Basic needs are not being met; Malawi has a HIV epidemic, a life expectancy of 36 years and an extremely poor standard of living (54% below the poverty line). Environmental issues include, deforestation; land degradation; water pollution from agricultural run off, sewage, industrial wastes and the situation of spawning grounds endanger fish population.
The current food shortage will affect up to 70% of the population. Up to 3.2 million of these will need food aid to avoid starvation. Floods and droughts have combined to produce successive poor harvests. There are allegations of government corruption and ill-advised International Monetary Fund (IMF) pressure, leading to all of the strategic grain reserves in the country being sold. The range of health problems affecting Malawi, particularly HIV/AIDS, magnifies these problems. These have led to a reduction in the working population, so land lies unused with no one to cultivate it. Even small food shortages severely affect the ill, making them unable to work. This leads to a vicious circle of weakening populations and food stocks (negative multiplier). As reported in Malawi's Chronicle paper "the present food crisis couldn't have come at a worse time for Malawi".
There are few options available to the government. However the long-term aim has to be concentrated on methods of economic growth and shifting aggregate supply, in a positive direction. Both of these outcomes, if successful will have a multiplier effect on the economy. A balance must be gained between development and making it sustainable if it is to be successful in the long-term. But the first objective has to be to plead for humanitarian relief from charities and countries. Then in the long-term developmental aid to stimulate economic growth, improving infrastructure and it will avoid problems associated with countries in a crisis such as, overthrowing of governments. Having a strong government is essential because countries without one are unattractive to FDI’s. The situation in Zimbabwe is a major nightmare for companies with capital invested in it.
Humanitarian aid would consist of food aid and other essentials for day-to-day living such as medical supplies. If these cash injections are given in the short-term, hopefully Malawi’s current famine will have its damage limited and it will avoid political instability.
If the short-term aid is a success, most of the humanitarian problems such as Famine will be postponed. The output of this will be a higher standard of living, causing a rise in the life expectancy. This is important not only because if increases the population, it will make the country much more attractive to FDI’s and could stimulate foreign investment. However in the long term, if Malawi is to develop and become a subsistence nation, it will require developmental aid. Possible sources of this are again, FDI’s and organisations such as the World Bank. The most likely source is the World Bank because it has developed a good relationship with the government. Developmental aid would be essential for improving education, transport and heath facilities. If these were improved it would make Malawi a very attractive place for investors.
One possible use of developmental aid would be to try and improve the infrastructure. This would require diversifying a primary sector agricultural country into secondary sector activities (infant industries). With the funds received Malawi would have an increased influence on global markets. At present Malawi’s factors of production are geared towards production of tobacco. Malawi could further expand this agricultural market and develop it so that it becomes more industrialised. It could possibly approach, the foreign companies involved with buying tobacco, and offer to produce the complete product, cigarettes, within the country. Outsourcing is an attractive prospect for multinationals because it allows them to cut costs making their products more profitable. They will be able to save transportation costs if they produce cigarettes in Malawi rather than exporting tobacco. Also Malawi is strategically positioned for excellent access to south East Asia the only growing market for cigarettes. Although wages will be extremely low it will provide thousands of jobs because this industry is labour intensive, allowing many families to feed provide for themselves. Revenues will increase because they have added value to their main export, tobacco. If this is a success, Malawi will become more attractive to other investors, who may also want to exploit low wages and low production costs. However Malawi would face direct competition from other LEDC’s. They would face heavy competition from China who already has established cigarette production facilities who operate at low costs.
With improved infrastructure Malawi could then look at shifting factors of production to food production. At present although Malawi has is heavily involved in agricultural activities, these do not include high quantities of food production. Moving the factors of production to food production would mean that Malawi would not have to rely on imports of food. This would save money and eliminate debt. The consequences would be a stimulated economy reducing the chances of famine, and make the country more stable in the global market place.
Another long-term opportunity would be to make use of the unexploited materials. Coal, is relatively cheap to extract and would provide a source of fuel for Malawi’s growing industry. Extracting this material would also create jobs, not only in the primary, but also in the secondary, and tertiary sector. Uranium and Bauxite are very valuable on the global market because they are commodity products. However extracting these materials would be very difficult for Malawi on its own, because it would involve extreme amounts of capital.
One possible solution would be to license territory to foreign companies, for a certain amount of time. This would be of no cost to Malawi, and the foreign companies would have to build facilities to exploit the materials. After the license had run out Malawi would be left with the ability to extract the materials itself. The foreign companies would also have invested human and physical capital to improve the infrastructure of the country to make the most of the deposits. Roads would have to be improved and perhaps even a large airport to export materials would be built. Uranium is a very rare product, and because of this very valuable but Malawi would be able to extract the material cheaper than many other countries, allowing it to use predatory pricing techniques. This would provide Malawi with a comparative advantage over most developed countries that do not have the same level of resources. But this would be a risky strategy, not approved by various organisations such as established uranium producers based in MEDC’s.
The suggestions I have given are methods of stimulating growth may lead to a positive multiplier effect, but they involve both long term and short term investment, a prospect that most 3rd world countries can only dream of. Even if the World Bank did invest, it has a poor record of dealing with LEDC’s and they have been known to make the situations much worse by bad advice.
Competition for aid and multinational investment will be high between developing nations, allowing them to be exploited by multinationals. It will be difficult for Malawi’s government to gain a balance between putting its nation up for exploitation and making Malawi a better country for its people e.g. ethical issues such as child labour and poor wages. This balance could be helped by endorsing trade unions, and government legislation. Malawi is an example of a country that has no option but to become part of the globalisation process. I think that the ideas I have suggested are options that can lead Malawi in the right direction. First aid is needed to stabilise its humanitarian position. After damages from famine etc are reduced they can then focus on improving the countries infrastructure. The result of this will be a stronger economy. Diversification is required to help Malawi become sustainable. But probably the biggest thing Malawi requires is some good luck, especially with investors.
Globalisation has been going on for centuries and in the future it looks like a particular trend will continue. The gap between the rich and the poor will become wider.
APPENDIX
Table 1. Global Tobacco Exports
TOBACCO INDUSTRY BUYERS
Philip Morris Co.s Inc. is one of biggest tobacco companies, with 45% of the U.S. market and 12% of the world market. Tobacco accounts for about 72% (1989 figure) of the company's profits. Philip Morris produces Benson & Hedges, Marlboro, Merit, Virginia Slims, and other brands.
RJ Reynolds - Nabisco is the second biggest U.S. cigarette maker with Camel, Magna, More, Salem, Vantage, Winston and other brands.
Brown & Williamson is the third largest tobacco company in the U.S. They recently purchased American Brands, producers of the top two selling cigarette brands in the UK, thus increasing their market share in the U.S. by 6.7%. The parent company of B&W is BAT Industries previously known as the British American Tobacco Company. BAT is the second largest private cigarette manufacturer in the world.
WITHIN THE UK (BRANDS):
Two firms, Gallaher and Imperial Tobacco, who between them, control around 80% of the market, dominate the cigarette and tobacco market in the United Kingdom. One other major firm, British American Tobacco (BAT), manufactures cigarettes in the UK but sells almost all of them abroad. In 1999 BAT merged with Rothmans International thereby increasing its share of the world tobacco market to 15.4%, just behind the world leader Philip Morris which controls 17% of the global market.
BIBLIOGRAPHY
Nuffield Business and economics- Students Book
