WrittenevidencesubmittedbyGarryWhitby

HowtheUKcanbesthelptoimproveopportunitiesforeconomicgrowth,jobcreationand meetingtheMillenniumDevelopmentGoaltargetsinMalawi?
AbbreviationsUsed AfDB AIDS BAM BCA BDS BMO CSR DEMAT DPC DWCP EEAG EU FSTAP IBAM ILO ISO JICA M&E MGDS MARDEF MAWIMA MBS MCCCI MDC MDC MEDI MEPC MIPA MTIC MIRTDC MoIT MoL MRFC MSB MSME NABW NASME NBS NEEP NGO NSO ODPP OIBM OSH OVOP PPP PSD SADC

AfricanDevelopmentBank Acquiredimmunedeficiencysyndrome BankersAssociationofMalawi BusinessConsultAfrica BusinessDevelopmentServices BusinessMembershipOrganisation CorporateSocialResponsibility DevelopmentofMalawianEnterprisesTrust DevelopmentPlanningandCooperation DecentWorkCountryProgramme EconomicEmpowermentActionGroup EuropeanUnion FinancialSectorTechnicalAssistanceProgramme IndigenousBusinesspersonsAssociationofMalawi InternationalLabourOffice InternationalStandardsOrganisation JapaneseInternationalCooperationAgency Monitoring&Evaluation MalawiGrowth&DevelopmentStrategy MalawiRuralDevelopmentFund MalawianWomeninMiningAssociation MalawianBureauofStandards MalawiConfederationofChambersofCommerce&Industry MalawiDevelopmentCorporation(nowdefunct) ManagementDevelopmentCentre MalawianEntrepreneursDevelopmentInstitute MalawiExportPromotionCouncil MalawiInvestmentPromotionAgency MalawiTradeandInvestmentCentre MalawianIndustrialResearch&TechnologyDevelopmentCentre MinistryofIndustryandTrade MinistryofLabour MalawiRuralFinanceCorporation MalawiSavingsBank Micro,SmallandMediumEnterprises NationalAssociationofBusinesswomen NationalAssociationofSMEs NewBuildingSocietyBank,justcalledNBSBank NationalEconomicEmpowermentPolicy NongovernmentalOrganisation NationalStatisticalOffice OfficeoftheDirectorofPublicProcurement OpportunityInternationalBankofMalawi OccupationalSafetyandHealth OneVillageOneProject PublicPrivatePartnership PrivateSectorDevelopment SouthernAfricanDevelopmentCommunity

AbouttheAuthor GarryWhitbyhasbeenworkinginInternationalDevelopmentforover35years,andhas workedonassignmentsinMalawifromJune1977untilnow,includinglivingandworkingin Malawifrom197778,19861988,and19901998. HeisaCharteredEngineer,butnowspecializesinbusinesssectordevelopment.Heworked fortheprivatesectorinMalawiinhisearlycareer,thenforDEMATabusinessdevelopment serviceorganization,undertookastudyofeconomicdevelopmentpotentialintheRural GrowthCentresforGTZ,anindustrialsectorstudyforUNIDO,becametheUNDP/ILOfunded ChiefTechnicalAdvisoratMEDI,beforemanaginghisowndevelopmentconsultingbusiness, PPIConsultantsinMalawimanagingdonorfundedinterventions,whichincludedtheDFID CommunitySchoolsProjectandSchoolSupportSystemsProgramme. In1998hejoinedDeloitte&Toucheandrantheirdevelopmentconsultingbusinessin SouthernAfrica.DuringthattimehemanagedanumberofDFIDprogrammesinSouth Africa.Hewasalsoinvolvedinpioneeringandtestingthechallengefundconceptina developingcountrycontext. In20072009heworkedforDanidainVietnamontheirBusinessSectorProgrammeSupport, asSeniorAdvisortotheMinistryofPlanningandInvestmentonprovincialbusiness environmentimprovement. HeiscurrentlyworkingonanassignmenttohelpMalawidevelopmentanewMSMEPolicy andStrategicPlanthroughwideconsultationanddiscussionswithkeystakeholdersin Malawi.Coincidently,hewasinMalawiduringtheJuly20thdemonstrationsandgainedfirst handcommentsfromrespectedMalawiansonthesituationintheircountry. Hisdevelopmentphilosophyistoimplementprojectswithlocalprivatesectorprofessionals, withgovernmentofficialsrestrictedtopolicyandstrategyformulation;and,todevelop innovativeapproachestoimplementingdevelopmentprogrammes;particularlyinvolving privatesectorplayers.

