages, taxesandpermits (Grey-Johnson1992,Livingstone
1991).
TheGovernment of Malawideveloped an officialdefinition sizesin 1992,which
of enterprise
describes on thebasisof threeparameters,
enterprises namelycapitalinvestment,employment
Theofficialdefinition
andturnover. is that 'micro'enterprises
are thosethat havea capital
of upto US$1,000,
investment employ14 peopleandhaveturnover of up to US$4,000.
'Small'
aredefined
enterprises asthosewitha capitalinvestment
of upto US$50,000,5-20 and
employees
of up to US$100,000.
a turnover Firmswith21-100employees are definedas 'medium'
size
those
whereas with than
more 100 are'large'scaleenterprises.
employees

is usedto describesmall-scale
Thefollowingdefinition for GrowthandEquitythrough
enterprises,
Investments
Micro-enterprise and Institutions
(GEMINI) baseline
microand smallenterprise
surveys:
Business activitiesthatemploy50 or feweremployees, inclusiveof the proprietor(s).
In
addition,for crop-agricultural the definitionincludesonlythosebusinesses
enterprises,
thathavesalesof at leastUS$100peryear(orrelevant Malawikwacha roundfigure).For
all other businesses we includeonly businesses that marketat least 50% of their
production (MalawiNationalGEMINI 2000,Annex2).

In this definition,a 'business'is considered

an activitythat sells50%or moreof its goodsor
services,'Employees' aredefinedas workingowners,paidworkers,unpaidworkersandtrainees,
bothfullandparttimeworkers.Theemployment-based definitionhasbeenusedby manyrelated
Africaandhasbeenfoundto be easilymeasurable,
studiesin southern relativelyinexpensive
and
not necessarilyless reliablethan the more complexdefinitions(Parker1996).Withinthis

149
framework,the GEMINIstudytargetedbusinesseswith 1-50employeesand classifiedthemall as
'microand small'enterprises.The GEMINIdefinitionwas adoptedfor this studyand was usedto

referto studyunitsof this for

surveyand comparisonpurposeswith previousand futurebaseline

surveys in Malawi.The study units includedindependent

firms, not forming part of a larger

enterprise,havingsmallmarket shareand not influencingto any extent

significant the priceor total

quantitiesof goodssold. As in the GEMINI survey, the terms 'small and microenterprises'(SMEs)
has beenusedthroughoutthis studyto referto all enterpriseswith lessthan 50 employees,which
is alsofurthersubdividedintothreecategories(basingon employeenumbers)as laid out in Figure
5.1. It shouldbe notedthat althoughGEMINIsurveyanalysistablesdistinguished
betweenthe 5-20

and21-50 they
categories, werebothstill referredto as smallenterprisecategories.

termwhichhasbeenmentioned
Anotherimportant in
aboveandwhichis relevantto discussions
the followingchaptersis the 'informal'sector.The concept'informalsector'odginatedfrom
(in
observation theearly1970s),thatthe modem sector(particularly
manufacturing)was to
unable
absorba growing surplusof manpower in developingcountHes (Levin 1994). Eamingopportunities
the
outside formal sectorhad thereforeto be foundto ensure survivalfor the Since
unemployed.
thentheterm'informalsector'evolvedas a genedcandpracticaltermcovedngall survivalefforts
employed by the poorand the outside
unemployed the formal
sectorand this is the definition

adoptedin thisstudy.

150
5.3TheSMEsectorin Malawi
Unliketheformalindustrial the
sector, SME (both
sector formal
andinformal) animportant
occupies
placein the Malawi economy,at leastin terms of it
employment In
provides. urban the
areas,
depend
majorityof population on thissector for a The
living. urbanexoduscaused by thedroughts
the
and economic recessionhascreatedan influxof labourto the informalSME This
sector. sector
also absorbsthe peopledismissedfromthe 'deflated'publicsectorandcivilservantson voluntary
retirement.In to
addition the associated
constraints with variations in the
weather, developmentof
the SMEsectorin Malawiis sloweddownby a numberof structuralobstacleswhichhavea
and
negativeeffecton productivity the capacityof to
enterprises be competitivein domesticand
exportmarkets. Among these constraintsare:limitedintegrationof the industrial
structurewhich
forcesmostenterprises operatingin the modemindustrialsectorto importtheir raw materials;
insufficiency
of transport
and communication infrastructure;
low purchasingpowerof the national
market,as Malawi has one of the lowestper capitaincomes in the world;a lack of skilled,
productive, labour;
competitive anda bankingsector
whichis poorly to
adapted the of
needs the
sectorandis moregearedtowardsthecommercial
industrial sector.

5.3.1Development
of small-scaleenterprises
relatingto smallenterprise
legislation
Muchof the restrictive activityin Africahascolonialorigins
(Tripp1989).In Malawi,the post-independence regimeutilisedthe social,economic andpolitical
to it by the Britishcolonialists.
toolsthatwerebequeathed andindividually
Privatised organised
agriculturewas the major of
activity the colonial
project
and this the
necessitated and
recruitment
controlof landand labour,
extracted from thenativepeople.Tradeandcommercial agriculture
were
monopolised by the settlerswhereas the nativeswere left to organiseand exercisetheir
in
entrepreneurship the of
provision for
services Black
themselves. were
entrepreneurs active in

retail transport
trade, and smallcraftsandcommodity for
production the in
populations
poorer those
urbanandruralareas designatedfor blacks.Colonial
policies household
undermined andvillage
andas a resultindigenous
industries artisanscouldnotbenefitfromthegrowthof urbandemandin
orderto growin numberor to makea transition
frompurelyhousehold-based towards
production
smallurbanworkshops.

tradelinkagesdid not
of retailtrademeantthat smallenterpriserural/urban
The suppression
Sincethepopulation
develop. in thetownships
wasmeantto providelabourservicesto thecolonial
economy, independent economic activityas well as situations to
conducive suchactivitieswas
heavilyregulated.It mustalsobe notedthat the statewas an importantagencyfor organising
enterprises the
through of
granting inputs,
credit
and to
support
other in
ventures
colonial thepublic

151
and privatesectorsand this was instrumentalin the
marginalising The
nativepopulations.
infrastructure
wasunderdeveloped, development
andlittleindustrial hadtakenplace.Theonly
resources in
available abundancewere land
fertile and a labour
cheap force.
Theindustrial
sector
of teaprocessing,
consisted gradingandpackingof tobaccoandginningof cotton,enterprises
ownedmainly by Europeans,
withdistribution
and businesses
transport largelyowned byAsians
1990).
(Burdette

the Malawigovernment
Afterindependence, privateinvestors
encouraged to investin industryby
improved
offering industrial
sitesliberal
tax financial
regulations, incentives
for capitalinvestments,
of thelabourmarketandtariffbarriersagainstRhodesian
tightregulations goods (Burdette 1990).
Thispolicyseemedto workandthe importationof consumergoodsdeclinedfrom42%of total
importsin 1964to 21%in 1973(Thomas1975).Thegrowthrateof themanufacturing
sectoras a
wholewasimpressive, 16%
averaging peryearfrom1964to 1973and9% annually from1970 to
thesehighgrowthratesaresomewhat
1980.However, deceptive
because
of theinitialsmallsizeof
sector(Burdette1990).Themaincontributors
theindustrial to thisgrowthwereimport-substituting
industriessuch as producersof bottledbeer,soft drinks,cheaptextiles,footwearand basic
implements,
agricultural and agro-processing
exportindustries
(Kyddand 1982,
Christiansen
Thomas1975).

Betweentheearly1980sand1990s, thedevaluation
oftheMalawi
kwacha, twicea
whichoccurred
year,caused for
difficulties import-substitution
industriies
becauseof theirhighdependenceon
importsof industriial
rawmaterials (Chipeta
1993).Theseindustries withhigher
wereconfronted
pricesandexperienced severeproblemsthroughout
thestructural
adjustment
periodandgrowth
was in due
decline to foreign
increasing exchangeshortages Intelligence
(Economist Unit1995).
Throughout of goodsfor thedomestic
thisperiodthe production marketremained
muchmore
important
thantheexportof manufactured goods(Sahnet al 1990).
Thelimitedimportance
of the
sector
manufacturing was caused by thesmalldomesticmarket formanufacturedgoodsadversely
by
affected theslowgrowthin incomes.
agricultural Otherbarriers
werelimitedhumancapitaland
transport whichincreased
bottlenecks costsof bothexportsandimportsof goodsandequipment.
Furthermore,
theadverse worldeconomicclimate,whichaffectedexportsthroughprotectionism
and increasing
competition
and import-substitution
affected industries
because of thehighcostsof
influenced
inputsalsonegatively, developments sector(Chipeta
withinthe manufacturing 1993,
1989,Pryor1990).
Gulhati

152
Several have
studies been in
conducted Malawi the
since early1980s
toestablish
themagnitude
of
is
what often the
called small (Daniels
sector
enterprise and Ngwira1993,Ettema Webster
1983,
and Mooney1989).
The have
studies shown thatthesize of this has
sector Increased
enormously.
that,between
A studybyMeadin 1994estimated 1981and1990,56% of theincreaseinthetotal
forcewasabsorbed
labour sector(Mead1994).
bythesmallenterprise However, asa resultofpast
very
policyneglect, littlewasknown the
about character,rangeofeconomic andextentof
activities
the small-scale
enterprisesectorin Malawiup untilthe resultsof twoSMEbaseline surveys
commissionedby the governmentin 1992and 2000.Key findingsof the2000GEMINI surveyare
in
presentedthefollowing
section.

5.3.2TheRoleandDistributionof SMEsin Malawi

MicroandSmallenterprises
arerecognisedas an important andincometo
sourceof employment
manypeople at thebottomof the However,
ladder. SMEs arerarelyevidentandoftenquitedifficult
to identifyandcountlet aloneidentifytheirdynamics.
This problemis compounded in Malawi,
where 85% of the population
residesin rural areas. This means SMEs are likelyto be purely
informalin natureandconsequently moredifficultto identify.As partof the Malawigovernment's
effortsto supportthe SMEsector,a baselinesurvey(GEMINIsurvey)of SMEswas jointly
commissioned andDfIDto gaininsightinto the distribution
by the government of SMEsin the
countryby size
sector, and business
ownership; characteristics
andeconomic actual
performance;
to
contribution employmentand incomes;
key and
problems effectof currentbusiness
support
Countrywide
services. surveys in
conducted 1992and 2000offered
an to
opportunity learnhowthis
sectorchangedoverthe SAPperiodof the 1990s.Bothsurveysemployedthe same
important
which
generalmethodology, hascometo beknown
astheGEMINIsurveytechnique.

TheMalawi2000MicroandSmallEnterprise
(MSE)baseline duringthe
surveywasconducted
between
period October
andDecember 2000 andcovered
about747,000formal
and informal
enterprises andfirms
with upto 50 employees, in
operating themostrepresentative
sub-sectors
of
activityof the Malawiindustrial A
structure. for GEMINI-style
questionnaire similarsurveys
was
usedand the samplewas by
determined randomly
selecting census areasfromwhich
enumeration
allmicroand enterprises
small were surveyed.Two sizesweredefined
enterprise tothe
according
the
sizeof permanent staff
and 50%
selling of produce: (micro)
micro-enterprises witha permanent
staffof lessthan5 persons;
andsmallenterprises
witha permanent The
staffof 5 to 50persons.
survey resultsshowed 70%
that of theSMEsarebasedin ruralareas,17%in thefourcitiesof the
8.8%
country, in towns
small and4.3% the
along lakeshore
area.

153
Tables5.1,5.2andFigure 5.2showthecharacteristics
ofthesample bysizeof enterprise,gender
of ownerandemployment offeredbyeach of thesub-sectorsand by sector
of activity TheSMEs
.
weresplit betweenthe traditional
off-farmemployment (manufacturing,
activities construction,
commerce andtrade,transport andservices)accountingfor 74.6%, andagriculture,miningand
naturalresourcesectors,which accountedfor 25.4%of the Out
enterprises. of totalenterpHses
91.3% 1-4
surveyed, weremicrowith employees, 8.5%had5-20 employees
andonly0.2%had 21-
50employees. in forestry
All of theenterprises in
weremicrosize,andnoneof theenterprises
livestock, manufacturing,
mining, transport
construction, hadmorethan20employees
andservices
(Table5.1).

Characteristics
Table5.11: by size
of sampledenterprises

MINING
AGRICULTURE, RESOURCES
ANDNATURAL OFF-FARM
EMPLOYMENTACTIVITIES

Sub-sector
of Total Crops Live- Forestry Fishing Mining Manuf- Constr- ComrnerceTransport Services
Activity % stock acturing uction Tradeand
Hotels

Size:
14 913 70.5 70.9 100.0 62.1 86.4 97.2 78.9 96.8 92.9 93.5
5-20 8.5 29.1 29.1 0.0 37.5 13.6 2.6 21.1 3.1 7.1 6.5
21-50 0.2 0.4 0.0 0.0 0.4 0.0 0.0 0.0 0.2 0.0 0.0

DataSource:MalawlGEMINIMSESurvey2000

As regardsto enterprise
ownershiptherewasnot muchdifference between for
percentages
femalesandmales,34%and35%respectively (Table5.2).Outof thefemaleSMEowners,
most
in
were commerce, tradeand (46%)
hotels andin (43%).
manufacturing

Table5.2: Characteristics by genderof owner

of sampledenterprises

AGRICULTURE, RESOURCES
ANDNATURAL
MINING OFF-FARM ACTIVITIES
EMPLOYMENT

Sub-sector
of Total Crops LA(e- Forestry Fishing Mining Manuf. Constr- Cominerce Tr8nsport Services
Acti0ty % stock acturing uction Tradeand
Hotels

Genderof
owner
Male 35.0 12.0 1.0 2.0 3.0 0.0 27.0 2.0 44.0 1.0 8.0
Female 34.0 4.0 1.0 2.0 0.0 0.0 43.0 0.0 46.0 0.0 4.0
Husband&wife 30.0 53.0 1.0 0.0 1.0 0.0 13.0 0.0 28.0 0.0 3.0
Otherpartnership 1.0 54.0 0.0 0.0 0.0 0.1 5.0 0.0 37.0 0.0 4.0

% of
employment 100.0 36.2 1.3 0.6 2.7 0.1 20.8 1.1 32.7 0.8 3.7

DataSource:MalaWGEMINIMSESurvey2000

154
The sub-sectors of activities selected were: crops, livestock, forestry, fishing, mining,

construction,commerce,tradeand hotels,transportand services.And the leading

manufacturing,
sub-sectorswerecommerceand trade(41%),manufacturing
(27.6%)and cropstook a third place

with21.5%(Fig.
5-2).

Figure5.2: SMEsby sub-sectorof activity

45

40

35

30

25

?L 20

15

10

0"

"GO

"Ae-S
activity

DataSource:MalawiMicroand SmallEnterprisesSurvey2000

Cropproduction (36%)thananyothersub-sector
offersmoreemployment thoughit onlyaccounts
for 22%of the enterprises, tradeand hotels,wheremostenterprises
whereascommerce, are
concentrated, offers33% of employment, and manufacturing offers21%of employment. As for
the highestsales/profit
profitability, ratiois in mining(69%)followedby forestry(66%),crops65%
andconstruction63% (Figure
5.3).Thisis notsurprisingas theseactivitieslargelydependupon
that
resources
occurring
naturally the ownersdo not have to payfor, includingthe lakefor fishing
andlandforfarmproduce.

155
 Figure53: Profil:as% of Salesby actMty

Services[-4
m.RWW,,
' 143.0

Trawort I ý, ý 52.0

Hclels 22-0
&
Trade
Cernmetue
CaWAL-Icn 163.0

maibAlim 4aO

"ring ::: = 69.0

Fdilg 153.0

Rresky 166.0

Livesbck 1 153.0

Cmpr. 1 65.0

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90 0 1000

DataSource:MalawiGEMINIMSESurvey2000

in thesurvey,tobaccoproduction
identified
Whenlookingat specificactivities for 16%
accounted
followedbyvendingfarmproduce 9%andvendingfish5%(Table5.3).

Table5.3 DominantSMEactivfties(%)

Tobacco production 15.7

Vendingfarmproduce 8.8
Vendingfish 4.5
Localdistilling 4.3
Bread,biscuitandcakebaking 4.2
Beerbrewing 4.1
Hawking 2.9
Grocery 2.8
Vendingfoods/sweets 2.5
Carpentry 2.1
DataSource:MalawiGEMINIMSESurvey2000

Table5.4 providesinsightinto the roleof SMEin the householdand overallincomecontributionto

the majorityof peoplein Malawi.The surveyrevealedthat just over a third of them use all of

156
 fromtheirbusinesses
income towards needs,andnearly39.2%of allusehalfof their
household
income.
incomeashousehold
business

Table5.4SMEcontributionto householdIncomes

allofincome
Alloralmost 33.6
Morethanhalfof income 29.6
Abouthalfof income 9.6
Lessthanhalfof income 25.2
Don'tknow 1.8
Notapplicable 0.3

MSESurvey2000
GEMINI
DataSource:Malawd

Whenaskedaboutwheretheyoperatetheir business,nearlythree-quarters
of the enterprises
from
operate home
andonly8% on
operate traditional
marketsite (Table
5.5).

Table5.5Businessplaceof operation(%)

Inthehome 73.3
Traditional
marketplace 7.7
Roadside,trackor path 9.7
Commercial district 2.4
Industrial
site 0.0
Mobilebusiness 3.4
Mobilemarket 2.9
Other 0.6

DataSource:MalavA
GEMINI
MSESurvey2000

thatover70%of theSMEshadclosedwithinfiveyearsof operation.

Thesurveyalsorevealed Out
of the SMEs,
female-owned 78% closewithinfiveyearsof operation 68%
whereas of male-owned
businesses closewithin fiveyears.Most of thoseSMEs in mining,
commerce, trade and hotels
and
in forestryactivitieswill closewithinfive yearsof operation.
Fishingbusinesseslast longestwith
50%of themhavingoperatedfor morethan15years.Overall,theSMEsin agriculture
andnatural
last
resources longer
thanthosein manufacturing,
commerce
and transport
services(Table
5.6).

The mainreasonsgivenfor businessclosureincluded:financeproblems(36%)with lack of

funds
operating beingthe mainconstraint;
miscellaneous (28%);
problems and 12.73% was
for
accounted bymarket including
problems, lackofdemand (Table
andtoomanycompetitors 5.7).

157
 by genderandsector
Table5.6:Lifespanof businesses

0-5 6- 10years 11-15 years over Total

years 15years
73 13 6 8 100
Gender of owner:
Female 78 11 5 6 100
Male 68 16 7 10 100
Husband &Wife 72 14 7 8 100
Partnerships 87 13 0 0 100
Sectorof activity:
crops 45 33 7 15 100
Livestock 42 47 0 10 100
Forestry 77 3 2 18 100
Fishing 34 16 0 50 100
Mining 100 0 0 0 100
Manufacturing 64 14 7 15 100
Commerce, Trade& Hotels 79 11 5 4 100
Transport 49 3 48 0 100
Services 57 11 23 9 100
MicroandSmallEnterpriseSurvey,2000
Source:Malavd

Althoughthe GEMINIsurveydistinguishbetweenfinancialandmarketproblemsas reasonsfor

in someways.On onehandthereis lackof working
failure,thesearerelatedproblems
business
capital(operating funds)and on the otherhandthereis lackof demand
as theunderlying
causes
for the failures.If thereis too muchcompetition fromotherSMEs,salesmaygo downdue to
share,
market
reduced anda fall in sales less
means for
money business
operations.

Workingcapitalproblems
couldalsobe theresultof poorcashmanagement
by SMEowners.For
could
owners
example, bediverting to
capital
working otherpersonal
usage than
rather for running
business
essential and
operations, alsosome is
cash whotaketheirtimeto
tiedupwithcustomers
payback hence business
constraining These
operations. problemsare to do withowners lacking
proper in
training management of the accountsreceivable,
whichare paramount to survivaland
successof a business.To add anotherdimension,
demandcouldbe contracting due to poor
performanceof theeconomyas a wholeandthiswouldaffectcashflowsof theSMEsandleadto
for
closure some. An is
assumption beingmadeherethatthosebusiness financial
whoindicated
problemsdid not see problems
market such as lack of demandas the mainreasonfor their
businessfailure.Withoutfurtherinformation
it is difficultto tell whetherthosewho closedtheir
businessesdueto lowdemandhadfinancesanywayto startanothertypeof business or thosewho
hadinadequate capitaljustfinishedup andlookedforsomeone
operating to employthem.

158
 Table5.7Mainreasonsfor businessclosure(%)

Financial problems 35.69

Ofwhich:
Lackof operating funds 75.0
Lackof investment 10.0
Miscellaneous problems 27.93
Ofwhich:
Household responsibilities 32.0
Poorhealth 26.0
Marketproblems 12.73
Ofwhich:
Notenough demand 38.0
Toomanycompetitors 26.0
Inputproblems 12.20
Ofwhich:
Expensive inputs 63.0
Unavailability
of inputs 26.0
Otherreasons 5.80
Startedanother business 61.0
Otherpositivereasons 28.0
Transport problems 2.81
Labourproblems 0.78
Technical problems 0.59
Government/regulatory 0.49
Tools/machinery 0.44
Shop/rental space 0.42
Utilityproblems 0.12
GEMINI
DataSource:MalavA MSESurvey2000

Whenaskedaboutbusiness for thesampleas a whole,threetop most

constraints,
operation
mentioned
constraints were inputs (31.28%),
problems marketing problems(30.12%),
and finance
problems (29.56%), Table 5.8. Thesemain problems citedby the respondents
givea good
indication
of the limitsof their potential,
growth which is by the conjunction
restricted of three
input
constraints: constraints inputs);
(expensive market (not
constraints enoughdemandandvery
stiff and
competition); finance (lack
constraints of operating Technical
funds). and
problems
problemswithgovernmentand regulations
werenot cited by
frequently as
enterprises being
or
constraints for
reasons closure.

159
 Table5.8 Businessoperationconstraints(%)

Inputsproblems 31.28
Marketproblems 30.12
Financial problems 29.56
None 8.72
Miscellaneous problems 8.28
Transport problems 6.60
Tools/machinery 2.26
Labourproblems 1.00
Government/regulatory 0.88
Shop/rental space 0.64
Technical problems 0.36
Utilityproblems 0.24
Other 0.10
DataSource:MalavAGEMINIMSESurvey2000
Note:Multipleanswersweregivenby therespondents

Of allsampled only
enterprises, 15% financial
received (formal
assistance andinformal
credit),
23%received trainingandonly6%received business
supportsuchashelpwithbusinessplanning,
management, marketing,designor technology(Table
5.9).

Table5.9SMEsreceivinganyformof assistance

Financial 15.0
Creditinstitution 35.0
Agriculture
inputcredit 34.0
Loanfromfriend/family 26.0
Banks 5.0
Training 23.0
Freetrainingfromfamily 54.0
Trainingprogramme 16.0
Paidapprentice 16.0
Vocational/technical 12.0
Self-trained 1.0
Other 1.0
Business
support 6.0
Business management 32.0
Technology/production 40.0
Business planning 17.0
Design 6.0
Marketing 5.0

Source:
Data MaIaYA
GEMINI
MSE Survey
2000

Ofthosewhoreceived 35%received
financialsupporl:, fundsfromcreditinstitutions,
34%received
inputs
agricultural and 26% got loanfromfamily
or friends.Forthosewho received training,
mostof
them(54%)got it for freefromfamily,andthisis usuallyprovidedon thejob whenyoungerand

160
 a
plays
obviously role
significant to SMEs.
Withsomeof the being
training by
provided family
members, it raisesconcerns
overthevalueof supportandconsequently of
qualityandrelevance
thetrainingitself.

Whencontrasting2000GEMINIsurveyresultswith1992results,
it wasrevealedthattherehave
Therehasbeenanincrease
beensomeshiftsin theSMEsector. in number of urbanSMEs (from
11%to 22%),morethanmatching themarginalincrease Overall,
in thecountry.
of urbanisation
thereappearsto havebeena 5% decreasein the off-farmSMEactivities(manufacturing,
commerceandtradeandservices)
andthedecreasewas confinedto rural However,
areas. since
theprimary based
production enterprises (agricultural
andnatural werenotcovered
resources) in
the1992GEMINI it is difficultto tellwhether
survey, at thattimetherehadbeena shiftfromthe
secondaryto primary
production basedSMEs.Since1992therewasbeena slightincrease in the
of
proportion SMEs engaged in trade (52% in 1992
and54.9%in 2000).In termsof enterprise
80%ofthefirmswerestagnant
dynamics, andservedprimarily
asadditional
sources of incomefor
households
whereasonly20%of themweregrowing someor all of theirprofits
andre-investing
intothefirms.The2000surveyrevealed
thatnaturalresource
basedsectors
(fishing,
miningand
atfasterratesusually
dairy)wasgrowing yielding Thesurvey
moreprofitsto theowners. alsofound
thatcurrentsupport
services hadfocused on institutional
support forcreditinstitutions.
especially
andotherlimitedbusiness
Therehasbeensometraining support
services
- butall these
efforts
veryfewpeople,
werereaching nomorethana quarter involved
ofthepeople inSMEactivities.

Although TradeandIndustryPolicyof 1996wasformulated,

the Integrated it shouldbe notedthat
therehaveneverbeenpoliciesandstrategiesspecificallydesignedforthedevelopment
of theSME
sectorin Malawiuntilrecently.TheSMEshavehadto operatewithinpolicyframework of large-
for
scaleenterprises, many years, whichdid not take into accountof SME-specific
constraints.
Moreoveras most SMEs operate the
outside formal thatthe institutional
sector,it not surprising
and
support does
strategies notreachoutto mostof them.In orderfor thegovernment supportto
behelpfulandreachoutto thosewhoneedit most,policieswhicharespecificfortheinformalSME
be
sectorwould needed,as well as monitoringin orderto ensurethat the mostneedyand
are
vulnerable alsobeing and
reached helped.
Thereareenoughof institutionsin Malawi(MEPC,
SEDOMto namea few)whichhavebeenestablished
DEMAT, to supportthe SMEsectorin the
formof trainingprovision,businessadvisoryservices,marketinformation and creditfinance.
despitean increasein magnitude
Indeed, so far indications
of thesesupportinstitutes, arethatthe
supportwhichthese is
institutions not reachingthe intendedtargets,notto mentionif thetypeof

161
 is
itself
support for
appropriate SMEs, the
particularly informal Appropriate
ones. policy
government
whichencourages the development of for
strategies thingslikecashmanagement
wouldbe more
helpfulthanjustsettingupcreditinstitutions.

Withouta doubt,Malawi'sSMEhavebeenaffected by thepolicyreformchangesdiscussed in

Chapter Four,andthesepoliciescouldhaveaffectedSMEsina number ofways.Withthepolicyof
importsof all kindsincluding
tradeliberalisation, consumergoodshavebeenallowedintothe
While
country. an increaseddegree
of "openness" for increased
mayalsocreateopportunities
for it be
production exportpurposes,maygenerally
manufacturing the that
case only firmslarger
than50 workersare in a positionto takeadvantage The increased
of thoseopportunities.
of
proportion SMEsengaged in (mainly
trade small-scale
vending)mayalsobeanindirect resultof
thestructural
adjustment
process. Decreasedrealincomesmaycauseanincrease in demandfor
the consumerproductssoldby SMEs.However, severalstudiesin Malawihaveshownthat
increasing
tobacco haveledto increased
incomes demand
effective fortradedgoodsandthatrural
havegrownat a muchhigherratearound
tradingactivities tobaccoproducingareas(Daniels
and
1993,Makawa
Ngwira 1999).
2000,Simons

5.4Summary
Themainobjectiveof Malawi's2000GEMINIstyle-basedsurveyof microandsmallenterprises
to
was providea complete
relatively anddetailed of thecurrentstatusof thesector,
understanding
includingdistributionof SMEsby sectorand ownership,businesscharacteristics
and actual
to
contribution employment andincomes.
ThesurveyrevealedtheSMEsaresignificantandcritical
sourcesof incomefor both and
rural households
urban and providing income to households
most in
the country.Sectorsshowingstrongmarketgrowthpotentialare naturalresource-based
(fishing,
miningand In
tobacco). a like
country Malawiwhichhasa verylow per capitaincome,thereis
limitedinternalpurchasing
powerso productsforexportwillofferstrongerpossibilities
forgrowth,In
studies,
previousmicro-enterprise primaryproduction in agriculture
andnaturalresources sectors
beenaddressed
havetraditionally in thecontextof providing
rawmaterialsforoff-farmactivities
but
notasenterprises in theirown The
right. 2000studyexamined primaryproduction
asan enterprise
itself,and this providedinsightsinto Malawi'spersistentattemptsto effectthe transitionfrom
as
production
subsistence a traditional
way of life to agricultural as
production a business
and
incomegenerating amongtheruralpopulations.
activityespecially

162
 ChapterSix

SurveyFindings

6.1Introduction
The aimof this chapteris to analysethe degreeto whichexpectations
of structuraladjustment
have
policies been in
realised An
Malawi. investigation
empirical on theSME sectorwasconducted
to analysethe effectof SAPsandglobalisation
on the sector.The surveyand datacollection
methods havebeen coveredin ChapterThree.Althoughthisresearchis to a largeextentempirical,
andinterpretation
the presentation of the surveyresults,analysesof impactof globalisation
and
tradeliberalisationon SMEdevelopment andresponses of theSMEsectorto thereformscanonly
be meaningful if theyareseenin thecontextof globalisation
andStructural
AdjustmentProgramme
measures.

The resultsof the surveyhavebeeninterpreted

in the light or darknessof globalisation
and
Within
marginalisation. this context (brought
togetherin Figure 1.1), the presentempirical
lookedat the impactof the SAPmeasures
investigation on the SMEsector,analysinghowthe
SIVIEshavecopedwiththechanged environmentandhowcompetitive or nottheyarebecomingin
Majorfactorsthatarecurrentlysignificant
the faceof externalcompetition. determinants
of SME
globalcompetitiveness,whichwere examined,includedinter-firmrelations, finance,
technology,
training,and supportfrom government
infrastructure, and externalinstitutions.
The impactof
was
adjustment measuredby the
analysing responsesto questions marketshare/access,
regarding
export
competition,
productivity, growth, industrial
growthand so on as thesewerethe factors
supposedlyfacilitatingSSAcountryintegration
into the globaleconomy.Thereforethe ultimate
of
purpose the empirical was
research to determinewhether is
integration happening,
or whether
Malawiis beingfurthermarginalised.

The followingsectionsprovidea descriptionand analysisof the findingson the impactof

globalisation Adjustment
andtheStructural Programme sectorin Malawi.It
on thesmallenterprise
analysistablesdistinguish
shouldbe notedthat,although of SMEs(14,5-20,21-
threecategories
50)as in the GEMINIsurveys,the discussions
centresaroundandrefersto the '14' categoryas
microand the '5 and over'categoryas smallsincetherewas only a very smallnumberof
with
enterprises over20 in
employees the sample.In the firstsections,analysisof findingsfrom
withGovernment
interviews
thein-depth andNGOofficersis presented, followedby an analysis of
resultsfromtheentrepreneur
survey.

163
6.2Analysisof the Data
Theunderlying
phenomenonandmechanisms of theeffectsof globalisation reform
andeconomic
has
measures beenbrought
to light through
partly literature
reviewand partlythrough
anempirical
wascarriedout in twophases,datagathered
investigation
As theempirical
investigation. hasalso
beenanalysed in
separately
andpresented thefollowing
sections.

6.2.1Analysisof findingsfrom PhaseI investigation

Findingsfromthisphaseof the surveyarebasedon the knowledge drawnfrom
anddiscussions
in-depthinterviews
the unstructured heldwithhighlypositioned expertsworkingin governmental
and non-governmental organisations in Malawi, supplemented by background matedaland
documents obtainedfrom the It
interviewees. is not to
possible be definitiveaboutthe impactof
tradepolicyreformssincesomeof the respondents indicatedthat substantial
reformshadjust
takenplacerelativelyrecently.As notedin ChapterFour,tradepolicyreformswerelaunchedin
reformsin 1981.In addition,structural
1988,wellafterthestartof adjustment policyreformsin the
criticalareaof factormarketssuchas power,telecommunications and had
transport just begun
fairlyrecently,around1996.Anotherimportantpointto notefromthe resultsis absenceof a
difference
significant of on
opinion, the issuesdiscussed,
betweenthe government and NGO

participants in
interviewed thisstudy.

Sinceconversations
wererecordedin noteform,the materials
were by
transcribed indexing
and
responses with
conversations respectto theoryunderlyingthe Issues
research. were
into
categorised thefollowing Globalisation;
concepts: SAP;Trade Liberalisation;
Competition;
and
issues.Thefindingshavebeenpresented
Strategy/Policy in Boxes6.1 to 6.5. For detailed
see
responses Appendix 5.

Globalisation
6.2.1.1
Onecommon indicatorof is
globalisation the of
extent investmentflowsandthisincludes both
and
physical portfolio In
investments. the case of Malawi,both investment
portfolio and theflowof
DirectInvestment
Foreign areinsignificant.
Therearemanyreasons whyprivateinvestment in
and
general FDI in have
particular notincreased
significantly
overtheyears.Reasons noted from
and
respondents document sourcesrangefromthe poor infrastructure,
crime and inflation
theft,
as
andcorruption major to
obstacles businesses.
private It hasbeen notedin a WorldBankreport
thatforeign investorswhomightotherwisebeattracted
byAfrica'scheaplabour aredeterred
bythe
problems of doing in
business where
countries theruleof lawis soweakthat evensimple
contracts
canbe to
difficult and
enforce, wherebusinessesthatdo persevere haveto bribe
manypoorlypaid

164
bureaucratswho can otherwisemake businessimpossible(World Bank 2005b),The general
was
respondents
consensusamongst that 'globalisation'
is not happeningfor Malawi.The analysis

on trade-relatedindicatorsof globalisationalso suggestedthat there was no markeddifferencein

termsof Malawi'sdegreeof integrationduringthe post-reformperiodcomparedto the pre-reformed
period 1999).
(UNDP/UNCTAD

Not many issueswere raisedaround'globalisation'itself; respondentswere more interestedin

discussingthe effects of trade liberalisationand competitionfrom outside. These two items

appeared to be the 'hot'topicsof the timeamongst the policy-makers in Malawi.However,for those

who took an interestin 'globalisation',

they felt that Malawi is not being integratedinto the global
economyand that there was no level-playing
field yet. One intervieweeeven commentedthat
"Malawihas not enteredglobalisationas such,what is beingexpedencednowwiththe openingup

of trade is He
internationalisation". stronglyfelt that 'globalisation'
is about investingin another
countrywith that country enjoying the benefitsof the investment
as opposedto all profitsbeing
drainedout of the countryas is currentlyhappeningin Malawi(Box6.1).

