The Report on the Proceedings of the Official Launch (containing comprehensive reports, results of prioritisation exercises, participants etc.) can be obtained from the Technical Committee. The overall summary is reproduced below:
INTRODUCTION
The
preparation of the Poverty Reduction Strategy Paper (PRSP), was launched by the
Right Honourable Justin C. Malewezi, Vice President of the Republic of Malawi at
Capital Hotel on 11th January 2001.
The ceremony was chaired by the Director General of the National Economic
Council (NEC), Dr. Mapopa Chipeta, with the Secretary to the Treasury, Mr. R.P.
Dzanjalimodzi, as Master of Ceremony.
OPENING REMARKS BY THE MINISTER OF FINANCE AND ECONOMIC PLANNING, DR. MATHEWS A.P. CHIKAONDA
In
his speech, the Minister noted the following on the Poverty Reduction Strategy:
(1) The Government has undertaken several studies to ascertain extent of poverty in Malawi and has accordingly intervened through several programmes, notably, the Structural Adjustment Programme.
(2)
Despite a series of interventions, 65% of Malawians still live below the
poverty line.
(3)
The Interim Poverty Reduction Strategy Paper submitted to donors during
the May 2000 consultative Group meeting was meant to facilitate the country’s
qualification for debt relief under the Highly Indebted Poor Countries (HIPC)
initiative. It was further pointed
out that this did not entail getting extra resources from donors but rather use
of resources originally earmarked for debt serving for Government’s priority
activities.
(4)
The Minister stressed the need to prioritise Government expenditure and
reinforce expenditure control measures.
(5)
The meeting was informed that a mechanism has been put in place to ensure
that all stakeholders are consulted during the process of preparing the
strategy.
(6)
The PRSP is to be the “bible” for Malawi’s efforts in reducing
poverty.
OFFICIAL OPENING SPEECH BY THE RIGHT HONOURABLE VICE PRESIDENT OF MALAWI, MR. JUSTIN C. MALEWEZI
In
his speech the Right Honourable Vice President noted that:
(1)
The majority of Malawians are poor and for them to ably participate in
the economic, political and development endeavours of the country, there is need
to uplift their economic status.
(2)
Government’s effort to alleviate poverty through Structural Adjustment
Programmes (SAPs) did not succeed since the poor become worse off.
It was therefore stressed that the PRSP should mitigate against
activities which will worsen the condition of the poor.
(3)
For intervention to be meaningful, it is important that the economy is
stable and this can be achieved if Government succeeds to contain the budget
deficit.
(4)
The Poverty Alleviation Programme has succeeded in achieving results,
which would be a good foundation for the PRSP.
These include Free Primary Education; the Bakili Muluzi Health
Initiative, etc.
(5)
The PRSP needs to be participatory for ease of implementation and
ownership of the programmes.
(6)
There is high correlation between level of education and poverty and also
health status of the population and productivity.
(7)
Realizing
that resources are limited, there is need to target investment to areas where
there would be more returns.
Summary
of Presentations
A
number of presentations were made in order to explain the PRSP and to stimulate
discussion:
PRSP Background and Process
Issues Paper
Despite continued attempts to reduce poverty, 65 percent of the population can be defined as poor. The persistence of poverty is due to a number of interlinking factors, including low agricultural productivity, limited credit facilities, low levels of education and poor health. Lessons from past Government strategies (the Structural Adjustment policies of the 1980s and the Poverty Alleviation Programme) demonstrate that the PRSP Process must focus on ensuring full implementation of the strategy identified, that Government must adopt a comprehensive poverty focus, and that the poor must be seen as active participants in the economy. It is anticipated that the Poverty Reduction Strategy will have three parts, the first dealing with creating the conditions for sustainable economic growth, in particular macroeconomic stability and removing barriers to growth (such as access to credit and markets). The second part will focus on social sector development, including education, health and safety nets. Finally, the strategy will address a number of cross-cutting themes, such as HIV/AIDS, Public Expenditure Management and Gender.
Setting the Balance between Social and Productive Sectors
Since 1994, the Poverty Alleviation Programme (PAP) and associated reforms have resulted in a redirection of resources towards the social sectors, especially health and education. However, expenditures in the General Administrative Sector and Debt Servicing have remained high. In addition, expenditure within the social sectors has been dominated by salaries and administrative costs, crowding out resources available for quality inputs (such as drugs and teaching and learning materials). There is little scope for reducing salaries because of the shortage of teachers and trained medical personnel and the current low salary levels. However, there is a lot of scope for reallocating expenditures within the health and education sectors to improve service delivery and ultimately, reduce poverty. For certain services, this reallocation may necessitate introducing cost-sharing arrangements.
