MALAWI GROWTH DEVELOPMENT STRATEGY III AND THE MINERALS SECTOR

MALAWI GROWTH DEVELOPMENT STRATEGY III AND THE MINERALS SECTOR BY GRAIN W. P. MALUNGA FIMMM MINERALS, GEOLOGY, ENVIRONMENT AND CORPORATE AFFAIRS CONSULTANT ABSTRACT The minerals sector is the driver for economic development in most African countries. South Africa, Zimbabwe, Zambia, Democratic Republic of Congo, Tanzania, Nigeria, Ghana and Angola are some of the countries that have benefited from the minerals sector. It is there for surprising that Malawi has downgraded mining, in Malawi Growth and Development Strategy III (MGDS III), as a low key priority area. The country continues to dwell much on social development and not economic development. Economic development comes from private sector growth whose revenue to government should meet the needs of social development. What the country should do is to speed up conclusion of Development Agreements, enact the Mines and Minerals Bill, promote import substitution and oversee speedy development of rare earths, niobium and graphite projects within the next 3 to 5 years. This paper tries to focus on how the minerals sector could have enriched the MGDS III. INTRODUCTION The Malawi Growth Development Strategy III (MGDS III) has downgraded the importance of mineral resources as a driver for economic development. The focus is now on the following national development priorities: 1. 2. 3. 4. 5. Agriculture and Climate Change Management Education and Skills Development Transport and ICT infrastructure Energy, Industry and Tourism Development and Health and Population Management MGDS III states that agriculture contributed 28% to the GDP 28% in 2017 though lower than 38% in 1994. Between 2012 and 2017, the inflation rate was stable, but relatively high at around 20% as compared to single-digit levels in the first half of the decade. The bank lending rate is high and at 22% increasing significantly the cost of goods and services produced from bank loans. businesses. Overreliance on rain fed agriculture means being at the mercy of unpredictable weather pattern. Wrong choice of components of education and skills development lead to mismatch with the needs of energy development and industrialisation. Mining plays a big economic role in promoting market availability for agriculture produce and triggers skills development in the areas of welding and fabrication, automation, environmental health and infrastructure development. The development agenda states that 50.7% of the population are still living under the poverty line of below $1 a day. Ultra-poor population has increased from 22.4% to 25% between 2005 and 2015. The Gini coefficient, the most commonly used measure of inequality increased from 0.39 in 2005 to 0.45 in 2014. For Malawi’s economy to grow there is need to include the minerals sector as key priority area. The minerals sector offers an opportunity for economic linkages, growing local content and creating employment for the youth both skilled and unskilled. MDGS III AND LOST LINKAGES WITH THE MINERALS SECTOR The Table below shows how promotion of the minerals sector should have benefited economic growth: AREA OF INTERACTION STRATEGY AGRICULTURE Increased agriculture market development, agro processing and value addition    Promotion of agro minerals for agricultural productivity e.g. vermiculite, rock phosphate and agriculture lime Access to agro markets through cooperative societies supplying food to the mines Promoting access to finance for women, youth and vulnerable groups in agriculture. WATER DEVELOPMENT Increased access to water resources    Improving water supply in rural and urban areas. Promoting empowerment of local communities to properly develop and manage catchment areas. Linking fresh water mine dams with community irrigation farms EDUCATION AND SKILLS DEVELOPMENT Improved access to quality tertiary education for economic linkages and local content     Improving, expanding and maximizing the use of permanent infrastructure such as classrooms, school facilities and teachers’ houses. Promoting research, technology development and transfer in mineral value addition. Developing higher education institution programs that are relevant to the prevailing needs of the nation e.g. welding, fabrication, automation and process engineering Linking up training institutions to companies for hands-on training e.g. internship and research based solutions URBANISATION AND RURAL ECONOMIC GROWTH Integrated rural development    Development of sustainable rural growth centres related with mining Provision of social amenities and infrastructure such as education, health, water and electricity Generation of employment to the youth, women and other minority groups IMPROVED FISCAL AND REVENUE MANAGEMNT SUSTAINABLE ECONOMIC GROWTH    Revenue generation through taxes and fees e.g. Royalties, Corporate Tax, Value Added Tax, and Rents and Pay As You Earn Creation of sovereign fund Improved transparency and accountability through Extractive Industries Transparency Initiative (EITI) THE MINERALS SECTOR HAS THE POTENTIAL TO STEER ECONOMIC GROWTH IN MALAWI Fiscal Policy and National Development Program uncertainty poses a lot of risks and challenges to investors. Malawi’s economy needs to graduate from tertiary industry to secondary industry through proper planning and realising full benefits of economic diversification. The country imports mineral based commodities such as lime, fertilizer, ceramic products, coal and steel. These can be produced locally to promote import substation and save foreign exchange. Malawi has a lot of limestone deposits that can be used for manufacture of agriculture lime, chemical grade lime and cement. We import fertilizer when we can manufacture our own through locally based minerals such as rock phosphate and pyrite. We continue to import ceramic products such as sanitary ware and tiles when we have clays. We continue to export scrap metal instead of recycling to metal products such as reinforcement steel and flat metal sheets. We continue to import coal for steam generation when we can develop our coal deposits for domestic use (coal briquettes), agro processing and energy generation. Malawi has immediate potential to generate export revenue through graphite, rare earths, niobium and uranium. The projects are well spread to steer regional economic growth. Real opportunities are emerging in the renewable energy sector and battery industry to support exploitation of the above minerals within three to five years. These projects are can be developed with a short period if the government can be serious with timely conclusion of development agreements and timely enactment of the new mines and Minerals Bill that will put into effect the Mines Taxation Act. There is also need to remove Value Added Tax in exploration programs as resources used are risk based with no clear opportunity of pay-back. The nuclear sector has a lot of projects under way in China, India, America, Europe and Africa. These will require uranium as fuel and therefore Malawi stands to benefit again and more opportunities are there to discover more deposits. New focus for exploration should be in gold, copper, lithium, nickel, platinum, diamonds, gemstones and dimension stone. This is only possible if government puts mining as one of its Key Priority Areas in order to attract development cooperation and private sector investment. As the world evolves towards electric cars and renewable energy, the importance of rare earths, lithium and graphite to the global wind energy and battery industry will be a strong driver of mining investment in this country. President’s Trump revolution of developing America’s steel industry will also require niobium as part of the steel alloys. We now see that mining projects are increasingly seen as an opportunity to provide communities with significant financial and educational benefits. CONCLUSION Exclusion of the Minerals Sector in the MGDS III as a key priority sector slows down progress that was gained in MGDS II when the Minerals sector saw generation of geoscientific information necessary to trigger exploration activities in the mining sector. MGDS III should have firmed up this progress and concentrate on investment into import substitution projects and concentrating on promoting and facilitating development of niobium, graphite and rare earths projects for export. The policy strategy would be to link the mining industry with tertiary education that promotes economic linkages, local content and youth and women employment. Agriculture sector stands to benefit from the mining sector through development of agro minerals and promoting marketing of agro produce to mines. Infrastructure developed through mining will promote agro processing and create access to other markets. Revenue from the minerals sector will also boost revenue generation for government. Super profits will be used to create sovereign fund for critical infrastructure projects and funds for future generation.