Respondents'perspectiveson the Globalisationconcept

Box 6.11:

* Weneedto distinguishbetweenglobalisation andinternationalisation

" Malawihasnotexperienced globalisationyet.Whatis beingexpehencednowwithopening-
up of trade is internationalisation
" Companies arecomingfromoutsideto makemoneyhereandtakethe profitsout Othout
re-investing in thecountry,It feelslikewe arebeingexploited
" Thereis moreexploitation goingon as assetsare notsharedwiththe locals
" Thereis no tangibleinvestmentbeingmadeto makeMalawigroweconomically
" Thelevel-playing fieldis notthere
" Malawiis notreadyfor globalisation andmostSMEsdo nothavethe necessaryknowiedge
and skillsto recognise the opportunities
and benefitsof globalisation

Therewas a feelingamongstthe respondentsthat somesort of exploitationby foreigninvestorsis

goingon in the The

country. concernexpressed
was that foreigninvestors
comein the countryand
set up their but
businesses thentake out all the profitsthey havemadeto spendin their countryof
origin.Thus, foreign does
investment not providemuch benefitto Malawiin termsof transferof
knowledgeandtechnology,wealthcreationandeconomicgrowth. The interviewees'mainconcern

was that foreign in

investment Malawi,
far from enrichingthe country,is later beingreturnedto the
industrialised
worldthroughrepatriated
profits, low
artificially for
prices developing-country
exports,
and highinterest on
payments the debt.
country's

165
6.2.1.2StructuralAdjustmentProgramme
There was a general consensusamongst the intervieweesthat the Malawi economy has
de-industrialisation
undergone as a resultof policyreformsunder the adjustmentprogrammesof
the last two decades.They believedthat trade policy reformshad been exceedinglyrapid and
dismantlingof protectionhad led to the contractionof significantsectionsof the manufacturing

sector in Malawi,
which was not been given enoughtime to increasetheir and
competitiveness
hencelost out to competitionfromimports.Thusin the wordsof one interviewee,"therehas been
and Malawihas beentransformedfrom a producingto a trading
in manufacturing
dis-investment

economy becauseof liberaltrade This

policy". is a very important to
point note becausea World
Bank documentindicatedthat Malawi'slong-termgrowthdependedon the rapid growthof the
manufacturingsector (World Bank 1997a). The issue of the declineof the manufacturing
sector
cameup in almostall the discussions
with the interviewees who gavethe examplesof the collapse
or scaling down of operationsof some of the country'swell-knowncompaniessuch as David
Whitehead& Sons, a textile manufacturer;Unilever;Mulanjefood processors;and Shire bus
whose
company, failureswere to
attributed free tradepolicies.

(ADMARC,
Due to removalof pricecontrolsand the parastatalmonopolies MDCand PCL),
in ChapterFour,smalltradersare nowactivein all partsof the countryin retailingof
discussed
householdandconsumer goods.It appearsthe variousreformshaveclosedsomedoorswhile
openingothersas one of the interviewees
pointed
out that, "manufacturing
sectorhas lost out
whereasdistribution,
retailand services
professional are notdoing too badly".
Thiscouldbe seen
in
asa compensation ways
some butstillnotenough to boost
theeconomy astradingandexportof
own is
goods
manufactured
country's requiredfor economic It
growth. hasbeen shownthatMalawi
experienced loweraveragerateof growthof realGDPduringthe SAPperiod(1981-1998)
than
duringthe pre-SAPperiod(1971-80) (MalawiGovernment
2001).Amongstreasonsgivenfor the

slowgrowth rate wereexogenous shocks,declinein rate of grossdomestic

investment
and a
declinein therateof growthof exports.However,
thesewerenottheonlyreasonsattributed
to this
drought
situation, and of
suspension non-humanitarian
aid in 1992also down
slowed theeconomic
growthas was out
pointed bysome (Box
respondents 6.2).

Themainpointnotedfromthe discussionswasthefearanddisappointmentexpressedamongst
bothgovernments
and NGOs officialsthat economicgrowthhas sloweddownand that it will
to
continue do so if and
manufacturing industrialisation They
are not encouraged. feel thatthe
economywill become worseif peoplecontinueto consumegoodsfromoutsidethecountryandnot

166
engage in production themselves.Almost all of the respondentswould like to see the
processled by SMEssincea lot of thesehavemushroomed
industrialisation due to liberalisation
of
trade.

" Therehasbeenno positiveimpactas far as openingup tradeis concerned

" Sincethenumberof SMEscontinuesto grow,theyshouldbe encouragedto lead
the industrialisation
process
" Therehasbeenslow-down of economicgrowthsincethe SAPs
" Initiativesbeingimplemented are notcoordinated
" Therehavebeenproblemswithmanagement of the economy
" Themanufacturing sectoris losingoutwhereasit seemsdistribution,retailand
professional serviceshave benefited
" TheSAPsattachedconditionswhichpreventthe government fromhelpingout or
comingupwithits ownstrategyto developthemanufacturing andproductionsector
" SAPsdidnot makea provisionfor howto copewithcompetitionas manyof our SMEs
don'thavethetechnology know-hownecessaryfor beingcompetitive
or technological
" Droughtandsuspension of aid in 1992did nothelpmattersin termsof economicgrowth
" Therehasbeendis-investment in manufacturing
and Malawihasbeena transformed
froma producingto a tradingeconomybecauseof liberaltradepolicy.

However, it wasalsonotedfromrespondents thatwhileneo-liberal

policiesaredesirable,
theyare
notsufficientto placeMalawiin the right for
position sincethecountryitself
globalcompetitiveness
is notreadyandequipped to compete dueto thereasonsmentioned above.Whatwasimmediately
apparentwas theacknowledgement of theimportance
of technical
and technological
modernisation
asa in
factor the
determining wayin which firms
small respondto structural
adjustment.

6.2.1.3TradeLiberalisation
Mostof the intervieweesthoughtthat Malawihad becomea 'trading'nationwhereproductionand

manufacturing were This

decreasing. was meant in the sensethat mostentrepreneurswerejust
involvedin purchasingfinishedgoodsfrom abroadandsellingthemto localconsumerswithoutthe

countryhaving equivalentamount of exportsof its ownfor economicgrowth. Thishas become a big

problem for the country in terms of loss of foreign exchange leading to deficit in balanceof

payments.The of
concentration 'trading'
activities
couldbe seenas a problemas it is an aspectof
This is evidencedby the increase in numbersof large-scaleproducing
de-industrialisation.

enterprises(with greater export potentials)which are folding due to competitiveimports by

individuals.Manufacturingsectors with potential growth are the ones that are decreasing
and
production mostof themare closingdown.Food bakery,
processing, textileand weavingwere
the frequentlymentionedsectors with great potentialfor growth,but due to competitionfrom
imports,nearlyall havebeeneroded.

167
 Box 6.3: Respondents'perspectiveson TradeLiberalisation

" Malawihasbecomea 'trading'economywithnotmuchof productionhappening

" Manufacturing cannot prosper withthe poor infrastructure
" Thereis limitedaccessto foreignmarketsandpeopleneedto be trainedon howto access
thesemarketsbutthereis no moneyfor this
" Thereareonlya fewexportcommodities, mainlyagricultural
Therearea fewexportsto SouthAfrica,andthereis an ongoingdisputeoverexportvolumes
to Zimbabwe.Potentialexportproductsincludetextiles,small-scaleminingandtourism
" Thecountryopeneduptoo muchhenceattracteda largeinfluxof importsandcheapergood!
" Tradeliberalisationwasimposedby IMFandWorldBankandwe werenot pre-warned of the
downsideof it whenit wasbeingencouraged
" Thereis no lawfor small-scale taxinghenceinformaltradehasresultedin government's loss
ofrevenue
" Tradeliberalisationis encouraging laziness
" As regardsto 'freetrade',manufacturing sectorhaslostoutwhereasdistribution,retail
andprofessional serviceshavegained
" Thecountryrushedwithliberalisation
" Therehavebeendropsin manufacturing of textilesandfoodprocessing
" Volumeof otherproductshasgrownwhereasothershaveretreated
" Tobaccopricesare beingdepressed
Somelocalbusinesses feelthatincominginvestorshavebeengivenpreferential treatment
" Production is decreasing andyet productioncreatesemployment
" Thereis no policyor strategyto managethetradeliberalisation process
" SMEshavesmallproductionunitswhichcannotmeetdemand
" Mostimportsareluxuries
" Thereis no controlon foreignexchangehencecountryis losingout money
" Thereis no emphasison entrepreneurship
" Weshouldnothaveliberalised everything,thereis a needfor controlon somekeyproducts
" Notmuchconsultation withlocalproducersas regardsto internationaltradeagreements
" Therehavebeendropsin manufacturing of textilesandfoodprocessingdueto lackof the
necessarytechnology to producecompetitiveproducts.

Mostof the respondentsattributedthe collapseof the manufacturing

sectorto poor infrastructure

and lack technology

of necessary to produce competitive The
products. followingweresomeof the
commentsmade by the respondentsregardingforeign markets and productionmachinery:
".,. Malawihas beengivena quotato exporttextilesto the US but we are failingto do so because
is
the textilewe produce of poor qualityand the is
productionprocess very slow due to obsolete

machineryand frequentelectricitypower cuts"; "there is limitedaccessto foreign marketsand

people needto be trainedon how to access thesemarkets but there is no money for this"; "there

areonlya few export commoditieswhich are mainlyagricultural potential

exportproducts include
...
textiles,small-scaleminingand tourism,the potentialwhichwe are not maximisingdue to out-of-
datemachinery".

Liberalisation
of foreigntradeandthe foreignexchangemarkethasprovidedbusinessopportunities
to SMEsengagedin pure buyingand selling,but the Positiveimpacton thoseengagedin actual

168
 does
production not appear to be Some
clear. old andnewSMEsarenowengaged in import
tradingof goodsmainlysourcedfromneighbouring (particularly
countries fromSouthAfricaand
Zimbabwe) havea competitive
whoseindustries edgeoverMalawi.
Othersareengaged
in selling
clothing
second-hand from
sourced developed The
countries. goodsaresoldatvery
second-hand
whichhaveprovided
to newgoods,
lowpricesrelative somereliefespecially in
to poorhouseholds
and
rural urban areas. However,
thereneedsto bea balance
between Malawi'slonger-term
growth
aspirations and theimmediate needsof thepoorersocialgroups.
consumption It couldbeargued
thatwhilstconsumers frombuying
arebenefiting verycheapimports,
manufacturing SMEscannot
flourishif theirpotential
markets Thefloodingof imported
aresaturated. consumer goodsinto
Malawi, whicharegenerallycheaper thansimilar
goodsproduced locallybysomeSME(andlarge
firms),hasadversely SMEoutputandemployment.
affected LittleisexportedbytheMalawi
SMEs
and interviewees this
attributed to lackof knowledge
ofexportmarketsandhowtoaccessthem.

At the regionallevel,Malawiis facilitating

its tradethroughthe COMESA
andthroughtheSADC.
Thetradeliberalisation of theCOMESA
measures includea gradualreduction
of all tariffsimposed
on a rangeof selectedcommodities overa ten-yearperiodand latertariffcutsto extendto all
goods. SADC encouragesbilateral
tradedealsbetweenmemberstatesin orderto facilitateintra.
regionaltradealthoughsomerespondents werenot happywith the way thesetradedealsare
arrivedat and conducted.Respondents felt that the provisionand use of non-tariffbarriersby
Zimbabwe, in the formof exportrestraintand bureaucratic rulesthat are designedto makeit
difficultfor the Malawigoodsto enterthe countryhas led to an increasein tradeimbalance
in
Thereseemsto be no provision
favourof Zimbabwe. for disputesettlements,
andit appearsthat
theseagreements "...andthereis an ongoingdisputeoverexport
werenotcarefullynegotiated.
volumes to Zimbabwe... ", to quoteone of the respondents. Moreover,tradecontinuesto be
constrained by othernon-tariffbarriers
suchas communication problems,border
procedures,lack
of import
information, licenses,surcharges(formof tax),transportproblems
andforeignexchange
problems 1998).Tradedisputessettlement
(MalawiGovernment is oneof thenewfunctions
of the
WorldTradeOrganisation's
approachtowardsfree market.The WTO providesa forumfor
multilateral andto settletradedisputesrelatedto GeneralAgreement
tradenegotiations on Tariffs
andTrade (GATT).It couldbe the casethat Malawihasno confidence in the WTOor lacksthe
andexpertiseto carryout tradethe negotiations
resources or to bringthe tradedisputesto the
WTOforumforsettlement.

169
6.2.1.4Competition
Fromthediscussions it
withparticipants, that
appears domesticdemand is beingsatisfiedthrough
importsof goodsandservices,
anenvironment, whichis notconducive
to economicgrowth.ThisIs
by
supported a reportbythe Office,
Statistical
National whichdescribed
a decline
substantial in the

of mostsub-sectors
productivity food
including textiles
processing, andweaving1994 dueto stiff
from
competition (Malawi
imports 2000b).
Government, The government Interviewed
officials were
concernedthatif domesticdemand was beingsatisfied throughimports,thiscould leadto serious
balanceof payments deficitbecausethecountryis livingbeyondits incomelmeans. According to

one interviewee, low

"Malawi's has
capability
manufacturing raised the domestic share
market for
theimported goods
manufactured upto 95%thisyear".If thatis thecase thenthismay lead
either
to moreborrowing and debtsor therewill be an increasein moneysupply,whichwill undermine
price On
stability. the other hand, consumers appearto be the sole from
beneficiaries the
since
competition the informal has
sector grown so that
rapidly it is the
eroding marketfor locally

manufacturedgoodsas it provides
goodsat affordable though
prices, thismaybe creatingconflict
betweenconsumption and growth.It shouldbe notedthat this assumption
may not be true as

consumerswerenot interviewed
to ascertainwhetherthe imports weremore affordablethan the
areaforfurtherresearch.
localgoods.Thiscouldbea potential

Themainreasonsgivenby the respondents localproductswerehightransport

for uncompetitive
technology,
costs,obsolete poor infrastructure
in terms and
of poor road conditions, lack of
necessaryknowledge to the
andskills recognise opportunities andbenefits of and
globalisation free
trade.Therigorousapplication of liberalmeasures
hasbroughtexistingmanufacturing enterprises
into severedifficultiesand large ones have lost their monopolistic
characterin the face of
imports.
competing While thereis a favourable
effectthrough reducedpricingof goodsthrough
cheap imports,trade liberalisationhas precipitatedthe collapseof producingenterprises,
to exportgrowth.Oneof themajorconcerns
fundamental expressedby the respondentswasthat
Malawi's
productionsectoris facingserioussupplyconstraints
andthatas a her
result, exportsare
This
not competitive. is principallydue to high costsof importedinputs caused by currency
devaluation,
payment of importdutiesandsurtaxon mostof theseinputs.Otherfactors,mentioned,
to
contributing the high cost of productionwere an state
unsatisfactory of the internalroad
networks,frequentcutsin and
power water inefficient
supply, telecommunications
servicesanda
largeexpenditure
highrateof crimewhichnecessitates on security.

170
 infrastructureand micro-finance
In 2001it was reportedthat,poorcommunication facilitiesresulted
in only 10%of agriculturalproduceto reachthe market,resultingin extra reductionof the market

sharefor domestic goods (Malawi Government 2002),which is unfortunateas this was a missed
opportunityfor local producers.High costs in the use of road transport and poor trading
(lack
arrangements of among
synergies the local inflated
producers) pricesof localgoodsthereby
making domestic goods uncompetitive in the domesticmarket.Lack of a competitiveenvironment
was frequently
cited as one of the reasons why the sectorwas fallingand why the
manufacturing
industrialsector is dominatedby very few firms (Box 6.4). Absenceof competitionpolicy was
leadingsomesub-sectorsto engagein restrictivebusinessand unfairtradingpractices.Someof
the sub-sectors,mentionedin the competitionpolicydocument,that were engagedin restrictive
businesspracticesincludedtransport,health,privateclinicsand legalservices.For examplethese
service industries,through associations,would agree on minimumcharges and even make
arrangements of marketsharingwhich is a predatoryand behaviour
exclusionary not to mention
detrimentalto consumerwelfare(MalawiGovernment1998).Howeverat the timeof interviewsthe
had
government just draftedthe competition
policydocument,
whichput in placeclearpoliciesand
for businessenterprises.
legislationto fostera propercompetitiveenvironment

Box 6.4: Respondents'perspectiveson Competition

Large-scale enterprises arecollapsingandshuttingdowndueto competitiveimports

" Industriesarenotwell-equipped for competition.
Transportcostis too highfor them
andmostof themuseobsoletetechnology
" Thereare a lot of infrastructural problemssuchas electricity,waterandroadsare very
poorandthisimpactson productivity
" Nocapacity,infrastructure andnecessarytechnologyto producecompetitiveproducts
" SMEconstraintsneedto be addressedandfocuson areasof highgrowth
Highinflationandinterestrateshaveaffectedbusinesses
" Humanresourcesnottrainedandunproductive cheaplabourhencewe cannotcompete
" Lessvalueis attachedto localproductsandvalue-adding to productsis veryminimal
" Thereare no inter-industry linkagesbetweenenterprises
" Malawicannotcompeteon theinternational scene
" Thereareno safeguards for thedomesticmarket
" Competition is verystrong.Cheaperandgoodqualityimportsarecompetingwithlocal
products
" Onlyefficiententerpriseswill survive
" Malawi'slowmanufacturing capabilityhasraisedthe domesticmarketsharefor the
importedmanufactured goodsup to 95%thisyear
" Nostudieshavebeencarriedout on howcompetitiveMalawienterpriseshavebecome
dueto freetrade
" Competition policyhasjust beendrafted
" Localproductsare uncompetitive dueto hightransportcosts,obsoletetechnologyand
poorinfrastructure. Forinstance,the internalroadnetworkis wellbelowbasicstandards
" Competition is verystiffthesedaysandnotmanyfirmsaresurvivingwithinthisenvironment.
it is especiallytoughfor manufacturers
" Crimehasgoneup considerably andthishasbecomea problemfor businessesbecause
theyendup spendinga lot on security

171
As discussedin ChapterFour, the bulk of manufacturingactivities are highly dependenton
and
agriculture natural as
resources sourcesof raw Assuming
materials. that Malawi'scomparative

advantagelies in agricultureand naturalresources,the agro-basedindustriesare supposedto

generatethe highestsocialgains from the use of land and labour resourcesif used in the most

efficientway. But the Resource

Domestic Cost analysis(one of the most commonlyusedtools for

measuringcomparativeeconomicadvantageof a country)carriedout by the Malawigovernment,

suggestedthat, in in
agro-industries
general, Malawi
exhibiteda lack of long-runcompetitiveness
(MalawiGovernment2002).However,someof the sub-sectorsthat exhibitcompetitiveness in the

shortterm includefood beverages,

processing, appareland textiles.Respondentspointedout that
there was a need for more investmentin new technologyfor these sub-sectorsto be more
At
competitive. SMEs
present, face an acuteproblem of limitedaccessto appropriatetechnologies
to enablethemto producegoodsof highqualityfor the exportmarket.In the viewof respondents
and supportedby strategydocuments,
major constraintsfaced by the manufacturingsector of
SMEs,includelimitedlinkageswith large-scaleenterprises,use of maturetechnology,inadequate

standardsand quality assuranceand limited internationalmarketingcapabilities.They said

capacity
production had fallen to low levels mainlydue to lack of spare parts,poor maintenance
and downtime
frequent of machinery.

6.2.1.5StrategyandPolicyissues
wereaskedto comment
Whentherespondents for developing
on strategies theSMEsector,they
pointedoutthatthe mainfocus for thedevelopmentof the manufacturing
sectorwouldbeto widen
and strengthen its basewith a view to lessening
dependence on a few (Box6.5).
sub-sectors
Hencetheprimarystrategywouldbeto identifynewsourcesof growthto accelerate
theexpansion
of themanufacturing
sector.

Box 6.5: Respondents'commentson SMEstrategyand policy

" Althoughthe newPovertyReductionStrategyrecognisesSMEscriticalstakeholders,

it hascometoo lateas halfthe populationis belowpovertyline
" Marketingof thecountryandproductsneedto donevigorouslyso thatpeoplecanbe
encouraged to engagein production
" Someformof intervention by the governmentis requiredin someselectedsectorssuch
as thetextileindustry

felt that therewas a needto achievegreateradded-value

The respondents and linkagesboth
and
vertical horizontal, in
especially industries.
resource-based Theypointedout that emphasis

172
 be
should placed upon development
of competitive industrial through
clusters integration
of key
industries, industries
supporting
suppliers, and critical
supportingbusinesses
servicesandthat
thereis a needto develop with
chains
value backward
significant andforward
linkageswithmore
emphasis on SMEs. The MalawiPoverty Strategy
Reduction Paper(MPRSP) Identified
the
industry
following groups
cluster for development,
promotion textilesandapparel;
andsupport:
and
agro-based food (cassava,
products fish,
pulses, livestock,
fruits resource-
andvegetables);
(wood,gemstones,
basedindustries handicrafts); fine
chemicalproducts(pharmaceuticals,
engineering
chemicals); (automobile
industries consurnables andcomponents) andconsumer
manufacturers.

It has also beensuggestedby someanalystsin Malawithat the supplyconstraintsmay be

overcomeby establishing
small producercooperatives
and productioncentreswith common
facilitieswhichwouldenableSMEsto poolresources
andwieldmorebargaining power(Thindwa
1996).Thiswouldenablethemto meetlargeexportordersdirectlyor throughsubcontracting
with
largefirms,whichat presentis notpracticedin Malawi.Respondents
alsopointedoutthatMalawi
needed a transition during
period whichit couldhaveidentified andmarketnichesthat
production
favourits competitive in thecontextof theemerging
advantages worlddivisionof labourandonce
thiswasachievedit couldthenfine-tuneits commercial in the
Therewasno provision
practices.
processfromclosedto openmarketeconomy
SAPsto helpwiththetransition as thiswasleftfor
individual
countriesto dealwith,and it is still to
proving be a problemto this datein the caseof
period(incorporated
Malawi.A properlyplannedtransition withintheSAPsbeforeimplementation)
might have helpedand made a big difference
for the country'sintegration
processthroughwell-
trade
articulated policiesand bilateraland multilateralassistanceto augmentits capacityto
intotheworldeconomy.
integrate

6.2.2Analysisof findingsfrom Phase11investigation

Thissectionpresents theanalysisof thefindingsof impactof thereformmeasures
fromthesmall
point
entrepreneurs'
andmicro-scale of view. For thisparticularanalysis,impactof the structural
programme
adjustment of SMEswasanalysedunderthreemainheadings:
on characteristics the
Entrepreneur, andthe BusinessOperating
the Enterprise Thesesegments
Environment. are not,
however,rigidsinceareasundertheseheadings to
overlap a large Two
extent. criteriaweretaken
intoaccountfor theprocessing
andanalysisof theresults:sizeof enterprise
andsectorof activity.
Twoenterprise sizesweredefinedaccordingto numberof permanent staff(as perdefinitions
in
5.2),
section the
amalgamating 5-20and20-50employee-size
categories.

173
Nine sub-sectorsof activitywerecreatedfrom the surveyresultsand thesewere,food products,
building and construction;constructionmaterials; wood products/fumiture-1metal products;

clothing/tailori The servicescategoryincluded

ng; wovenproducts;servicesand groceries/hawkers.
plumbing,electricrepairs,hair-dressing,telephonebureaus,minibusservice,privateclinicsand
private schools.Enterprisesthat did not fit into any of these sub-sectorswere classifiedas
industries'.
'miscellaneous

As noted,therewerea totalof 147participantssurveyedin this phaseof the study.Out of the 147

37%weresmallenterpriseswithonly4% out of them
firmssurveyed,63%weremicro-enterprises,
havingmorethan20 employees.The breakdownof the sampleby sectorof activitywas as follows.
food products (27% of the enterprises); services 25%; wood products/furn iture 10%;
cloth 10%;
ing/tailoring buildingandconstruction5%; metalproducts4%; constructionmaterials3%;
3%; 3% industries10%(Figure6.1).
wovenproducts groceries/hawkers andmiscellaneous

Figure 6.1: Sampled Enterprises by sector of activity

grocenes/hawkers
3%

woven products rniscellaneous

3%
100/0

cotistructionnialenals lbodproducts
3% 271%

metJ producti
41/6

building& construction
50/0

clothing/tailoring services
100/0 251/o

wood
products/furniture
1()P/O

Source:Ownsurveyon smalland micro sizedenterprisesin Malawi,Septemberto December2003

Table6.1 showsthe characteristics

of the sampleby size of enterprise,sectorof activityand year
of creation,thus, distinguishingthose enterprisescreatedbeforefrom those createdafter 1981,
whenthe first SAP measures
were introduced.
Only 11% of the surveyedenterpriseswerecreated
between1981and 1988,a periodcorresponding
withthe introductionof the first measuresof the

174
SAPs.As Table6.1 shows,morethan50%of the enterprises werecreatedafter1994,a period
liberalisation
with political
corresponding ratherthan trade liberalisation.
Nearly70% of the
after
established
enterprises 1994 were in threesub-sectors food
of activity: (31%),
products
(24%)
services (14%).
andclothing/tailoring

Table6.1:Characteristics
of sampleentrepreneurs
andenterprises
No.
Total 147 100.0
Size:
Micro (1-4) 93 63.3
Small: (5-20) 48 32.6
(21-50) 6 4.1
Created:
Before1981 6 4.0
Between1981and1988 16 10.9
Between1988and1994 47 32.0
After1994 78 53.11
Belonging
to:
Male 85 57.8
Female 44 29.9
Husband&Wife 15 10.2
OtherPartnerships 3 2.1
Level:
Educational
None 4 2.7
Primary 44 29.9
Secondary 65 44.2
Technical/College 22 15.0
University 12 8.2
AgeGroup:
16-20 1 0.7
21-25 11 7.5
26-30 17 11.6
31-40 75 51.0
41-50 29 19.7
Over50 12 8.2
Missing
values 2 1.3
Formal training:
business
Yes 36 24.5
No 75.5

Source:OwnsurveyonSmallandMicro-sized In MalaW,
enterprises to December
September 2003

6.2.2.1Characteristics
of the Entrepreneurs
of ownersof SMEsshowedthatover75%of respondents
on theagedistribution
Estimates in the

samplewere younger than 40 yearsof age (Table6.1).The averageageof entrepreneurswas

36.6years(range20 - 65 years).Thesearenotsurprising as
results theyreflect
on the Malawi's
age
population half
distribution: the is
population under15 yearsof age, and only4% are over65
life
with expectancy of 40 years in 2005(section4.2.3).
The distribution
of educational
standards
indicated hadgoneto a formalschool.Thesearesurprising
that97%of theentrepreneurs results
 that
considering the literacy
country's ratewas only62% in 2000 (Governmentof Malawi2000).
Nearly70%of SMEowners hadattainedsecondaryandcollege/university level.
educational The
highereducational
standard stands
of entrepreneurs theSMEs in goodstead,sinceas hasbeen
that
elsewhere, entrepreneurs
suggested withhigher
educationaltraining aremore
standards likely
to survive in business
'turbulent'
economicallya more (Anheier
environment and Seibel The
1987).
who
entrepreneurs receivedmost (tech
schooling nical/col
legeanduniversity)
werefoundIn the
services whereas
sub-sector, thosewith of
education up to primary
schoollevelweremostly Into
and
groceries
selling These
materials.
construction findingssuggestthatdueto highunemployment
rate,youngand who
people
educated would have
otherwise soughtjobsin thecivilserviceand
nowset
otherpublicorganisations up businesses,
small-scale andthatmostof theentrepreneurial
is oradversity.
activity outofnecessity

Althougha majorityof the sampledentrepreneurs had attainedat least secondaryschool

business
education, trainingwasverylimited,
as the results
on indicated
training thatfew people
hadanyformalbusiness trainingat all. Only25%of the entrepreneurshadhadformaltrainingin
business
skillsand of
most it wasin how to runa business
andin theareasof salesandmarketing.
Some,however, received in
training areasthatwouldbe considered somewhat by
obscure many,
suchas howto make hoes,chickenfeedor This
chairs. is a limitation
serious which in
results lack

of propermanagement, in
especially suchmattersas financial
recordsand The
bookkeeping.

picturethat is
emerges of a young and educatedsmall-scale who
entrepreneur, lacks
Training
training.
vocational/technical in matterssuchas marketanalysis,goodrecord-keeping,
management of cash are
receivable paramount to SME Therefore
performance. even if most
may
proprietors havereceivedformal mainstreameducation,withoutemphasison any of the
mentionedrelevant training,
business chancesof survival
of the business
wouldbe veryslim,no
how
matter much financial
assistance(which
is mostly
made to
available medium-sizedenterprises
anyway)maybe made to
available them.Training
on howto manage workingcapital
and keeping
of
records all business
transactions
and is
operations very And
significant. as said before,
this is
the
probably area where the government
mayneed to focuson, ensuringthatit is targeted
to and
enterprise
microandsmall-scale
reaching entrepreneurs.

know-how
Lackof managerial placessignificant
constraints
on SMEdevelopment.
Eventhough
SMEstendto attractmotivated
managers, theycanhardlycompetewithlargerfirms.Thescarcity
of managementtalent,
prevalentin most in
countries the SSA has
region, a magnifiedimpacton
institutions
SMEs.Despitethe numerous providingtrainingandadvisoryservices,thereis stilla

176
 the
skillsgapamong SIVIE
sector as a whole.Accordingto Danielsand Ngwira (1993),
about88%

of MalawianSMEsdesired trainingin skills

various but as of 1992,less than 6% had actually
receivedit, andthis surveyhas proventhatthis was still the caseat the time of this study.

Thesurveyresultsalsoindicatedthattherewasa dominance in the SME

of maleentrepreneurs
Out
sector. of the individuals
thatwere interviewed,
58%weremaleand 30% werefemale (Table
6.1), and in certaintypesof industriessuch as buildingcontractors,mechanics, electricians,
furnitureandjoinery,andplumbingthe maledominance wastotal,as is usuallythecasein many
the
partsof world. However,it couldbe arguedthatthemethod for the
selecting sample(purposive

sampling and might

snowballing) have had an influence
on the sample On
composition. the other
handit shouldbenotedthatevenwiththismethodof 'hunting'outentrepreneurs,
theRAmayhave
hadcomeacrossmoremalethanfemaleentrepreneurs.

In additionto beingself-employedin their business,around30% of the entrepreneurswere also

When
employedelsewhere. askedwhy they startedtheir own business,
26% said it was because

theysaw a demandopportunitywhile25%said they neededmoneyfor survival(Figure6.2),which

be as
could characterised 'subsistence'
entrepreneurship.

Fig.6.2:Reasons
for startingownbusiness

30 -
26%
25%
25 -

20 - 18% 18%
I

16.
4)
15-
CL

10
-

5%
4%
5- 3%
1%

0 ý- - ---I ---T

inherited lostjob copiedfrom can'tfindpaid saw notenough needmoney other

business others job opportuinity payfromjob for survival

Source: Ownsurveyon Smalland Micro-sizedenterprisesin Malawi,Septemberto December2003

177
The formalsectorseemsto have lost its attractionas a job avenuefor the small-scale
Out
entrepreneur. of those who were not employed, asked if they were lookingfor paid
employment,only8%indicated
thattheywereactivelylookingfor a job andit seemsreasonable
to
that
suggest the sector
small-scale provides
an job
attractive avenue.

saidthattheyset up the businessdue to beingretrenched

Only5% of the entrepreneurs from
government.The of
majority these had
individuals never been civil servants,did not work In
to
addition their
running own businessand were not lookingfor any othertypeof employment
insteadof,or in additionto theirownbusiness.Thosethatindicatedthattheywerelookingforother
employment, in additionto being largely
self-employed, statedthattheyweredoingso because the
fromtheirownbusiness
incometheyreceived wasnotenoughforthemto liveon.Thegeneralnon-
hiringof labourby companies andstatesectorcombined withthe politicalfreedomis encouraging
morepeople to set up businesses.With job in
opportunities thepublicsectordecreasing andwith
thelarge-scaleprivatesectortryingto adjustto thestructuraladjustmentprogramme, thealumniof
the schoolsystemhavenowtendedto set up small-scale
enterprises,
especially
micro-firms
and
become
self-employed.

Askedif theywerea memberof anybusinessgroup/association,

only30%of the entrepreneurs
that
stated theybelonged to somekind of business butit is notknownif they
groupor organisation,
simplychosenot to join or whethertherewas no specificgroupor organisation thattheycould
belongto. Out of the 30%who belongedto a professional only 1% of themwere
association,
of
members the Chamber
of Commerce.

of the Enterprises
6.2.2.2Characteristics
Profile
6.2.2.2.1
The majority(88%)of sampledenterprises
belongedto a singleownerwhile10%werefamily
businesses (Table6.1).All otherformsof ownership andlimitedliabilityseem
suchas partnership
to be of littlesignificance,
anda majorityof themweremicro-businesses.
Thenumberof sampled
was
enterprises relatively
well dividedbetween and servicebusinesses,
trade,production thus,
38%wereinvolvedin buyingandsellingof all typesof goods,whereas35%wereinvolvedin
productionof some sort, and 27% provideda service.The typesof businesses that these
ownedvariedgreatly,with the highestnumbersin the buildingand food vending
individuals
categories.

178
 the
Onewayof assessing effectof theSAPs onthe character
ofthe SME is theorganisationalbirth
rateof the small-scale It
enterprises. that
appears manyof the individuals had not had their
businesses of themhavingbeencreated
forverylong,withthelargestmajority in or after1994,
thus,afterclemocratisationthe
of country 6.1).
(Table However,thefactthat theywerestillaround
10 later
nearly years forsomeof themindicated
that businesses
their weredoing In
well.
relatively
90%
over ofenterprises
general, hadbeen establishedsincetheinception
of theSAPs andoneof
themainreasons
cited bythe for
entrepreneurs starting
a business
duringthe 1990s
mid-to-late
was thattheywere givenfreedom,as a resultof democracy, to carry
out any businesstheyliked
without being by
intimidated anybody as the situationwas before the changes.
political The
followingweretheexactwordsof oneentrepreneur, "wearenowfreeto dobusiness withoutany
intimidation"
and another, is
"there nofear of political
officials
when carryingouta business".
From
thatmostof themassociated
it appears
thesecomments of SMEsin themid-1990s,
mushrooming
ratherthanSAPs.
todemocracy

of thesampled
A largeproportion enterprises framework
outsideof theregulatory
operated asover
70%of themwerenot registeredwiththegovernment.47%of themindicated thatthereasonfor
was
notregistering because theirbusiness
wasnotbigenough the
whilst restsaid theydidnotsee
Oneof the respondents
the benefitsof registering. even commented is like
that, "registering
to
exposingyourself the Asked
government". if theyhad any plansfor in
registering the future,
24%saidyestheywould,17%werenotsureand59%gavean absolute'no'.Someof thosethat
didnothaveplansto registerlargelyfeltthattheylikedtheirbusiness thewayit wasandthatthere
was no needto register becausethey could not be surethat the business
wouldexperienceany
kindof growthin the future.About65%of the enterprises in the sampledeclaredthattheypaid
some form of tax. 21%paid taxes
municipal in the formof marketfees and 21%
another paid
tax
withholding whereas 5% paidsurtax (ValueAdded Tax Only
equivalent). 3% paidcustoms
duties,notablythe ones in the 21-50 categoryas they importedtheir raw materialsand
merchandise from
directly abroad.