Summary History 1. Malawihasalonghistoryofsupportingsmallenterprisesthroughoutthecountry,andunder theBandaera(19641994)heestablishedanumberofbusinesssupportinstitutionsto promoteMalawianenterprises.Initially,theseinstitutionsworkedreasonablywellandhad clearmandateswhichcomplementedeachother.Buttherewaslittle,ifanyprivatesector involvementintheirformationoroperation,bartokenboardmemberships.Banda famouslyboastedthattheprivatesectorwaswellandstrong.andownedbyGovernment. 2. VariousdonorledprogrammesdevelopedasectorapproachtoMSMEpromotion,butsince multipartydemocracyin1994thenewgovernmentshadtheirownideasonwhatthese institutionsshoulddocausingconfusionandblurringtheirmandates.Policieswere developedinisolation,againwithlittleconsultationwiththeprivatesector. Approach 3. GiventhatMalawiisnowfragileandfacingbeingafailedstate,theapproachfortheUK Governmentshouldbetoworkmorecloselywiththeprivatesector,helpthemorganize themselvesintobusinessassociationsandgroupstoadvocateforabetterbusiness environment.Thiswill,admittedly,requirecapacitybuildingtoimprovemanagementand developmentofappropriateservicesforbusinessassociationmembers. 4. Inaddition,theUKGovernmentshouldseektodevelopprivatesectorprovidersofbusiness services,whichhavebeencrowdedoutofthemarketbythegovernmentbacked organizationswhicharebecomingincreasinglylesseffective,andarecertainlyinefficient. 5. TheMalawiGovernmentshouldnotgetinvolvedinimplementation,butshouldconcentrate onpolicyformulationandeconomicstrategydecisions,inconsultationwiththeprivate sector. Whatshouldbedone? 6. Growthprogrammesshouldbeaimedatstrengtheningsmallbusinesses,theyshouldbe broadbased,createsupportivepoliciesandregulations,andbesectorspecific. Strengtheningofprivatesectorinstitutionstoprovidetrainingandadvisoryservices;as wellastolinksmallbusinessestoinformation,technology,rawmaterialsandmarkets. Improvebusinessandfinancialmanagementskillstoentrepreneurssothatfinancial institutionsfeelcomfortabletolend Capacitybuildingofbusinessassociationstoprovideimprovedandnewservicesto members Createsolutionstoaccesstotechnologyandtechnicalskillstraining Holisticassistancetoentrepreneursworkinginidentifiedgrowthsectorstoovercome theaforementionedconstraints Howshoulditbedone? 7. ExperienceofworkinginMalawiforover30yearsindicatesthatimplementingprogrammes isbestdonewithprivatesectorprofessionals,inconsultationwithGovernmentofficials.But establishopenandtransparentproceduresthattheGovernmentofficialsandthepubliccan seearefair;and,keepeyesandearsopen,beawareofwhatishappening;and,manage programmesbymovingaroundandbeingvisible.ReportbacktoGovernmentofficialsona regularbasiswithfacts. 8. Establishmanagementteams,beconsultative,involveacrosssectionofstaffatalllevels makeitdifficultforSeniorOfficials/TeamLeaderstomakedecisionsontheirownwithout consultation.Puttheminapositionofhavingtoreversejointdecisionsagreedat managementmeetings.Gainwiderangeofviewsbyconsultingjunior,middleandsenior managementseparately,intheirrespectivepeergroupstopreventpressurefromseniors, andgetfreshviewsandideasfromjuniormembers.

