The VX Factor: Why Africa is still poor

By Tendai Biti and Greg Mills

The fuel queues across Malawi’s cities tell their own story of an economy and society in distress.

The reason for the petrol shortage is not rocket science. It is also entirely predictable.

The black-market rate of the Kwacha to the dollar is nearly three times that of the official figure. Thus, fuel at the pump is sold at the official rate, making it less than half the regional norm. This subsidy, along with other price distortions, is calculated to be costing the Malawian treasury some $7 million per day, this money being funded by off-the-books special government-to-government relationships with the likes of Oman, Kuwait, and China along with loans and treasury bills. The cost of the latter is yet to be felt, though wth bills issued at a 30% yield, its likely to be painful to the point of default. The so-called country-to-country deals are mooted to involve the mortgaging of mineral assets.

As the country runs dry of money, and scurries about for cash, so does petrol, even if it comes from dodgy discounted sources.

Malawi remains, as a result of years of poor governance and policy, firmly stuck in the bottom five poorest countries world-wide, its per capita income one-third of the sub-Saharan African figure and less than five percent of the global average. All the other countries in the bottom few – Afghanistan, Central African Republic, Burundi, South Sudan, for instance – have been beset by years of civil war. Malawi has managed to be poor simply by bad choices.

There was a lot of hope with the advent of Lazarus Chakwera as president in 2020, the first time the Malawi Congress Party had returned to power since the days of relative affluence (and authoritarianism) of Hastings Kamuzu Banda.

But Chakwera has proven has hapless as his predecessors. Rather than creating conditions than would drive up investment, he instead has presided over low growth, excessive government spending and dashed hopes. Little wonder that, with poverty afflicting over 70% of the population, 9 out of 10 Malawians say the country is moving in the wrong direction, with most preferring a return to his processor the 85-year old Arthur Peter Mutharika, who many say would be better simply because “he and his party have already eaten”. Mutharika’s Democratic People’s Party has been in power twice this century, between 2004 and 2012, and again between 2014 and 2020.

Corruption not only eats into Malawi’s present but the future. The cost of excessive spending by the state – the government deficit is running just under ten percent per annum – is visible in the lavish 20-car presidential cavalcade’s, the 300,000-strong civil service, and the enormous overseas government entourages and spending habits. That the president’s wife would take a whole floor of a luxurious Johannesburg hotel for her friends’ shopping trip, or Chakwera’s son-in-law and his son hold prominent and powerful positions in State House, is another indicator that not all is well with the state of governance.

WaBenzi was once the term used to describe the ruling beneficiaries of government corruption in East Africa – literally, the class that drives Mercedes cars. Now it’s the black VX Land-Cruiser that is the vehicle of choices to navigate Malawi’s potholes, a $300,000 status symbol, especially when it meets arriving members of the president’s family at the foot of the airplane steps.

But it’s the cost of what the state does not choose to do which is still more expensive. Chakwera had a difficult inheritance when he took over amidst a fraught election involving a re-run following a vote tampering ‘Tippex’ scandal first time around. Easy victories were possible through a combination of judicious expenditure on infrastructure along with government austerity to create this spending wiggle-room and getting the state out of its middle-man function which simply discounted the value to the poorest of farmers.

With public support and oodles of donor goodwill, it was the new president’s war on poverty to lose. But lose it he did, and spectacularly, through a combination of paralysis and patronage. Rather than remove the middle-men from the economy, true to Kamuzu Banda’s legacy, the MCP has doubled-down on them, a colonial solution for a 21st century digital world.

The result is, for example, that a combination of export bans and the setting of a minimum price by government (effectively becoming a maximum price), the price down at the moment that the farmer reaps his harvest, while the commodity fetches a premium during the hunger season, sold back to the farmer at a vast profit.

Malawi works well for the elite with access to forex and inside the system; for the other 80% comprising the rural poor, squeezed between rapidly rising demography and diminishing farm plots, it’s a vicious cycle of births, debt, hunger, ill-health and death.  

Cars wait patiently under posters of President Lazarus Chakwera which proclaim his eminent re-electability in the September polls. The patient passivity of the electorate, easily divided and thus ruled along tribal and religious lines, contributes to government neglect in failing to hold it to account at the polls over its performance.

Malawi is poor because its leaders have wittingly made this choice, preferring to realise the benefits of power for themselves over their people. Rather than using their mandate and local agency, they have fallen back on worn excuses of external factors from colonialism to Covid.        

It’s not just Malawi, of course. Next door, Tanzania, Zimbabwe and Mozambique have made an art form of externalisation as the excuse, all the while deepening the elite’s extractive grip on the economy. And, in Zimbabwe, when the opposition managed to get itself into power for four years between 2009 and 2013, itself the product of a brave and principled struggle, this was undone by its own leadership which focused less on the next election and the health of the party than the trappings of power.

The outside world has seldom helped, even with the best of intentions. In some cases, the intent has been downright malicious, focused on transactionalism for resources or political influence. In others, the donors have simply played along, wittingly or not, with the externalism argument, preferring to stay in the game rather than call things as they are or leave.

With his closing of USAID President Donald Trump may prove a positive disruptor to this world of diplomacy and self-interest, but it depends on whether he is cutting back aid to change the system for the better of the erstwhile recipients, or simply to use aid (along with tariffs) as a lever to extort for better business deals.

In all cases, donors have been complicit in failure, preferring to measure success by the metric of expenditure rather than the impact of reforms. As one German ambassador put it in Zambia during the worse days of the administration (if that is what it could be optimistically called) of Edgar Chagwa Lungu, ‘hope dies last’.

At the same time, the presidency of Hakainde Hichilema, which defeated Lungu at the polls in 2021, shows what is possible. In spite of a difficult inheritance including foreign debt which had galloped over the previous ten years from less than $1 billion in 2012 to $23 billion, and a poor relationship with its principal investors in the mining sector, responsible for 75% of crucial forex earnings, HH quickly reset the relationship with the largest of the mining companies spurring fresh investment and taking a series of punitive arbitration cases off the table which acted as contingent liabilities for Zambia Inc. And at the same time, HH cut a deal with the IMF and Zambia’s debtors, which included the previously apparently imperturbable, inflexible and characteristically overly commercial Chinese.

These results demonstrate what is possible with leadership that possesses a sense of urgency and is willing and able to prioritise and plan. It emphasises the importance of domestic agency, and of austerity in righting the ship of state. It demonstrates that reforms are not static, but always ongoing, as is the need to manage the civil service, which can act akin to an insurgency countering reforms if it considers its interests under threat.

But this highlights the purpose of government, away from entitlement and enrichment to service and delivery. The results of reform are not to be measured solely in the size of convoys, splendour of hotels, number of VXs or frequency and lavishness of per diems, but jobs and growth, the inner-stuffings to end poverty.