Thegeneralprofilethatemergedwasof an informalmicro-enterprise createdin themid-1990s

and
involvedin buyingandsellingactivities.Thissuggeststhat not necessarily
SAPon its ownwas
for
responsible the creationof an environment
conducivefor mushroomingof informal SMEs
(regardless
of necessityor opportunity for
reasons but
entrepreneurship) also freedom
political
to thesituation.
contributed

179
6.2.2.2.2Procurement
of rawmaterials
imported
Only12%of theenterprises or finished
theirrawmaterials products,
whereas over80%
these
procured from
entirely
materials the local
market.Enterprises
In thecloth
ing/tailoring
sub-
sectorreliedon imports thus,
especially: 27% of in
enterprises imported
this sub-sector
fromneighbouring
clothes/materials countries,notablyfromSouthAfricaand Tanzania.The
that
enterprises purchasedfrom other countries
saidit wasbecause theyfoundthatthiswas
cheaperthan buying
things from their homecountryandtherefore theycouldkeeptheirprices
lowerandstillmakea profit.Evenwithcurrency devaluations in Malawi,
peoplewerestillbuying
goodsfromother and
countries it is probably
cheaper to do so dueto highinflation
ratesIn the
country.

Inter-industrial were
relations not very extensive:
only 9% declaredthat they
of the enterprises
procured in thelocalarea.Inter-industrial
fromotherenterprises
theirrawmaterials exchanges took
placein thefood and wovenproductssub-sectors.Those thatdid notdealwithotherSMEscited
thatnotonlydid theynot knowthemwellenough,but alsothattherewasa certainlackof trust
the
among small businesses. In fact, many interviewees
emphasised the disadvantages
of co-
likejealousy,conflictand hagglingon prices.Theyneglectedthe positive
operativedisposition,
effectsof strong links
co-operative of specialinputsor services,more
suchas readyavailability
rapid learning processes and increasedcompetitiveness through concentrationon core
competences. This is supported by findingsfrom industrial
economics that the densityof
is
externalitiesa key factorin innovative
explaining (OECD1992).
capacityandcompetitiveness

Marketssupplied
6.2.2.2.3
of information
Table6.2givesa summary collectedfromtheenterprises
withregardto thetypeof
supplied.
customers SMEs
Other were quiteoftencitedas the frequent
most customers of these
butotherSMEswerealsoseento be theirmaincompetition,
businesses, an interesting
providing
conundrum for many businessowners. For in
enterprises thesampleas a whole,themainclientele
wasmade up of otherSMEs (33% of the both
enterprises), (27%of the
ruralandurbanpopulations
and
enterprises) low incomeurban (17%
populations As the size of the
of the enterprises).
enterprisegrew, the marketssuppliedmovedfrom low-incomepopulationsto more captive
markets,such as otherSMEs, high-income
populationand largercompanies,
whichare more
in termsof thequalityof the products.Noneof thesize21 - 50 enterprises
demanding soldtheir
productsto ruralor low-income urbanpopulations. In comparisonto olderones,the enterprises
since
created 1994 addressed a largerproportion
of both Mostof the
ruralandurbanpopulations.
businessesincludedin the survey,irrespective
of theirsize,weremainlytradingwithintheirlocal
 thus
area, 97% declared they
that soldtheir within
products district
their Very
area. few enterprises
3%
only of
exported, the including
enterprises, some Most
micro-enterprises. of the exporting
were
enterprises in the Enterprises
sub-sector.
woodproducts/furniture createdbetween 1988
and
1994werethemostlikelyexporters.

Table6.2: Mainclienteleby sub-sectorof activity, size of enterpriseand numberof enterprisescreatedIn each

year group
MAINCLIENTELE

Total Rural Low- High- Bothrural Large Tourists Vendors Stalls Other Other
Populationincome Income andurban COMP8nies ITraders and SMEs
Urban Urban Population shops
population Population

of Activity:
Branches

Foodproducts 26.5 5.1 33.3 0.0 30.8 0.0 0.0 7.7 0.0 20.5 2.6

&
Building 4.9 0.0 0.0 14.2 28.6 28.6 0.0 0.0 0.0 28.6 0.0
Construction

Construction 2.7 0.0 0.0 25.0 25.0 0.0 0.0 0.0 0.0 50.0 0.0
materials
Wood 10.2 13.3 6.7 6.7 13.3 0.0 13.3 0.0 0.0 46.7 0.0
products/fumiture
Metalproducts 4.0 16.7 0.0 16.7 16.7 0.0 0.0 0.0 16.7 33.2 0.0

Clothing/tailoring10.2 0.0 20.0 33.3 26.7 0.0 0.0 0.0 0.0 20.0 0.0

Woven
products 2.7 0.0 0.0 25.0 0.0 0.0 0.0 0.0 25.0 50.0 0.0

Services 25.9 5.2 15.8 13.2 31.6 0.0 0.0 0.0 2.6 31.6 0.0

Shops/Stalls 2.7 0.0 25.0 0.0 50.0 0.0 0.0 0.0 0.0 25.0 0.0

Miscellaneous 10.2 6.7 6.7 0.0 20.0 0.0 0.0 0.0 0.0 66.6 0.0
Industries

Sizeof enterprise:

Micro(14) 63.3 5.3 21.5 10.8 26.9 0.0 2.2 3.2 3.2 26.9 0.0

Small:
(5-20) 32.6 8.3 10.6 8.3 25.0 2.0 0.0 0.0 0.0 45.8 0.0

(21-50) 4.1 0.0 0.0 16.7 33.3 16.7 0.0 0.0 0.0 33.3 0.0

Created:
Enterprises

1981
Before 4.0 16.6 0.0 0.0 16.7 0.0 0.0 0.0 16.7 50.0 0.0

1981&
Between 10.9 6.2 31.3 6.2 18.8 0.0 6.2 0.0 0.0 311.3 0.0
1988

1988&
Between 32.0 8.5 6.5 12.8 213 2.1 2.1 4.2 2.1 40.4 0.0
1994

After1994 53.1 2.6 21.9 10.2 32.2 1.2 0.0 1.2 1.2 28.3 1.2

Total 100.0 5.4 17.0 10.2 26.6 1.4 1.4 2.0 2.0 33.3 0.7

ownsurveyon SmallandMicro-sized
Source: In Malawi,
enterprises September 2003
to December

181
Asdiscussed elsewhere, Malawi'sinternal
market is verysmallandthisis compoundedbythefact
thatincome per head is oneof thelowestinworld. Transport andcommunicationsystemwithinthe
countryitself
is verypoor. Simplyremoving barriers
tariff to tradewillnotmakemuchdifferenceto
thelocalproducersin termsof increasing sharethrough
market globalintegration
sincethereare
stillthese
other barriers
non-tariff to yet.
overcome As seenhere,
evenwithall thetradereforms
which havetakenplace in thecountry, of theSMEshavelocalpeopleas theirmain
a majority
The
customers. Malawi supports
situation Sutcliffe's
argument, discussed
in section2.5.2.1,
that
mostSMEsrelyonnichemarketsfortheir (Sutcliffe
sustainability 1971).

Somemayarguethattradereformmeasures mayhavelittleeffecton SMEssincemostservelocal

in section4.5.1.5theSMEshavebeenaffectedby suchpolicies
marketniches,butas discussed
as pricederegulation, devaluation
currency whichaffectpricesof goodsanddropin realwages
demand.
affecting Furthermore, the SMEs,
like any other businesses
needa stableeconomic
environment andoneof the mainSAP'sobjectives
to operateeffectively, wasto createa stable
environment.
macroeconomic

MarketingandCompetition
6.2.2.2.4
fromthe surveyindicatedthat the marketsuppliedwasnot enough
Only13%of the individuals
(Table6.3).Thisis notsurprising thatmostSMEsarerural-based
considering hencethepopulation
theymostlysupplyis therural.Withhightransport
costs,mostruralpeoplecannotaffordtransport
faresto go intothetowncentresto purchase
theirneedstherefore
theyrelyon the ruralSMEsfor
theirsupplies.

Forcountrieswitha poorlydeveloped
transport
andcommunicationsystemlikeMalawi,it seems
haveestablished
thatsmallproducers themselves
inthelocalmarkets,
whichimplies
thattheymay
needto with
compete one another
on the basisof products whichsuittheneedsof localpeople.
Sincethemarketis alreadysegmentedby inadequate transport
andcommunication system, the
SMEsmayhavegaineda largerrelative rolein theirlocalmarkets andthissupportsStaleyand
Morse'sargumentthatthelocalSMEsshouldbeableto withstand fromdistantfirms,
competition
ones,astheycannot
evennational thelocalmarkets
easilypenetrate dueto transportbarriers,
and
alsothatthe the
products SMEssupplyarefavoured andreadilyavailablefor thelocalmarket
andMorse1965).
(Staley

182
 createdIn
bysub-sectorof activity,sizeof enterpriseandnumberof enterprises
Table6.3:Maincompetitors
eachyeargroup(%)
COMPETITORS
MAIN MARKETSIZE

Total Other Large Bothsmall Imports Other None More About Not
endlarge
SMEs Enterprfses competitors then right enough
Enternrises enowh
ofActivity:
Branches
products 26.5
Food 84.6 2.6 12.8 0.0 0.0 0.0 25.6 64.1 10.3
&
Building 4.9 0.0 14.3 85.7 0.0 0.0 0.0 71.4 28.6 0.0
Construction
Construction 2.7 25.0 25.0 50.0 0.0 0.0 0.0 75.0 25.0 0.0
materials
Wood
10.2 33.3 0.0 40.0 6.7 6.7 13.3 13.3 60.0 26.7
products/furniture
products 4.0
Metal 83.3 0.0 16.7 0.0 0.0 0.0 16.7 83.3 0.0
10.2
Clothing/tailoring 46.7 13.3 26.7 0.0 0.0 13.3 40.0 46.7 13.3
products 2.7
Woven 50.0 0.0 50.0 0.0 0.0 0.0 0.0 75.0 25.0
Services 25.9 52.6 0.0 42.1 0.0 2.6 2.7 36.8 60.0 13.2
Shops/Stalls 2.7 0.0 0.0 75.0 0.0 0.0 25.0 25.0 75.0 0.0
Miscellaneous10.2 73.3 0.0 13.3 0.0 0.0 13.4 13.3 66.7 20.0
Industries
Size
ofenterprise:
Micro(1-4) 63.3 69.9 4.3 19.4 1.0 0.0 5.4 24.7 62.4 12.9
Small:
(5-20) 32.6 39.6 2.1 47.9 0.0 0.0 6.2 35.4 50.0 14.6
(21-50) 4.1 0.0 0.0 100.0 0.0 0.0 0.0 66.7 33.3 0.0
Created.
Enterprises
1981
Before 4.0 66.7 0.0 33.3 0.0 0.0 0.0 16.7 33.3 50.0
Between &
1981 10.9 56.3 0.0 43.7 0.0 0.0 0.0 31.2 68.8 0.0
1988
&
1988
Between 32.0 55.3 2.1 31.9 2.1 2.1 6.5 31.9 57.4 10.7
1994
1994
After 53.1 57.7 5.1 29.5 0.0 1.3 6.4 29.5 56.4 114.1

Total 100.0 57.1 3.4 32.0 0.7 5.4 1.4 29.9 57.2 12.9

Ownsurveyon SmallandMicro-sized
Source: In Malawi,
enterprises September 2003
to December

Thedataalsorevealedthatthe largerthe enterprise,

the lessthecompetitionfromsmallerunits.
Theresultsshowedthatcompetitionbetweensmallandlargeenterprises wasweak:only4.3%of
microand 2.1% of smallenterprisesmentioned large local as the mainsourceof
enterprises
Mostof thecompetition
competition. bythebuildingandconstruction
experienced sub-sector
came
(85.7%).Foodproducts(84.6%)
frombothsmallandlargeenterprises andmetalproducts(83.3%)

183
got most
of their from
competition otherSMEs.
Enterprises before
created 1981 most
experienced
(66.7%)
competition fromother SMEs.

Although wasmost
competition feltin building
andconstruction
andmetalproducts noneof
sectors,
theinterviewed inthesecategories
entrepreneurs indicatedthatthemarketwasnotenough.Even
in thefoodproducts
sector,wherecompetition is alsointense,only13%of themsaidthatthe
wasnotenough.
market Mostentrepreneurs
whosaidthemarketwasnotenough from
were the
(27%)
woodproducts/furniture and woven (25%).
products Thismaybe oneof thesub-sectors
whereproductionfor to
export foreign
markets
needs to be encouraged bythegovernmentand
Export-led
othersupportinstitutions. growthdatesbackto theyearswhenwealthcreation for
was
nations the way for economicdevelopment If thesesub-sectors
of countries. weregiventhe
to
opportunity producefor domestic
as wellas foreign
marketsthenmarketsizewouldnotbe a
majorissueas exportmarkets to produce
permitmanufacturers moreof anysingleitemhence
more
specialise than if theyproducedfor the home marketalone.It hasalsobeenarguedthat
whenexport marketsexist,labour,
capitaland even landcanbemovedrapidlyfromlowto high-
uses
productivity without diminishing
encountering (Behrman
returns andSrinivasan 1995).

createdbefore1981saidthatthe marketsuppliedwasnotenough.But
Halfof thoseenterprises
thenagainit goesbackto thesameproblems foreignmarketsandhowto markettheir
of accessing
in
products the international Many
markets. of themmay run into significant due
problems to
commonpitfallssuchas poormarketanalysis,poorunderstanding conditionsin
of competitive
foreignmarkets,a failureto customise
the productto the needsof foreigncustomersandlackof
distribution
effective all of whichtheSAPshouldhavetakenintoaccountin duringthe
programme,
designstages.

Business
6.2.2.3 Environment
Operating
beit economic,
Theenvironment, regulation,
policies inwhichbusinesses
orphysical, operate
play
part in theirperformance,
an important survivaland development.
Despitethe wide-ranging
economic reforms in
instituted Malawi,
SMEs still face Thefollowing
a varietyof constraints.
discuss
sections how the have
policies
adjustment affected SMEoperationsin Malawi.

Mainproblemsandimpactof Adjustment
6.2.2.3.1
wereaskedto specifythe maindifficulties
In the survey,entrepreneurs in everyday
encountered
operationsof their The
business. resultsarepresentedin Table6.4.Forthesampleasa whole,the
threemainproblems
mentioned inobtaining
mostwere:difficulty capitalforbusiness (55%);
growth
highinflationrate(49%);andhightaxesandduties(39%).

operationsby sizeof theenterprise(%)

Table6.4Maindifficultiesin everyday

Small-size
enterprises
%of responses Rank Micro-enterprises
(14) 5-20 21 - 50

Business envimnment
Taxesandduties 38.8 3 21.5 52.1 100.0
Briberyandcorruption 8.8 8 8.6 8.3 16.7
Rentonpremises toohigh 4.8 11 4.3 6.3 0.0
Notenough spaceinthemarket 2.7 14 2.2 4.2 0.0
Vandals andlackofsecurity 1.4 16 0.0 4.2 0.0
Machines andequipment
Expensive 5.4 10 6.5 4.2 0.0
Inadequate 4.8 11 5.4 4.2 0.0
Obsolete 1.4 16 1.1 2.1 0.0
Finance
Inobtaining
Difficulty capitalforgrowth 55.1 1 58.1 50.0 16.7
inobtaining
Difficufty a loan 6.1 9 6.5 6.3 0.0
Highinterestratesaffecting borrowing 4.1 12 6.5 0.0 0.0
Working capitaltiedupinclients 1.4 16 1.1 2.1 0.0
Working capitalusedupforlivingexpenses1.4 16 2.2 0.0 0.0
Longprocess forloanapplications 0.7 17 2.1 0.0 0.0
Demand
Toomanysimilar SMEsinthesamesecto r 14.3 6 17.2 10.4 0.0
Notenough money income ingeneral 5.4 10 4.3 8.3 0.0
Smallmarket size 3.4 13 4.3 6.3 0.0
Competitionfromcheaper Imports 0.7 17 1.1 0.0 0.0
Procurement ofrawmaterials
Highinflationrateaffecting costof inputs 48.9 2 48.4 50.0 50.0
Frequent currency devaluation 24.5 5 27.9 14.6 50.0
Scarcity
of rawmaterials 5.4 10 3.2 8.3 16.7
Where weprocure rawmaterials veryfar 3.4 13 5.4 0.0 0.0
Priceofmaterials toohigh 1.4 16 0.0 4.2 0.0
Employees
Unskilledanduntrained employees 2.0 15 2.2 2.1 0.0
Notenough workers 1.4 16 2.2 0.0 0.0
Highemployee turnover 1.4 16 0.0 4.2 0.0
Infrastructures
Highcostoftransport duetohighfuelcost 31.9 4 32.3 33.3 16.7
Frequent powercuts
electricity 2.0 15 2.2 2.1 0.0
Otherdifficulfies 10.2 7 9.7 12.5 0.0

Ownsurveyon SmallandMicro-sized
Source: In Malawf,
enterprises September
to December
2003

Accessto finance,
in termsof obtaining
capitalforgrowthandobtaining credit,wasa dominant
to
constraint SMEs in This
Malawi. stems fromthe fact thatSMEshavelimitedaccessto capital
locally
markets, and in
internationally,
partbecause of theperceptionof higherrisk,informational
andthehighercostsof intermediation
barriers, forsmaller firms.As a result,SMEsoftencannot
obtain in
finance
long-term theformof debt Notbeingabletoobtaincapital
andequity. forbusiness
growthwas mentioned by
particularly micro-enterprises
as the main difficulty
(58%). The main
listed
problems by givea goodindication
themicro-enterprises of thelimitsof theirgrowthpotential,
whichis by
restricted the conjunction
of two constraints:
a financeconstraint(lackof capitalfor

185
growth)anda raw materials (high
constraint inflation
rateaffecting Thisindicates
costof materials).
thattheyoperatein anunstable
economicenvironment.

Thesmall-sized
enterprisesare also to
sensitive difficulties
whichrestricttheprocurement
of raw
A high
materials. inflation which
rate, was ashigh as 83% in 1995
(Table 4.6) it
although,
and, went
downto around10%in 2003(Table 4.7),stillconstituted
themainproblem purchase
affecting of
raw Most
materials. ofthesmall-sized
enterprises mentionedthisproblem,
whichranked second to
(Table
taxation 6.4).A commentmadebyoneof theentrepreneurs wasthat,"highinflation
rateis
me
preventing frombuying input
other materials whichwouldbebeneficial
to thebusiness". The
SMEsemphasised highinflation
andcurrencydevaluation theprocurement
as affecting of raw
Although
materials. notpointedoutbytheentrepreneursthemselves,theproblems
withcostof raw
mayalsostemfrompoorcashflows(Parker
materials et al,1995),
because asalsoindicated
inthe
datasomeof themhadmentionedcashtiedinwithcreditors Thehighpriceof raw
asa constraint.
nota bigconstraint
was,surprisingly,
materials 16th
andranked theSMEs.
amongst

Nearly40% of the SMEsmentionedtax and duty as one of the majorconstraintsto their

High
operations. taxation at
came thetopof thelistfor theproblems bymostsmall-sized
mentioned
Themicro-enterprises
enterprises. arepenalised by the levelof taxationwhichaffectthemall the
more,sincethetaxtheyhadto paywasa fixedregardless of amountof profitmade.TheSMEsfelt
thatthelevelof taxationwashighrelativeto theirprofits.

madeby the entrepreneurs,

Fromthe comments the levelof taxationanddifficultiesin gaining
accessto creditwerethe majorobstaclesto continuingstructuraladjustmentof the industrial
sector.Theentrepreneurs
expressedthattheywouldhavelikedtheauthoritiesto relaxtaxationand
usea lesscoercive with
policy regardto overduepayment Simplifying
penalties. taxationwasalso
very much desiredby someentrepreneurs
who complained aboutthe increasein numberof
differenttaxesandwhowouldhavepreferredthatthe authorities
removedsomeof the taxesor
them
merged intoone tax.
single

costs,infrastructural
In termsof hightransport ranked4thas a constraint
problems for theSME
business Thisis notsurprising
operations. as highinflationandlowvalueof the Malawicurrency
in
result expensivepetroleumandfuel importswhichlaterimpactson SMEoperating costs,Poor
roadnetworkandmaintenance alsomaketransportcostrelativelyexpensive for SMEsbecause
usuallychargemorewhenthe roadsarepoorlymaintained
transporters andif linksbetweenareas

186
arenot This
direct. impacts
on theSMEsby them
restricting to thelocal and
markets by the
raising
input from
costofpurchasing materials their
outside own local
areas.

Employee a
seemed
problems lessimportant to
constraint SMEs
in Malawi.
SMEs use
generally
technology
simple does
which not highly
require skilled However,
workers, whereskilledworkers
an
arerequired, insufficient
supply of skilled can
workers limit
thespecialisation raise
opportunities,
and
costs, reduce in
flexibility managing The
operations. found
survey that only2% of the
indicated
respondents thatthey found skilledlabour
to be a With
constraint. regardto machinery
andequipment only
problems, 1% of thesampled firmsmentionedold as
equipment one of the
to
constraints business and
operations only5% said equipmentwas It
expensive. is common
knowledgethatmostSMEshavedifficulties
in gainingaccessto appropriate
technologies and
information techniques,
onavailable andthislimits
innovation
andSMEcompetitiveness.
Besides,
on
otherconstraints and
capital, labour,
as well asuncertainty
surrounding
new lack
technologies,
technology
of appropriate incentives
restricts to innovation.
Contrary
to this,theMalawi
SMEs did
this
notrank asoneof the top constraint
probably becausemostof their are
operations labour-
andtrading
intensive activities.

and marketsranked6thas a constraint.

for customers
Competition Although,recenteconomic
have
policies led to a in
decline the roleof the statein productive
activity,anda renewedprivate
investmenthas creatednew opportunities for SMEs,limitedaccessto publiccontractsand

subcontracts,adsingfrom bidding
cumbersome proceduresand/orlack of information,
inhibit
SME
in
participation other domestic
marketsin the country. distribution
Inefficient channelsoften
bylargerfirmsalsoposeimportant
dominated limitations
to SMEsto expandto otherareas/markets
inthecountry.

Thedismantling barriers
of protectionist introduced
as partof theSAPswasnotseenas a problem
forthesurveyed
enterprises.AlthoughtheSMEshadproblems fromothersimilar
withcompetition
SMEs,theydidnotviewcompetition fromcheaperimportsas a majorconstraint. Onlyaround1%
of allthe enterprises mentioned from
competition imports
as a main in
problem, factthisrankedlast

on the list. This is to

contrary the responses fromgovernmentofficerswhoexpressed concerns
overMalawibeing by
flooded From
imports. thegovernment's
pointof view toomany imports
is not
to
conducive economicgrowth.However,fromtheentrepreneurial
point of it
view, is expectedthat
theywouldnotseecompetition fromimportsas muchof a problemsincefor mostof thembuying
of
andselling is
imports theirmainentrepreneurial
activity,
andmostof thegoodsthey buyarefrom

187
 anyway.
othercountries From the results in Table6.4, it can alsobe seen that bribery
and
rankedeighth
corruption in the difficulties
the SMEs faced in the environment.
operating The
following made:"topgovernment
of thetypicalstatements
is anexample areoppressing
officials
us, they more
are probably interestedin developing
themselves than
rather about
concerned
alleviation".
poverty

Theanalysisof the response of the SMEsectorto the SAPsis complexbecauseit is subjectto

forces,
several,often-conflicting the importance
relative of whichdepends
on themeasures taken.
An evaluation
of the impactof SAPs was dealtwith by to describethe
askingthe entrepreneurs
main changes recorded since trade reformsin terms of production,employment,investment,
range,
product exportsand The
imports. results
are in
presented Tables
6.5,6.6a,
6.6band6.7and
in thefollowing
discussed sections.

Impacton productionandemployment
6.2.2.3.2.
Table6.5 presentsside by side the resultsof the surveyon the evolutionof productionand
employment since As
1981. mentioned the
earlier, firmsweresubdividedby sizeandperiodof
to
creation better
assesstheirbehaviour
sincethe reformswere This
established. wasto findout
the reactionof the SMEsto the incentivemechanisms
set up and if their productionand
grew.
employment

by sizeof enterpriseandyearof creation

Table6.5Impactof the adjustmenton productionandemployment
M
Production Employment
Increase Decrease Increase Decrease Nochange

Periodof creation Size Total

1981 Micro (1-4)

Before 2.0 0.0 100.0 16.7 0.0 33.3
Small (5-20) 2.0 0.0 100.0 100.0 0.0 0.0
(21-50) 0.0 0.0 0.0 0.0 0.0 0.0

1981 Micro (1-4)

Between 6.1 11.1 88.9 33.3 0.0 66.7
and1988 Small (5-20) 4.8 28.6 71.4 85.7 14.3 0.0
(21-50) 0.0 0.0 0.0 0.0 0.0 0.0

1988Micro (1-4)
Between 16.4 16.7 83.3 28.0 0.0 72.0
and1994 Small (5-20) 13.6 26.3 73.7 75.0 10.0 15.0
(21-50) 2.0 0.0 100.0 50.0 0.0 50.0

After1994 Micro (1-4) 38.8 17.9 82.1 17.5 1.8 80,7

Small (5-20) 12.3 22.2 77.8 77.8 5.6 16.6
(21-50) 2.0 33.3 66.7 33.3 33.3 33.3

Total 100.0 18.4 81.6 41.5 4.1 64.4

Ownsurveyon SmallandMicro-sized
Source: in MalavA,
enterprises September 2003
to December

188
Entrepreneurs
wereasked to describe in
changes production sincethestartof theirbusinesses,

and,forthesampleasawhole,a large (82%)

proportion of them declared
that their productionhad
decreased.Sincemostof theenterprises
werecreated after1988(whenmostpolicies affecting
industryandSMEswere implemented), createdafter
witha majority 1994,it is difficult
to tellfor
the
surewhether in
decrease was
production dueto SAPsor someother However,
factors.
irrespective
of the the in
sizeand period whichtheywere the
established, decrease
affectedall
unilaterally.
enterprises

Anotherobservationfrom Table6.5is thatthe proportion that

of enterprises declared
to have hada
decreasein production high
wasparticularly (100%)for enterprises before
established 1981, which
may indicatethatthese reacted
enterprises negativelyto incentive
measures taken.It is possible
of supplyto the adjustment
thattheseresultsshowtheeffectsof a negativeresponse measures.
Thisconsideration be
must counterweighted, however, by the fact that the Malawi
economy is
in
sensitiveto changes weatherand that the 1980s by a
werecharacterised record declinein

growth,which
agricultural to
spread the entire In
economy. other
words,for lackof morespecific
the
indications, decline observed
phenomenon in the sample may
of enterprises be dueexclusively
to thetrendof the The
markets. smallenterprises the
recorded largest in
rise employment (Table
theflowof joblesspeoplewhotriedto generate
formallabourmarketincreased
6.5).Theshrinking
by
an income establishing businesses.
small Employmentgrew the leastin The
micro-enterprises.
weakentryandexitbarriers
aresuchthatthereareas many leaving
micro-enterprises themarket

asnewones being thus

established, causingstagnation
of employment.

Table6.6ashowsoutof all thesampled only18%hadincreased

enterprises, and42%
production
hadincreasedemployment. 75% of thosein had
groceries/hawkers increased
theirsuppliesand
33%SMEsin clothingandtailoringhadincreased All of themetalandwovenproducts
production.
SMEsrecordeda decreasein 75%
production. of construction
materials and67% of metalproducts
SMEssaidtheyhadincreased
employment.

beforeit is difficultto ascertainwhetherthe changesnoticedby the entrepreneurs

As mentioned
were dueto SAPs or some otherfactors.
The analysis
of the impact of SAPs on SMEs is made
morecomplex by the fact that mostof the surveyedSMEs were created after1988when trade

reformpolicieswere firstimplemented and an evenlargernumber of them were created

after1994
the the
when countryunderwent political However,
changes. it should be noted thattheseresults
the observed
arewhat entrepreneurs as changes
eithersince the startof theirbusiness or since

189
 whichcameoutincluded
Themainresponses
thetradereformmeasures. devaluation,
currency
taxes,allof whichareissuesrelatedto thereformmeasures.
highinflation,

Table6.6a:Impactof theadjustment
on productionandemployment
by sub-sectorof activity(%)
Production Employment

No
Sub-sector
of activity Increase Decrease Increase Decrease change
Enterprises
Total% 100.0 18.4 81.6 41.5 4.1 54A

Foodproducts 26.5 15.4 84.6 30.8 0.0 69.2

Building/Construction 4.9 14.3 85.7 57.1 14.3 28.6
Construction
materials 2.7 25.0 75.0 75.0 0.0 25.0
WoodproductsKurniture 10.2 6.7 93.3 33.3 13.4 53.3
Metalproducts 4.0 0.0 100.0 66.7 0.0 33.3
Clothingfrailoring 10.2 33.3 66.7 26.6 6.7 66.7
Woven products 2.7 0.0 100.0 25.0 0.0 75.0
Services 25.9 21.1 78.9 60.5 5.3 34.2
Grocedes/Hawkers 2.7 75.0 25.0 50.0 0.0 50.0
Miscellaneous 10.2 13.3 86.7 20.0 0.0 80.0

Source:OwnsurveyonSmallandMicro-sized In Malawl,September
enterprises to December
2003

The changesobservedcouldhavebeena resultof manydifferentfactorsor a combination

includingdrought,lackof businessmanagement skillsby owners,poorinfrastructure.
But then
again,one may argue that like
issues training,
infrastructure have
should been incorporatedwithin
theSAPin thefirstplace.Thefactthattheissueswereunderestimated to beginwith
or overlooked
the
whilst concentrated
policies in otherareas,makes the SAPsevenmore to blame whenthe
is negative.
SMEpefformance

Impacton investment
6.2.2.3.3
saidthattheyhadnotpurchased
Mostentrepreneurs anynewequipment
recentlyor modemised
their productionin any way due to lack of money.Only around40% of all the enterprises
questioneddeclared thattheyhadmade new investments
in theformof purchase All
of equipment.
of the indicated
enterprises
construction-materials thattheyhadinvestedin newequipment,
and
noneof the enterprisesin woven products
sub-sectorhaddone so (Table6.6b).
Although a high
of
proportion the building,construction
materials
and sub-sector
metal-production had
enterprises
theydid not benefitmuchfromthiscapitalisation
investedin newequipment, effortas thisis not
in
reflected theincreased (Tables
results
production 6.6a).

190
 Table6.6b:Impactof the adjustmentby sub-sectorof activity (%)

Constr- Wood Metal ClothingVWoven Send- GrocerieslMisce-

Sub-sector
of Total Food Buildingl
Activity % Product Constr- uction productslproductsTailoringProductsces Hawkers laneo
s uction material furniture us
s
Total% 100.0 26.5 4.9 2.7 10.2 4.0 10.2 2.7 25.9 2.7 10.2

Purchase
ofnew
equipment 40.1 33.3 85.7 100.0 33.3 83.3 40.0 0.0 47.4 25.0 6.7
In
Change
range
product 17.0 10.3 28.6 25.0 33.3 33.3 20.0 75.0 7.9 0.0 13.3

Accessing
foreign
markets 2.7 0.0 14.3 0.0 13.3 16.7 0.0 0.0 0.0 0.0 0.0

Share
of
Imported
rawmaterials:
import
Currently 12.9 2.6 14.3 25.0 13.3 16.7 26.7 0.0 13.2 0.0 26.7
Increased 26.3 100.0 0.0 0.0 50.0 0.0 0.0 0.0 40.0 0.0 25.0
Decreased 26.3 0.0 100.0 0.0 0.0 0.0 50.0 0.0 40.0 0.0 0.0
Nochange 47.4 0.0 0.0 100.0 50.0 100.0 50.0 0.0 20.0 0.0 75.0

In
Difficulty
obtaining
rawmaterials 29.3 33.3 0.0 0.0 33.3 33.3 26.7 50.0 34.2 50.0 13.3

Changeln
customer
numbers:
Increased 21.1 28.2 0.0 75.0 6.7 16.7 6.7 0.0 26.3 25.0 20.0
Decreased 25.9 23.1 42.9 0.0 46.7 16.7 26.6 25.0 23.7 50.0 20.0
Nochange 53.1 48.7 57.1 25.0 46.7 66.7 66.7 75.0 50.0 25.0 60.0

Product
competitiveness
market 77.6
Domestic 94.9 100.0 100.0 100.0 100.0 933 75.0 52.6 100.0 26.7
International 48.9 64.1 57.1 75.0 73.3 66.7 46.7 50.0 26.3 75.0 20.0

Exporting
enterprises 2.7 0.0 14.3 0.0 13.3 16.7 0.0 0.0 0.0 0.0 0.0
Enterprises
who
liketo
would
export 26.5 33.3 28.6 0.0 40.0 0.0 40.0 50.0 15.8 75.0 6.7

sup*
constraints:
Enterprises
able
tosellmore 78.2 79.5 100.0 50.0 73.3 83.3 93.3 100.0 763 75.0 60.0

Demand
constraints:
Enterprises
able
tosellcurrent
levels
butno
more 87.1 89.7 100.0 100.0 73.3 100.0 86.7 75.0 86.8 100.0 80.0
Enterprises
not
abletosell
currentproduction12.9 10.3 0.0 0.0 26.7 0.0 13.3 25.0 13.2 0.0 20.0

onSmall
Ownsurvey
Source: andMicro-sized InMalawf,
enterprises September 2003
to December

191
Purchaseof new equipment was mostly
made by the 5-20and21-50 employee-sizeenterprises
createdbefore1988were more likely to modernisetheir meansof
(Table6.7). Enterprises
than
production those after
established 1994.Overhalf of themdeclaredthatthey hadacquired
new equipment sincetradeliberalisation with
compared 36% of those after
established 1994.
reactedto the rise in productionby makingnew
Theseresultssuggestthat the enterprises
Theyalsoshowsthatan effortwasmadeto adaptto the neweconomic
investments. environment
whichformerlybenefited
byenterprises fromstrongprotection.