 Themainreportdiscussesthetypesofinterventionsthatareneededwithasituational analysisinMalawi,highlightingweaknesses. InterventionsandSituationalAnalysis Background 9. AccordingtheDecentWorkCountryProgrammeinMalawithelabourforceis6.1million people;2.5%workforprivatebusinessand1.1%onestates;3.6%inthepublicsector meaningthatonly442,000areinformalemployment.Thisleaves5.65.7millioneither unemployed/underemployed,employedinsubsistencefarming,orintheinformalsector. ThegrowthinMalawiisboundtocomefromtheMicro,Small,MediumEnterprisesector; wheremostemploymentopportunitiesexist.Therefore,theperceptionsofMSMEsector stakeholdersinMalawiareimportant;indeed,theirparticipationisrequiredtotransform thesector,andreleaseitfromGovernment,albeitwellintentioned,interventions. 10. Malawihasmanyinstitutionsassistingthissector,andtheyhavelargelyremainedthesame, buttheirroleshavebecomeconfusedbyGovernmentinterventionsandpoliciesoverthe last1020years.RecentdecreesbygovernmenthavebeentorationalizetheMSMEsector institutions,butthemandatesforthenewinstitutionshaveeithernotbeenwrittenor thoughtthroughbutcertainlynotmadeavailabletotheexistinginstitutionheadsormade public. ProposedMalawiDevelopmentBank SincethecollapseoftheeMalawiDevelopmentCorporation,MDC,therehasbeen nodevelopmentbankinMalawi.However,theMSBandMRFC,arebothwholly governmentowned;and,theyarebeingconsideredformergingtoformtheMalawi DevelopmentBank.Indebankanditssmallsister,Indefund,wereonce50%owned byGovernmentthoughADMARC,butarenowalsowhollygovernmentowned. GovernmentboughtouttheothershareholdersFMO,DEG,IFCandCDC. Internationalbestpractice,however,indicatesthatGovernmentsshouldnotown banksorgetinvolvedinprovisionoffinance. ProposedSMEDevelopmentBoard/EnterpriseDevelopmentCompanyofMalawi MEDI,SEDOMandDEMATareproposedtomergeintooneorganisation. Internationalexperience,again,indicatesthatbusinessdevelopmentservicesand provisionoffinancearenotagoodcombinationasitisdifficulttobebothan advisoraswellasadebtcollector.Shouldtheproposedmergergoahead,itwould beadvisablethatSEDOMsroleintheprovisionoffinanceshouldberolledintoone oftheotherorganisationsprovidingfinance,andonlytheirtrainingandindustrial estatesactivitiesaremergedintotheneworganisation.SEDOMandDEMATalso provideBDSincludingcoursesinbusinessmanagementskills,althoughtheir activitieshavereducedinintensityoverthelastfewyears.Indeedthereisan opinionamongststakeholdersthattheyhaveoutlivedtheirusefulness. ProposedMalawiTradeandInvestmentCentre MEPCandMIPAaretobemerged,indeedweremergedonpaperthisyear,butare yettocolocate.Themandatefortheneworganisationisthecombinedmandates fortheseparateinstitutions.Neitherinstitutionisstrong,nowistheopportunityto restructureandreassesstheirrespectivemandates.

