Malawi LEDC

Malawi Less developed countries case study

Malawi is one of the world’s poorest countries, ranking 160th out of 182 countries on the Human Development Index. Progress towards reaching the Millennium Development Goal of eradicating extreme poverty has been limited. According to the United Nations Development Programme’s Human Development Report for 2009, about 74 per cent of the population still lives below the income poverty line of US$1.25 a day and 90 per cent below the US$2 a day threshold. The proportion of poor and ultra-poor is highest in rural areas of the southern and northern parts of the country.

Country indicators

GDP per capita average annual growth rate (%), 1990-2012 1.2
Underweight (%) 2008-2012*, moderate & severe 12.8
Secondary school participation, Net attendance ratio (%) 2008-2012*, male 9.7
Secondary school participation, Net attendance ratio (%) 2008-2012*, female 10.4
GNI per capita 2012, US$ 320
Literacy rate, adult total (% of people ages 15 and above) 74.77
Infant mortality rate 71
HDI( human development index) 0.388

All these indicators show Malawi is a LDC according to the UN criteria for the identification of an LDC.

Reason for the low levels of development in Malawi
Despite the availability of better technologies, the productivity of most crops has not improved since the 1970s, largely as a result of declining soil fertility. Also contributing to the low yields are poor access to financial services and markets, unfavourable weather, small landholdings and nutrient-depleted soils, coupled with limited use of fertilizers. The use of improved varieties, together with fertilizers, better crop husbandry and irrigation, has the potential to greatly improve yields. Post-harvest losses are estimated to be around 40 per cent of production.
The recurrence of shocks frustrates attempts to escape rural poverty. The most common shocks are weather-related, such as crop failures and increases in the price of food. Illness or injury is also very common, as are shocks associated with death of family members, heightened by the HIV/AIDS epidemic, which has affected 11.9 per cent of the population. Shocks often force households to sell assets, thereby undermining their ability to engage in productive activities. As a result, poor households have to adopt costly coping strategies such as selling assets, withdrawing children from school and reducing food consumption.
Poor rural people in Malawi are unable to diversify out of agriculture and tend to remain underemployed for part of the year. More than a third of rural households earn their livelihood only from farming or fishing. An additional 25 per cent combine work on their farm with other jobs, largely in agriculture. Other income sources tend to be limited to poorly paid agricultural labour. Few economic opportunities combined with the marked seasonality of rainfed agriculture leads to labour shortages during the critical phases of the cropping season, with underemployment for the rest of the year.
Access to education, a major driver of relative wealth, is highly inequitable as well. Almost 30 per cent of poor children do not even start primary school, which is free in Malawi. Secondary and higher education is largely confined to non-poor households, mainly due to the required enrolment fees. Limited access to markets and services is another constraint. Poor rural people tend to live in remote areas with few roads and means of transport, which limits their economic opportunities. Access to financial services is severely restricted, especially for smallholder farmers. Only 12 per cent of households have access to credit.
What is being done to tackle Malawi’s problems?
In May 2002, the Government launched the Malawi Poverty Reduction Strategy (MPRS), with the goal of achieving “sustainable poverty reduction through empowerment of the poor” over a three-year period. The MPRS achieved a modest decline in poverty levels while real gross domestic product (GDP) growth averaged only 1.5 per cent per annum. In 2005, the MPRS was reformulated as the Malawi Growth and Development Strategy (MGDS), which remains the overarching policy framework for social and economic development. Under the MGDS, real GDP growth for 2006-09 averaged 8.4 per cent and is expected to continue to be strong, helped by increased revenue from mining. While growth was somewhat lower during 2009-10, it seems that Malawi will weather the global financial crisis. The fiscal deficit has been brought down, and debt relief under the Heavily Indebted Poor Countries (HIPC) initiative has greatly reduced the burden of debt service.
Notwithstanding good recent performance, the ability to maintain a level of economic growth to ensure poverty reduction remains limited by:
 the narrow economic base;
 the small domestic market;
 poor infrastructure/high transport costs;
 erratic power supply and heavy reliance on energy imports;
 the presence of the State in the business sector;
 Government intervention in key markets;
 and weak management capacity in the public and private sectors.

Agriculture provides over 80 per cent of exports and contributes some 34 per cent to GDP; services make up 46 per cent of GDP and industry 20 per cent. The performance of agriculture is therefore critical for the economy. Average growth in the sector is highly dependent on climatic factors, and reached nearly 7 per cent during the 1990s and 9 per cent between 2002 and 2006, with a drop to -9 per cent in the 2005 drought. Growth has subsequently recovered with improved seasonal conditions, boosted by the Farm Input Subsidy Programme.
The Farm Input Subsidy Programme was launched in 2005-06 to increase agricultural production and ensure food security, by providing government-subsidized agricultural inputs to smallholding farmers. The scheme has coincided with a significant jump in maize production, although it is unclear how much of this is attributable to the subsidy and how much to improved seasonal conditions. The subsidy programme is now a firmly established pillar of agricultural policy. However, it presents a number of policy dilemmas:
• the cost of the programme is so high that most other initiatives have to be sidelined, including the extension and research services needed to ensure optimal use of the inputs;

• the programme has tended to displace commercial input purchases by farmers; and the distribution of inputs has tended to favour the more food-secure households.