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Malawi Snapshot

Economic growth forecasts remain high for Malawi despite extreme poverty, food insecurity and recent protests over its May elections. President Peter Mutharika, voted in by a small margin in the election, which protesters across Lilongwe and Blantyre say was rigged, said in his state of the nation address that economic growth would reach 5% in 2019 on the back of higher agricultural production and growth in mining, ICT, and financial services. Riots over the election have caused instability in the country where extreme poverty, droughts, cyclones and prior corruption scandals forced Malawi to go to the International Monetary Fund for a US$112m extended credit facility. In April 2018 the IMF approved a new three-year arrangement for Malawi “to support the country’s economic and financial reforms”. The IMF said Malawi has shown progress in achieving macroeconomic stabilisation following two years of drought, with growth rebounding and inflation reducing to single digits, although its fiscal position had deteriorated and the public debt to GDP ratio has increased. “Increased debt service pressures have reduced space for needed infrastructure and social spending,” it said. Malawi’s GDP grew by an estimated 3.7% in 2018, compared to 5.1% in 2017 and 2.7% in 2016. The African Development Bank expects GDP to grow by 4.6% in 2018/19 and 5.6% in 2019/20, driven by agricultural improvements, stable macroeconomic fundamentals, the recovery in commodity prices and foreign direct investment inflows. Still, at least half the population lives below the poverty line and the country is wracked by food insecurity and power cuts, with Reuters saying it is “among the world’s poorest countries, reliant on donor funding and tobacco and tea exports”. The Malawi Project says 85% of the population survives from subsistence farming. A Who Owns Whom’s report on the tobacco industry states that Malawi “is widely regarded as the most tobacco-dependent country in the world”, and its tobacco industry is the country’s second-largest employer, with more than 350,000 farmers and their families dependent on this industry. The report says tobacco is Malawi’s main cash crop, contributing 60% to foreign exchange reserves and 15% to GDP. But annual tobacco revenues have declined 24%, resulting in farmers starting to grow other crops. The industry has, however, attracted investment. Japan Tobacco International is one of Malawi’s largest tobacco buyers and has invested US$450m in the business over past five years, contracting 11,000 tobacco growers, according to the Who Owns Whom report. The African Development Bank says that due to high dependence on rain-fed agriculture, “weather-related shocks are key risks to export commodities such as tea, tobacco, and other products”. The protests add another risk.  As Malawian political scientist and Wits lecturer Michael Jana told AFP: “A significant section of Malawi society is disgruntled and does not want the current government. It’s a divided country.”

Botswana Snapshot

Botswana has a long-held reputation as a stand-out example of political and economic stability on the continent, which has seen its economy grow at an average of 5% over the past decade. Its reputation has begun to show cracks as former president Ian Khama and his chosen successor president Mokgweetsi Masisi lock horns in a battle which has implicated African Rainbow Minerals executive chairman Patrice Motsepe and his sister Bridgette Radebe, executive chairperson of Mmakau Mining. Botswana’s Sunday Standard accused them of supporting a regime change by meeting with Khama and giving financial support to former foreign affairs minister Pelonomi Venson-Moitoi to overthrow Masisi as leader of the Botswana Democratic Party – allegations denied by Motsepe. Khama, who has resigned from the party, accused Masisi of autocratic rule and threatening Botswana’s reputation and its future. Botswana has consistently demonstrated stability and economic growth, albeit with some reliance on the diamond industry. African Development Bank (AfDB) figures show that real GDP growth was an estimated 4.2% in 2018, boosted by the recovery in mining and expansion of non-mining activities such as agriculture and downstream diamond industries. The AfDB forecasts real GDP growth of 3.8% in 2019 and 4.1% in 2020, largely due to increased demand for diamonds, which account for 75% of exports. Focus Economics said Botswana’s economy appeared to lose momentum in the first quarter following “an upbeat, extractives-led” growth in the fourth quarter of 2018. “Despite heavy mining-sector activity and fast-growing tourism, fixed investment looks poised for a breather”, it said, although it still expects economic growth of 4.1% in 2019. Botswana has made efforts to diversify its economy. The AfDB said non-mining sectors would benefit from structural reforms, including amendments to immigration law to improve processing of work and residence permits and steps to encourage domestic manufacturers. In 2013 Botswana got De Beers to move its Global Sightholder Sales to the country and a Who Owns Whom report on the manufacture of jewellery points to the partnership between the government and De Beers for a set amount of rough diamonds to be allocated to locally-based cutting and polishing companies. Since the government invited cutting and polishing companies to set up factories on the condition that they transfer skills to locals, more than 20 international sightholders (purchasers of bulk rough diamonds) have been licensed and a number of businesses in the supply chain, such as logistics, security, catering and construction have developed, providing opportunities for entrepreneurs, the Who Owns Whom report said. But politics may be threatening the status quo.

