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The Impact of Structural Adjustment Policies (SAPs) on Manufacturing Growth in Malawi

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  • Thomas Munthali

    (Leeds University Business School)

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    Abstract

    Malawi has been implementing structural adjustment reforms since 1981 in search of a way to revive its declining economic growth triggered by the oil shocks and general world economic recession of the mid and late 1970’s. These structural reforms were meant to liberalise the economy, broaden and diversify the production base towards non-primary products and allocate resources more productively. Since the theory of Structural Adjustment Programmes (SAPs) has industrial growth, manufacturing in particular, at the centre of its argument for reviving economic growth, this paper primarily aims at establishing whether or not the claim that structural adjustments lead to manufacturing growth has been applicable to Malawi. By comparing the before (1960-1980) and after SAP (1981-1998) manufacturing industry’s growth levels, this study has found out that SAPs have assisted in improving manufacturing growth in Malawi though dismally. This dismal performance is evidenced by manufacturing growth volatilities and low average annual growth rates of 2.8% during the SAP implementation period compared to an average of 1.9% per annum before SAPs. However, despite this dismal growth of the manufacturing sector, there has been a production shift in the economy though not much from agriculture to industry as was the thrust of the structural adjustment. The manufacturing sector’s share of GDP has been rising over the SAP implementation period while that of agriculture especially the agricultural tradable sector has been declining giving hope for a structural move towards industry. This is evidenced by increased share of manufacturing in GDP from 16% before SAPs to 23% in the SAP period while decreasing the share of agriculture from 46% to 41% during similar periods. Despite this economy shift towards the industrial sector, however, GDP growth has been both volatile and declining averaging only 2.5% per annum during the entire SAP implementation period unlike the vibrant 6% per annum before SAPs. This only shows how much little effect the SAPs have had in reversing the declining economic growth trend of the Malawi economy with much of the growth still largely dependent on the agricultural sector. Malawi has continued to produce more and more volumes of agricultural produce for exports and yet due to declining terms of trade, the export values have been very small to assist in bringing the economy back on track. The study further reveals that despite the SAPs having assisted in improving manufacturing growth in Malawi, the sector’s growth has been characterised with incessant volatilities especially in the later part of the 1990’s when Malawi’s traditional donors were withholding economic reform funds due to the government’s failure to meet key economic stabilisation targets of low inflation, low interest rates and prudential spending. Malawi, being an agrarian economy dependent on external factors like climatic changes and international terms of trade, already faces volatilities in the availability of foreign exchange at various times of the year. This has in turn led to volatilities in the exchange rates, inflation levels, interest rates and GDP growth rates making sustainable manufacturing industry growth difficult. The study then, amongst others, recommends that Malawi needs to continue to fully implement economic reforms that are aimed at macroeconomic stability and promotion of industrial sector such as the formulation of an industrial policy separate from the Trade policy which can help to shape the course and pace of industrialisation in Malawi. Further, in order to draw meaningful government interventions and sound implementation of SAPs, it is important to conduct a micro-level study on manufacturing firms so as to find out how SAPs have so far impacted on manufacturing firm’s technical efficiency, capacity utilisation, allocative efficiency, market attaining distributive efficiency, and labour efficiency. Such a study would help in identifying if SAPs have been on the right track in helping to achieve their other main purpose of economic efficiency in the manufacturing sector.

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    File URL: http://128.118.178.162/eps/mac/papers/0410/0410002.pdf
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    Bibliographic Info

    Paper provided by EconWPA in its series Macroeconomics with number 0410002.

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    Length: 57 pages
    Date of creation: 14 Oct 2004
    Date of revision:
    Handle: RePEc:wpa:wuwpma:0410002

    Note: Type of Document - pdf; pages: 57. This was part of an MA (Economics and Development)dissertation at Leeds University.
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    Web page: http://128.118.178.162

    Related research

    Keywords: Manufacuring; growth; SAPs; economic reforms; malawi;

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    1. Peter Wickham & Carmen Reinhart, 1994. "Commodity Prices," IMF Working Papers 94/7, International Monetary Fund.
    2. Lutz, Matthias, 1996. "Primary commodity and manufactured goods prices in the long run: new evidence on the prebisch-singer hypothesis," Discussion Papers in Economics 03/96, Department of Economics, University of Sussex.
    3. Reinhart, Carmen & Wickham, Peter, 1994. "Commodity Prices: Cyclical Weakness or Secular Decline?," MPRA Paper 8173, University Library of Munich, Germany.
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