Impacton productsandmarkets
6.2.2.3.4
The investmenteffortmade by did
enterprises not resultin a notablechangein the rangeof
products.Only17% of all the declared
enterprises that they had modifiedtheirrangeof products,
andthree-quarters
out of wovenproducts 33%
enterprises, out of woodproductsand33%out of
enterprises
metalproducts hadmadethese changes(Table
6.6b). Not withinthe
manyenterprises
food products,servicesand groceries/hawker had madechangesto their product
sub-sectors
range.In fact, these branches of activities
are less to
vulnerable from
competition imported
either
products, because theyarestandardised (grocedes/hawkers)
or because
theycorrespondto
thespecifictastesof themarketsupplied(foodproducts).
Only2.7%of all theenterprises
claimed
that they had penetratedforeign markets, somethingwhich mostly happenedwithin
wood and metal productionsub-sectors(Table6.6b), and 21-50 size
building/construction,
(Table
enterprises 6.7).

Impacton exports
6.2.2.3.5
theexportof manufactured
Increasing products
wasgenerally oneof theobjectivessoughtby the
adjustment
structural programme as the domestic
marketis toosmallto supportthegrowthof the
industrialsectoron its own.Malawiis a weakexporterof manufactured productsand this was
confirmed by the survey Surprisingly,
results. sampled in
enterprises the food-products
sectordid
at
notexport all, andonly33%of them the
expressed interest
to directly
export (Table6.6b).None
of the woven products,clothingor constructionmaterialswere being exported.However,
in thewood,wovenproducts
enterprises andclothingwereamongstthosewhoexpressed interest
inexportingin future(Table6.6b).Overall,27%envisage for
producing export,withonly32%outof
andone-thirdof the21-50sizeenterprises
theownersof microenterprises (Table6.7).Thelackof
knowledgeof marketsand exportchannels,and aboveall the difficultyin obtainingcreditto
for
produce were
export, themaindifficulties
noted.Alsoit couldbedueto thefactthatmostof the
sampledenterpriseshad smallnumbersof staff,who lackedtrainingin businessskills,and
therefore
werenot of
capable dealing
withprocesses involvedwiththe exporting
andprocedures

192
 Most
activity. of theenterprisesdidnotexporttheirproducts
eitherbecause
of thecostor thelack
of understandingof howto do so,andtheyalsoindicated thattheywouldnotbe interestedIn
exportingtheir
productsevenif theycould.

Table6.7 Impactof the adjustmentby size of the enterprise(%)

Small-size
enterprises
Total% Micro-enterprises
(14) 5-20 21-50

Total% 100.0 63.3 32.6 4.1

Purchase
ofnewequipment 40.1 22.6 68.8 83.3

Inproduct
Change range 17.0 15.1 18.8 333
foreign
Accessing markets 2.7 2.2 2.1 16.7
Shareof importedraw
current
materials: 12.9 9.7 18.8 16.7
Increased
sincetradeliberalisation 26.3 22.2 33.3 0.0
decreasedsincetradeliberalisabon 26.3 33.3 11.1 100.0
nochange 47.4 44.5 55.6 0.0

Difficultyin obtainingraw
materials 29.3 28.0 35.4 0.0

Difficultyin obtainingcredit 85.0 89.2 83.3 33.3

ChangesIncustomer
numbers
increased 21.1 20.4 25.0 0.0
decreased 25.9 22.6 29.2 50.0
nochange 53.1 57.0 45.8 50.0

Productcompetitiveness
on:
domesticmarket 77.6 80.6 68.8 100.0
International
market 48.9 52.7 41.7 50.0

Exporting
enterprises 2.7 2.2 2.1 16.7

whowouldliketo export
Enterprises 26.5 32.3 14.6 33.3

Supplyconstraints
ableto sellmore
enterprises 78.2 74.2 83.3 100.0

Demand
constraints
abletosell current
enterprises
butnotmore
production 87.1 87.1 85.4 IDO.
0
notabletosellcurrent
production 12.9 12.9 14.6 0.0

Ownsurveyon SmallandMicro-sized
Source: In MalavA,
enterprises September
to December
2003

Thesefindingssuggestthatexporting
remainsa difficultchallenge
for manyenterprises.
Whereas
largemultinational havelongbeenconversant
enterprises withthe stepsthatmustbe takento
can find the processintimidating.
smallenterprises
exportsuccessfully, Whilelargeenterprises
tendto be proactiveaboutseekingopportunitiesfor profitableexports,manysmallonesare
reactive.Typicallytheywouldnot considerexportinguntil theirdomesticmarketis saturatedto
forcethemto lookfor growthopportunities
in foreignmarkets.Furl:
hermoremanyof themtendto
ratherthan going out to seek them.Whenopportunities
wait for opportunities arise,small

193
 due
either
maynotrespond,
enterprises to lackof finance
for growth
or thedesire
to export,asone
"I
said, am
entrepreneur not in
interested expofting".

Thosewhoexpressed an in
interest would
exporting need to becomemoreproactiveaboutseeking
But
exportopportunities. they be
may unfamiliar with foreign as oneentrepreneur
opportunities,
said, "I don't know how to go aboutsupplyinglarger in
enterprises this let
country alonehow

exporting works or wherethese foreignmarketsare".They do not the

appreciate of
magnitude
and
exportopportunities how to accessthem.Potential
exporters
are often by
Intimidated the
andmechanics
complexities of to
exporting where
countries business language,
practices, culture,
legalsystemsandcurrencyarealldifferentfromthosein thehomemarket.Theenterprisewishing
find waysof avoidinga hostof
to exportwouldhaveto identifyforeignmarketopportunities,
unanticipated problems that are often associatedwith doing business in a foreignmarket,
familiariseitselfwith the mechanics of exportand importfinancingand learnhowto deal with
foreignexchange It
risks. canthereforebe that
argued when SAP was beingintroduced,
notmuch
thoughtwasgivento theimplications of SMEsto accessandoperatein foreign
of thecapabilities
Probably
markets. thatis whyMalawiis in a situationof having
more goods
and coming
services in
than
rather goingout.Foreign imports
are fulfilling
thedomestic demand,
market and thecountry's
own manufacturers are unableto competeand supplyforeignmarkets.If theseresultsare a
of
reflection the true of
position SMEs in Malawi,
in termsof then
exporting, it canbe arguedthat
SAPhasfailedoneof itsfundamental
goals.

Impacton imports
6.2.2.3.6
With liberalisation
of the of
purchase foreign from the industrialsector
currency,enterprises
do
generally not problems
encounter in the
obtaining necessary to
currencies purchase imported
Fromthisstandpoint,
inputsmaterials. shouldnothavea significant
the adjustment effecton the
importsfor firms.However,the adjustmentprogramme is accompanied by a liberalisation
of
exportsanda realignmentof customsdutiesto reduce differencesbetween the rateon importsand
therateon finishedproducts.Theeffectsoughtis to substitute of localoriginfor imported
products
The
raw materials. surveyshows that only around13%of the SMEs
surveyed werecurrently
importing (Table
rawmaterials 6.6b).

Thefoodproductssectorhadthe largestnumberof enterprises a riseIn the

whichexperienced
shareof imported
raw followed
materials by the wood/furniture
sector(50%)(Table6.6b).Only
in
enterprises wovenproducts declared
sector thattheydid not useimported
rawmaterials,
and

194
 of Importsby local
thiswasdueto a fallin activitywithinthatsectorratherthanto thesubstitution
inputs.Overall,theadjustment seemsto havegivenriseto theanticipated effectswithregardto a
moreintensive
useof local However,
resources. thedistinction
between importedraw for
materials
and
producers importedfinished
goods be
should Most
clarified. of the wouldsay
entrepreneurs
thattheydo notimporttheirgoodsastheybuysuppliesfromotherenterprises thatimportthemor
actas So,
intermediaries. for the it
manufacturers couldbe seenas if theyareusinglocalmaterials
in
when actual factthey are purchasing their from
inputs somebody whois importingthem.There
areotherpossible for
interpretations thesefindings.
First,
it is that
possible withthederegulation
of
domesticpricestheratioof relativepricesunderwent a notablechangein favourof localproducts.
Secondly,it couldbe that the slightincreasein importedinputsoriginatesfromthe industrial
structurein Malawi,
thus, the priceelasticity
of domestic demand is limited by the absenceof
national for
substitutes the importedproducts. Finally,
the devaluation of the MK currencyas
comparedto currenciesof the countries the
supplying raw materialsmayhavemadethe real
cost
economic of inputs
imported relatively
moreexpensive.

citedcurrencydevaluation
The respondents as one of the top problemsaffectingSMEseven
thoughnot manyof themimporteddirectlyor dealtwithforeignexchange.
Outof the 13%who
weredirectly inputs
importing andonlya small
proportionoutof the micro-sized did
enterprises so.
Onewouldassumethatoutof the surveyedactivitysub-sectors,
metalproducts,servicesandto
someextentclothing(there is a big market for second-hand
clothingin Malawi,
whicharemostly
imported)
wouldbe top of the list of importersof raw Malawi
materials, hardlyproducesits own
hence
metal any products
metal-related means thatat somepointrawmetalwasimportedby a
company.
wholesale industries
Service such as privatehospitals/clinics
relyon importedmedical
Similarly,
products. transport rely
service on imported vehicles
and parts.But thesurveyshoweda
less proportionof importersout of the servicesor metalproductscomparedto construction
whichare
materials occurring
naturally in Malawi.

materials,food products,woodandwovenproductsare hardly

SMEactivitieslike construction
to
expected rely on imports
astheyuseagricultural or naturally inputslocallyfoundin the
occurring
to satisfylocalmarkets.Therefore
usuallyon a small-scale
country,withproduction the SMEsin
wouldrarelydealwithforeignexchange
theseactivitysub-sectors hencenotdirectlyaffectedby
in
changes However,
value.
currency some of the sectors buy
indirectly and useimported inputs
whoaredirectlyaffectedby thecurrencydevaluations.
fromwholesalers Forinstance,
in thefood
those
sector,
products rearing have
chickens to rely on feed
chicken and chicksimported,
by

195
intermediary
companies, fromZimbabwe
and other African Hence
countries. whatevereffectsand
cost implications
of devaluation
currency which the importers
wholesaler they
suffer, are later
whoaremostlythesmallandmicro-enterprises.
to theircustomers,
transferred ProbablythatIs
why someof the surveyedSMEs saidthat devaluations
currency werea to
constraint their
even
operations, though did
they deal
not inforeign directly
exchange themselves.

6.2.2.3.7Impacton competition
The adjustmentwas intended to stimulate both national and internationalcompetitionby
deregulatingeconomicactivity and liberalisingcommercialexchanges.At the beginningof

adjustment, imports the

constituted main threat to nationalenterprises, for
particularly the large

ones in the modem sectorwhich operatedin import-substitution

markets.This scenariodoes not
to
seem applyvery much in Malawi takinginto accountthe surveyresults.Importswere cited by
only 0.7%of the enterprises(Table6.3) as the mainsourceof competition.Only 1% of the micro
enterprisesfelt threatened by the entry of competing foreign products and the small-sized
were
enterprises less sensitiveto the intrusionof imported products.They operateon different
marketsand the from
competition othersmallfirmswas what threatens
their In
survival. the words

of one intervieweeregardingcompetitionamongstthemselves,"there is too muchcompetitionIn

businessesthese days and the market is very small". Again it can be arguedhere that it is
that
expected importswouldnot be citedas the mainsourceof competitionto the SMEsbecause
mostof them are engagedin buyingand sellingimportedgoods,hencewhat is happeningis that
SMEsare competingamongstthemselvesfor the marketshareratherthatofferingdifferentiatedor

competitiveproducts.

theyoffered,about78%feltthattheirproducts
Withregardto theproducts on the
werecompetitive
domesticmarketwhereas49% said they thoughttheir productswould be competitiveon
markets.Construction
international materials,groceries/hawker
and wood/fumiture
production
sectorswere amongstthe top sub-sectorswho felt that they offeredcompetitiveproducts
internationally. weretheclothing/tailorin
Leastcompetitive (Table6.6b).
g andservicessub-sectors
werethemost(53%)firmswhosaidthattheirproducts
Micro-enterprises wouldbe competitive on
markets(Table6.7).However,
theinternational it shouldbe notedthata higherproportion
of the5-
20and21-50enterprisesthoughttheywereinternationally thanwasthecasefortheI-
competitive
4 size enterprises.Again here, it raises the same questionof whetherthey themselves
manufactured the they
products sellor whethertheywerefromimportswhichwouldexplainwhy
theyfeltthatwhatevertheyweresellingwouldbecompetitive
ontheinternational
markets.

196
 Impacton viability
6.2.2.3.8
Theimpactof adjustment depends
ontheviabilityof enterprises on thecapacityof entrepreneurs
to
to
adjust the new economic based
context and betteraccessto external
on greatercompetition
Exporting
markets. enterprises are in a better to
position take advantageof the newreforms,
whereas firms
import-substitution are affectednegativelybecause their viabilityis directly
threatenedby the increasedcompetitionas a result of the eliminationof quotasand the
harmonisation
of tariff The
protection. datain thesurveyconfirmthisinterpretation.
In answerto the
of
question of
viability their 35%
enterprise, of the declared
entrepreneurs thattheirenterprise
was
more than
profitable before,which is not too bad that
considering only 0.7% exportedtheir
The
products. which
enterprises, declared
thattheyweremoreprofitable,
wereessentially
micro-
in
enterprises theservicesandfoodproducts Enterprises
sub-sectors. since1994were
established
more
comparatively than
profitable those establishedbeforethat year. The 21-50category
penalised
particularly
seemed
enterprises by the adjustment
measures as 83%of themdeclared
thattheywerelessprofitable, of import-substitution
thevulnerability
confirming firmsto changesIn
theeconomicrulesof thegame.

Constraintswith regardto continuationof the Adjustment

6.2.2.3.9
Growthin demandis supposed to encouragefirmsto makethe requiredinvestments
to become
moreefficientand more competitive,which in turn bringsaboutgrowthof productionand
employment.Tables6.6band6.7givea fewindicationsas to theconstraints
of and
supply demand

as perceived by the interviewed.

entrepreneurs The data in these tablesindicatethat the
enterprises by lowlevelsof localdemand.
in thesamplearenotmuchrestricted Only13%declared
whereasthemajo(ity(87%)declaredthattheycouldsell
thattheycouldnotsellcurrentproduction
Notmanyof the enterprises
currentproduction. seemedto havesupply-related problemseither:
78%of all enterprisesat leastsoldtheirentireproduction
andcouldevensell more,particularly
firmsin thebuildingandconstruction,
wovenproducts Thefactors,
branches.
andclothing/tailoring
whichlimited were
supply, mainly the chronicinsufficiency
of The
capital.
working otherfactors
whichalso had a negativeeffecton productioncapacitywere:lack of storageInfrastructure
(damageof products,notablyin the rainyseason);fluctuationof pricesof agricultural
inputs,
and
notablyout of season; deterioration
or lack infrastructures
of transportation hinderingregular
supplyof raw Many
materials. of theentrepreneurs or theirownpersonal
usedprivatemini-buses
to
vehicles transport
their and
goods statedthattransport
costwasvery high.
Thecostof fuelwas
largelyto blamefor highcostof transportation,
asexpressed byoneinterviewee: "transport
costis
veryhigh such thatall are
profits takenup by this".Supplyof waterandelectricity,
however,didnot
to
appear be a big for
problem most
of them,
although
somehadmoredifficulties
withelectricity

197
powercutsthanwith Since
water. SMEs
most areengagedin buyingand sellingof finished
goods,
would
waterandelectricity notposemuchof a for
problem these typesof activities.

Financingenterprisesandaccessto credit
6.2.2.3.10
Financial the
matterspresent most acuteproblemfor SMEs
andformal
financial
institutions
provide
to
capital SIVIEs
onlyin therarest
of cases. Table6.8 givesanoverviewof theinformation
obtained
fromtheentrepreneurs withregardto financing
of theirenterprises.
In mostcases,themainsource
of financing
at the beginning of was
activities loansor giftsfrom family and friends
(40%) followed
by personalsavingsat 18%. One of the mainreasonsfor using theirown funds wasthatthey found
it extremelydifficultto get creditfrom lendinginstitutionsto start their businesses.As far as
financingat the beginning
of is
activities only7%of the surveyedenterprises
concerned, hadthe
fundsfroma bankor a creditagency(Table6.8).Oneinterviewee
benefitof receiving madethe
followingcomment:"by not providingus with loans,they are hinderingour businesses
from
growing".

Table6.8Financingof enterprises
andaccessto credit(%)
Small-size
enterprises
Total% Micro-enterprises
(14) 5-20 21-50

Total% 100.0 63.3 32.6 4.1

Financing forestablishing anenterprise(mainsource):

Personalsavings 18.4 22.6 12.5 0.0
Redundancy/refirement money 14.9 11.8 16.7 50.0
Loanor giftfromrelatives/friends 39.5 38.7 41.7 33.3
Inheritedthebusiness 4.8 3.2 8.3 0.0
BanklBuilding societyor agencyloans 6.8 2.2 14.6 16.7
Othersources 15.6 21.5 6.2 0.0
Difficultyof obtainingfundsfor businessgrowth:
Verydifficult 42.9 52.7 29.2 0.0
Quitedifficult 12.9 11.8 14.6 16.7
Quiteeasy 35.4 25.8 50.0 66.6
Veryeasy 8.8 9.7 6.3 16.7
Difficultyof obtainingfundsfor financingnewequipment
Verydifficult 40.1 45.2 33.3 16.7
Quitedifficult 15.6 13.9 20.9 0.0
Nochange 5.4 8.6 0.0 0.0
Quiteeasy 4.1 1.1 8.3 16.7
Veryeasy 30.0 25.8 33.3 66.6
Notsure 4.8 5.4 4.2 0.0
Difficultyof obtainingcredit
Verydifficult 67.3 72.0 64.6 16.7
Quitedifficult 17.7 172 18.7 16.7
Quiteeasy 10.2 6.5 14.6 33.3
Veryeasy 4.8 4.3 2.1 33.3

Ownsurveyon SmallandMicro-sized
Source: In Malawl,
enterprises September 2003
to December

198
The dataconfirmsthe conservativepracticeof the bankingsystembothwith regardto its
to
willingness industrial
finance and
operations with regardto theconditions
of access to credit.
Theyalsoshowthatdespite ofthebanking
there-organisation systemundertakeninthecontext of
SAPsaccessto financeremains a constraint
major for Banks
enterprises. are lessinclinedto
providecapitalto set up a but
business, are more willingto finance
projects for expansionor
working This
capital. is evidencedbythe fact
that when they were how
asked difficult
oreasyit was
to obtainfundsforbusiness around
growth, 44% said it waseitherquiteeasyor veryeasy.Less
than30%ofthemicro-sized foundit quiteeasyandlessthan10%foundit veryeasyto
enterprises
obtainfunds for growth from banks.Sincethe structuraladjustment measureswere taken,many
entrepreneursstill foundit difficult
to funds
obtain for purchasing
new and
equipment, this is
very
particularly for
difficult micro-enterprises.

Despitethe presenceof multipleand often interrelatedconstraintssuch as inadequate

hightransportcosts,legalandregulatoryrestrictions,
infrastructure, belief,from
the widespread
mostenterprisesurveys,is that lack of workingcapital
constitutesthe main to
obstacle SME
In
performance. this competitiveage, once the business is up and SIVIEs
running, have been

sufferingfrom insufficient
orders, reductionin tradevolumes and prolonged creditterm for buyers.
All theseproblems havein turncreatedcashflowproblems for SMEs.At thesametime,prevailing

economic climatemakes it for

difficult SIVIEs
to obtainloansfrom lendinginstitutions
to meettheir

operational needs.Sincethe are

enterprises in
operating increasingly
competitive
marketsandare
limitedin theirgrowthby the moderatedemandin themarket,theyhaveseriousdifficultyin even
findingfundsfor theirworkingcapitalto financetheircurrentoperations:
over60%of the firms
declared
interviewed thattheywerein needof fundsforworkingcapitalandexpansion.

thefinancialmarkethasbeenliberalised,
Although theneedsof SMEsarestillnotbeingsatisfied
due to limitedaccessto both workingcapitaland long-termcredit,Banksand other lending
institutions because
arereluctant SMEs seemto havea historyof badcreditwiththem.Despite
this,thebankingsectorandotherformallendersstillgettheblamefornotproviding
creditto SMEs.
Failureof SMEgrowthanddevelopment cannotbe blamedon financialinstitutions
alone,butalso
on SME customerswho failto honour their The
credit. problem
of working capitalbeingtiedupwith
clientscame up oftenin the interviews.
One interviewee
made the followingcomment: "I have
customers who buy on and
credit don'tpay me back andsomeof themevenpassawaybefore
theysettletheircredit,makingit verydifficultfor businesses".
It couldthereforebe arguedthat

199
 are
someentrepreneurs to
unable make on
repayment theirloans
to theformal because
lenders
aretiedinwiththeirowncustomers.
theirownfinances

Highinterestratesandthe lack
banks' of in
interest lending
to those did
that have
notalready a lot
of cashin bank
their to
appeared
account bethemost serious problemswhenit to
came getting
money fromlenders. for
Conditions obtaining loans are so that
restrictive 70%
nearly of the
it
considered
enterprises wasuseless to for
apply a loanfrom a bankor otherlendinginstitutions,
because
either their were
guarantees insufficient
or becauseof thecomplexityof bankprocedures
ortheir
ownignorance
ofthese
procedures.

It wasalsofeltthattherewasa lot of corruption

amongstthelendinginstitutions.
Oneinterviewee
went further
to make the following
comment: "certain
peoplearegivenlowerinterestrateon loan
thanothersbythesamelenders". Theentrepreneurs indicated
thattheywouldliketo seeanendto
withinthegovernment,
briberyandcorruption especially givingloansto peopletheyonly
regarding
knewandgivingoutloanswhenit is neargeneralelections.
Theysaidthattherewasinequality in
thewayloansweregivento individuals. Theentrepreneurs
alsosaidthatlendinginstitutions
were
very
attaching difficult to
conditions loans
andthattheloanprocessitself
wasverylong. This putsa
strainon manybusinesses,
especially
manufacturersas many foundit increasingly to
complicated
keep their equipmentup-to-datedue to lack of funds, somethingthat compromises their
as
competitiveness a part
substantial of the dates
machinery fromthe 1970s and was much less
than
productive equipment.
up-to-date The SMEssaid they wouldlike to see the loan process
speededup and loosening of some of the conditions for loans,for examplethe
and restrictions
for
requirement a lotof identity
evidence for
especially peoplewho do not have enougheducational
background.Someof themsaidtheyneededmoretrainingin business
skillsespecially
withregard
so thattheywerefullyawareof whatwasexpected
to loanrequirements of them.In general,most
suggested
entrepreneurs that business
growthwouldbe if
enhanced theyweregivenhelpwith
financial
issuessurrounding capital.

6,223.11Regulatoryenvironment
Theregulatory covers
environment factors
thataffecttheeaseandriskof operating
a business
Ina
salesand profit/lossaspects.Oneof the important
country,otherthanthe normalproduction,
is to createan enablingenvironment,
functionsof a government whichencompasses political
stable
stability, atmosphere,
macroeconomic infrastructure,
supportive incentives
competitive and
Regulations
security. are an important
aspect
of the business sincetheyrepresent
environment,

200
themostdirectexpression attitude
of government's businesses.
towards Oneof theSAPpolicies
to the
was stabilise of
economies SSA
most countries
andthispolicyimpacted
on the SMEsector
inthissection.
inthewaysdiscussed

Although mostof theentrepreneurs indicated

that thegovernment was unrestrictivetowardsSMEs,

some entrepreneurs felt that the regulatoryframework for industrialactivityin Malawiwas still
in
restrictive someways, with
particularly regard to the issue of taxation.
They pointed
out that,in
to
addition lackof the
transparency, framework was characterised
amongotherthings by poorly
adaptedregulations andexcessive In
taxation. an unequivocal irrespective
manner, of the sizeof
theenterprise the
or sector of in
activity whichit thelevelof taxation,highinflationrates,
operates,
briberyandcorruption
werementioned as the maindifficultiesposedby the regulatory context.
Briberyand corruptionwas in the top eight on the list of difficultiesconstraining
business
For
operations. thoseentrepreneurswho went to buy goods from neighbouring they
countries, said
theyhadto bribecustomsofficialsat thecross-border
pointsinsteadof payingdutyon importsas
someof thechargeswereexcessive and "one
arbitrary: needs to setsome money aside for bribing
the customsofficialsso that you don't have to pay duty on the imports",commentedone
Bribery
entrepreneur. and corruptionin the governmentand government departments'
officials
their
confiscating for
merchandise no apparentreasonsand with no explanationoffered
was
whatsoever, alsoa major "You
problem. haveto givetheseofficials
a back-hander
if youwant
to getyourgoodsback",saidoneentrepreneur.

Themajority of businessesdidnotneedgovernment permissionto starttheirbusinesses.

However,
two-thirds
of the individuals
surveyeddid indicate
thatthereweregovernment lawsandregulations
that they were requiredto complywith when runningtheir business,but over half of the
entrepreneursalsostatedthat theydid not haveto meetany kindof quality for
standards their
implying
products, thatthe of
quality theseproducts
could be
potentially verysubstandard.

Consequently,althoughthe Malawiauthoritieshaveundertaken to remodeland simplifythe

framework,
regulatory these are,
reforms in the opinion
of entrepreneurs,
several still insufficient.
Manymeasuresare still neededto establisha degreeof confidencewhich can stimulate
Entrepreneurs
production. expressedthattheywouldliketo seeothermeasures
takento makethe
current more
regulations flexible
or to them
reinforce in certain These
cases. included,
amongother
things:increasedaccessto publicmarkets,simplification for loansandan endto
of procedures
Theywouldalsoliketheauthorities
briberyandcorruption. to adoptmeasures the
whichreinforce

201
legislation and
competition
on unfair fraud.
Theyalsoexpressedthatthey wouldliketheauthorities
asfarassecuritywasconcerned
to providethemwithmoreprotection in thecountry.

Satisfaction
6.2.2.4GeneralEntrepreneur
with the performance
The answersbasedon the satisfaction of their businessesvariedvery
proportions
similar
strongly,withapproximately satisfied
and dissatisfiedwiththe currentrateof
growth and the overall of
performance their business.Thus, askedif the entrepreneurs
were
satisfiedwith business 51%
performance, were not 48%
satisfied, were satisfied
and 1% was
(Figure6.3).Mostreasons
indifferent givenfordissatisfaction
includedtoomanysimilarbusinesses

around, too much too

competition, much lack
corruption, of for
capital high
growth, inflation
rate
fall
causing in and
profits who
customers buyoncredit
nothonouring
theagreedcreditterms.

Fig.6.3:Satisfaction
withbusinessperformance

45%- 41%
39%
40%-
35%-
30%-
25%-
20%-
15% 12%
10%LK 7%
5% 1%
0%
verydissatisfied dissatisfied neither satisfied verysatisfied

Ownsurvey
Source: andMicro-sized
onSmall InMalawi,
enterprises September
to December
2003

however,indicatedthat runninga businesswasdifficult,largelybecauseof

Mostentrepreneurs,
and
corruption
competition, lackof for
capital theirbusiness.
Thesituationmayhavechangedfor
somebusinessessincea largeproportionof individuals
whose businesseswereoperating before
1994statedthat their mostdifficulttime was between'1981
and 1994.This suggeststhat the
for
environment businesses
small may be improving.
Unfoftunately,
many of theseindividuals
were
the
about
pessimistic future
of theirbusinesses,
suggesting
a lackof faithin improvements.
current

202
6.2.2.5Comparisonof Surveyresults
Table6.9presents
a comparisonof findingsfromtheentrepreneur
surveywiththoseof theMalawi
GEMINIsurvey,whichwerediscussed in Chapter
Five.Aswellassomesimilarities
of results,there
aresome between
differences thetwosurveys.First,
theGEMINIsurveyenumeratedover 700,000
microand small whereas
enterprises this studywas carriedout on a very smallnumberof
Second
enterprises. the GEMINIsurveywas conducted 3 yearsbeforethe presentstudy.The
as
environment
macro-economic wellasthe SMEpolicystrategymayhavechangedin theinterval
betweenthetwostudies.Third,thetwosurveyshaddifferentaims:the GEMINIsurveygathered
baselinedatawhereasthis studywentfurtherand exploredhow SAPsand globalisationhad
impacted upon theSMEs. Asthere is verylittlecomparability
between
thetwosurveys, comparison
of the results, in
included Table6.9,has been made
on onlythosefew thatweresimilar.
questions
Variables whichweredifferentbetween thetwosurveys wereexcluded fromthisanalysis.

of Surveyresults:MalawiGEMINI
Table6.9Comparison Surveywith OwnEntrepreneur
Survey

GEMINI
Survey
2000 OwnSurvey
2003

Size:
14 (micro) 91% 63%
5-20(small) 8% 33%
21ZO(small) 1% 4%
Ownership:
Male 35% 58%
Female 34% 30%
Partnerships 31% 12%
levels:
Education
None 16% 3%
Primary
education 69% 30%
Secondary
education 13% 44%
AboveSecondary 2% 25%

Having
received
business
Formal training 10% 25%

Activity
sector
Commerce & Trade 45% 38%
Services 7% 27%
Manulacturing/production 48% 35%

Placeof business
operation:
Home 73% 36%
Traditional
market place 8% 11%
Commercialdistrict 2% 38%
Roadside 10% 3%
Mobilebusiness 3% 9%
Others 4% 3%

Mainbusiness byranking:
constraints
Inputproblems 1 2
Marketproblems 2 5
Financial
problems 3 1
Government/regulatory
environment 9 3
Transport
problems 6 4

DataSource:Malawd Survey2000,OwnEntrepreneur
GEMINI Survey2003

203
The datademonstrate pattern
similar with to
regard enterprisesize in that thereare muchmore
than in
enterprises
small-scale Malawi. Howeverin thissurvey,
percentage of firmswith5-20
micro
wasmuch than
higher in the GEMINI studyandthiscouldbe for a number of reasons,
employees
be because the different methods
sampling usedin the The
surveys. GEMINI
oneof themcould of
sampling for the entrepreneurs
surveyed whereas in this studyit
studyusedclusterandrandom
wasa matterof interviewing
whoever was availableandwillingat the time.On the otherhand it
be thatsomeof thefirmsin the 2000GEMINI survey had grown in sizeby 2003.
couldgenuinely
Therehas however,
been, a declinein the proportionof femaleownedSMEs compared to the
it
GEMINIstudywhere was almostequal.Again this could be because
of the in
difference the
As for levels,
education mostof the entrepreneurs
surveyed in the GEMINI
samplingmethods.
had only achieved primaryeducationwhereas in the 2003 survey there seem to be
study
improvements as most had
entrepreneurs Secondary
either or University This
education. couldbe
because of risinglevelsof such
unemployment thatmore and moreeducated peopleareresorting
to startinga business
of theirownor it couldbe thatthecampaign for the
raising educationlevel
of
Malawians is bearingfruits.With regards to businesstraining,this study showed a higher

of individuals
whoreceived formal businesstraining
than the GEMINIstudyalthough
percentage
the numberswerestill indicating
small, that not manyof the have
entrepreneurs the necessary
to
skills,andmuchmoreneeds
business bedonein thisarea.

Thissurvey'sresultsalsoshow a different for

picture the three broad sectorsof There
activity. are
andless or
manufacturing production in thissurvey than the GEMINI
moreserviceentrepreneurs
studycouldfind.This is more
probably representativeof the currenttrendwhere more andmore
are
entrepreneurs in
engaging activities
service suchas opening clinics,
private privateschools,
bureaus,
telephoneand communication privatetransport
service,
and so on. The decreasein

could be the resultof heightenedimport competition stemming from liberalisation

of
manufacturing
tradepolicyunder theSAP. There has alsobeen a shiftin business operatinglocations.
This study
a lowerpercentage in those businessesoperating from home thantheGEMINI survey, and
showed
increase in those conductingtheirbusiness in a traditional
market place.However
showsa slight
is
there a remarkable difference in businessesoperating from commercial or industrial
business
Whiletheremightbe explanations
several for thisshift, one possibility
couldbe that as
premises.
entrepreneursareengaging in service it
activities, is becomingnecessary for them
moreandmore
toseekbusiness in
premises anindustrial
or commercial district,
therefore theincrease may justbe

of
a reflection thattrend.

204
 about
Both surveysaskedentrepreneurs what factorswere hamperingdevelopment of their
In the
businesses. general, same broad of
categories complaints
werecitedin both those
surveys:
relatingto input
finance; regulatory
problems; environment;
and transport
problems.However,
In

this study,financeproblemsranked first followedby inputsproblemswhereas in the GEMINI

surveyinputs problem was firstfollowedby marketsize problems and then financial

constraints.
one explanationcould be that the macro-economicenvironmentis getting worse in Malawi
andthis
wasalso in
reflected thatgovernment environment
regulatory rankedthird in this study.

It is hardto draw definitive from

conclusions comparisonsof the two studiesdue to in
differences

methodology. Despite in
differences samplesize or sampling both
method, studieshavehighlighted

similarconstraintsexperiencedby the SMEsector in Malawi.

6.3Summary
Overalltherewasa generalconsensuson mostof the issuesfacedby the SME in
sector Malawi$
byboththeinterviewed
governmentofficersandthesurveyed entrepreneurs.Tobeginwith,theyall
the
agreedthat countrywas not well equipped to compete globallyand that newtechnologyis
There
required. is a
generally lack of skillsand knowledge to recognise the opportunitiesand
benefits The
of globalisation. survey findings showed that decreased
profitability among SMEs and
many found it difficult
increasingly to keep their equipment up to date due to lack of funds,
that
something compromised their as
competitiveness a part
substantial of the dated
machinery
fromthepre-SAPperiodandwasmuch less than
productive up-to-date Another
equipment. major
SMEgrowthanddevelopment
issueinhibiting in Malawiwaslackof financeforworkingcapitaland
the
even government paper
strategy that
admitted therewaslackof capital
supportfor SMEs.High
interestratewasa majorproblemfor businessborrowerssuchthatcreditfinancedinvestment was
not an attractiveoption as real interestrates were in
consistently two-digitrange. Many

also
entrepreneurs cited'corruption'
as another problemfor whenit came to applying for a loan
frombanksandothercreditinstitutions.
"if youdon'thavethe appropriate collateral,you either
haveto knowsomebody in highplacesor youhaveto bribesomeone in thoseinstitutions",these
the
were exact wordsof oneof the surveyed It
entrepreneurs. was interesting
particularly to note
the cited
that entrepreneurs corruptionwithinthegovernmentdepartments as oneof theproblems
theirgrowthandthe surveyedgovernment
inhibiting officersalsocitedcorruptionas oneof the
majorobstacles to private This
businesses. that
confirms there is a serious
problemof in
corruption
thecountry, the
whichaffects developmentof theSME sector,
and whetherthe has
corruption been

enhancedby theopportunities by
brought the SAP or is
otherwise, a for
matter debate.

