EU ambassador to Malawi writes on Malawi’s immediate challenges

Baum: Regional Integration could help Malawi

by Alexander Baum – EU Ambassador to Malawi

We have seen some radical changes in this country over the past weeks, haven’t we? From control to liberalisation, from arbitrariness to principles and rules, from distrust in private sector to incentives for the private sector, from accusing to inviting partners, from ignoring neighbours to courting them.

The turn around came quick, perhaps too quick to believe that it is already happening.

Turning words into action and visions into change is of course never easy – it takes time, persistence, patience, but more than anything else acceptance, ownership and participation by stakeholders, perhaps even a change in mentality.

There is no question that the course of the world is more than ever determined by economics. The happiness or unhappiness of populations is largely, though not only, determined by how their economic aspirations are fulfilled. The influence of nations is determined by their economic power, their ability to defend their interest by the size of their economy.
We Europeans have had to grapple with some of these issues ourselves; we did it although not always wholeheartedly. When Europe was fragmented into small economies, it was poor. When we started trading with each other, we became wealthy. When we united we became powerful. What united us was the economy, not the politics.

What has driven our integration process over the past two to three years is the economic and financial crisis. Crisis always offers opportunities. European politicians traditionally only move forward when they have a wall behind them. They had to rethink and take decisions, which were impossible just few years ago. I believe there are lessons to be learned.

The Malawian economy is going through a major crisis and all efforts are now focused on quick economic recovery. There will be unavoidable pains, but I am confident that Malawi will recover, however recover to find itself where? Where it was before? Malawi’s ranking in the World Bank’s annual “Doing Business Survey” is 145 out of 183 countries. In the survey component “Trading across boarders” it ranks even 164.

My point of view is that the crisis offers the opportunity to move further and to take decisions and actions with a long term impact, to focus on sustained high economic growth, to open up and pursue real economic integration with its neighbours, to create the conditions and business environment to support growth beyond the crisis. Malawians could change the way they see themselves.

The size of Malawi’s economy is too small to respond to the aspirations of its people for economic prosperity without trading. The economic growth between 2005 and 2010 was impressive but not sustainable. It was largely fuelled by aid, not driven by trade. Still less than 15 percent of Malawi’s GDP originates from exports.

But trade is simply better than aid. Money earned is better than money given. Friends can help, but we know that aid helps more when conditions are right, when the environment is conducive and governance is competent and rules-based. Aid is useful, very useful, but cannot do the job.

Who is Malawi trading with today? Predominantly with South Africa and the EU, but much less so with its immediate neighbours. The EU is still Malawi’s the largest export market at 28 percent but imports merely 13 percent from the EU. I believe that Malawi could benefit more from trading with its neighbours like Mozambique.

If Malawi’s economy was more integrated with its neighbours, its weight and influence in the region and the world economy could also be more significant. Malawi would become a more interesting trading partner for the EU as well.

Just a few days ago, on 14th May, the first Interim Economic Partnership Agreement (EPA) on the African continent entered into force between the EU and Mauritius, Seychelles, Madagascar and Zimbabwe.

Malawi was negotiating within the same group, but never signed any agreement and never made its own market access offer, which would have been the key element for entering into more serious dialogue with the EU.

Malawi does not need an EPA to access the EU’s market, but market access alone will not push growth, particularly when everybody else gets the same privilege. The EPAs were always meant to promote regional integration as much as trade with the EU, neither of which has happened.

Unfortunately, the EPA negotiations were diluted by ideological disputes, by fears from globalisation, by history. Discussions have until today been distracted by demands for more aid rather than trade interests.

Does the EU have offensive trade interests towards Malawi, which represents 0.01 percent of its exports? Has any country in the world ever developed its trade on the back of aid? What is the fear?

That EU companies compete with local companies in chemicals, machinery or transport equipment? Mozambique, itself an LDC, offered 81 percent of imports from the EU duty-free access to its markets. Their industries will be grateful for cheaper inputs and lower production cost.

Perhaps now is the opportunity to have a fresh look, to put and keep the economy at the centre, to drive regional integration, and to pursue a genuine trade partnership the EU and others – without ideology, just based on enlightened economic interests.