11. Thereisaplethoraofreportsongrowth,includingtheMalawiGrowthandDevelopment Strategy,and,indeedtheLilongweGrowthandDevelopmentStrategy.Therearealsomany policieswrittenbyvariousMinistries.Theseweredraftedsupposedlywithwide consultation,buttherewaslittleevidencethattheprivatesectororpublicwereconsulted fullyorparticipatedinthedraftingofpolicies.Worsestill,thepolicieswereneither disseminatednorimplemented. RoleofBusinessAssociations/BusinessMembershipOrganisations 12. BusinessAssociationscanadvocateforchangeintheMSMEsector,andreducingthe governmentsponsoredinterventionswhichhavediminishedinqualityovertimewith Governmentalbudgetconstraints.Businessesthatcanorganizethemselvesintogroupsor associationscanprovideservicestotheirmembersatalowercostandatbetter.Such servicescouldbe: 13. ThereareanumberofbusinessassociationsrepresentingtheMSMEsectornationally: NASMEandNABWoutlivedtheirusefulnessaspowerfulmemberslostsightoftheaimsand bureaucracywasmoreimportantthanservicedelivery.Memberssplitofftoformnew groupsorbranches,suchasIBAMandEEAG.Allarereestablishingthemselves;indeed fightingforthesamemembers.Inadditiontherearenumerousgroupsandcoops.Malawi CongressofChambersofCommerceandIndustryistheapexBMOrepresentingthelarger, moreestablishedbusinessesinMalawi(317members),soMSMEshavemovedawayfrom membershipofMCCCIbecauseofthedominanceofthelargercompanies,andtheirsmall votingrights. 14. Consequently,mostassociationsareweakandneedmanagementandleadershiptrainingto enhancetheirabilitytodelivertheirrespectivemandates.Equally,theylackfinancial resourcestotrulyrepresentandsupporttheirmembersneedsandadvocateontheir membersbehalf.Thereisroomfordonorstoworkwithbusinessassociations,enhancetheir capacityandassistthemdevelopservicesfortheirmembersandovertakethosebeing providedbygovernmentbackedorganisations. Managementandentrepreneurialdevelopment 15. Thereisaneedtodevelopmanagementandentrepreneurialcapacityinsmallbusinesses. Theapproachshouldcoupletrainingwithfollowupconsultancyandbusinessadvice. Trainingandconsultancyshouldbeprovidedbytheprivatesector.Thisrequires: Developmentofacadreoftrainersgearedtowardsgivingbusinessadvisoryservicesas businesscounselors Owner/entrepreneurs,aftershorttrainingcourses,benefitingfromadedicatedbusiness counselortoimplementthespecificknowledgelearnt 16. ThekeyinstitutionforentrepreneurshipdevelopmentinMalawiremainsMEDI,withthe PolytechnicandtheManagementDevelopmentCentreholdingbusinessmanagement courses;includinganelectiveonentrepreneurship.BundaAgriculturalCollegehasrecently delinkedfromUniversityofMalawitomergewithNaturalResourcesCollege;and,these shouldbeencouragedtoincreasecapacityofentrepreneurdevelopment,suchas agriculturebusinessmanagement. Advocacyandlobbyingofgovernmentandlocalauthoritiesinremovalofpoliciesand deregulation. Jointsupplyservices,marketing,networkingandsellingservices Technologyandtechnicalprocesspromotionanddevelopment Provideinformation,internet&libraryservices Adjudicatecontracts/providelegaladviceandcertifyproductquality&documentation