205
Therewerealsoconcerns, on bothsides,overlackof competitive due
environment to high
transport high
costs, inflation
rateandpoor trading
arrangements
and thesewerecitedby the
interviewedofficersas someof thereasons why manufacturingsectorwas failing.
They alsoall
agreed that chronicallyhigh inflationwas discouraging
the formulation of long-term strategies
in
resulting increaseduncertainty and transaction There
costs. to be
alsoappears notmuch inter-
firmnetwork or cooperationamongst SMEs themselvesdue to lackof trust. The surveyresults
revealedthat therewere limitedlinkagesbetweenSMEs and large-scaleenterprises in thecountry,
lack
andgeneral of cooperation among the SMEsthemselves. There wasa non-cooperative
business cultureand this was also agreed by both the interviewed officersand surveyed
entrepreneurs.However,for some like
enterprises, those in transport,
they werecooperating
informally
witheach otherand businessassociations playa very active
role as thereis at least
some being
information passed aroundand informalinformationexchangetaking place.

Problemswith the tax system are still barriers

important to furtherSME developmentand the

surveyevidencesuggested that there were a number of acute faced

problems, by SMEs,

with
connected tax law suchas thenumberof taxesandthe of
amount tax
consolidated payments.
Amongstthedifferenttypesof taxes,themost'unpleasant'
onesfor thesampledenterprises
were
surtax,market fees and tax.
municipal Most of the felt
entrepreneurs that thesetaxeswere
high
relatively compared to theamountof they
profits made, one
probably of the mainreasonswhy

mostof themwouldnotformally their

register businesses.

Thesurveyalsorevealed thatSMEsdid notexperience fromlargeenterprises

seriouscompetition
in
except some product
specific sectors, building
mainly and construction
materials
andthe most
important was
sourceof competition otherSMEs.Morethan halfof the SMEs
surveyed reported
thisandtypical
sectorswerefoodproducts,
metal
products,
woven products and On
services. the

wholetheyall agreed thattradeliberalisation

hadresultedin a floodof imports,
competing which
the
reduced marketshareof domesticSME The
production. government's concerns
overan open
economywas that domesticdemand was beingsatisfied through importsleadingto serious
lead to moreborrowingand debt.The
balanceof paymentsdeficitwhichcouldconsequently
that
officialsacknowledged the desperately
government needed to the
revive manufacturing
sector.
Generallytherehadbeenveryfewchangesin thebusinesses of thesurveyed individuals,
andthe
had
market notopened up to themfor foreigntrade. Sincemost of the businesses
small did not
fromothercountries
importrawmaterials or exportfinishedgoodsto othercountries,thechanges
that they had beeninvolved
with had beenvery small,otherthan the fact that therewas an

206
increase thattheyfaced,andmanyof themwerenotwell-equipped
in competition to do so.The
findings the
confirm fearsand debates,
whichwere
presentedin preceding thattheSAPs,
chapters,
tradeliberalisation,
in particular domestic
hasexposed firmsto competition
fromimports
before
theyareableto increase andalsothatthemanufacturing
andcompetitiveness
efficiency basehas
beenrenderedweak and inefficient, for
certainly Malawi.
It seemsthat,production (such
of goods
aschickenrearing,furniture
making) fordomestic muchmoreimportant
marketstillremains than
The
exporting. lifting
of trade
restrictionwould seem like a goodthingfor businesses,
butformost
of these
smallbusiness owners it made no difference due to thefactthattheydidnotselltheir
goodsabroadanyway for
except the influx
of importsin thecountry.

In summaryThe mainproblemshinderingthe SMEsectorwhichkept croppingup from both

phasesof the survey werelackof capitalfor businessgrowth,obsoleteequipment,briberyand
corruption,poor high
infrastructure, inflationand interestrates,unstablecurrencyvalue and
competitionfromimported Referring
products. to Figure1.1presentedin ChapterOne,the only
indicatorregardingpositiveimpactof SAP,wouldprobablybe job creationin so muchthat the
SMEshaveprovidedemploymentfor manypeoplewhowouldhaveotherwise beenwithouta job.
Eventhoughmostof theSMEsarejusta meansfor survivalfor mostpeople,onecannotimagine
whatthe (bad
situation as
enough it is)
currently andliving standards of thoseindividuals
would
havebeenlikehadtheynotbeengiventheopportunity to tradefreely.It shouldbe bomein mind
thattheSAPsandpoliticalreformsin Malawicannotbeseparated thesituation,
whenanalysing as
it couldbe arguedthat due to politicalreformpeopleweregivenfreedomto engagein any
of
activities
entrepreneurial theirchoicebut on the otherhandthefreetradepolicyalsoplayeda
majorpartin allowing trade,
cross-border thusallowingindividuals
to go out to othercountriesto
goods
purchase for salein Malawi.However,
strongindications
fromthe surveyresultsarethat
shrinkingmarketsharefor localproducersdue to increasein
thereis increasedcompetition,
imports,poorfinancialsupportsystemand poor infrastructure,
all of whichare indicatorsfor
negativeimpact of SAP. Since thereare muchmorenegativethanpositiveeffects,it can be
concluded that in the case for Malawi,this countryis, withouta doubt,being
sub-Saharan
rather
marginalised than into
integrated the globaleconomyand for many SSA countries,
disadvantages outweigh
of globalisation thebenefitsbyfar.

207
 ChapterSeven

AnalysisandDiscussions

7.1Introduction
Thischapterbuildsuponall the issueswhichhavebeenconsideredin the precedingchapters,thus
fromfindingsfromthe literatureto the findingsfromthe empiricalinvestigationwithinthe contextof

globalisationand SAPs. It comparesthe theoryof how the SAP was intendedto IntegrateSSA

countriesinto the globaleconomy with evidencegatheredfrom SMEs in Malawi,a SSAcountry,to

see if SAP'sobjectives are beingfulfilled.In Chapter

Six, resultsof the Investigation,
empirical on
how the SME sector has been affectedby the SAP measures,were presentedand further
discussionof the findingsis in
presented thischapter.

The analysisof the response of the industrial

sectorto the structuraladjustmentmeasuresIs
complexbecause it is to
subject several, forces,
often-conflicting the Importance
relative of which
taken.Theshortandmedium-term
dependson the measures effectsof structuraladjustment
on
views(Stewartet al. 1990).The
SMEsare by no meansclearandthereare manycontrasting
varyingdebates the
surrounding SAPs have been shown from the wide body of literature,
in
discussed Two
Chapter and from
findings investigation.
theempirical Hopefully,
thecountrycase

studyfindings have shedmore light on how SMEs have been affectedby SAPs in Malawi.
Discussionsof the findingsare presented in the following The
sections. findingshave been
discussedwithinthe of
context the conceptual
and theoretical
framework set out In Chapters
One

and Policy
Two. implications
are alsodiscussed
in the final
sections
of thischapter.

7.2Discussions
theimpactof SAPson SMEs,thediscussions
Forthepurposeof measuring havebeenpresented

underfour mainreform (1)

components: tradeliberalisation
including
external
sector (2)
reforms
includingeliminationof pricecontrols;reductionof restrictivewageand
domesticderegulation
labourregulations;publicsector including
restructuring reductionof publicsectoremployment;
of
privatisation and
parastatals demand management including
demand control
andreorientation
fromdomesticdemand to (3)
exports fiscalandmonetaryreformsincludingdepreciation of the
of foreignexchangecontrolas well as allocation;and (4)
domesticcurrency,liberalisation
supportingsectoral The
initiatives. impact of has
globalisation also been discussed in a separate
These
section. are the same components describedand presented in theConceptual Framework In
1-1
Figure as theyform the basisfor analysingtheimpactof SAP and in
globalisation thisstudy.

208
7.2.1Tradeliberalisation
Beforethe Structure Programme
Adjustment was initiated,SSA's exportandgrowthperformance
to havebeen by
hobbled restrictivenessof its trade It
regimes. wasbelieved
thatIf
was believed
thesecountriesgavepriorityto liberalising
trade and adopting structural they
reforms, would
high
achieve growth rates(IMF 1999a). Basing on the from
findings this study,Malawihas not
greatlyimproved its exportperformance as expected.Thepicturethatemerges for Malawi
is thatit
has becomea "buyingand selling"nationratherthan a producingone as a resultof trade
Trade
liberalisation. has
liberalisation led to sharpincreasein importsbut exportshavefailedto
keeppace.Export performance hasbeenpooron thewhole and the problem Is thata countrycan
how
control fastto its
liberalise but
imports cannotdetermineby itselfhow fastits exportsgrow. As

said,Malawi
reliesmainly on primary for
products exporting
and it couldbe argued thatthisIs not
for
enough economic growthof the Markets
country. for primaryproductsgrowtoo slowlyto fuel

growthas prices from

received these have
commodities been declining,
earningsare too unstable
and linkagesdo notwork verywell. Manufacturing
on the otherhand providesa larger menuof
for import
possibility efficient and
substitution increasing
exportsthan is possiblewith primary
industries However,
alone. it couldbe arguedthatmodem industry
is knowledgeintensive.It may
in
result jobs for the highlyeducated,but it is that
unlikely jobs will be generatedfor the poor,
the
especially surplus force
agricultural of rural Malawi, evenwhen the growth
rateof InvestmentIs
increasedin theprivatesector.However, Malawi'sdependence
on primaryexportsIs not,In itself,
the majorproblem. Terms of tradefor Africa's have
exports beendeteriorating
overthe pasttwo
decades(IMF1999a).In orderto improveexportperformance,
Malawiwouldneedto addressthe

numerous such
problems, as infrastructure
andscarcityof As
capital. well as domestic
policies,
exportperformancewill also be determined by enhancedaccess to industrial
country markets.But
their
despite generally open traderegimes, industrial
countriestend to have on Imports
restrictions
of where
products,
agricultural much of Africa'sexport is
potential concentrated.

in previouschapters,in Malawithe manufacturing

As discussed sectoris mainlytea,sugarand
(primary
tobaccoprocessing exports).As discussedin Chapter
Five,the primarysectoraccounts
(Table5.1)andalsothatthe most
38%of whichis agricultural
for over40%of employment,
were
sectors
profitable thosethat reliedon naturally occur1ring such
resources as forestry
crops,
which
andconstruction, couldbe argued that this is whereMalawi's
comparative
advantagelies,
Comparative dictates
advantage an important
roleforprimary
exports, at least
In theearlystagesof
However,
development. the relativefactor
endowments thatdictatetheexportof primaryproducts
with
change degradation
growth,
population of resources,
natural accumulation,
capital education

209
of the force
labour of
andadaptation newer An
technologies.idealsituation
would befor Malawi's
comparative to
advantages move,withdevelopment,away from land and resourceintensive
productstowards Virtually
manufacturers. all would
governments like to seethis to
shift
gradual a
moreindustrial It
economy. seems inconceivable
that SSAcan entera pathof sustainable
development emphasis
considerable
without on manufacturing
and building of
a strongexpod-base
Under
products,
manufactured adjustment,
structural manufacturingin Malawi has been
sectoritselfis notconsidered
Themanufacturing
floundering. dynamic
Inthesensethatitsvalue-
added is lowandit to
needs be diversifiedtowards higher
value-added
manufactured goodsin
orderto Malawi's
improve comparativeadvantage. In the
general, liberalisation
trade has
policy not
yetmade a positiveimpacton theintegration
process of theMalawi economy, It is notyetclear
whetherthisis dueto slowimplementation
of the adjustment the
policies, longtime lag required
beforesuchpoliciescantransform the economy, or rigidproduction structures Incapable of
competingin theglobal However,
market. not all problems faced by thesectorare to
attributed
trade As
liberalisation. from
noted the survey lack
respondents, of capital
andpoorinfrastructure
(roads,communication are also majorhindrances
and electricity) to the developmentof
manufacturing.

has impactednegativelyon the manufacturing

It is apparentthat tradeliberalisation SMEsin
Malawiin thattheyarenotableto competeinternationally
andmostof themareclosingdown.One
wayfor increasingcompetitivenesswouldbe for the SMEs to usethe that
advantages inter-firm

canoffer,
networks thusto increase
the use of external of
suppliers inputsandspecialities
and
on
concentrate core competences.Theentryof educatedindividuals
intobusinesses
haspositive
given
connotations their and
education skillslevels,
and to what extent these Individuals
move Into
industry
manufacturing than
rather tradeand it
services is not clear,but tradeliberalisation
has

providedthe for
potential a new typeof SME.On the otherhandtradeliberalisation
hasfailedto
in
shiftresources favourof the exportproducing
sectoraway fromproducingfor domesticmarket
it
as was intended to. It seems trade liberalisation
was implemented,
in Malawi,without
identification
of whichSME have
products potentialto oneof the
achieveexportcompetitiveness,
failuresof theSAPs.

of tradein agricultural
theliberalisation
Following the privatesectorhasbeenexpanding
products,
intoretailingin agricultural
products,an areathatusedto be an exclusive preserveof ADMARC,
thepublic distribution
and marketing agency.In spiteof theeffortsandrecognition of thepotential
rolethat the SME sectorcan play in Malawi'seconomy and in
especially the livelihoodsof the

210
 the
poor,
relatively remains
sector to
compared
small other
countriesin the The
region, country
still
lacksa national that
andpolicy
strategy can the
push sector forward,
significantly buttheIntention

isthere.

Respondents in this in the

study, particular governmentofficials,
saidthat trade has
liberalisation

certainlynot helped industrial Many

growth. large-scale
enterprises have closeddown due to

competitionfrom Competing
imports. imports
areon thewhole harmfulto all domesticenterprises,
but their impact on SMEs seems to have been restrictedto particularsectorssuch as
by
as revealed
clothing/tailoring, thissurvey.The Malawistudyclearly
confirms theviewsfrom the
that
literature competingimportsare a bigger to
threat larger
enterprises,whichoriginally
wereset
to
up substitute The
imports. of
restructuring parastatals
and the elimination
of statemonopolies
has to someextentopened up new for
opportunities SMEsand therecertainlyhas beenan
increasein thenumberof SMEssincemostpeoplebecameawareof thefreetradepolicy.Thehigh
amongSMEs
hasalsohada harmfuleffect,causingintensecompetition
influxof newenterprises
and domestic The
marketsaturation. numberof SMEs keeps growing the
although GEMINIstudy
that
revealed over 90% of them closewithin five years, However, in the absence of specific
information
on disappearance
of it
enterprises, is difficult
to net
ascertain growth to
attributable pre-
or post-SAPperiods.Thereis howevergreater availability
of in
imports Malawi and theirusehas
In
increased. so far rely
as smallenterprises on inputs imported by otherfirms,the improved

of
availability importscomes with price
considerable hikes.
As a the
results, credit
needsof SMEs

rise.The trade liberalisation should

process have been accompanied by (or by)
preceded other
factorssuch as strengtheningof local enterprisesand farms,humanresourcetechnology
development,
aswellas thebuild-upof exportcapacity
andmarkets,

ForMalawi,it appearsthatdespiteopeningup,muchlessprivatecapitalflowsto thecountryhas

hence
occurred the countryhas missedout on the benefits
that oftenaccompany suchflows:
transferof technology,
managementand organisational skills.The openingof the economyto
has in flowof capitalor technology
foreigncapital not succeeded attractinga significant intothe
into
country,especially the sector
productive and have
exports notpicked up Imports
either. have

grownrapidly,and presentindicationsare of hugetrade deficit.Foreigndebt has Increased

and
significantly servicingof the debt and repayment are
obligations exertingpressureon the
BoP.
international The resultof this hasbeena widening
of tradedeficits,deterioration
Inthe BoP
or
andcontinuation worseningof trade debts,
external which is ironicconsideringthatSAPs initial
to the
aimwas correct BoP
worsening position
of these There
countries. to
seems be an internal-

211
 conflict
external the
between instruments
and of
objectives the For
reforms. example up
pushing
to
interestrates rectifyBOP may
problems on the other handaffectdomestic In
investment a
way,
negative as in the casefor Merely
Malawi. free
advocating markets
andtradedoesnot
leadto growthbecausethe is
economy much more than
complex that.
necessarily economic

7.2.2Domesticderegulation
andpublicsectorrestructuring
Theshiftfromgovernment to a moremarket-based
controlled Policyregimeis meantto createa
that
businessenvironment enables to
entrepreneurs respondquickly to emergingmarket
and improve and
efficiency The
productivity. World Bank and IMF hopedthat
opportunities
reform
andmarket
privatisation wouldsomehowstimulate
a groupof entrepreneursjustwaitingfor
to
theopportunity respondwithinvestment
and There
production. seem to be no productivity
gains
no
andcertainly growth
positive of
performance the Malawi economy. It seems the situationwas
in
as mostentrepreneurs Malawi
areinvolvedin informal
activitiesin to
order surviveand
misread,
relyon jobs
formal just to keep working
sufficient capitalto their
continue informal Many
activities.
have been forcedinto informal out
activities of destitutionfromeconomic crisiswhose indication
hasbeen anexpansionof such"survival" as
activities hawking goodsor makingandsellingsmall-
food The
items. income earned from these has beenusedto maintaindeclining
activities
scale
levels
consumption ratherthanto increase
savings for capital
accumulation and The
expansion.
deregulation
domestic policymay have benefited
the consumers sincepricesareverycompetitive
for withso many different
typesof importedgoods. At the sametimeit
andtheyarespoilt choice
be that livingstandardshave gone downdue to declining
purchasing powerof
couldalso argued
high
thecurrency, inflationrateand declinein realwages.The deregulationcanonlybe goodfor
if domestic
economic expansionis somehow
sustained
suff to
iciently that
ensure there
consumers
is morepurchasing
power in thehandsof the which
consumers, hasnot beenthecaseforMalawi.

The impact
observedwas that privatesector
monopolies
are the chiefbeneficiary,
leavinglittle
for
room entry or development
of new indigenous
SMEs.
Most tended
opportunities to havebeen
in transport
trade, andserviceswhilefar fewertookup On
manufacturing. balancethe
generated
be a net loss in industrial The
capacity. elimination
of domestic
price has
controls
resultmay
in price
considerable hikes whichundo the intendedeffectof currencydevaluation, thus
resulted
imports to
relative domesticprices,and alsoraisingthe pricesof materialInputs
raisingpricesof
transportcostswithinthe Stimulation
country. of domesticincomes, which is a key to SME
and
is nothappeningat all andthecurtailmentof public
sectoremployment has had supplyside
growth,
Redundant
effect. civilservants as wellas aspiringyoung potential
entrantsexit the publicsector
labourmarketandestablish their own smallenterprise.The government introduced measures to

212
reducepublic
spendingto agriculture
stimulate improving
through the termsof trade, for
especially
like
exportcrops, tobacco,andto investment
stimulate export.TheImpactsof
andmanufacturing
thesemeasureson SMEsweredifficultto traceand no doubtvariedby sectorand type of
enterprise.

7.2.3FiscalandMonetaryreforms
As notedbefore,thesereformsincludedcurtailment of government spending,liberalisation
of
interestrates,foreignexchange,andthebankingsector.Financial
liberalisation
measuresseemto
havehadnegative effectsontheSME in
sector Malawi.
Theeffecthasbeena demandcontraction
for SMEscausedby diminishing powerof theircustomers.
purchasing Inflationhascertainlynot
beencurbedandhighinterestratesare a majordeterrentto thoseinvolvedin smallbusinesses.
Thereseemsto beeveryindication thefailureof thepolicyobjectives
thatsignifies of treatingsmall
manufacturingenterprisesas prioritywhen no appropriatecriteriahas been developedfor
the
assessing of
credit-worthiness from
applications suchenterprises. In the absenceof suitable
banks
collaterals, have noothermeans of to
striving attaina policy
goal.Lowering
of entrybarriers
increasein the numberof banksoperatingin the country,
into bankinghasled to a substantial
mostly although
urban-based, theyare of not much use to the SMEsectoras over70%of the
SMEsinthecountryareruralbased(GEMINI study).

the financialsystemin Malawiwas verynarrow.It essentially

Beforethe structuraladjustment,
comprisedthe Reserve Bank of Malawi(central
bank)and twqothermajorstateownedcommercial
liberalisation
banks.Financial allowedopeningup of the marketto new,localandforeignbanks,
and interest
deregulating ratesand foreign exchange It
control. is, however,
apparentthat the
to onlya fewareas,andaccessible
bankingservicesarestillbiased,available mainlyby thelarge
entities.Smallandmicro-enterprises,
tradeandcommercial bothruralandurban-based,
sfillface
difficulties.
access

Oneof theSAPpolicieswastheexternalsectorreform,whichcomprised to
of variousmeasures
enhance the of
availabilityforeign
exchangeandliberalise
its The
allocation. introduction
of private
foreign
exchangebureaus hasprovided
a majorsourceof foreignexchangeto theprivatesector
Foreign
controls.
without exchangeis now available
withno However,
restrictions. it appearsfrom
that
thestudy most SMEs in do
Malawi notseekforeignexchange andin as faras theyhavebeen
on
relying foreign
parallel exchangeandillegal
imports,these reforms have had no direct
impactIn
termsof prices.However, werefindingit hardto understand
mostentrepreneurs or copewiththe
coupledwithhighinflationrate.In all, the highlevelsof inflation
frequentcurrencydevaluations

213
havehadthe unintended effectof seriouslyerodingthe capitalbaseof manySMEsin Malawi
which,in viewof the difficulties
of accessto credit,has diminishedtheir capacityto adjustto
changing conditions.
market This studycouldnot to
ascertain what demand
extent switching away
fromlargerenterprisesand in favour
of lower-priced(andlowerquality)SMEproductshastaken

placeasa resultof decliningpurchasingpowerin thedomesticmarket.Thiscouldprobably

beone
of the for
areas future work.
research

7.2.4Supportingsectoralinitiatives
TheMalawigovernment recognises theimportantroleof smallandmicroscaleenterprises
in the
economicdevelopmentof the country.Efforts
thatthe governmentmadetowardsdevelopment of
this sectorincludecreationandsupportof publicandsemi-public
SMEsupportinstitutions and
encouragement and facilitation
of the establishment
of NGOsdealingdirectlyor indirectlywith
SMEs.Malawiformulated a policydocument for the developmentof micro,smalland medium
in
enterprises The
2001. objectiveof the policywas to createan enablingenvironment for the
growthand development
of smallenterprisesand to maximisetheirpotentialto contribute
to the
country'seconomic The
development. policywas formulatedto addresscredit,raw materials,
markets, and
entrepreneurship management infrastructure,
skills, technology
andproductioncosts.
The government also formulateda nationalstrategyfor SME development,which forms a
framework
withinwhich different
policies
andprogrammes are implemented
to ensurethedelivery
of themost needed to
services theSMEs in a cost-effective
way.Thestrategyvisualisesa situation
where large and
enterprises will
parastatals attemptto integrate
SMEs into theirproductionand
in
structures
marketing sucha way that wouldbe beneficial
to all segmentsof the economy.
However,despiteall theseeffortsthe SME sectorremainsunderdeveloped, as the macro-
economic policy environment is still quite for
unfavourable them.Business supporthasnot been
tailoredtowardstheneedsof specificareas,industries or certainsmallbusinesssize,andthereis a
poor levelof assistance for micro and home-based businesses. Whatever the government and
NGOshavedoneoverthe pastyears(as partof SAPor not)to assistSMEswithcreditbarely
constitutesa trickle,
as the majority of SMEs in Malawi
wereset up withownresources. A similar
may
conclusion bedrawn
with to
regard training,
whichis predominantly
non-formal.

Fromthediscussionsheldwiththegovernment
officers,thereseemsto be manydonorinitiatives
to supportSMEsin thecountry.However,
intended manyentrepreneurs theviewthat
expressed
therewasnotmuchsupportin termsof financeandtraininggivento them.Twentyyearson many
haveinadequate
managerialand entrepreneurial
skills and not muchappropriate
trainingIs

214
 to
available them. Communicationin termsof is
transport still verypoorand otherinfrastructural
supportsystem is poor.
equally SMEs havenot moved at all from low Informal
productivity sectorto
of theSMEsareinformalandtheyhavebeenstarted
formalsector.Themajority
higherproductivity
for
up mainlyasa means survival,thus thereis an (multiplication)
expansion of SMEsratherthana
of the SAPmeasureswithoutthe necessarysupportsystem
deepeningeffect.Implementation
seemsto have failedtheSME in
sector Malawi.

As notedfromthe surveyresults,linkageswith largefirms and with other SMEsare weakIn

maingoalsforthedevelopment
Malawi.Oneof thegovernment's of theSMEsectorin themedium
and is
long-term to strengthenbackwardsand forward linkages andinter-firm withinthe
cooperation
sector
manufacturing and betweenthe restof the economy. Industrial
clustersandnetworks can
economies
provide of scaleandscopeto allow to
enterprises lowerfixedcostsin exporting.
Onthe
other hand,inter-firm involves
cooperation emotional
stressin fairly smallcommunities where
everyoneknows each and
other, many are related
and havea long historyof Intra-family
feuds.
it
Consequentlycan be difficult
to in
interact a 'businesslike'
manner.Moreover, In
cooperation,
in
particular termsof deliveriesand Vill
sub-contracting, involve
necessarily from
conflicts timeto
time, and endlesshagglingbetweenfirms on price in not unusual.All this hampersthe
of thesector.
development

Although the businessregulatory environment has become it is still not easy to

unrestrictive,
access finance andthe costof financeitself
is very inhibitive,
causinga supplysideconstraint. As
thefinancialproblemscannot categoricallybe attributedto theformalfinancialsectoronly.thereIs
to
a need analyse SME financial
needs and then find the optimalway to satisfythem.A
differentiated is
approach needed as different
typesof SMEs, at differentstagesof theirlifecycle,
needswhichcannotall be wellservicedfromonesingle
havedifferentfinancialandnon-financial
source.Forinstance,at inception,
start-upcapital
will be
usually obtained frompersonalsavingsor
by
loansprovided friends andfamily.Thiswill initial
cover outlayforfixed
111 nvestmentn thingsIeik
toolsandworkingcapital.Onlymodern SMEs canaspireto externalfundingfortheirstart-up,
which
is limitedin Africaanddoesnot holdmuchpromiseevenin the nearfuture.Accessto formal
for is
finance start-up poor becauseof thehighriskof defaultamongSMEsanddueto Inadequate
facilities.
financial

At the beginning, needs

overallcapital of SMEs wouldseemquitemodestandthe majorityof the
is usedforfixedassetsratherthanworkingcapital.Working
initialinvestment capitalIsthelifeblood

215
of anybusiness
and balancingthisseems to a
pose challenge for If
entrepreneurs. thereis toolittle
the
of workingcapital, firmcannot function and there is a complementaryneed for it, which
tends
particularly to beunderestimated atbirth.Once a firm beginsto demand
produce, for working
increases.
capital In the like
survey, most enterprise
other surveys,entrepreneurs cited 'lack of
operating funds'alongwith 'baddebtsof and
customers' 'notable to access
a loan forworking
capital',as theirmost The
constraints.
prevailing principle
use of workingcapitalfor SIVIEs Is to
financelabour, raw materialsandother inputs
purchased thatgo intogoodsproduced for sale.

Thereareothermeanssuch as the informalsectorwhichcan satisfythe initialhighdemandfor

capital
working
short-term requiredby the SMEs. One way being credit from customerseither
or
throughrawmaterials cashdown-payment to rawmaterials(Kilbyet al. 1984),andof
purchase
coursethis is directlyrelatedto of
reputation the As
producer. qualityand delivery
performance
becomebetterknownto consumers overtime,customerprepayments shouldincrease.Certain
sub-sectors (like furniture-making)
tailoring, could produce to customerorder or even ask
customers to providethe raw materials.This would keep marketing
and productionperiods
short,
relatively to
inventory salesratio small,and demand
corresponding for workingcapital
Terms
low. of paymentsfor receivablescould be shortenedandthis willhelpto keepcash
relatively
in thebusiness flowingandenable them to respondto daily needs.Foractivities
operating thatmay
the
puta strainon working banks
capital, can providelong-term for
financing increased inventory
or
initiatives.
development
otherfixedassets,or market

Anotherway of sourcingworking capital would be throughthe sub-contractingmechanism

whereby,say, a largerfirm supplies with the raw materialsrequired to producean order,for

example fabricatedmetals.Another source of workingcapitalis through accountspayable to

of
suppliers This
inputs. grows in importance as an enterprise
evolves and improvesreputation.
the
Since perceived risksof longer-termlendingto SMEsare deemed high,
relatively not much
term is
finance providedby the informal
sector (WorldBank1989d).
Somefixed capital,however,
canalsobe by
supplied theinformal
credit
market.Sources
of fixedcapitalsuchas suppliercredit
become
andsubcontracting when
available the SMEbecomes well-established
and develops a
record.
goodpayment

Thereare however, limitationswith these informalfinancial

arrangements.For Instance,they
thelarge sums of money for the longperiods for
required firmsto grow(World
Bank
cannotprovide
Lack
1989d). of integration
of theseinformal which
sources, are independent
generally fromone

216
 is
another also not conducive to building
up reputationand generating for
information formal
lenderson theSME'sevolving financialmanagement ability.Thisis wheregovernment supportor
policymay comein to helpintegratethe informal
existing financial institutionsandhelpthem with
fromembezzlements
legalprotection andmismanagement andcreatingan enablingenvironment
lackingwhenanenterprise
is particularly
Financing
fortheiroperations. is beingsetup,whensales

are still to
insufficient improve the cash flow position.Unlessaccessto a source of creditis

available, enterprisesfind themselvesin an extremely vulnerable This

position. is the stageat
whichnew financialmechanisms should be developed
or the existingmechanisms mademore
flexibleto allowfor thesupportof viableinvestment
projects.Finallyat a laterstageof evolution,
SMEsmaybeginto haveaccessto theformalfinancialmarket,thusaftertheyhavetransformed
andneedingmorecapitalfor expansion.
intomodementerprises
themselves Capitalforexpansion
or equipmentreplacementis oneof the major
areas in whichformal institutions
likebanksoperate.
Thebankstendto supportoperations, whichareindicativeof morematureenterprises, whichhave
a betterstructureand have got
successfully throughthe beginning
critical phase. This usually
largeandmedium-sized
benefits units,however.
industrial

thereformmeasured
in general, havenotworkedverywellto thebenefitof SMEsin Malawiandno

new areasof for

activities
economic themhaveopened
up outside theirlocalmarket On
niches. the

whole,sincethe introduction
of the reforms, has
competition increased
in stagnating
or marginally

growing domesticmarketsand the maincontributing

source is thelarge
influxof SMEs.
At thetime
this
out empirical
of carrying work theSME framework
policy on whichthe government
and donor
effortsweregoingto had
focus justbeenformulated.
It should benotedthatthe SMEpolicycame
intoplace20longyearsaftertheSAPwasfirstintroduced inMalawi.

7.2.5Impactof Globalisation
has beenseento be veryimportant
Globalisation to manybusinesses
as at the headof
is
globalisation the'market'
or at least
ideologies
of free tradeandopenmarkets
and increased
for
potential flowsof international
market transactions.
However, whendiscussed, is
globalisation
in the
generally context of thelargerbusinesses
thatareableto into
expand foreign
marketsand
do business acrosscontinents, eitherthroughthe Intemet,TNCs or othermeans. These
businesses havemoneyfor marketing andtheyadhereto extremely
andtransportation, high
standards for
of quality, the For
part.
most these larger
businesses,
globalisation
canmaximize
profitsandmake the importation
of raw much
materials and
easier cheaper.Despitethis,
small
businesses
aresufferingdueto much
of this activity,
global and thislargely
comesfromthefact
brings
thatglobalisation more for
competition themwithoutgivingthem any benefits,
added as it

217
hasbeenobservedfromtheresultsof theSMEsin Malawi.WhilesomeSMEsInotherpartsof the

worldhavedemonstrated
a capacityto in
successfully
compete the
markets, majority
of SMEsin
Malawi have not movedto developexport marketsor make best use of Information,
Communication
andTechnology,
whileinnovation
and Research
and Development
remainpoorly
developed.

Manyof thesesmallbusinessesdo notknowaboutmarketing andadvertising theirproducts,

and
isation.Standardisation
theyareunclearaboutstandard hasbeentalkedaboutfor sometimeand
to
returned
wasgenerally theforefront
of the marketing issue
challenge in the mid1980s underthe
nameof globalisation (Levitt Globalisation
1983). utilisesa particularschoolof thought,which
andeducationall haveconsumertastesthat are very
indicatesthat travel,media,technology,
and
similar have that
differences areonly superficial
andminor in scope.Those thatbelieveIn this
strategyof seem
adaptation to feelthatglobalising
marketingwould be the bestway to move Into
thenew technological
advances thatare taking but
place, thereareothersthatbelievethatthegap
in for
differences various has
consumers been
actually getting
widerin recentyears(Shaw1999).
Naturally,notall that
individuals own businesses
small wishto marketto othercountries,
as was
evidenced by the collected but
data, thereare somethatdo, and othersmallbusinessesmay be
forcedto try to marketelsewhere if theywishto survivethe changesthat are takingplaceIn

society.

that
Studies havebeen on
conducted this issuefailedto addresswhethertherewerespecific

approachesto and
marketing advertising
products thatare seento be moreeffective(Jain19891
Onkvisitand Shaw1999,2004, Shaw 1999). Thisideaof marketingis so foreignto the small
businessownersin Malawithatthereis not muchchancethattheywill figureout howto do it
or
properly, that theywouldchooseto do it evenif they However,
could. the changesin trade
rest(ictions havemade thingsworseinstead of better
for many of thesesmallbusinesses and they
may have little
precious choicewhen it comes to how they wishto do businessin the future,and
thatis if theyareserious andcommitted to developingtheirbusinessesfurther.
Becoming educated
aboutwhat they needto do next and findingthe money to do it, however,
are oftenserious
For
problems. thosesmallbusinessesthat do wantto or decide to their
market goods to other
countries,thereare many differentways that theycando this,andthereareconcerns regardingthe
level of effectivenessthat their marketing mighthave. Unfortunately,
the troublethat these
individualshave in obtainingloansfor theirbusinesses
forces manyof themto notevenconsider
in
of participatinga globaleconomy.
thepossibility

218
FortheSMEsin Malawi,localised maybeasfar astheycango, buttheycanusesome
advertising
of the same that
techniques global use
advertisers in orderto to
attempt attractmorecustomers.
Withlittlemoney,fewgovernment however,
andvirtuallyno qualitystandards,
restrictions, moving
out of the local may
market be somethingthateventhe mostambitiousandwell-intentioned
small
businessowners findthat theycannotdo. Many in
people othercountriesarenotInterested in any
that
product does not meet sometype of quality
standardand thereforethe Ideaof sellingto any
country
other is not one thatmeetswithmuch approvalfor many people.And asobserved from the
Malawidata,manyof the surveyedentrepreneurs said that thereis no formalrequirement or
guidanceon minimum qualitystandardsthat they have to adhere to and that it Is up to the
qualitytheywantfortheirproducts.
to decidewhatever
individuals

Protectionism in the Northis also to blameto someextent,not givingway to globalisation.