Egypt Snapshot

Egypt’s economy grew 5.3% in the fiscal year to June 2018 from 4.2% in 2017 as the country continued its recovery through painful years of reforms, largely prompted by conditions of a US$12bn International Monetary Fund (IMF) loan. The 2016 floating of the Egyptian pound saw it immediately devalue by 50%, while inflation soared and import prices became prohibitive. At the same time, the government introduced value-added tax and withdrew fuel and food subsidies. These tough measures have seen the economy stabilise. Finance minister Mohamed Maait said recently that the budget deficit fell below 10% for the first time since 2011. Inflation has come down from over 30% in 2017 to 12.7% in January. Foreign reserves rose from less than $15bn in late 2016 to $44bn and the IMF is expecting growth of 5.5% in 2019. Standard Chartered recently said Egypt’s economy is set to become the world’s seventh largest economy in 2030, bigger than Russia and Japan. But the economy has structural constraints. Bloomberg said Egypt is a net food and fuel importer and depends on imports for essential production inputs. A Who Owns Whom report on the wholesale and retail of food in Egypt said 20% of Egypt’s import bill is spent on food. The country’s food retail sector is dominated by independent small grocers, kiosks and market stalls which account for 98% of the nearly 119,000 stores, but only 80% of food retail sales volumes. These traditional retailers are increasingly losing share to the growing formal sector, which makes up the remaining 2% of the market, but 20% of sales. Major players, which include France’s Carrefour in partnership with UAE-based Majid Al Futtaim, Turkish retailer BIM, Egypt’s Mansour group and the UAE’s Abraaj group are growing their investments and their footprints. According to the Who Owns Whom report, recovery in this sector will be aided by new laws to modernise and reduce barriers for international companies investing and operating in the country. These laws aim to expand economic growth, increase domestic production and exports, boost foreign investment and boost employment, the report said. But there are some red flags. The Washington institute said Egypt has failed to meet some of the IMF benchmarks and has deficits in terms of worker productivity, industry competitiveness, mismatched worker skills, and economies of scale. Foreign direct investment fell from US$7.93bn in fiscal 2017 to US$7.72bn in 2018 while foreign debt rose, indicating Egypt’s reliance on imports, and, possibly, IMF loans, is far from over.

Democratic Republic of Congo Snapshot

The December 30 2018 election in the Democratic Republic of Congo (DRC), which was widely acknowledged to have been rigged, declared Felix Tshisekedi as the winner over Martin Fayulu, who got the most votes. It is understood that Tshisekedi’s election was the result of a deal made with former president Joseph Kabila, whose rule since 2001 was characterised by conflict, corruption, authoritarian rule and human rights abuses. The DRC remains the African country with possibly the greatest untapped potential – with great mineral wealth but an underdeveloped economy and an impoverished nation. The African Development Bank said real GDP growth was an estimated 4.0% in 2018, up from 3.7% in 2017, due to higher commodity prices and increased mining production. It expected growth of 4.5% in 2019 and 4.6% in 2020. Mining was expected to be the key driver of growth, while the outlook could be positively affected by firm commodity prices, positive election results (including acceptance of the results), progress in the security situation in the conflict-ridden central and eastern parts of the country, control of the Ebola epidemic, “and a start to diversification in the fabric of production”. The mining sector accounts for 99% of the value of exports, 34% of total government revenue, and two GDP points. But diversifying the economy requires some improvement in the infrastructure deficit and a more facilitative business environment. The DRC ranks 184 out of 190 countries on the World Bank’s Doing Business 2019 report. The DRC’s National Strategic Development Plan aims for it to become a middle-income country by 2022, mainly through transformation of the agricultural sector. Economic transformation includes the massive Inga hydro-electric power plant, where South Africa has committed to buying 2,500 MW and possibly a further 2,500 MW in Inga 3, which many believe to be uneconomical, as well as paying for a 1,600km transmission line from the DRC to South Africa. Despite calls for action following the election result, SADC, South Africa, the EU and US have not voiced concerns over the election outcome. The EU had extended sanctions on a number of officials just prior to the election while the US had imposed sanctions in June last year. Tshisekedi is reported to have called for sanctions to be lifted. The Institute for Security Studies said many may argue that potential voices of objection chose stability over war. “But the Congolese people chose change over the status quo, and the regional, continental and international response deprived them of that change.”