How Corruption Continues To Deter Investment In Malawi

By Global Risk Insights Published: July 12, 2016, 6:04 am
lake malawiShutterstock

Adrian Kitimbo / From Global Risk Insights

During the course of ‘Cashgate’, several senior government officials embezzled more than $30 million from state coffers. The donor community, incensed by the scandal, pulled funding out of Malawi, leaving the heavily aid-dependent country with a budget crisis.

The scale of the corruption exposed in Cashgate deeply damaged investor confidence, fueling fears that the already impoverished Southern African country – with a per capita income of just $250 and a youth unemployment rate over 70% – would struggle to attract much-needed investment to drive economic growth and create jobs.

Since assuming the presidency in 2014 after an election win against Joyce Banda, the second woman to lead a country in Africa, Peter Mutharika promised to root out corruption and restore public, investor and donor confidence. He forcefully pledged to put an end to financial crimes, prosecute corrupt officials and ensure accountability at all levels of government.

Recent reforms, including ongoing changes to the state’s public financial management system, indicate that some progress is being made to improve transparency. However, many observers contend that the government has been slow to push through the necessary reforms.

Additionally, advances have been made to fix loopholes in the government payment system that previously made it easy for officials to siphon off state funds. And by virtue of the graft-busting Anti-Corruption Bureau (ACB), over 70 people involved in the Cashgate saga were arrested. These efforts persuaded the IMF to recently resume Malawi’s $150 million extended facility programme, which had been suspended last year in the wake of the widespread corruption scheme.

Yet, most donors and investors remain unconvinced that president Mutharika’s government is fully committed to fighting corruption. Some of his recent actions are counter-productive and seem to undermine his tough rhetoric on the problem.

For example, efforts to make the ACB an independent corruption-fighting body have proven futile. The government actively fought to prevent this from happening, but despite their efforts, Mutharika maintains the power to appoint the bureau’s director, which exposes it to political influence. In March, the president’s party, the Democratic Progressive Party (DPP), killed a parliament bill aimed at making the ACB more independent.

Signs of nepotism

Even more concerning, Mutharika’s government is allegedly meddling in the ACB’s work against against Bakili Muluzi, Malawi’s former president, who is accused of stealing $11 million in donor funds during his tenure between 1994 and 2004. Last month, Reyneck Matemba, the Anti-Corruption Bureau deputy director, who was also lead prosecutor on the Muluzi trial, recused himself from the case, a move that observers saw as bowing to undue pressure from the government.

Many people see the president’s hand in shielding Muluzi, whose son, Atulepe Muluzi, is a key ally of Mutharika and is the leader of the United Democratic Front (UDF), an opposition party that is in coalition with the president’s party. In other words, protecting Muluzi is in the president’s political interest.

Unlikely to attract investors

Malawi remains one of the least developed and most corrupt countries in the world. The Corruption Perception Index (CPI) published by Transparency International ranks Malawi as 112th out of 167 countries.

With little government revenue generated locally, Malawi depends on donors who inject at least 40% to its budget. Malawi also performs poorly on most human development indicators such as education and life expectancy, pushing its ranking to 173th out of 188 countries on the Human Development index (HDI).

Evidently, without significant aid and investment, the government will continue to struggle to meet even the most basic of its people’s needs.

While president Mutharika has taken some plausible steps toward tackling a system of self-enrichment and patronage that has become so entrenched among the political elite, doubts remain about the seriousness of his commitment to ridding his country of corruption.

Allegations of government interference in the work of Malawi’s anti-corruption body, the slow pace at which reforms aimed at tackling corruption are being implemented and the failure of the Mutharika government to pursue everyone implicated in corruption, including its loyalists, do not bode well for Malawi’s future.

Investors that Malawi so desperately needs will continue to hold back, as long as government corruption and lack of transparency remain the norm.

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