Countriesin theNorthdo notonlyprotecttheirmarkets, theiragricultural
particularly markets,they
alsoheavilysubsidise them.However, thegovernments
of the Northand IMF tellAfrican
countries
fromtheirpeasants
to takeawaysubsidies whodependon them.Developing countrieswereforced
via the SAPsto opentheir for
markets foreignimports
but mostof the markets
of the Northstill
closed
remain for imports
of manufacturedgoodsfrom the South. On the otherhandit couldbe
that
argued evenif the in
markets theNorth
werefullyopened for theSouth,thegoodsthemselves,
manufactured
particularly ones,would probablynot be competitive
enough in termsof quality
standardsand transportation
costsasthese factors
other arealsobarriers
in themselves.It seems,
today,themacro-economy aswellasthesocialpolicyis dominated
by inhuman competition as the
highestprincipleof the world marketis economicefficiency.Accordingto this principle
industrialised are
countries and
rewarded developing
countriesrigorously
punished.In Malawi,the
sector
productive is failingto developthe to
ability withstandtheintensecompetitive
pressuresthat
with
are associated although
globalisation, it can be arguedthat SMEs themselvesdo not really
see imports
as a problem. As revealedby the data in ChapterSix,lessthan1% of the surveyed
SMEssawimportsas a threatto theirbusinesses,
probablybecausemostof themareinvolvedIn
buyingand sellingratherthan in industries.
manufacturing However,for thosemanufacturing
be it
industries, microor the
large, liftingof trade withoutproperinstitutional
restrictions, set-upand
infrastructure couldbe one of the mostunfortunate
beforehand, thingsthat havehappened to
business in
owners this partof the worldin quitesometime,andthereappearsto be no endin
sightatthemoment.

219
ThelogicbehindSAPas it affectsindustrywasthatimportliberalisation, devaluation,
reduction of
and
protectionism real
positive interestrateswill punishinefficient
industriesandrewardefficient
oneswhichareexport-oriented,more labour-intensive
and use more localrawmaterialsleadingto
the countryto exploitits comparative
advantage.Theresultwouldbe a prosperous andgrowing
sector,whichwouldgreatly to
contribute an increasein exportswhile using fewerImports.
for Malawiadjustment
Unfortunately, hasnotworkedoutas anticipated becausemanagement and
labourskillsarein verylimitedsupply,financeis difficultto secure,information
is costly,relations
betweenfirmsarepoorlydeveloped,
technologyis difficultto obtainandcostlyto use,transaction

costsare highandpublicgoodsare poorlydeveloped. Opening up industries

to the full forceof
international will
markets hardlyleadto desired
results
wheninstitutions
and capabilities
are so
weak.

7.3policyimplications
A numberof policy implications
can be drawn fromthefindingsof thecasestudy,Malawi.These

ariseout of, and are informedby, the insights

conceptual affordedby this research.Contraryto
much of the thinkingwhich has underlainstructural
adjustment,the creationof an environment
which is to
conducive the developmentof the SME sector is not to
sufficient ensurethatoptimal
resultsareachieved.Indeed the responseof the to
sector the newopportunities, whichariseas a
of
result the is
reforms, conditionalon a wide rangeof factors.
Theseinclude the stageof
development the
of sector to
prior the of
adoption the thedegree
reforms, towhichit hasaccessto
technology,
suchasskills,
theresources creditand infrastructure, toenable
necessary it toadaptto
and
thenewenvironment, the level
of political
and institutional to it. Where
supportaccorded
are
conditions not generallyfavourable,
as in the Malawicase,SMEs are likely to be ableto
respondonlyin a limitedandimperfect
wayto theeconomicopportunities
opened up. InMalawi,
for
example,despite the immaturity
of the SME sectorand the poor institutionaland policy
in
environment whichit SME
operates, has
activity increased
greatly in recent This
years. activity
has,however,tended to be in
concentratedthetradeandservicebranches suchaspettytrading
with
andgrainmilling, a muchweakerresponse in strategically
more important
sectorssuchas
andcapital
manufacturing From
goods. thegovernment's
point
of view,'buyingandselling'really
andasnotedfrominterviews
doesnotcreatewealth, withgovernment therewereconcerns
officers
expressed the
regarding undergoing
country de-industrialisation
as a resultof SAP. And if the
long-term
country's growthdependsontherapid growth
of the sector,thenthereis
manufacturing
notmuch hopeforpositive growth
economic in the future
near unless is
there some interventionto
and
revive the
encourage sector
manufacturing again,

220
 Thediversityof thedifferenttypesof SMEsposesa problemfroma development-strategy pointof
While
view. it is truethatall thesetypesof activities in the Malawieconomy,
areprevalent fromtho
of
perspective a
articulating development for
strategy SMEs,
it Is essentialto havea clearnotionof

whichtypeofeconomic topromote
activities andwhichtotolerate
actively asanunhappy of
aspect
the underdevelopedstateof theeconomy. Notall SMEsaredeemedto havethe potential to
Thereis,therefore,
intoviableenterprises.
$graduate' a needtodifferentiate
between different
types
incrudeterms,'survivalists'
of SMEs, versus'opportunistic'
entrepreneurs,
ratherthanperpetuating
the currentwidespread practiceof policyrnakersand plannersIn assuming the sectorto be
homogenous, withtheproblems andneedsof all smallenterprises seenas broadlysimilar.The
SMEs
opportunistic are by
motivated pullfactorssuchasachievement theytakeit asa
motivation,
they
challenge, have a and
choice are based on theperception
of opportunity,
recognise theirown
and
abilities desireto increase
wealth, In the
contrast, survivalists
aremotivatedbypushfactors,
Thus,theyareforcedbycircumstances whereby therearenootheroptionsavailable to themand
faced
areeither and
withredundancy a lackof employment Theyareusually
opportunity. drivenby
theneedto survive
andaredoingit for daily asprofitis usedupon
needswithoutre-investment
Theyarealsolessprivileged
dailyneeds. andskilledandaredrivenbyexternal
factors.

for the differenttypesof motivation

Thereare differentpolicyimplications andgovernment
may
needto usedifferentpolicyapproaches to thedifferent
groups:sustainable development
economic
using the SMEs
opportunistic as a development vehicle;andpovertyeradication througha poverty
reliefprogramme. The government, with from
support externalinstitutions,
mayneedto adopt
policieswhich demand
stimulate for help
opportunists, themwithdevelopment resources In terms
of technology,
encourage team
entrepreneurial workingamongstthem and help them with
market
establishing There
linkages. is the needfor augmentation
of productionmethodsand
technologies;
optimising thatexistandmanagethem;formation
processes of supportstructures;
expansionof productrangeand rationale;capabilitybuildingfor self-sustaining;
trainingto
on
capitalise
effectively knowledge
indigenous systemsfor job creationand growth;indigenous
knowledgeshouldbe conserved, valuedand harnessed to developproductsthat relateto the
and
culture tradition
of communities;
and it needsto aidin turningthenecessity
entrepreneurs Into
becomingopportunity shouldtheywishto do so.
entrepreneurs,

To speakof onepolicyfor the SMEsectoris incompatible withresponding In a meaningfuland

flexibleway to the totalityof its needs.Quiteoftenthe urban-basedlargeand medium-scale
industryis seenasthemotorof theeconomy whereas theinformalsector,withSMEsof all kinds,Is

221
 thedualfunction
seenasperforming of providing
cheapconsumergoodsto thepoorandmcipping
uptheunderemployed. surveydiscussed
Theempirical In Chapter
FivesuggestedthatIncertain
sub-sectors,
small-scale were
production dynamicand thesecouldplayan Important role In
developing
linkages
withother sectorsof theeconomy
andIn stimulating
national
economicgrowth.
that the institutional
It is Important mechanisms establishedto assistft smallenterprises
thatcertainsegments
recognise of thesectorhavethe potentialto playa sýgnjificanl
strateg;
a
function
economic andmerit,Inconsequence,
Integration
Intonationaleconomic planning.

SMEaccessto modemtechnology, in termsof productmanufacturing

equipment.Is extremely
weakin Malawi.
The of
process technologyacquisition for
has, themostpadbeendictatednotbya
technology
processof rational by
choice, rather buyingwhateverhappened
but to comeontothe
In
market. manycases, thishascomprised
old, broken whichhasboonrenovated
machinery, or
repairedby theentrepreneur.
Poorstateof equipment wascitedasoneof themajorconstraints on
by
production most of the governmentofficialsInterviewed
In Malawi.
ThereIs little hopeft
In a morecoherentway,as thereIs NO
will be ableto plan their acquisitions
entrepreneurs
Information to themon available
available technologiesandsourcesof supply.Ingeneral,theweak
responseof the SMEsectorto the opportunities openedup by the SAPIn Malawimustbe
in
understood thecontextof failureof theInsfitutions
of thestateto reorientthemselves
towardsan
Improved
provisionof theservices towardsthesector.

Themajorissuewhichcameoutof thisstudy,andwhichhaspersistently beencropping up in

studies,wasthatSMEs'accessto productive
previous resources,suchas creditwaspoorIn
Inthisstudy(asInmanyothers)
Malawi. it wasrevealed thataccesstocreditwasmuchthobiggest
on Increased
constraint In addition
production. to that.a poorflowof marketInformation
together
withliquidity on thepartof thetradersappears
shortages to resultIn SMEsbeingstarvedof tho
required The
inputs. formalbanks have failedto develop
means for thedisbursement
of credit,
whichare to
appropriate the particular
needsof SMEs. demanded
Securities arogenerallywolf
beyondthemeansof mostSMEs,whilea largeamount (cwpaperwork
of timoIs required arx!
of loansactsa furtherconstraint.
administration Whilethechanging environment from
resulting
SAPreforms hasbeenundercutting
muchof thelong-standing of largoandgenerally
protection
inefficient Increased
andstimulating
enterprises outputfromsmaller
operators,thovarious
support
suchas the banks,trainingInstitutes,
Institutions, andInformation
development centres,havo
responded if
slowly, at all,to thechanging
needsof thenoweconomicactors.Inmanycases.this
hasbeena consequence
failureto respond of cutbacksIn funding
government from
rosultJng ft

m
SAPreforms Strongpoliticalandfinancial
themselves. supportwouldbe necessary
In orderto
and
persuade these
permit to
agencies their
reorient to
services the needs
of theSMEsector.

Thegovernment whichwouldseethatInflation
mayneedto applypolicies wascurbedandthatthe
was
currency
country's and
stabilised, thiswouldgivea lot toentrepreneurs,
of encouragement In
mostdeveloping
countries is
devaluation out
carded forthepurposes largeunsustainable
ofclosing
of
excess imports
over the
exports, most importsbeingluxurygoodsconsumedbytheurbanelito.
Currency canbea powerful
devaluation toolforcountrieswithsevereBoPproblems,
a common
phenomenonin developing However,
countries. evenif a country's
currency Itsbalance
weakens,
of trade will not improve
necessarily as currenciesof someothercounwesmayhavealso
weakened, allowingtheir firms
local thesamecompetitive overhomefirms.Anypolicy
advantage
thatwillincreaseforeigndemand forthecountry's
goodsandservices willImprove
thebalance of
tradeposition. Thiscanoccurwhencountry'sinflation
is lowor whencurrencyvalueIs reduced,
therebymakingthe pdcescheaperfroma foreignperspective. However, thereIs a trade-off
someinitiatives
between andotheraspects of theSAP.Forinstance,
theregimeof rest4ctive
and
monetary interestrate targeted
policies for macroeconomic
stabilisation
simultaneously
increases forSMEsandconstrains
thecostoffinance demand.
effective GiventhatSMEsproduce
forthedomestic
market,stimulation incomes
of domestic is thekeyto theirgrowth.
Unfortunately
theeffectof suchmeasures interestratepolicies,
as market-determined restrainon growthon
money supply and of
curtailment government
spending, in
result ft reductionof domestic
demand
and incomeswhichimposes a demandside constraint
on the growthof SMEs.That is where
intervention form
of some may be It
needed. hasalreadybeennotedbytheWorldBank(IMa)
liberalisation,
through
thatreforms pdvatisation
andstabilisation
arenotenoughtocreatea vibrant
economy. Building
on suchreformsrequiresmajorconsolidating to developstrong
strategies
supporting
market institutions,
and to encourage thepolitical
economyenvironmentInwhichthey
This
operate. type of strategy intervention
is supportedby Huq and Tdbewho said that
need
governments to how
determine besttheycanworktogether
cooperatively
andcomplimentary
withthe sector
pdvate andNGOs in to
order create
a vibrant (Huq
economy andMe 2004).

Atthecoreof theargumentforopenmarkets
Istheproposition
thatmarkets
createcompetition
and
the
stimulates
competition growthof productivity,
which
stems fromneo4assical As
economics.
discussed Two,bothneoliberal
in Chapter theodsts'
andneo-classical arebasedon
strategies
market-led growthand do not pay muchattentionto non-market
values,rules,relationsand
The neoliberalpoliciesmakeuniversalassumptions
institutions. aboutmarketsand the private
which
sector, is notthecase(Stewaq
1985).
Andthey that
assume land,
labour,
creditandproduct

223
marketsexists when
naturally in fact historically
factor,
product
and financial
markets
are rareIn
Africa (Havnevik1987).Familyfirms may operatedifferentlyfrom the neo-classical
theory
withinthesphereof production.
sayof profit-maximisation
assumptions Theyintegrateproduction
decisions
and consumption differently,
which leads to outcomes from
different neo-classical
(Lipton1987).
assumptions

Thereformeffortsneedto be selectiveandfocuson the bindingconstraintson economicgrowth

andtakeintoaccountof marketfailuresratherthanjustfollowthe listapproach
of theWashington
Consensus. Tribehasrecentlyarguedthat:"manyeconomistshavefailedto takeaccountof the
imperfectnatureof marketsin makingrecommendations
relatingto tradeliberalisation...
" (Tribe
2006:p54).Hesaysthatfocusshouldbe on the inherentasymmetriesof economic
power,within
markets,whichhas increasedto the disadvantage
the international of manyLDCsdespitethe
of
promises the benefits
that the reformwould bringto thesecountries.Competition and profit
will
motive force farmers,
producers, firms,
industrial serviceindustries,
to operateas efficiently
as
theycan,translating
possibleandto reducecostswhenever intoa moreproductiveeconomy, so
It is evidentthatthe marketalonehasfailedto produce
longas marketfailuresarecompensated.
thedesiredoutcomes is nottheonlyfactorcontributing
in Malawiandmarket-odentation to growth:
talent,
entrepreneurial educated infrastructure
workers, and a well-rungovernment
are also
important.

Inthisstudyit hasbeenshownthatmarketforcesareoftenledby,andhencefavour,peopleand
firmsthatarealready Forinstance,
successful. in Malawibanksaremostlikelyto giveloansto
peoplewho are and
wealthy havemoneyintheirbankaccounts.Thus,market-oriented
growthmay
income
concentrate initially,
evenwhile This
poverty.
relieving mayjustify
a caseforgovernment
in international
intervention As seenfromtheMalawiresults,mostgovernment
markets. officers
desire
expressed to boosting
the overall
wealthof the thus
country, to the benefit
of all, both
and
consumers Clearly,
producers. fromthefindings fromMalawi,themanufacturing industries
compete
cannot industries
withwell-established in thedeveloped BeforetheSAP,most
countries.
sawlittlebenefit
economists ingovernment
intervention advocated
andstrongly a freetradepolicy.
inorderto allowmanufacturing
However togeta toehold, is thatgovernments
theargument should
temporarily
supportnewindustries
(withtariffs,importquotas untiltheyhavegrown
andsubsidies)
strongenough to meetinternational At
competition. the sametime,the governmenthas to be
with
careful, in
intervention theformof not to
subsidies, protect the inefficient
ratherthanpromote
efficiency.

224
 to arisefrom this studyconcernsthe role of the SMEsectorin the
A final policyimplication
economic developmentof the It
country. is to
relevant raisethequestionasto whatthegovernment
can do, if to industry
anything, restructure and what role SMEscan play withinthe SAPcontext.
Withregardto the roleof SMEs,severalpolicychoicequestionsemerge:to whatextentshould
of SMEscontinueto be broad,coveringbothpart-timeandfull-timeenterprises,
promotion both
and
rural urban ones? Should onecontinueto focuson existingentrepreneursor on entryof new
anddifferently andenterprises?
qualifiedentrepreneurs Theseare importantpolicychoices.For
example,a programme on
concentrating development
enterprise amonguniversity
at universities
and
graduates institutes
training
technical andagricultural
colleges
mayreach far fewer
would-be
thanlargelow-cost
entrepreneurs programmes development
of enterprise in ruralandurbanareas,
but whichonewouldachievebetterlong-runresults?Put it differently,
shoulddirectassistance
programmes Theformerwouldleadto low-costminimumpackage
be 'widened'or 'deepened'?
formation
of micro-enterprise
programmes whilethesecondwouldimplya selective
andexpansion,
on muchmoreexpensiveenterprisetransformation
concentration programmes and associated
developmentof tech support
no-institutional for
systems particularproductsectorsandareas.No
doubtthe mostdesirablesituationwouldbe a combination
of both.However,the optimalmix
shouldbe the resultof a deliberatepolicyreflectionand not the accidentaloutcomeof an
mix
unplanned of NGOs or of donor
agencies in thecountries
concerned.

7.4Summary
Theaimof thischapterwasto furtheranalyseanddiscussthe empiricalinvestigation withinthe
theoreticalcontextset out in earlierchapters.It broughttogetherand reviewedall the issues,
SAPs,
regarding Globalisation
and SMEsin Malawi,
raisedthroughout the study.Twotheoretical
conceptsof Globalisation
and SAPswereused. And working withinthis framework,fearsand

arguments marginalisation
regarding of SSA, for
certainly have
Malawi, been confirmed.The SMEs
in Malawi,likemanyothersin SSA,havenocapability
to competeagainstimportsor secureexport
markets, Tradeliberalisation
has condemned local to
industries bankruptcy,
hence a wasteof
resources.
existing Malawi lacks to supportSMEgrowthand
the physicalandsocialinfrastructure
has not improvedthe performance
tradeliberalisation of the manufacturing Those
sector. SMEs
thathavethe potentialto be competitive by lackof finance,
in theworldmarketsareconstrained
high cost of inputs,lack of appropriate
trainingprogrammes and technicalcapacity.Malawi's
economicgrowth and SME performanceis alsoimpededbyits landlocked
status,dependenceona

225
singlecash crop for
(tobacco) the bulk of exportearnings
and poor for
incentives foreignand
domesticinvestment.

It hasbeenarguedthatthereis weakevidencein supportof claimsthatmacroeconomic

policies,
price financial
distortions, policiesand tradeopenness have robustand systematic
predictable,
effectson nationalgrowth except
rates, in
possibly extreme
cases (Rodrik Even
2006). the WB
that
admitted only seeking efficiencygains does not amountto growthstrategy(WorldBank
in ChapterTwo,emphasis
2005d).As discussed is nowon buildingandstrengtheninginstitutions.
werenot in placeto
doesnotworkif fiscalinstitutions
It hasbeenarguedthattradeliberalisation
makeup for lost trade capital
revenue, do
markets not allocatefinanceto expandingsectors,
customofficials
are notcompetentandhonest
enough,
and labour marketinstitutions
do notwork
to transitional
properly reduce (Rodrik
unemployment 2006).

226
 ChapterEight

Conclusions,Reflectionsand Suggestionsfor FurtherResearchWork

8.1Introduction
wasto analysetheimpactof globalisation
Themainaimof thisresearch adjustment
andstructural
in Malawi.Objectives
on smallandmicroenterprises for achievingthis aimwereset out and a
theoreticalcontextwithinwhichthesewere to be achievedwas discussed,togetherwith the
researchmethodology. Literature
wasreviewedon thestudyconceptsof globalisation
andSAPs
and also the socio-economic backgroundof Malawiwas discussedprior to the empirical
on SMEsin thecountry.Surveyfindingswereanalysedanddiscussed,
investigation andthisfinal
chapterconcludeson the wholestudy,makessuggestionon areaswhichthe researcherfeels
forfutureresearch
wouldbeinteresting somefinalpersonal
workandpresents reflections.

8.2Conclusions
of thisstudywasto analysetheimpactof SAPs,in particular
Thefirstobjective tradeliberalisation,
andconsequences on thesmallto microsizeenterprise
of globalisation sectorin Malawi.Findings
from the first phaseof the studyindicatedthat SAP resultedin growthin numbersof SMEs
those
particularly engaged in trading According
activities. to thoseinterviewed,
tradeliberalisation
SMEs.SMEsin Malawifacebothsupplyand
in the manufacturing
hasresultedin disinvestment
demand someof whicharesharedwithlargeenterprises.
constraints Onthesupplyside,major
include:lackof skillsin exportmarketing,
constraints exportprocedures
andrelatedaspects;
inadequacy of creditfacilitiesin generalandexportfinancein particular;
or absence lackof
technologies
appropriate to producegoodsof highquality; andverysmallsizeof individual
SMEs
to meetlargeexportorderson a regular
whichlimitstheircapacity basis.Onthedemand side,a
is thelackof information
majorconstraint ontheexportmarkets,including
thatof Southern
Africa,
andontheproducts thatMalawicansupply.However, if
even theSMEswereto manage to get
exportorders,thereareotherconstraints costslikehightransport
whichraisetransaction costs
rightfromwithinthecountryanden routeto theexportdestinations, foreignmarkets
especially
outsidetheSouthern Africaregion.As a resultit is noteasyto offerinternationally
competitive
exportpricesthatatthesametimeensure oftheenterprises.
viability

Contrary to thebeliefthatSAPwouldpermita privatesectorthatis morecompetitive, dynamicand

efficientin allocationof resources, it seemsto havebroughtaboutmoreproblems thananticipated
andevenmore of a cry for helpfrom thesmallenterprise in
sector
private Malawi.
All thesurveyed

227
 and non-govern
government
entrepreneurs, mentalofficersagreedthat SAPmeasureshaveto
on the SMEsectorandthe economyas a whole.Forall those
someextentimpactednegatively
factors(international
marketshareaccess,productivity,competition,industrialgrowth)thatwere
originallybelievedwouldfacilitate into
integration the global economy,the majorityof the
gaveresponses
participants which were not veryencouraging,
and fromwhichone is temptedto
thatthe countryis beingmarginalised
drawthe conclusion intothe global
ratherthanglobalised
It
economy. appearsthatthe SAP have
projections beenprovedinvalidin thecaseof Malawiand
thatthoseSMEsinvolvedin production
are not copingverywellwiththe externalcompetition
as
most of them indicated
thattheywouldnot be ableto compete
on the international due
market to
lackof capital.

Thesecondobjective of theSMEsto adjustment

wasto analysetheresponse measuresandif the
werebecoming
enterprises in termsof exportgrowth
andefficientas predicted,
morecompetitive
andincreasein shareof domestic Reaction
market. andresponse of individual
entrepreneursvery
muchdepends
on theirjudgement of the situation.The responsescan rangefrom movingthe
to the
company changing the
product, serviceor the production Going
process. intoa newlineof
businessaltogether and in volatileenvironments
is alsoa possibility, entrepreneursoftenkeep
optionsopen by developing simultaneously,
severalactivities as was the casefor someof the
in Malawiindicatedthatstartingup the business
SMEsin Malawi.Mostof theentrepreneurs was
whereasa smallnumberof themeitherinvestedin
their responsetowardstradeliberalisation,
modernequipmentdiversifiedtheir productrangeand a very smallproportionof themsought
The
exportmarkets. majority of them commented that they did not wantto missout on new
opportunities althoughthosewhoalreadyhadbusinesses saidtheydidnotfeelthe benefitsof free
fromthestudyresultsthatexportgrowthis not
tradeat all. In general,thereareclearindications
happening at a fastenoughpaceat present.As exportgrowthis fundamentalto economicgrowth,
fromtheresultsthatSAPshavefailedtheMalawieconomy
it canbeconcluded asa whole.

Theenterprise the
surveyproved existence base
of a potential of dynamic thecreation
enterprises,
by theeconomic
of whichwasstimulated liberalisation
policiespursuedsincethebeginningof the
1980s.In particular in thefood-products
thisis thecasefor microandsmallenterprises sub-sector,
in
whichoperate an in
environment whichcompetitionhas because
intensified of the in
increase the
which
numberof enterprises, are tryingto the
get around growth constraints
of the narrowlocal
market.Themicro-enterprises
arebetterintegrated
in thelocaleconomy, wheretheytry to exploit
the resourcebase;theyalsoseemto haveresponded offered.Theyare
bestto the incentives

228
blockedin theirexpansion, byconstraints
however, on supply(accessto credit,procurement
of raw
unlikethe smalland microsizedenterprises
materials), whichhavedemandproblemssuchas
limitedmarketsandcompetitionfromimports.The availability
of collateralandothersourcesof
guarantee a necessary
represent of accessto creditmarkets.
precondition Theinabilityof banksto
different
evaluate and
enterprises their
monitor behaviour is creatinga realfailureof creditmarkets.
SincemostinformalSMEshavenotestablished reputations withthebanksandbecause of scarce
information accessto creditmarketsis impossibleor very expensive.In
on their profitability,
addition,generallackof collateral, useof informal,non-registered
widespread formsof financing
andinstitutional makesbanksreluctant
inefficiencies to financethiskindof enterprises.

Fromthe entrepreneur the enterprises

perspective enoughandmostof them
arenotcompetitive
arejust a meansforday-to-daysurvival,whichis notgoodfor sustained
economicgrowthof the
country.Thegeneralconsensus amongthe interviewed NGOandgovernment officerswasthat
freetradeat the momentis notconducive to economic growthdueto the increaseof 'buyingand
selling'activitiesof SMEswhichin turnis resultingin largedrainageof foreignexchange reserves
out of thecountry,thusthereis notenough and
production to
exporting create for
wealth thenation.
In additionto that,thegovernment hasnot beenableto controlandobtainanytax revenuefrom
theseenterprises the
since majority of them are informal
hencethereis notenoughfundsfor the
governmentto spendon infrastructureand publicsectordevelopment for sustainedeconomic
growth.

Thethirdobjectiveof thestudywasto analysethe localproduction

anddistribution that
networks
existandto seeif freetradehascreatedopportunities
for makingnewandprofitableconnections.
betweenthe SMEsand
Fromthe surveyresults,inter-firmlinkagesare practicallynon-existent
largeenterprises workfromlargeenterprises
in Malawi.VeryfewSMEsreceivesubcontracted and
either.It appearsthe mostcommontransaction
not manyof themsupplythe largeenterprises is
whenSMEsbuy suppliesand inputsfromthe largerenterprises. The largerenterprises
do not
by buyingmaterialor suppliesfromthe SMEs,andthis is a failureof the
seemto reciprocate
networksystem,whichis supposed to connectthelocalSMEsto theglobalsystem.TheSMEsare
not connectedat all to the globaleconomyin termsof their outputbeingboughtby larger
companies
or them to
exporting Overall,
othercountries. the SMEsare basedin localmarkets,
goodsandhaveno formaltraining,thustheirsystemcharacteristics
producesingleconsumption
arebasedon localneedsandresources.

229
Thefourthobjective wasto analysethe newenvironment of 'freetrade,to seeif it is conducive
to
SMEdevelopment andgrowth.It hasbeen shown in the Malawicasethat,whilea policyof 'free
anditsbenefitsaretheoretically
trade'is widelyaccepted attractive,in practiceit maynotalwaysbe
anoptimumpolicyas some form of intervention
maybe It
required. hasbeenshownthatthereare
to SAPpolicies,for instance,SMEsnot beingableto accessresources
distortions andexport
markets,hence the needfor policy from
reform, both the nationalandinternational to
community,
andcreatea level-playing
correctsuchdistortions field,if thatis possible.In previouseras,most
developing
economies' SMEswereoperatingin protectedmarkets.But increasesin globalising
economy,with free trade,industrial
nicheshavebecomehighlycompetitivesuchthat it is also
essentialthat the SMEsthemselvesdevelopthe capacityto learn,so that they can adjustto
changingcircumstances.Changesin worldpricesthrowthe BoPintodeficit,excessive spending
fuels inflation,and droughtor other naturaldisastersdisruptproduction.Unlessgovernment
counteracts theseeconomic shocks,they create greateruncertainty
and higherrisksof private
and
producers investors,
whotakeevasive to
actions further
reduce futureinvestments
andworsen
thecrisis.

of SAPmeasures,
it canbesaidthat,despiteadoption
Inconclusion Malawidoesnotseemto have
succeededin integrating Twotheoretical
intotheglobaleconomy. wereusedin thisstudy:
concepts
Globalisationand SAPs. Workingwithin this framework,fears and argumentsregarding
of
marginalisation SSA, for
certainly have
Malawi, beenconfirmed.All trade and investment
indicators that
suggested liberalising
(despite theeconomyand implementing
mostof the required
policychanges)Malawi'seconomy of beingmarginalised
wasin the processed ratherthanbeing
integrated TheWorldBankandIMFprescribed
intotheglobaleconomy. theSAPwiththeintention
of fostering
economic growthand the
strengthening Balance
of Payments BoP
position. wasseen
as beingcausedby price and
uncompetitiveness demand.
excess The 'cure',therefore,wasto
admixture demand-contraction
devaluation, and a of
restoration the price for
mechanisms the
of scarceresources.
allocation

for Malawias theBoPpositionis still

Fromthestudyfindings,thishasnotworkedoutas intended
as worse as everandthe steepfall of the currency
valueis hurting
businessas thisis the
raising
imports
cost of production and priceof exports. Much SAP took placewithouta great deal of
thoughtas regardsto its relevance
or understanding the
of underlying economic problems thatthe
SSAcountries facein the longer-term.
Manyof them,like Malawi,are internationally
veryweak,
in
on primaryproductexports a
with an over-reliance highlyunstableworldmarket. Given that

230
 for
opportunities expanding to
exports regional
and international
marketsdo currentlyexist,not
muchis beingexportedby the SMEs, andexportingtendsto be a due
activity
one-off in padto
largequantitiesanddemandconstraints
in producing
supplyconstraints resultingfromprotected
marketsin the developedeconomies.According to MEPC,
Zambia,Tanzania, and SouthAfrica

offerMalawibetter
export than
opportunities other However,
countries. these can
opportunities be

exploited
onlywhen thevarious discussed
constraints, in previouschapters,
areovercome.

Thestudyanalysisalsobroughtout a numberof policyimplications

for the government,
SMEs
developed
inter-firmrelations, economies andinternational It involvesthe adoption
organisations.
of a strategythatrunsagainstthe advicegivento the developing
economies of non-intervention.
Someformof policyinterventionis requiredif the SMEsareto participate
in theglobaleconomy
forward.
and progress Sound fiscal and monetarypoliciesare essentialfor macroeconomic
stability,which is a condition
necessary for sustainedeconomicgrowth.A dynamicmarket
economy also depends on basicinstitutionalfoundationsincluding
securepropertyrightsand
that does not
effectivesystemfor enforcingcontractsand an efficientregulatoryenvironment
imposeunduebarriers on business
activities.

A combination
of SAPs
Globalisation, and SIVIEsis such a broad area to be coveredin one
hence
research therewas a limitto whatcouldbe covered in this study, bothfor financial
and
timescalereasons.Also,Malawi,thougha goodcountryareaas a casestudyon the subject,
impactmaynotnecessarilyhavebeenrepresentative SSA
of other SME andhowthey
expedences
Hencetheneedfor furtherresearchworkand
havebeenaffectedby theSAPsandglobalisation.
areas
suggested this
where failed
study to touchuponhasbeenhighlighted
in thefollowing
section.

8.3Furtherresearch
work
Aswellasansweringsomequestionsandhighlighting thisstudyhasalsoraised
someproblems,
somemore which
questions, require and
answers, other have
issues that
surfaced mayneed to be
further.
studied The trueimpact
of SAPmay notbefully at
realised present
astrade liberalisation
andthisstudywasstartedin 2001,thussixyearsafter.Probably
tookeffectin 1995in Malawi it
wouldbebesttogivethesectormoretime,sayuptoaround 2007,andcarryouta repeatorfollow-
upstudytosee where,onthe development,
growthand economicintegration
linethecurrentSMES
aregoingto be It is
positioned. also important
to notethat is
there to this
a need replicate study by
usingmoremeasures and a larger
sample in different
whichcoversSMEsoperating geographical
areasof the as
country thisstudymainly in
concentrated two districts,
administrative oneof which
isnotheavilycommercialised.