17. Theseinstitutionsneedenhancingwithnewresourcestofulfilandexpandtheirmandates. MSMEsbelievethatMalawineedstostartintroducingentrepreneurshipintoschoolsatan earlystagetoinstilacultureofentrepreneurshipandenterpriseinyoungpeople.Thereare roadsideentrepreneurshipandartisanalbusinessespoppingupalloverMalawi,butin particularalongarterialroadsintomaincities,suchasLilongweandBlantyre. 18. Privatesectorsuppliersofmanagementskillstraininghavebeensomewhatcrowdedoutof themarketbygovernmentbackedinstitutions,despitegreatdemandforsuchtraining. BusinessConsultAfricawasestablishedwithDFIDfundingtofillaperceivedgapinthe market. AccesstoFinanceandFinancialServices 19. Thefirststeptoaccessingfinanceandfinancialservicesistostrengthenthesmallbusinesses themselvesinfinancialmanagementskillsandimprovetheirinternalmanagement,to include: Developmentofthefinancialmanagementcapabilitywithinsmallbusinesses Improveaccesstocreditforshort,longtermcapitalbyworkingwithfinancial institutionstodevelopSMEcreditandgroupguaranteeschemes Provisionoffinancialproductssuchasleasing,renttobuy,hirepurchase,debt factoring,tradecreditetc Assistanceinnegotiationofloanfinancethroughbusinesscounselors,andbusinessplan preparationandappraisal Promotionalprogrammesforfinancialinstitutionstobetterunderstandsmallbusinesses tobereceptivetotheirneeds 20. Only18%ofthepopulationinMalawiisbanked.TheCommercialBankingsector,however, recognisethevalueofbeinginthemicrofinancemarket:ofthe11commercialbanksin Malawi,6havedepartmentsdealingwithmicrocredit.Thecommercialbanksare presentedbytheBankersAssociationofMalawi(BAM),whoislookingatlaunchinga financialinclusionprojectwithmicrofinanceinstitutionssuchasFINCAandPRIDE. 21. TheMalawiGovernmentownedMalawiSavingsBank(MSB)wasformedoutofthepost officesavingsfacilityin1995,butadmitsthattheirrepaymentintheMSMElendinghas beenpoor,aslowas60%.TheMalawianGovernmentestablishedtheMalawiRural DevelopmentFund(MARDEF)in2005andin2009introducedtheYouthEnterprise DevelopmentFundunderthesamemanagement.TheMalawiRuralFinanceCorporationis governmentsleadinginstitutionforloansinruralareas,withrepaymentsashighas98%,but currentlydownto91%. 22. SmallEnterprisesDevelopmentOrganisationofMalawi(SEDOM)wasestablishedin1985 andhasbeengivingoutloans,capitalisedbyEUinitially,andhasmanagedrevolvingfunds forWorldBankandmorerecentlyAfDB.BothSEDOMandDevelopmentofMalawian EnterpriseTrust(DEMAT)wereinvolvedintheSmallandMediumEnterpriseFund(SMEF),a revolvingfundfromgovernmentat15%interest.TheSMEFwashighlypoliticisedand repaymentswerenegligible. 23. Stakeholders,however,feelthatthisisstillnotenough,thatinterestratesaretoohigh,and thatmorefundsshouldbemadeavailableforbusinessstartups;and,inparticularlongterm lendingforcapitalequipmentwhichcouldimproveefficiencyandproductivity.Ithasalso beencommentedthatbanksdonotalwaysunderstandthebusiness,andthereforeare reluctanttolend.Butthereisanopinionofthoughtfromthefinancialinstitutionsthat accesstofinanceisnottheproblem,butacadreofentrepreneursthatunderstandhowto manageanddeveloptheirbusinesses,isthemainproblembanksdonotwanttolendto peoplewhoarenotenterprising.

 AccesstoMarketsandInformation 24. Foranybusinesstogrowandprospertheyneedtodevelopandexpandtheirmarkets,and findnewandbettercustomers.Thisrequires 25. MalawiExportPromotionCouncil(MEPC),establishedin1971domarketsurveys,butrarely disseminatestheinformation.Therefore,MSMEsarelefttoidentifytheirownmarkets: localretailersandwholesalerswilltakelocalproduce;butexportsarenormallyorganisedat amuchsmallerscalethroughintermediariesfromdevelopmentprojectswhichhavelinks withinternationalmarkets.Gettingcertificationandmeetingstandardsarecrucialtoexport marketing.MalawiBureauofStandards(MBS)establishedin1972isstillnotafullmember ofISO,andisonlyacorrespondingmember. 26. MalawiInvestmentandPromotionAgency(MIPA)establishedin1991managestheinward investmentinMalawi;butisnotproactiveanddoesnotproduceinvestmentmaterialsforits missionsaroundtheworld.Itisonlyreactive,processingonaverage7applicationsper month.ItdoesnotworkwithMSMEsalthoughrecognisesithasaresponsibilitytoMSMEs astheyareneededbylargercompanieswishingtooperateinMalawi. AccesstoTechnologyandSkillsTraining 27. Productivityimprovement,expansionanddiversificationinvolveprocessimprovementand useofmoreadvancedproductionmethodsandtechnologies.Therefore,thetechnology relatedserviceswouldinclude: 28. TheapexbodyfortechnologydevelopmentistheMalawiIndustrialResearchand TechnologyDevelopmentCentre(MIRTDC),whichbecameoperationalin1993.Ithas developedanumberoftechnologiesforruralenterprise;butitestimatedtohaveonly helped200MSMEssinceinception;andisreportedlyproposedtomergewithanew UniversityofScienceandTechnology. 29. Thehighereducationsectorcannottakeallqualifyingstudents,andthereare10students foreveryplaceinaMalawianuniversity.ThismeansthatmanyMalawiansdonotgetinto Universityandneedalternativeformsofeducationandtraining.Skillstrainingarehandled bytheTEVETA,whichleviesindustryforaskillstraining.TEVETaccreditstechnicalskills trainingcurriculumandinstitutions.NationalConstructionIndustryCouncilNCICprovides trainingtargetingtheconstructionindustry. AccesstoLandandWorkspace 30. AccesstoworkspaceandpurposebuiltstructuresforMSMEswouldhaveanimpactasmost operateinformallyattheroadside.Apermanentstructurewould: Managementoftechnologyandproductionprocesses Recognizedexperttechnicaladvisoryservicesinspecificprocessimprovementstargeted toaparticularmarket Traininginqualityimprovement,ISOcertification,6Sigma,processcontrol,andplanned maintenance Identificationofmarketopportunities(local,national,regionalandinternational)anda programmetolinksmallbusinessgroupstoidentifiedmarketopportunities Directbuyersellermatchingattradefairs,sellingmissionsandtradeconsulates Promotingbusinessinterfirmcooperationtoassesstheirprocurementprocessesto includesubcontractingfromsmallbusinessestolargerindustries

