The private sector and the economic development of Malawi

The private nonagricultural economy has developed, despite a lack of indigenous entrepreneurs; per capita GDP has grown at an annual rate of 2.9%; the government has shifted from a net dissaver to a net saver; employment in the wage sector has increased over 150%; and manufacturing output has almost doubled. Fundamental to this progress, according to this evaluation of the private sector"s role in Malawi"s economic development, was the government"s market-oriented economic policy framework, which permitted development of private enterprise with minimal governmental interference. Three partly private and partly public holding companies were developed, which gradually gained control over much of the private economy, while management remained generally in the hands of the expatriate firms. An Investment Development Bank guided by expatriate personnel mobilized capital and acted as both lender and investor in new enterprises. The years 1977-81, when management was subjected to increased political influence leading to bad economic decisions, brought a downturn in the economy which was worsened by the international recession. In the past 2 years a return has been made to less politicized management; the policy of easy credit is being revised and reorganization of the public holding companies is underway. The main lesson learned from Malawi"s experience is that public policies supportive of market-oriented growth are a major determinant of economic progress. A constructive approach includes: (1) reliance on market forces to determine the allocation and use of resources; (2) the ability to mobilize capital (especially foreign aid); (3) a pragmatic approach to the use of foreign capital and expatriate management personnel; and (4) government efforts to create an operating environment conducive to market development and for-profit business expansion. Political interference in economic affairs will ultimately lead to noneconomically motivated decisions, often obstructing sustained economic growth. Fifteen tables illustrate the text.