231
 finance
Thenon-availability
of has beenthe most frequentlycitedproblemencounteredbySMEsin
Malawiandtheinabilityto raisefinanceis attributed
to limitedaccessto bankfunds.Thereseems
surveysthathavebeenandarestillbeingconducted
to be all kindsof entrepreneur butnotmany

researchershaveapproached or a
conducted survey to find out whatthe bankers'
problemsor
lendingto SMEsin Malawi.Thereis theneedto conducta studyamongbank
issuesareregarding
managers (thosewho represent the domestic
bankingindustry) for
regardingcriteria lendingto
eachother.Thefirstquestionis: arethe banksable
SMEs,in orderfor bothpartiesto understand
in particular,whenprocessingloan requestsfrom them?
their SMEcustomers,
to understand
Bankersmay havea preconceivedattitudethat they perceiveSMEownersas potentialnon-
andthusbecomereluctantto providethemwithbankloans.Thatattitudeneedsto be
performers,
andreplacedby onethat,instead,focuseson understanding
discarded, the needsof SMEsthey
serveor want to serve. It is hopedthat the information
foundin sucha surveywouldprovide
bankerswith insightsinto the needsandwantsof SMEcustomers. Thereis alsothe needto
of
compareperceptions bothbankers
andSME ownersin orderto bridge
the 'understanding
gap'
shouldhelpbankersto developappropriate
frombothsides.Thisunderstanding strategiesand
attractmorecustomersfrom the SME sector.The second questionis: how can SSA SMEs

overcomefinanceand One
constraints?
credit of the findings
robust from the Malawisurveywas
thatpersonalsavings,andnot bankloans,are the mainsourceof start-upfundingamongstthe
SMEs.As a resultof this,informalcreditschemes(borrowing
fromotherindividuals)
predominate.
This underlinesthe importance into
of research informal
creditschemesand entrepreneurial
in thecountry.
networks

analysisand evaluationof key competitiveness

Thereis a needfor identification, and growth
surveyeffortis requiredto identifythosefactors.Firstlyto
factorsof SMEsin Malawi.An extensive
and
explore identify
problems,and then preparethe futurestaffs comingout of the educational
systemaccordingto the needsobservedin the enterprises.If the countryis to producefuture
management
with appropriate
specialists skillsthereis a needto conductsucha surveyand
analysis,and the resultswould allow the formulationof recommendationsfor the curricular
developmentandteachingmethodsimprovement. Theremayalsobe a needfor furtherworkon
assessingimpactof thesupportinitiatives
on SMEsectordevelopment,to seeif theyaremaking
anydifference
at all andwhoexactlyare theytargeting
andwhatstrategiesthey areusingandif
if theyarenotworking.'
theyneedchanging

232
Fufther is alsoneeded
research onentrepreneurial
networks Networks
andclusters, andclusters
information;
provide andexamples;
assistance innovation;
stimulate andtransfer
technology
and
skills(Brautigam 3).
1998: The capitalin overcoming
roleof socialnetwork features
thenegative
limiting
SMEgrowth are
andsurvival, important for
topics futureresearch
in Malawi
andotherSSA
Thereis a needfortheanalysis
entrepreneurship. of theproduction
networksandthetransactions
immediatelynecessaryto maintainit, a needto understandwhatkindof networking
takesplace
amongsetsof companies, bothlargeandsmalldefinedby industrial sectorandlocationand
investigate
what kindof input,
supporting repairandmarketing thataremaintained
networks in a
area,
particular thus who dealswithwhom, where and how.

As mostof the interviewed

government concernsoverthe weakening
officersexpressed of the
manufacturingsector,thereis a needfor conducting
detailedanalysisof themanufacturingsector
in Malawi.Thisshouldbe a systematicinvestigation
of possibledeterminantsof successor growth
of manufacturingSMEs,aimedat identifyingthosefactorsimpactingon successor failureof
in
manufacturing This
Malawi. type of study would providesome usefulinsightsto both
makers
andpolicy
manufacturers in thecountry.Thesurveyed
government
officersacknowledged
on howtheentrepreneurs
thatthereis lackof knowledge canaccessexportmarketsbutnotmuch
seemsto bedoneto helptheSMEsin thisregard,probably
thereis alsoa lackof knowledge, skills
andresources Thereseemto be a lot of activitiesat regional
amongstthoseofficersinterviewed.
levelregardingtradeagreements countriesbut this studycouldnot establish
with neighbouring
whether this is
information relayedto SMEs. However,with otherproblemslike transportand
communication, borderprocedures andso on, it is not veryattractiveto SMEsto exporteven
A studycouldbe carriedout to find out howmuchknowledge
regionally. on exportmarketsthe
government itselfhas,howthisinformation
is passedon to entrepreneurs andwhatis beingdone
to encourage forexporting.
production

The SMEswould eventuallyneed to enter the productionand exportsof high-technology

goods.
manufactured One notes, with sympathy,constraintsfaced by those involvedin
in Malawi,one of them beingtechnological
manufacturing renderingthe goods
obsoleteness,
from
produced thisnon-com Indeed,
petitive. forthetradeliberalisation
oneof thestrongarguments
in SSAcountries wouldallowtheirSMEsto morerapidlyassimilate
wasthatgreateropenness new
technologies. the Malawigeography,
However, lackof clustersandhightransportcostslimitthe
transferof muchneededtechnologies.
Technology cannot be simplytransferred
to an SSA
or
economy SSA like
entrepreneur a product.Thereasonis dueto thedifference
between
capacity
andcapabilityas mostnewtechnology involvestacitknowledgeanda learningprocess.Further

233
moretheremayalsobe domestic
policyinfluences
that hinder
the transferof technology
to
Research
entrepreneurs. shoulddetermine
to whatextentthisappliesto Malawi,andhowa more
learning
conducive for
environment innovation
technological andadaptation canbeestablished.

Itwasinteresting
tonotethatpeople forpolicy(government)
responsible alsocitedelectricity
power
cuts,poorinfrastructure
and lackof moderntechnologyassomeof themajorcontributorstowards
of themanufacturing
collapse Thisstudycouldnotestablish
sector. whythegovernment
exactly is
unableto tackletheseissues.Theymentioned currency devaluation,
watersupply,inefficient
telecommunication andhighrateof crime,all of whichcouldemanate
services fromgovernment
in the
whichwasoneof requirements
cuts publicexpenditure, of SAP.
A be
studycould carded out
tofindoutexactly, SAP,whatis limiting
besides fromtackling
thegovernment theseissues.

andit is worthaskingwhetherentrepreneurship
Africaremainstheworld'spoorestcontinent, can
makea difference
to growth
economic anddevelopment in SSA.Answeringthis questionwould
requirerigorous
researchintoAfrican
entrepreneurshipand the roleof freedom
political andreform.
Moreresearch on Africa in
entrepreneurship, its relationto economic
particular growthandexport
performancewouldhaveto be cardedout and disseminated.
Exporting is seenas onepossible
for
strategy economicgrowthopen to SSA but the questionis: can SMEsin Malawiexport
manufactured
goods?There is for
a need research between
onrelationship SMEsandintemational
trade.Anotherparticular the
concerns
vexingquestion to
extent whichthe informal
businesses
in
Malawican be characterised as entrepreneurial. thatthe informalsector
It is generallyassumed
businessprovideslittlerealeconomicgrowthor dynamism. Suchbusinesses areoftenassumed
inefficient,
andsurvival-oriented wouldgladlytakejobsin the formalsector
andwhosepropriietors
weretheyavailableor had a choice.Fromthe responses
receivedwith regardsto motivesfor
startingup a it
business, appearsthat theseindividuals
enterthe entrepreneurial
marketplace
without the prerequisite to
motivation be entrepreneurs,Meanwhile, the governmenttargets
development
entrepreneurship policies
at people who have become self-employedirrespective
of
whetheror nottheyare It
entrepreneurial. may be
therefore as
questioned to whyfiscalresources
shouldbechannelled to thissectorif thereareno positivesocialreturns.Workneedsto becarded
out to explorethe extentto which the informalSME sectoris entrepreneurial so that the
cantakedifferentapproaches
government to thedifferentinitiative
types.

Moredetailedinformation
suchas geographicallimitations
of the countrycouldbe in
incorporated
framework
the analytical to see if the SAPeffectsare attenuated.Geographicalfactorsmaybe

234
 ant
imporl: to the
understand faced
difficulties byentrepreneurs in Malawi.
Geographic features
that
include:a veryhighconcentration
hinderentrepreneurship of landin the tropics(backlogin
growth
productivity astropical
climateposeinherent
difficulties
in agriculture
andpublichealth);
and
heavily
a population in
concentrated theinterior,
for instance,Malawibeinga landlocked
country
and thousand away
of miles from the coastsand far fromthe core
closest marketsin Europe.
Thesefactorsraisebothdomesticaswellas international
transportcosts.It hasbeenestimated
thatthecostof international for landlocked
transport developing economiesareon average 50%
higherthanforcoastal
economies(RadeletandSachs1998).It hasalsobeenargued thatasfaras
is it
geographyconcerned, is climate
specially andthe for
environment food thatlimits
production
thedevelopment
of in
entrepreneurship these (Diamond
countries 1998:
398).Geographical
factors
couldtherefore infurtherresearch
beincorporated workonSMEsinMalawi.

to analyseimpactof SAP,in particular

Finally,it wouldalsobe interesting tradeliberalisationin
Malawi,usingdatafromlargeenterprises as well.Thereis lackof sufficientresearchon the role
Betterresearchon the dynamics
andimpactof largeenterprises. of largeenterprisesmaythrow
of smallenterprisesize in Africaas well as local indigenous
morelight on the determinants
andthefunctioning
industrialisation andthesuccessor failuresof industrial
of networks clusters.It
wouldbe interestingto identifythoseenterprise whichhaveprovedwellsuitedto
characteristics,
createdby the SAP process- as well as othersthat havebeen
the economicenvironment
by
penalised it. A of
comparison Malawifirms with their in
counterparts other developing
or
be
wouldalso a
countries
neighbouring future
fruitful avenue.
research

8.4Reflectionsandfinal remarks
Carryingout thisworkhasbeenan enjoyable as worktoucheduponthoseacademic
experience
my educationlife, fromPrimaryschoolto University.
that I haveenjoyedthroughout
disciplines
WhenI wasreadingupalltypesof literature,
it broughtbackmemories
of howmuchI usedtoenjoy
geographyclassesat primaryandsecondaryschoolsandhowmuchpleasureandexcitement I
usedto get fromattendingundergraduate
lecturersin statisticsand economics,
and population
level.All this showsthat mostof the academic
studiedat masterspost-graduate disciplines
are
gettingmoreandmoreinterconnected
andinterlinked itselflConsidering
justlikeglobalisation how
theglobalsocialandeconomic is now,it makesmoresenseto research
environment socialissues
disciplines,
fromall pointsandanglesof academic and thereis no doubt
thatmyknowledge and
skillsdevelopedthroughstudyinga wide rangeof subjectsand disciplinescontributed
to the
shapingof this At
research. thesametimeit hasbeena longandhardjourney
andI wasfortunate

235
enough to have the fullsupportfromallmysupervisors andfamily.TherehavebeentimeswhenI
wanted togiveupandaskedmyself severaltimeswhatthepointof allthiswasandwhowasgoing
to listento whatI hadto sayor foundout fromtheentrepreneurs. AndI havealwaysbeen
comforted by the thought I
that: am doingit for all thosesmallentrepreneurs
in Malawi
whoare
strugglingto makeit in thisglobalising
worldandwhoneedsomeone to speakoutontheirbehalf
and telltheir to
story the worldand I hopethatthisresearch hasachieved that.Thesupervisory
teamandI arecurrently workingtowards publishing fromthisstudy:oneontheSMEresults
articles
andoneonpolicies andsomecontextual Thisshouldhelpdisseminate
material. thefindings
of this
studytoawidercommunityincluding
international
andnational andI hopethatmany
policy-makers
influential
individuals willreadthearticlesandmakesomepositive
andorganisation changes to
whichwillhelpandbenefitnotonlytheMalawiSMEsbutalsootherSMEsin theSSA
policies
region.

of carryingout in-depthinterviews
The experience and NGOofficialshas
with the government
enabledme to appreciatethe bureaucratic
processof the civil service.For exampletryingto
wheretherewasnoknowncontactwasextremely
arrangeaninterview difficult;or tryingto obtaina
document on a disketteor printedformrequiredme to go out and buy paperandfloppydisks
myself,thingswhichonetakesfor grantedin Englandwhenrequesting informationof sometype
frommostorganisations. However, ethniclinkswithMalawiNationalStatistical
Office(NSO)and
I
colleagueswent to University
with,who are now workingfor thegovernment,
madepossibleand
easyto obtainofficialgovernment andto arrangefor interviews,
publications especiallyat short
whichwouldhavetakenlongerif I didnothavethosecontacts.
notices,

Havingto carryouttheworkwithno financialsupportat all hasbeenthemostdifficultpadof this

projectwhenoneconsidersthe costsof purchasing
a computer to carryout someof the workat
home,printingandphotocopying costs,hiringa research andbuyingstationery
assistant andother
consumables. I initiallyassumedthat I wouldbe ableto manageto carryout the entrepreneur
myselfandthatI wasgoingto be ableto takesometimeoff workandget to Malawi,
interviews
spendthreeweekscarryingoutthefieldworkonlyto realisethatI hadunderestimated myfinancial
situationas I hadno fundsto financethetrip andit wasnotpossibleto takethreeweeksoff full-
timeemployment. I canonlyspeculate
aboutthedifference
it wouldhavemadeto myresearch if I
hadcarriedout theface-to-face interviews
entrepreneur myself.Nonetheless
I regretmissingout
on the experienceof havingto talk to the entrepreneurs
myselfandhearit firsthand.But I take
comfortin thethoughtthatattheendof theday,theiropinionswereheard.

236
Aswellas raisinga youngfamilyandholdingfull-timeemployment
wasveryhardgoingbut I can
onlysaythatit wasworththesatisfaction
of completing theprojectandknowing thatI havemadea
contributionto knowledgeandhopefully thoughnotdirectly,to theimprovement
contributed, of lives
who
of millionsof entrepreneurs aregoing to benefit
in thelongtermthroughpolicychanges.

Thisstudyhasillustratedthe unequalnatureof the functioningof theglobaleconomy. Obviously

this brief surveyhas not beenexhaustive,but it has illustratedthe breadthof the case for
reform.Theoutcomeof SAPshasessentially
international beena consequence of complexsocial
processes andthatis whyupto todaythereis stilla revoltagainstthepressures by
of globalisation,
thosewho are loosingout fromthe process.Inevitablythe discussion on tradebarriersby the
developedeconomiesand adjustmentpoliciesis still at the forefrontof international
political
discourse.This bringsus to the urgentneedto articulatenew visionsof how the developing
economies whichhavebeenhighlighted
mightbe transformed, in thisstudy.It is hopedthatthis
studywill servein somesmallwayto openup the possibilityfor genuinepolicyalternativesto
SAPs,andaddto themillionsof voicesworldwide
campaigningfor 100%of debtcancellations
of
the developing
economiesand opening up developed
marketsto the SSAagricultural
andother
It is
products. alsohoped
thatthe studywill helppolicymakersgaina clearpictureof the SME
sector,as an inputinto the identification
of possiblestrategicprioritiesfor economicgrowth
interventions.
programme

237
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 Appendices

In Malawi
Appendix1: SALProgramme

I IMPROVEMENTS OFPAYMENTS
INBALANCE
A Smallholder
production
Slowoutputgrowthandexportstagnation

SALI Policymeasures SAL11Policymeasures SALIIIPolicymeasures

(1981-84) (1984-86) (1986-87)

Annualreview ofsmallholder prices Continued useandImprovement

ofthe Continued useof theprice-seltingmechanism,
usingBank-approved methodology. pricesetfing
mechanism. withBankapprovalof 1986-87prices.Fertillser
Increasein 1981-82 cottonproducer 80%reduction Inthe1984-85
Fertiliser subsidyto beremovedby 1989-90. withBank
price.Reviewof livestock
sector subsidywithcomplete by1986-87
removal approvalfor 1986-87prices.Bankmonitoring
prospectsandIncentives.Review of of theFertiliserProject.Accelerationof
ADMARC's marketingandstorage ADMARC's RelieveADMARC
rationalisation.
operations. of certainfinancialburdenof certain
developrnental Expandtheroleof
activifies.
privatetradersInagricultural marketing.
B Estate
production
Excessive
reliance RisingInputcosts,shortage
andteaexports.
ontobacco talentandland,
of management
Study
ontoba= market
prospects Revision
oftheproposed
programmesfor Setupapilotestate
creditscheme.
andontobacco diversification.
estate estate
extension, training
management Prepare
management training
andextension
andcredit
prov1slon. programmes.
C Energy
Rapidriseinpetroleum-import
billanddepletion
of domestic
fuelwoodsupplies.

Energy
sectorsurvey
onprospects, Preparation
ofEnergy Programme Nopolicy
Action actions
proposed.
newinvestments
andpricepolicy. Energy
andmedium-term Investment
fuelwood
1982-83 priceincrease. Programme.

DAgro-industfial
Investments
Needtoexploitinvestment toearnandsaveforeignexchange
opportunities
Reformof PressHoldingsandMDC Conditionality
thesameas underSALI thesameas underSALI
Conditionality
to enablethemto undertakenew
Investments.Adoptionof appropriate
priceIncentives
andwagesandincome
policy.

ANDNON-PRICE
11PRICE POLICIES
INCOME
A Wages,pdcosandinstitutions
Needformorefrequent Incentives
to maintain
adjustments distortions
andprevent
Government review ofpricecontrol Preparepriceliberalisation
programme Complete priceliberalisation
programme
system toImprove flexibility. anddecontrol number
substantial of items. byendof 1985.Review 1964Industrial
Morefrequent parastataltariffIncreases Annualreview annual
of parastatal accounts Development Acttoencourage competition
Inlinewithcostevaluation. andtariffIncreaseswhereneeded. andrestrict useofIndustrial
protectionist
Increase 1981Blantyre Boardtariffs. AddressIssues of housing
subsidies. licensing
system. Ensure Importance of
Prepare planforImplementing economic goodsthatcompete withdomestically
housing rentals. producedgoods. StrengthenExport Promotion
Council,
prepare anexportpromotion policy,
setupanExport facility,
Financing
B Exchangerate
Needforperiodic
review
Periodic underIMFStandby.
review Periodic
Review IMFExtended
under Government tocontinue
anactiveexchange
FundFacility
(EFF). ratepolicy.

MANAGEMENT
IIIRESOURCE
A Interestrates
Periodic underIMFStandby.
review Adjustments
tokeeprealInterest
rates NopolicyacUons
proposed.
positive.

B Publicenterprises
Needto improve andoperational
profitability efficiency
Developinvestment
programme fork Implement findings studies
ofvarious on Improve ofDepartment
efficiency of
MalawiandMalawi Railways. operational Improvements
andfinancial Statutory
BodiesInmonitoringparastatal
Review MDC'sfinancial
position Inindividual Strengthening
parastatals. Prepare
operations, actionplantoremove
debtandequityneeds.
Including andclarifytheroleoftheDepartmentof deficits
parastatal andImprove efficiency.
Review managementbudgetingof MDC Statutory
Bodies. Implement Continued ofMDCInvestments
monitoring
anditssubsidiaries
andpreparelong- recommendations oftheMOCstudies. Inagro-Industry.
termplans.
CPressHoldings
Limited
Needtoimprove PressHoldings
management,budgeting
and
sothatit canundertake
profitability Investments
newagroolindustrial
Completereviewof PressHoldings ImplementPressHoldingsrestructuring Ensurethatassetrationalisation
proceeds
management performance,financesand programme,adhereto newcorporate satisfactoriý,
corporatestructure.Developa planfor Insaleof
carryoutstudies
guidelines,
long-termfinancialrestructuring. assets.

D Government Revenue
Needto improve pedormance
revenue tofinancerecurrent
expenditures
and
localcomponent
ofdevelopment
expenditures,
whilereducinggovernmentreliance borrowing
ondomestic
15%increasein allspecificexciseand Government revenueto be maintained Adopta strategytowardsrestructuringthe
importduties,10%hotelandrestaurant at currentratioof GDP.Licensefeesand taxsystem.IntroduceInitialchangesIn
tax,3%across-the-board tariffincreaseto tariffsto be reviewedpriorto eachbudget 1986-87budget
be introducedIn 1981-92budget Review,andif necessary Increase,public
sectoruserchargesandimprovefeesand
chargescollectionsystems.Improve
buoyancy of taxsystemunderIMFEFF.

E Govemment borrowing
Needto limitdomestic borrowingto reduceInflation
and
increase sectorcredit.Needto limitforeign
private commercial borrowing

Adhere andforeign
to IMF'sdomestic Ensure
debtmonitoring
systemIsoperational.Revise borrowing
theexternal plan.
Strengthen
creditceilings. govemmenfs Develop
borrowing toachieve
strategy target
abilitytomonitorandmanage debt
public 20%debt-service
ratio.

IV GOVERNMENT
EXPENDITURE PROGRAMME
ANDINVESTMENT

A Recurrentexpenditure
in agricultureandexpandexpenditure
Needto correctunder-funding
in keyeconomicandsocialsectorsin linewithon-goinginvestment
programme

Commit MK2.8
additional to
million Review budget
recurrent allocation
with Nopolicyactions
proposed.
In1981-82
agriculture budget Bankandensureagricultural
requirements
Realgrowthinrecurrent
expenditures arenotunder-funded.
inkeyeconomicandsocialsectorsduring
1981-86.
B Publicsectorinvestment
programme
Needto increasesharesallocatedto keyeconomic
andsocialsectorsandreducesharesin lowpriorityinvestments

1981-86PublicSectorInvestment ReviewPSIPwithBankandmakenecessary Preparea PSIPfortheperiod

Programme (PSIP)toincrease
sharesto inviewofchanging
modification 1986-87andl988-89.
circumstances.
healthand
water,education,
agriculture,
Maintain
housing. sharetogovernment
buildings. Bankwith3-yearPSIP.
Provide
CBudgetary
planning
Nopolicyadionsproposed. Develop offorward
a system budgetingwith Update therevenueandexpenditure
3-yearpmjecfions
ofrevenue tocover1986-87
andexpenditureprojections to 1988-89.
byApril1984.Improve for
theguidelines Makechangestogivethebudgeta more
revenue andbudgetary
estimates content
allocation. programmatic
V INSTITUTIONAL
IMPROVEMENTS
A Economicmonitoting
allinvestments
Needto monitor to ensure
economicandfinancial
viability
Preliminary
reviewofalllargeInvestment StrengtheningEconomic PlanningDivision Strengthenandreorganisepolicy-making
committee
co-ordinating anddetailedreview to assistmedium-termstrategydevelopment staffoftheOfficeofPresident
andCabinet
byindependent Strengthen
consultants. andprojectidentification,
evaluation, andMinistryof Finance.
InTreasury,
expertise Economic Planning monitoringandco-ordination.
andMinistry
Division ofAgriculture
under
technical programme
assistance toassistwith
publicdebtGovernment finance,
macroand
planning
agricultural resources
andstatistical

266
Appendix2: Introductorystatementto the in-depthInterviews

wasgivenasfollows:
Introduction
degreeat Liverpool
I amcurrentlystudyingfor a Doctorate in Britain.Myareaof
JohnMooresUniversity

researchis Globalisation
and Adjustment
Structural Programme and how they have Small
affected and
in Malawi.Specific
Microsizedenterprises areasoutlinedin theConceptual
objectives Framework(hereis
your copy)whichincludes
a diagram Figure
labelled 1.1.In to
order fit it withtheframework,
this interview
will be centredround four main themes: Globalisation;
Structural Adjustment,in particularTrade
Competition
Liberalisation; to SMEs;andanysuggestions
withregards on Strategies whichyoumaywantto
propose.SowhatI amlookingfor reallyareyourviews/perceptions
or comments onthesesubjectmatters.
youarefreeto refrainfromresponding
At anystageduringtheinterview, if youfeel
or to stoptheinterview
withthediscussions.
uncomfortable If youarein agreement theinterview andI shallbe
willbetape-recorded
takingsomenotesas well.All informationrecordedwill betreatedconfidentially
andnotdivulgeto others,
No
not even your work colleagues. personal reference will be made in the final reportand your
shall
organisation/department a
receive copyof the which
report, willcontain
recommendations depending

on findings,Do youmindif I usethe taperecorderfor the discussion,

as it canbe toomuch to writenotes
and listen the
at same time, and alsoto avoidmissingout on some importantpointswhichyoumaymake.
turnedonloffdepending
(Tape-recorder Now,if youcouldpleasebeginby givingmea brief
on response).
description mainactivities.
of yourorganisation/department's

267
 andNGOsfor the PhaseI Interviews
Appendix3: Detailsof governmental

Economic
National Council
(NEC)

TheNECis a government
department forformulating
responsible publicsectorInvestment TheCouncil
programmes.
comesundertheOfficeof President andCabinetandis chargedwithdeveloping nationaleconomicpolicies,
which
guidetheeconomic development of thecountry.TheCouncilInitiatesandcoordinates
activities theformulationand
reviewof policiesandlegislation;
coordinates strategic andbudgeting
planning process;monitorsandevaluates the
implementation
of policies
andprogrammes;andprovideseconomic, andinformation
statistical services.
management
Throughthe PovertyReductionStrategyPaper,the NECembarked povertythrough
on a newcourseof reducing
identifying
newsourcesof growth,whichwereto bepromoted so asto strengthen
anddiversify baseof
theindustrial
thecountry.InthePaper,emphasis is placedupondeveloping industrial
a competitive environmentThus,thePRSPIs
a nationalpolicydocument whoseactionplansincludeencouraging localmanufacturersto Increase
the shareof
domestic
marketandencouraging between
synergies localcompanies.

andIndustty(MCI)
of Commerce
Ministry

mainfunction
TheMinistry's supportandfacilitate
is to promote, privatesectorenterprise industry,
effortsin commerce,
micro,smallandmediumenterprises in orderto makeMalawia manufacturing
andcooperatives basedeconomy,
a competitive
capableof creatingandsustaining in domesticandinternabonal
advantage markets.In the lightof
economicliberalisation
programme,theroleof thegovernmentin thecommerce andindustrysectorsis nowthatof
facilitator
promoter, thustheMCIis thecoordinating
andcoordinator, agencyforgovernment
policiesandprogrammes
includetheformulation,
for thesesectors.Itsactlivities implementation policiesandlegislation
andreviewof industflal
togetherwithcoordination of spatialdevelopment
initiatives of investment
andcoordination promotionandproduct
development. fortheformulation
MCIis alsoresponsible andimplementation
of internalandexternal
tradepolicies
and
marketaccessforMalawi's
facilitating exports.

Regionalofficefor SmallandMediumsizeEnterpriseDevelopment

Thisis a sub-division setupforoverseeing

of theMIC,specifically anddeveloping planfortheSMEsector
a strategic
development.
It formulates
andimplements for
policies theSMEsector
and the
coordinates delivery
of support
services
to theSMEsandalsopromotes of SMEopportunities,
awareness andevaluates
andmonitors theperformanceof the
sector.

MalawiExportPromotionCouncil(MEPC)

AnActof Parliament MEPCin 1971to provide

established technical
assistanceto Its
exporters.
registered function
Isto
thedevelopment
facilitate of Malawi's a secureforeignexchange
exporttradein a bidtoestablish earnings baseforthe
economic
country's development tradefares,productdevelopment
MEPCactivitiesincludeorganising buyer-seller
extension
meetings, to exporters
services andtraining.

UnitedNationsDevelopment (UNPD)
Programme

humandevelopment
ThemainUnitedNations(UN)mandateis to promotesustainable throughcapacitybuilding.
andUNDPprepared
theMalawigovernment
Together, a FirstCountry framework
Cooperation forMalawi(1997-2001)

268
targetingsustainable andfoodsecurity,
livelihoods enterprisedevelopmentandemployment sustainable
opportunities,
naturalresourcemanagement and the At
environment. thetimeof theInterviews,
the together
government withtheUN
wasembarkingona newprogrammecalledtheEnterprise
Development
andEmployment Programme,
Creation which
wouldbe part of UNDP's livelihoods
sustainable programme.The is
programme to focuson the
strengthening
development
of SMEs,
bothto for
opportunities
expand employment
creation
andfor development.
sector
private

MalawiInvestmentPromotion
Agency(MIPA)

TheGovernment thisAgencythroughthe Investment

of Malawiestablished andPromotion MIPAis a
Act of 19911.
body to
statutory setup promote, and
attract,encourage facilitatelocal
and foreigninvestmentIn Malawi.TheAgency
is charged
withfacilitating
all aspectsof investment
processes in Malawi;
identil'ying in
partners or Malawi
outside for
jointventurebusiness opportunities;
encouraging to expandor startnewInvestments;
existinginvestors andmaking
recommendations to thegovernment regarding
changes in thestatutory framework
andadministrative to the
relevant
investmentclimate.

SmallEnterprise Organisation
Development of Malawi(SEDOM)
Act of the Lawsof Malawi.
This NGOwas set up in 1982and registeredas a Trustunderthe TrusteesIncorporation
SEDOM'smainfunctionsare provisionof loans,advisoryservicesand industrialestatesfor micro,smalland medium
Its
scaleenterprises. mainobjectivesinclude:to assistin the expansion,
creation, and modernisationof Malawian-

owned SMEs; to encourageMalawianentrepreneurs to use locally raw

available to
materials saveforeign exchange;
and to identifyand promoteSMEswith for
potential import
exportation, and
substitution develop marketfor short-term
lending.

269
Appendix4: Transcriptfromoneof the in-depthinterviews

Thefullinterviewtranscript belowwastakenfromsomeof thegovernment

presented whowereInterviewed
officials by
the researcher. werecarriedout in English,the officialworkinglanguage.
All interviews TherealIdentifies
of the
officialshavebeenkeptanonymous astheywerepromised andassured Inorderto protecttheir
Identityconfidentiality
job positionsas mostof thesehighpoststendto be a bit political.ThefollowingIs a full transcript
of oneof the
interviews
thattookplace:

andthankyou for agreeingto fit meIn yourscheduleat such

GM:Hello,howdoyou do?I amMrsMwandumba
a shortnotice.

MrIMrsY:NicetomeetyouMrsMwandumba. Takea seatpleaseandI mustwarnyou/ havegotanother

appointment
to attendto soonafterthisone.ButI willtry to giveyouasmuchinformationas / cangiventhatwehaven
Ygotmuch
time.

GM.ThankYOu.

MrIMrsY Whatsortof helpdoyou requirefromme?

GM.[interviewintroductionasperAppendix21 Doyou mindif I usethetaperecorderfor thediscussion,as

...
it canbe toomuchto writenotesandlistenat thesametime,andalsoto avoidmissingout on someImportant
pointswhichyoumaymake.

MrIMrsY.-I wouldratheryoudidnottape-record
theconversation howit wouldhelpyoulater
if that'sok.I understand
onbutI dotendtobeparanoid abouttapesandcameras.

GM.Whatever makesyou feelcomfortableis fine I

withme. shalijust use thepen and and
paper try to grasp In
I
as muchas can. You if I to
willpardonme askyou repeatsome of the thingsyou Maysay as I am not a fast
hand-writer.Computershavespoiledsomeof us. Anyway,couldyou pleasegive me a brief descriptionof
whatyourdepartment does?

MrIMrsY. [givesbfief description

of the department
or organisation] details
Organisation/department omittedon
inorderto protecttherespondent's
purpose identity

GM.Thankyou, I havelearnedsomethingnowtoday.Nowcouldyou give meyour viewson Globalisation,

whatdo you think aboutit andhow do you feel it Is impactingon Malawias an economyand on the SME
sectordevelopment in thecountry.

MrIMrsY.,Firstof all weneedto agreeon what'globalisation'means,In myopinionit is aninteraction in

of countries
an economic environment whereyou havepulls and pushesbetween economies through somesortof a regulatory
systemsetout by the WTO, WB and IMF.But then all
within thispushingand pullingthere are losers andwinners.
Malawiis certainlyone of thoselosers.WhatI wouldargueis that whatwe are expefiencing in this countryis
'Internationalisation'
as thereis a presenceof foreigncorporationswho transfer
the assets and profitsto theirown
Malawihasnotentered
countries. yet.AmI makinganysensetoyou?
globalisation

on theIssueof Malawinot beinggloballsedyet

GM.Yesyouaresir. If you couldpleasejust elaborate

MrIMrsY. Mat I meanis thattomegloballsation that

means certain investmentsmade byforeign areput
corporations
backin thecountry.
At themoment companies come here to makeprorltsand leave putting
without back,
anything it is
likesomesortof exploitation investment
sincethereis no tangible made to make oureconomy grow.We donY share
thebenefits
oftheirassetsandwecansaythatthelevel-playing fieldis notthere.

GM.Ok.Now,couldyou pleasetalk aboutwhatyou thinkaboutthe SAPs,particularlythe tradeliberalisation

policy?

MrIMrsY.I wouldliketo talkaboutTradeliberafisation if its okwithyou,because

together,
andcompetition I thinkthey
hasresultedin theshrinking
go together.Tradefiberafisation, of themarketsharefor theSMEs.Therehasbeena
massiveincreasein importsdueto openingup tradebarriers.Theseintemational institutions
talkaboutSAPpolicies

270
 helpingto increase
productivity andefficiency in firmsandthattheywouldbecome morecompetitive, allthatIs nottrue
onourpart.Alltheywantedwasa wayto getin freelyandmaketheirprofitsfromusleavingusdryandhanging, They
musthaveknownthatourfirmscannotcompete withforeignfirms.Fora starttheSMEsdo nothavethe finance,
capacity, competency andtechnology necessary to beanequalfootingwiththeforeigncompanies. Humanresources
is nottrainedandasa resultfinalproducts areofpoorqualitywitha lotof mismanagement andlotsofmaterial wastes,
Thereis no capitalinvestment involvedat all,mostof themhaveoldequipment andmachinery In theirfactories,
how
cantheycompete as such?Manyof themexperience a lackfinancial capitalandourbanksarenotconducive for
borrowing eitheras theinterestratesare veryprohibitive. exportgrowthis very
As a resultof thelowproductivity,
minimal.OfcoursetheseSMEsdocreatejobsbutit isjust cheaplabourthatis notproductive at all.Largedomestic
companies havecloseddownas theycannotsustaincompetition andretailshavealsoclosedbecause of competing
goodscomingfromoutside.TheFD1hasalsobeengoingupanddownin thiscountrybecause of thepoorinvestment
conditions. Transportcostis veryhigh,inflation, interestandexchange ratesarealsoveryhigh,Theinfrastructure and
corruption issuesarealsonothelpingthesituation. Thereis toomuchcorruption goingonin thiscountryandI don't
wantto mention anynamesor departments butit is there.All theseaffecttheinvestor
decisions.Another drawback of
freetradeis thatmostof theentrepreneurs in thiscountry areinvolved alltheywantIsaninformal
inpettytrading, quick
business, andhowcanthegovernment generate revenue fromthat?I amsorryto besounding all negative herebutI
canonlysayI amyettoseesomepositiveimpacts oftheSAPpoliciesandtradefiberalisation
GM.Haveyougot anysuggestionson howthe countrycanmoveforwardin termsof policy,assuming
thatsome
lessons
havebeenlearned
fromtheSAPsandthesituation
youhavejustdescribed?
WIMrsY.I thinkMalawineedsto focuson thethingswhichit has on.At themoment
competitive advantages wecan
sayit is in agriculture,
Butthenagain,if wecannotexportbeyondAfricadueto Developed countries protecting their
markets, whathopehavewegot?I thinkwemadea mistake of fiberafisingeverything, weshouldhaveputcontrols on
someproducts sothatconsumers couldsupport theMalawiindustry ratherthanbuyingimports at thedeathof ourlocal
industry. Ofcoursefornowwedesperately needto findwaysof increasing ourexportsandwealsoneedtoputsome
controlson foreignexchanging as wearelosingmoney.All ministries needto worktogether in developing theSME
sectorandthegovernment coulddowithcomingup withwaysof facilitating thesurvival of risk-takers.Someone needs
to carryouta SWOT(strengths, weaknesses, SMEs that focus
opportunities andthreats)analysis of the so we can all
onareasofhighgrowthandvalue-adding businesses. Mostemphasis in this is large to
country on companies, we need
startlinkingourSMESwithmarkets andlargecompanies. Thegovernment is thebiggest buyer in thiscountryandit
buysmostofitsgoodsfromAsiaandlarge I thinkit'sabouttimeit startedbuyingfromlocalSMEsandthis
companies,
willgivetheSMEsmuchencouragement It is easierto produceif themis a known buyerasit stimulates
AnywayI shouldstopnowotherwise market or
production. I willmissmyappointment. I hopeI havegivenyoua fairaccount
to beconsidered of
myopinion inyourreportandI hopeI havebeen help.
of
GM.Thankyou verymuchfor your time.Doyou haveany
policyor strategydocumentswhichyou thinkmight
be of relevance
to mystudy?