enhancetheabilityofMSMEtogetfinance,becausebanksneedapermanentaddress beforegivingloans improvetheirabilitytogetcertificationofproduce,becausebusinessesneededclean andhygienicpremisesfromwhichtooperate businessesneedpermanentstructuresfordecentworkandOSHforitsemployees

31. Therefore,MSMEsneedbetteraccesstolandandindustrialshells.Thereareindustrialsites inMalawiforlargerbusinesses.TheMinistryofHousingandUrbanDevelopmentallocates landforlightindustrialuse,whichwouldbesuitableforMSMEs,mainlyonleaseholdfor99 years,althoughtherearesomecasesoffreeholdbeinggrantedinurban.Butunlesslandis madeavailablealongmainthoroughfaresintotowns,enterprisesareunlikelytooccupy outofthewaysitesallocatedforsmallbusinessactivity. 32. Enterprisesprefertooccupyfreeholdlandjustoutsideurbanareasbecauseoflesser restrictionsfromauthorities.AuthoritiessuchasDistrictAssemblies,andLandsandPhysical Planningneedtomovequicklybecauselandisbeingoccupiedinanunplannedmanner affectingfutureorderlyestablishmentofurbanexpansion.Inruralareascustomarylandis deemedtobepublicland,andtheChiefhasthepowerstoallocatelandforoccupancyand specificuse.Onceallocated,theownercanapplyforaleaseinhis/hernamethoughthe DistrictCommissioner,whoapproachestheLandCommissioner.Oncegranteditthen becomesprivatelandonleaseholdfor99years. 33. ThenewLandBill,whichiscurrentlywithCabinetforapprovalbeforebeingsentto Parliament,aimstochangethelawsothatoncelandhasbeenallocatedbytheChief,the landcanberegisteredwithoutapplyingforaleaseintheownersname,andonceregistered itbecomesfreehold,whichcanthenbeusedforcollateralwithabankalthoughthebanks stillhavetoacceptthis. Businessenvironmentimprovement 34. Malawifacesthechallengeofspeedingupandbroadeningtheregulatoryreformsprocessto stimulatemarketgrowth.Findingwaystospeedupchangeisanurgentmatter.Thereisa needforaninventoryofregulationsandatransparentprocessofrapidlyreviewing regulationsagainstsimplecriteria 35. Theaimistoidentifyunnecessary,outdated,complex,andillegalregulationsthatnolonger serveausefulpurpose.Theburdenshouldthenbeontheregulatortodefendwhythe regulationshouldbekept;oritshouldbeeliminated.Eachregulationshouldpassesthrough threelevelsofreviewbyministries/departmentsthemselves,bybusinessstakeholders, andbyanindependentdecisionmakingunit,whichdevelopsthefinalrecommendations. Survivingregulationsareplacedintoacomprehensiveelectronicregulatoryregistryto improvelegalsecurityandtransparencyasitismaintainedinthefuture. Istheregulationlegal? Istheregulationnecessaryforfuturepolicyneeds? Istheregulationbusinessfriendly?

ModelforGrowthandJobCreation

January2012