MrIMrsY. Yes,I thinkthere'soneparticular

document whichI thinkyoumightrindveryhelpful.If youhavea computer
diskonyou,youcangiveit to mysecretary whowillcopythedocument on thediskforyou.Andgoodluckwithyour
donI forgetto sendusa copyofyourfindings.
research,

GR I shallmakesureto sendyou a copyof thereportwhenit Is completed.it mightnot be the

wholethesis
but it will be a smallerversioncoveringthemajorissuesandfindings.Thanksagainfor you time,verymuch
appreciated andit wasnicetalkingto you.

271
 Appendix5: Detailedresponsesfrom in-depthinterviews

Statements
on Globalisation
Weneedto distinguish
betweenglobalisation Theformeris aboutownership
andInternationalisation. of assetsand
in the
corporation countryof business whereas the is
latter about
presenceof an investor
wholateron transfers
his
assetsandprofitsto theircountryof origin;If we agreethatthisis thecasethenI feelthatMalawihasnotentered
as suchbutwhatis beingexperienced
globalisation Companies
nowwithopeningup of tradeis internationalisation;
comeand makeprofitsand takethe profitswith themwithoutre-investingin Malawi;I feel thatthereis more
goingonbecause
exploitation theassetsarenotsharedwiththelocalsandthereis notangible investmentto makethe
Malawieconomy grow;Withregards fieldis notthere;MalawiIsnotreadyfor
I thinkthatlevel-playing
to globalisation,
andmostSMEsdo not havethe necessary
globalisation knowledge the opportunities
andskillsto recognise and
benefits
of globalisation.

Statementson the StructuralAdjustmentProgramme

Newgovernmentregimeis encouraginglaziness;People
are very lazy and don'twantto work.Theyare involvedin
actualfarmingfor onlya coupleof monthsout of the wholeyear and yet theydon'twantto engagein othereconomic
activitiesfor theother10monthsof theyear;Initiativesimplemented Thereare no linkagesbetween
areuncoordinated;
and in somecasesthereis an elementof overlap;The SAP,whichwas imposedby the IMFand WB,
organisations
attachconditionswhichpreventthe governmentfrom helpingout or comingup its
with own strategyto developthe
manufacturing and productonsector;Droughtand suspensionof aid in 1992did not help matterseitherin termsof
economicgrowth;Therehas beenslow-downof economic
growthsincethe SAPs.This situationwill be worsenedif
manufacturingand industrialisation continue to be pushed aside; Manufacturingsector has lost out whereas
distribution,
retailandprofessional
servicesare not doingtoo bad;Therehasbeendis-investment in manufacturing
and
Malawihas beentransformedfrom a producingto trading
a economybecauseof the liberaltrade policy;Sincethe
numberof SMEscontinuesto grow,theyshouldbe encouraged to leadthe industrialisation
process;SAPdid not make
a provisionon howto copewithcompetitionas manyof our SMEsdo not havethe technology technological know-
and
hownecessary for beingcompetitive.

on TradeLiberalisation
Statements
Exceedingly anddismantling
rapidtradepolicyreforms haveledto thecontraction
of protection ofsignificant
sections
of themanufacturing Malawi
sector; froma 'producing'
hastransformed toa 'trading' Malawi
economy; hasbecome a
trading
economy withnotmuchof production Manufacturing
happening. cannot withinthisenvironment
prosper with
poorinfrastructure; is becoming
Malawi a trading Therehavebeendropsinthemanufacturing
nation; of textiles
and
foodprocessing duetolackofthenecessary toproduce
technology products;
competitive MostSMEs areengaged In
trading
which involves from
importing SouthAfricaandZimbabwe; is
There more individual
tradingasa resultoftrade
liberalisation.
Manufacturing have
andproduction gone down; is
Productivityvery low andexportgrowthis very
minimal;There is market
shrinking for
share firms,
domestic mostgoodsareimports. We areeven importing
chicken
because demand be
cannot met; Increase
in share
market forimported
goods hence cannotincrease
GDP; Due to
problemsof poverty
andilliteracy, have
mostpeople gone intotrading, Is
which a quickbusiness.
People
arejust
buyingandselling
and Malawi is justconsuming We
asa country; cannot outside
penetrate Opened
markets; up too
muchandasa resulthaveattracted a largeinfluxof imports
andcheapergoods; Imported
goodsarecheaperfor
individuals;
Importsarecoming in cheaper; has just
Government only started small
registering through
companies

272
 Ministryof CommerceandTrade,butmostof themarenot taxed,
thereis no lawfor small-scale There
taxing: Is a
disintegration
of macrobusinesses
whichIs GDP;
underestimating The informaltradehas In
resulted loss of
government revenue; has
liberalisation
Trade notbeenmanaged There
well. Is no policyand to
strategy manage the
tradeliberalisation We
process. need to draw from
lessons Trade
this; liberalisation
was imposedon Malawiby Bretton
Woods,andtheydidnotmentionthenegative
sideof it whentheywere it;
encouraging I feel
that liberalisation
Trade
wasimposed byWorldBankandIMFwhereas
on thegovernment hasgotitsownconcepts
thegovernment whichit
Wehavebeenforcedto comeupwithpoordomestic
at themoment;
cannotexercise policybyWB1IMF, policywhich
suppresses industrialcompetence and thereis no subsidyto farmers;Production,
whichis in decline,
creates
employment; Thereis limitedaccessto foreignmarketsandpeopleneedto betrainedonhowto accessthesemarkets
butthereis nomoneyforthis;Therehavebeenproblems withmanagement Government
of theeconomy; expenditure
hashadmajorimpactonlocalbusinesses;Therearenoenough fundsforprivatesectortoborrowfromthebankssince
bankshavelentchunksof moneyto thegovernment whichis failingto maketheappropriate repayments; Highinflation
andinterestrateshaveaffectedbusinesses- cost of capitalis very high; As regardsto benefits
of free trade,it
dependsonwhichsector:manufacturingsectorhaslostoutwhereas distribution, and
retail professionalservices have
Thereareonlya fewexportcommodities
gained; whicharemainlyagricultural. Therearea fewexports to SouthAfrica,
andthereis an ongoingdisputeoverexportvolumesto Zimbabwe. Potential
exportproducts Includetextles,small-
scaleminingandtourism,thepotential whichwearenotmaximising dueto out-of-date machinery;Malawihasbeen
givena quotato exporttextilesto USAbutwearefailingto dosobecause thetextileweproduce is of poorqualityand
theproductionprocessis veryslowdueto obsolete machinery andfrequent powercuts;Malawihotelsare
electricity
notdoingverywellin attractingtourists
orevenlocals.It is allaboutpricingmethods hasa cluehowthey
whichnobody
comeupwiththem.Theyareveryexpensive hotelsandasa resultveryfewtouristsstayin them;Thereis notmuchto
export.Lastyearimports wereworth$1billioncompared to $400millionworthof exportsandmostimports areluxuries
whichthecountrycando without;Notmuchis exported by theSMEs;I thinktherehasnotbeennoticeable positive
impacts asfarasopening uptradeis concerned; In termsof exports,volumeof otherproducts hasgrownandothers
haveretreated;Therehavebeengainsandlossesin different areasandweneedto refocus onwheretherehasbeen
an increase;Domesticindustries saytheyarenotreadyfor liberalisation andarecryingfowl;Somelocalbusinesses
feelthatincominginvestorshavebeengivenpreferential treatment;Theyshouldnothaveliberalised We
everything.
shouldhave some protectionon keyitems andjustcontrolon quality;Thereareno safeguards for domesticmarket,
maybethecountryrushedin withliberalisation, As far as Internationaltradeagreements areconcerned, thereIs not
muchconsultationwith technical people andtheydon't evenlookat thelevelof ourSMEs.Thegovernment hasnot
inclusion
considered of factors impact
which negativelyon SMEs; Thereis nocontrolonforeignexchange
as a result
thecountryis losingmoney;Domesticdemandis beingsatisfied
throughImportof goodsandserviceshencedeficiton
balance
of payments. Andthismayleadtomoreborrowing anddebts.

Statements on Competition
Cheaper imported which
commodities are with
competing local Competition
enterprises. is verystrong
andit is mainly
in termsof qualityandpackaging; lowmanufacturing
Malawi's hasraisedthedomestic
capability marketshareforthe
imported manufacturedgoodsupto 95% thisyear Large
(2002); enterpriseslikePress Bakerieshave Now
collapsed.
find
you a lotoffamilylevelbakeries andshop BAT,
bakeries; themanufacturer of has
cigarettes, alsocollapsed
andall
it is for consumersthough;David
are beingimportedalthoughthe tobaccois grownhere.
the cigarettes cheaper
Whitehead, Shire
is on the vergeof collapsing;
the textilemanufacturers Bus company,
service the largepublic
transport
provider,is alsocollapsing
dueto emergence of so many individual
private services
mini-bus who arenot

273
 is losingout.Thebuscompany
taxedat all andthegovernment hastriedaggressivemarketingbutIt Is notworking;
Cannedfactoryfoodprocessingcompany Lossof jobsIn the formalsectordueto companies
hasalsocollapsed;
shuttingdown;Producingcompaniesareclosingdownandtradingis increasing
dueto competitive
worldeconomy;
Medium-sized arebeingtakenoveror goingintoliquidation
businesses dueto financial Companies
difficulties; have
hadto closedueto competition Retailshopshavehadto closeduetocompetitive
aboutbytradeliberalisation.
brought
goodscomingfromoutsidethecountry;Bigcompaniesarereducing in Malawi;
operations Mostcompanies usedto be
hencenotgearedforcompetition
monopolies astheyonlyhadtheMalawi marketandnotmanyof themhadto facethe
Industries
outsidemarketcompetition; herearenotwellequippedforcompetition.
Transport costis toohighformostof
themandtheyalsouseobsolete technology;
Domesticmarketis small;Therearea lotof infrastructure
problems
such
as electricity, Thereis no capacityand
waterservicesand roadsare verypoorandthis impactson productivity;
necessary technology
andinfrastructure
to producecompetitive andthuscannottakeuptheopportunity
products of
freetradeandcannotaccessforeignmarkets;Competition is therebut it is not fair becauseit is aboutcapital,
competency andtechnology, whichMalawifirmsdo not have.Thereis lackof moderntechnology andtheyhave
obsoletefactoriesand equipment; Localproductsare uncompetitive due to hightransport costs(Malawibeinga
landlocked country),obsolete technologiesandpoorinfrastructure. Forinstance, theinternal Iswellbelow
roadnetwork
standard;Thereis poorinfrastructure andoutof datetechnology likethat;Therehas
andthecountrycannotcompete
beenupsanddownswithregardto ForeignDirectInvestment dueto pooreconomic environment madeup of high
transportcosts;poorinfrastructure;highinflation,interestandexchange decisions;
rateswhichall affectinvestors We
don'thaveverycompetitive localproductsdueto poorquality,packaging andmarketing. People don'thaveinformation
on marketshareand haveno knowledge of competitors; We needto concentrate on thingswhichMalawihas
competitive advantage on;Therearesmallproduction unitswhichcannotmeetthedemands; Weneedto address SME
constraints. Lookat strengths, weaknesses, threatsandopportunities, andthenfocuson areasof highgrowth;Crime
hasgoneupconsiderably andthishasbecome forbusinesses
a problem because theyendupspending a lotof money
onsecurity; Government needstodosomething to facilitate
survival Adequate
of risk-takers; financialresources should
beallocated to a sectorresponsibleforsmallenterprises andentrepreneurship shouldbeencouraged; Valueaddingto
products is veryminimal in Malawi;Dueto lowquality,thetobaccopricesarebeingdepressed; Lessvalueis attached
to localproducts; Weneedvalue-added products in orderto bringforeignexchange intothecountry.Andfor value-
adding,weneedcapital,whichis noteasyto raisedueto highinterestrates;Intermsof financial capital,banksarenot
conducive for borrowing companies sinceinterestratesareveryprohibitive hencelocalcompanies cannotcompete;
Thereis nodoubtthathightariffs,restrictive measures through policy,lawandadminarrangement andothernon-tariff
measures impedeexports, butthequestion is 'canMalawicompete ontheinternational scene? '; Localfirmswerenot
givenenough timeto increase andasa resultarelosingouttocompetition
theircompetitiveness fromImports;Thereis
nointer-industry
linkage,
forexamplesomeSMEsimportrawmaterials Instead
of usingownlocalmaterials;
Thereare
no linkages
between SMEsandlargecompanies. It willbeeasierfor SMEsto bemotivatedto produce
if therewasa
knownmarketfor them;Humanresource is nottrainedandas suchfinalproductsareof poorqualityandthereIs
mismanagementanda lotof wastein production; cheaplabour,ThereIsn'tmuchforeign
Thereis a lotof unproductive
investmentdueto lackof properhumanresource;Thereis noemphasisonentrepreneurship,People
don'tunderstand
issuesof entrepreneurship With
andglobalisation. the lackof in
knowledge of
accounting finances,
no discipline
of
business
mind,theyendupusingallcapitalonpersonal
needs; is
Competition verystiff days
these andnotmanyfirms
aresurviving this It is
within environment. especially toughfortheindustrial
sectorand No
manufacturers; have
studies
beencarriedouton howcompetitive havebecomedueto freetrade;Mostlocalcompanies
Malawienterprises now

274
knowthatqualityIsimportantandonlytheefficiententerprises ThenewPoverty
willsurvive; Strategy
Reduction Paper
is becoming is belowpovertyline;ThePovertyReduction
toolateashalfof thepopulation Strategy SMEs
recognises
Ascompetition
ascriticalstakeholders; policyhasnowbeendrafted, therewillbeanImprovement
hopefully onthings;
Marketing
of thecountryandproducts needsto be donevigorously to engageIn
so thatpeoplecanbe encouraged
thereis a needfor diversification
In termsof agriculture,
production; hasgiventhe
as WorldHealthOrganisation
countrylessthanfiveyearsto stopproducing Someformof Intervention
whichIsthemajorexportproduct,
tobacco, by
thegovernment is required
insomeselected suchasthetextileIndustry,
sectors

275
 obtainedfrom In-depthInterviews
Appendix6: List of Documents

0 MalawiPoverty Strategy
Reduction Paper,MalawiNational Council
Economic 2001

WhitePaperon for
Strategies the
enhancing growth
of Micro,
Small
& Scale
Medium
Enterprise Ministry
inMalawi, ofCommerceandTrade 2000

Enterprise
Development
and Generation
Employment Programme Ministry
1997-2001,
of CommerceandTrade 2000

0 Strategic Ministry
Plan2001-2004, andTrade
of Commerce 2001

Towards Policyin Malawi:

Competition A Situation of Commerce
Ministry
Analysis,
andTrade 1995

Integrated
TradeandIndustry
Policy,Ministry
of Commerce
andTrade 1998

TheMalawiProducts
Handbook,
MalawiExporl: Council
Promotion 2000

0 Investors MalawiInvestment
Guideto Malawi, Promotion
Agency 2002

TheImpactof TradePolicyReforms
onMalawi's Sector,WorldBank
Manufacturing 2000

Directory
of Micro,SmallandmediumEnterprises in Malawi
Products 2001

0 Malawi:
Globalisation,
Liberalisation HumanDevelopment
andSustainable 2000

0 Country
Assessment
Report,UNDP/UNCATD 1999

276
 Appendix7: Questionnaire

Questionnaire
on Globalisation,
StructureAdjustmentProgramme
andImpacton SMEs
ExplanationtotheInterviewee:
Thisinvestigation outbya research
is beingcarried student fromLiverpool JohnMooresUniversity Intheorderto
obtainmoreinformationaboutopportunitiesandthreats brought aboutbyglobalisation adjustment
andstructure reform
The
measures. purpose of interview
this is to gatherviews and problemsfaced bySMEsinMalawi aswellaspersonal
situations withregards
of entrepreneurs to theeconomic reforms. Thisinformation those
assist
should Inresponsible
forSMEdevelopment
Positions intheiraftempt toimprove anddevelop thesector.Wouldyoumindif I asked youa few
questionsregarding business? YOU can be as as
critical youwant In youranswersbecause you willremain
your
anonymous, to
andyouarenotobliged respondany to questions thatdo notfeel with.
comfortable
QuestionnaireNo Dateof Interview
................... .......................
1. District I Zomba 2 Blantyre 3 Other
2. Nameof town/village
3. Category ..........................................................................................................
1 Rural 2 Urban

I Characteristics Entrepreneur
of
4. Sexof Interviewee I Female 2 Male
5. Inwhatyearwereyoubom?
...................................................................................................
116-20 2 21-25 3 26-30 4 3140 5 41-50 6 over50
6. Whatis yourmaritalstatus?
1 single 2 married ...................................................................................................
3 separated 4 divorced 5 widow(er)
7.Whatis yourfevefofEducatiW
.............................................................................................
I noformaleducation 2 primary school 3 secondafy school
4 pre-University/College 5 Technical school 6 University
8. Haveyoueverhadanytraining relevant to entrepreneurial skills? 1 Yes 2 No
If Yes,whatkindof training didyouhave?
9. Doyouhaveanyknowledge .......................................................................
regarding changing technology andmarkets?
1 knowledgeable2 someknowledge 3 noknowledge at all
Pleasecomment onyouranswer
10.Whatis youroccupation? ...................................................................................
......................................................................................................
1 craftsman/tradesman 2 housewife 3 manual/factory worker 4 office/clerical
5 middlemanagement 6 professional/senior management 7 shopworker
8 farmer 9 student 10retired 11Other(please specify)
11.Haveyoueverworkedasa civilservantinthelast10years? I Yes 2 No
If Yes,whydidyouleaveyouremployment?
....................................................................
1wantedto startownbusiness 2 reached retirement age 3 forcedto refire
4 retrenched 5 other(please specify) 6 stillworking
......
12.Apartfromrunning yourownbusiness, areyoucurrently employed elsewhere? 1Yes 2 No
If Yes,whatkindofemployment doyouhave?
................................................................
3 houseservant
1working forthegovernment 2 working forprivatecompany
4 working ona farm 5 other(please specify)
13.Areyoucurrently lookingforotheremployment? .......................................................
I Yes 2 No
If Yes,wouldyoupleasegivea reasonforwhy
14Whatmotivated .................................................................
youto startupyourownbusiness?
1 inherited business 2 maderedundant ...................................................................
bygovernment 3 sawothersdoingit
4 cannotfindanyotheremployment 5 sawanopportunity 6 needmoneyforsurvival
7 needed additionalincome forhousehold 8 other(please specify)
15.Areyoua member ..............................
of anybusiness group/association? 1Yes 2 No
If Yes,pleasespecify
..................................................................................................
Characteristics
11Enterprise

16.Whattypeof businessdo youhave?

1 production .............................................................................
2 trade 3 service

277
 17.Whoownsthebusiness?
....................................................................................................
3 both 4 jointwithotherpartners 5 limitedco.
1 husband 2 wife
6 other(please specify) ..............................................................................................
18.Number of employed staff(including owner) ...............[ .. ;d7iuým
... .. - -0................4-5-1-99 I
11-4 25-20 3 21-5 small me ium
19.Whenwasyourenterprise created? ......................................................................................
1988and1994 4 after1994
1 before1981 2 between 1981and1988 3 between
20.Isyourbusiness registered with Ministry of Commerce & Industry? 1 Yes 2 No
If No,whynot
..........................................................................................................
21.If 'No'to Q20above,doyouseeyourbusiness graduating frominformal toformalstatus?
I Yes,in twoyearstime 2 in a fewyearstime 3 don'tknow 4 no
Pleasecomment onyouranswer
22.Doyouhaveanyplansto expandyourbusiness ................................................................................
fromsmallto medium ormedium tolarge?
1 yes,in twoyearstime 2 ina fewyearstime 3 don'tknow 4 no
Pleasecomment onyouranswer ................................................................................

III OperatingEnvironment

A. BusinessOperations

23.Wheredoyoucarryoutyourbusiness operations?
1 home 2 ownbusiness premises 3 rentedpremises
4 other(please specify)
24,Wheredoyoupurchase .............................................................................................
yourrawmaterials orgoodsif in trading?
1 otherlocalentrepreneurs2 towncentre ..............................................
3 otherdistricts 4 othercounties
If buyingfromabroad,pleasestatewhy?
25.Whoareyourmainclients? ....................................................................
I ruralpopulation ................................................................................................
2 lowincomeurbanpopulation 3 highincome
4 bothruralandurbanpopulation 5 largecompanies 6 tourists urban population
7 vendors/traders
8 stalls/shops 9 otherSMEs 10other(pleasespecify)
26.Whoareyourmaincompetitors? ...... .......
1 othersmallenterprises ............................................................................................
2 largeenterprises 3 bothsmall& largeenterprises
4 imports 5 none 6 other(pleasespecifý)
27.Isthereenough demand foryourproducts? .....................
1 morethanenough 2 aboutright 3 notenough
Please comment ..............................................................................................
28.Ifyouwereto increase oncurrentproduction, couldyousellmore? I Yes 2 No
If No,pleasegivereasons
...........................................................................................
29.Wouldyoubeableto produce moreif demand increased? I Yes 2 No
If No,why?
..................................................................................................................
infrastructure
1working capital 2 storage 3 pricefluctuations
4 transportdifficulties 5 problems in obtaining rawmaterials6 other(please specify)
30.Haveyouinvested in newequipment/machinery in recentyears? ......
1Yes 2 No
If Yes,pleasespecifywhat
If No,pleasegivereasons ..............................................................................................
........................................................................... ...'- ......
31.Ifyoumakeyourownproducts, haveyoumodernised themeansof production? 1Yes 2 No
If No,pleasegivereason
32.Doyounormally .................................................................................................
havebusiness dealings withotherlocalentrepreneurs?
I frequently 2 sometimes 3 never
If never,why?
1 notacquainted yet 2 do not trust them 3 they are direct competitors 4 other
Pleasecomment onyouranswer - ........--
If frequentlyor sometimes, .....................................................................
do (tick
whatsortof business support you offer one each other asmany
asapply)
1 lendeachotherfinances 2 helpwithsomework 3 exchange business ideas
4 moralsupport 5 other(please specify)
33.Doyousaleorexchange ................................................
yourproducts/goods withotherentepreneurs?
I frequently 2 sometimes 3 never
Pleasecomment onyouranswer ...............................................

278
34.Doyoufeelisolated intermsofcontact withotherentrepreneurs?
1mostof thetimes 2 sometimes 3 never
Pleasecomment onyouranswer .................................................................................
35.Doyouhaveanyassociations ordealings withlargeenterprises?
1frequently 2 sometimes 3 never
Pleasecomment onyouranswer .................................................................................
36.Whatwouldyousaywerethethreemaindifficulties constraining yourbusiness operations?
Pleaselistinorderfromthemostto theleastconstraint:
1
2 ...............................
3 ...............................
...............................
Please comment onyouranswer .................................................................................
37.Doyouseeyourbusiness operations growing/expanding in thenextfewyears?
I yes,willexpand2 no,willremainasit is 3 looking towinddownsoon 4 don'tknow
Pleasecomment onyouranswer ................................................................................
38.Doyou,asa business, exportyourproducts? 1Yes 2 No
If No,why?
............................................................................................................
39.If Noto Q39above,wouldyoubeinterested toexportyourproducts? I Yes 2 No

B.Infrastructure

40.Whatmeansof transport doyounormally useforrunning business errands?

1walk 2 privateminibus 3 matola(hitchhiking) 4 busservice
5 owncar 6 bicycle/motorbike 7 oxcart 8 hiringvehicles
9 other(pleasespecify) ..........................................................................................
41.Doyouconsider transportcoststobe:
1veryhigh 2 high 3 fairlyreasonable 4 reasonable
Pleasecomment onyouranswer ..............................................................................
42.Istransporta problemforyou?
1a seriousproblem 2 problem butnota veryseriousone 3 nota problem
Pleasecomment onyouranswer
43.Iswatersupplya problem ..............................................................................
foryou?
Ia seriousproblem 2 problem butnota veryseriousone 3 nota problem
Pleasecomment onyouranswer
44.Doyouuseelectricityforbusiness ..............................................................................
operations? I Yes 2 No
If No,whynot.?
.....................................................................................................
45.Iselectricity
supplya problem foryou?
Ia seriousproblem 2 problem butnota veryseriousone 3 nota problem
Please comment onyouranswer ..............................................................................
C.Finance

46.Wheredidyougetcapitalforstarting upthebusiness?
1 bank/building societyloan 2 creditunion 3 savedupfromemployment
4 relatives/friends 5 redundancy/retirement money 6 other(specify)
.......
47.Howeasyordifficultis it toobtaincreditfromformalfinancial institutions?
1verydifficult 2 quitedifficult 3 quiteeasy 4 veryeasy
Pleasecomment onyouranswer .............................................................................
48.Howeasyor difficultisit to accessfinanceforbusiness thesedays?
growth/expansion
I verydifficult 2 quitedifficult 3 quiteeasy 4 veryeasy
Pleasecomment onyouranswer .............................................................................
D.Regulatory
Environment

49.Wereyourequiredto obtaingovernment permission to startyourbusiness? 1Yes 2 No

Pleasecomment onyouranswer
50.Doyoupayanyformof tax? .............................................................................
1Yes 2 No
If Yes,pleasespecify
........................................................................................... 2 No
51.Doyouhavetocomplywithanygovernment laws/regulations in yourbusiness operations? 1Yes
If Yes,pleaseelaborate
........................................................................................
52.Doyouhaveto meetcertainstandards of qualityforyourproducts? I Yes 2 No
Pleasecomment onyouranswer ................................................................................
53.Wheredoyousellyourproducts/merchandise?
......................................................................
3 commercial/industrial
1centralmarket 2 fromhome district
4 roadside 5 mobile 6 other(please specify) ...........................
54.Areyourestricted bythegovernment onwhereyoucansellyourmerchandise? 1Yes 2 No
Pleasecomment onyouranswer ................................................................................
55.Doyoufindtheregulatory environment restrictive ornottobusiness initiatives?
1veryrestrictive 2 quiterestrictive3 quiteunrestrictive 4 veryunrestrictive
Pleasecomment onyouranswer ...............................................................................
56.Howeasyordifficultis it toobtaininformation business
onmarketing oravailable support?
I verydifficult 2 quitedifficult 3 quiteeasy 4 veryeasy
Pleasecomment onyouranswer
57.If involved
inexporting ...............................................................................
& excise:
doyoufindcustoms
or importing,
1verybureaucratic 2 inhibiting 3 easytodealwith
Pleasecomment onyouranswer
58.Whatarethemaindifficulties imposed ...............................................................................
bytheregulatory environment? ......................................
59.Anysuggestions aboutwhatyouwouldliketo seehappenregarding:
Government Support
...........................................................................................
OtherInstitutionSupport
Regulatory .......................................................................................
environment ........................................................................................
60 Ingeneral,whatwouldyouliketo seehappento enhanceyourbusinessgrowth?
.....................

IV.Satisfaction& Problemswith enterprisinglife

61.Howsatisfied areyouwiththewayyourbusiness is performing atthemoment?

I verydissatisfied2 dissatisfied3 neithersatisfied nordissatisfied4 satisfied 5 verysatisfied
Pleasecomment onyouranswer
62.Whichofthefollowing ..............................................................................
statements canyouidentify yourself withmost?
I lifein business
is verydifficultformethesedays
2 lifein business
isdifficult
3 neithereasynordifficult
4 easyforme
5 veryeasyforme
63.Whatwouldyousayis themainproblem affecting yourbusiness operations at themoment?
1transport 2 can'tgeta loan 3 highinterest .........
ratesforloans 4 competition
5 watersupply 6 lackof market 7 procuring rawmaterials 8 lowdemand
9 obsolete technology 10other(please specify)
Pleasecomment .....................................
onyouranswer ...............................................................................
64.Whatisthesecondproblem affectingyourbusiness operations (useabovecodes)?
.....................
Pleasecomment onyouranswer ................................................................................
65.Whatisthethirdproblem affecting yourbusiness operations (useabovecodes)?
.........................
Please comment onyouranswer ................................................................................
66.Overthepastyears,whenwouldyousaythatenterprising lifewasmostdifficultforyou?
...............
1 beforeindependence 2 rightafterindependence untilabout1981
3 between round1981and1994 4 from1994upto 1999 5 now
Please comment onyouranswer
67.Duringthelast10years: .................................................................................
1business hasimproved in manyways
2 business hasimproved insomeways
3 formebusiness didnotchangemuchafter1994
4 business hasbecome moredifficult
Pleasecomment onyouranswer
68.Howdoyouthinklifein business ................................................................................
willchangein thenextfewyears?
1willimprove 2 willnotchangemuch 3 willbecome worse
Please commentonyouranswer ................................................................................
V Impactof the AdjustmentProgramme

69.Whenwereyouawarethattraderestrictions hadbeenliftedbythegovernment? ........................

1since1981 2 since1988 3 since1994 4 about1995 5 notaware
6 can'tremember
70.Describe themainchanges recorded the
since start of your business in termsof:
1 Production
...........................................................................................................
2 Employment
3 Investments ........................................................................................................
4 Product .........................................................................................................
range ......................................................................................................
5 Imports & exports
..................................................................................................
71.Sincethedomestic deregulation, hasit beeneasyforyourbusiness operations? ..........................
I verydifficult 2 difficult3 nochange 4 easy 5 veryeasy 6 notsure
Pleasecomment onyouranswer ................................................................................
72.Sincetradepolicyreforms, howeasyis it tofindfundsforfinancing newequipment?
1verydifficult 2 difficult3 nochange 4 easy 5 veryeasy 6 notsure
Pleasecomment onyouranswer
73.Sinceopening ................................................................................
upthemarkettoforeigntrade,is themarketshareforyourbusiness:
1shrinking 2 expanding 3 nochanged 4 notsure
74.Sincetheexchange ratereforms, areyouableto access foreignmarkets foryourproducts/goods?
I Yes 2 No
If No,whynot?
.......................................................................................................
If Yes,haveyouexperienced anincrease inforeignmarketopportunities sincetradeliberalisation?
1decrease 2 nochange 3 increase
75.Howcompetitive doyouthinkyourproducts areorwouldbeontheinternational market?
1verycompetitive2 competitive enough 3 notcompetitive enough 4 donotstanda chance
Please comment onyouranswer
76.Howcompetitive doyouthinkyourproducts .................................................................................
areonthedomestic market?
1verycompetitive2 competitive enough 3 notcompetitive enough 4 donotstanda chance
Pleasecomment onyouranswer
77.Inyouropinion, ................................................................................
whatwouldit taketo makeyourproducts morecompetitive bothabroadandat home?
ii'scal*&
""' -*---- ...*-* ,I-
-"*''II''**------I...................
1*1 11,11 * ** 11,1....... ...... ... . ...... . .........
78.Since monetary reforms, howeasyis it toobtainrawmaterials fromabroad?
1veryeasy 2 easy 3 sameasbefore 4 difficult 5 verydifficult 6 nottriedit
Please comment onyouranswer ................................................................................
79.Sinceexchange ratereforms, canyouaffordequipment atappropriate technological level? 1Yes 2 No
Please comment onyouranswer ................................................................................
80.Aftertradeliberalisation, thenumber ofcustomers buyingfromyouhas:
1increased 2 decreased 3 notchanged 4 notsure
Please comment onyouranswer ................................................................................
81.Sincedomestic deregulation, areyourpricescompetitive?
1 notcompetitive2 competitive 3 nochange 4 verycompetitive 5 don'tknow
Pleasecomment onyouranswer ................................................................................
82.Sincepriceliberalization of crops, has demand for yourproducts:
I decreased 2 increased 3 remained thesame?
Please comment onyouranswer ................................................................................
1Yes 2 No
83.Hasproductivity/output increased in yourbusiness sincetradeliberalisation?
Pleasecomment onyouranswer ................................................................................
for by liberalisation? 1 Yes 2 No
84.Havenewareasofeconomic been
activity opened up you trade
Pleasecomment onyouranswer ................................................................................
1 Yes 2 No
85.Isyourenterprise moreprofitable now than before?
Pleasecomment onyouranswer .................................................................................
1 Yes 2 No
86.Doyouthinkyouarewellequipped compete to globally?
Pleasecomment onyouranswer .................................................................................
1 Yes 2 No
87.Doyouseeyourbusiness growing duetofreetrade?
Pleasecomment onyouranswer .................................................................................

281
 88.Thefollowing
havebeenmentioned,in previous InMalawi,
similarsurveys asmainfactorsInhibiting
of localproducts.
competitiveness Pleasetickwhetheryouagreeordisagree
in eachcase.

1 poor 2 hightransport 3 obsolete 4 highInterest

roads costs technology rates
Strongly
disagree
Disagree
Neither
agreenordisagree
Agree
Strongly
agree
Anyotherfactorsin youropinion?
.................................................................................
VI Response
to AdjustmentMeasures

89.Howdidyourespond to theincentive
mechanism brought aboutbytradereformmeasures?
I diversified
outlets 2 soughtexportmarkets 3 product diversification
4 investedin advanced equipment 5 that'swhenI startedthebusiness6 nochange
Pleasecomment onyouranswer
9O.Doyouimportyourrawmaterials? .................................................................................
I Yes 2 No
If Yes,haveyoureduced orincreased yourshareofimported rawmaterials?
Ireduced 2 same 3 increased
Pleasecomment onyouranswer
91.Whatstrategies .................................................................................
haveyoucomeupwithto enhance yourproduct competitiveness?
92.Whatdoyouseeasthemainhindrance toyourstrategy forbusiness development?

93Wouldyouconsider ........... .......*-- .......

working withotherSMEsto strengthen yourposition in thedomestic market?
I Yes 2No
If No,whynot?
94.Anygeneral ........................................................................................................
comments inaddition to theabovepoints?
............................................................

...........................................................................................................
..................

282