Expenditure on productive sectors should focus on creating a conducive environment for economic growth. Currently, much expenditure in the productive sectors (and in particular agriculture) is spent on non-core activities at Ministry headquarters, supporting a large workforce without providing resources for carrying out activities.
Sources of Growth
Economic growth is necessary but not sufficient for poverty reduction. For growth to reduce poverty, growth must be broad-based and sustainable. In particular, the poor must participate in growth rather than being passive recipients of “trickle down” benefits. Government recognises that the private sector is the engine of growth, but Government has a role to play in ensuring the preconditions for economic growth are present, removing the barriers to economic growth, encouraging the private sector in specific sources of growth and ensuring that growth is broad-based and sustainable. The main preconditions for growth are macroeconomic stability, education and health. The key barriers to growth are poor infrastructure, lack of technology transfer, high and inequitable taxation, poor security and the lack of access to affordable credit.
Changing Attitudes to Development
One of the key causes of poverty in Malawi is low productivity at all levels. A consensus is emerging that low productivity is caused by “wrong” attitudes to development, in particular through the decline of work ethic, excessive dependency on Government and the predominance of individualism over community and national development. To find solutions to these problems, it is important to look at the root causes. The include the lack of knowledge or capacity to seize productive opportunities, the perception that Government will provide everything, lack of political commitment and poor incentive structures. Solutions lie partly in civic education on roles and responsibilities but more importantly in addressing the underlying incentives for behaviour.
Summary
of Discussions
The official launch and subsequent discussions involved a number of presentations and discussions in groups and in plenary. What follows is a summary of the discussions.
Poverty
It was agreed that there is need to very clearly define what poverty is and what its causes are. For example, the figure of 65% of the population being poor needs to be explained.
General Strategy
During the discussions, a general consensus began to emerge on the outline of the strategy. It was agreed that the emphasis of the strategy needs to be on creating the conditions whereby the poor can generate their own income and therefore contribute to wealth generation. This will require more bottom-up approaches and a change in perceptions of the poor. In the past, the poor have been seen as helpless victims of poverty who needed salvation by Government to redistribute some of the benefits of growth in the active sectors of the economy. The PRSP needs to shift these perceptions so that the poor are seen as active participants in the economy and in the reduction of their own poverty.
This shift will involve action in a broad variety of areas, as highlighted below:
Changing Attitudes - Mind setting
There was consensus on the fact that Malawi’s problems are not just economic problems. Many participants saw changing attitudes (or having a social-cultural transformation) as a precondition for the success of all other elements of the strategy. There was agreement that there are linkages between the change in the political system in 1994 and the ongoing social transformations. The first linkage has been that there is a misunderstanding by the general public of democracy. People are quick to demand the rights associated with democracy without assuming the associated responsibilities. Secondly, people expect material gain in return for their vote. This has been fuelled by the actions of politicians. Thirdly, there has been a gradual decline in national spirit. Fourthly, there has been a decline in the self-help spirit and work ethic, although this may not necessarily be linked to the change in political systems. On a more positive note, several participants noted that people now believe more in themselves than they did before 1994.
However, the meeting agreed that it was important to move beyond the negativity involved in identifying problems towards a positive search for solutions. In part, this involves an investigation of the root causes of attitudinal problems rather than bemoaning the symptoms. In particular, it was agreed that it was crucial that the culture of denial of the fundamental problems was reversed
Decline in work ethic, laziness, etc.
The presentation on Mind Setting and comments by many participants alluded to the decline in productivity over the last ten years. This was generally attributed to a decline in the work ethic. One speaker called for a national “self-audit” in this respect. It was clarified that the QUIM 2 (Qualitative Impact Monitoring 2) survey results did not indicate that people see laziness as a cause of their own poverty, but rather as a cause of others’ poverty. Several participants urged the meeting not to attribute poverty to laziness and therefore blame the poor for their own poverty. It was highlighted that in general people work hard (particularly women) but lack opportunities such as access to domestic and international markets.
Incentive structures
It was agreed that the
fundamental cause of low productivity and the apparent “wrong” mind-set is
inappropriate incentive structures. The
Minister of Finance and Economic Planning cited examples of Malawians who are
successful outside of the Malawian environment as evidence that it is the
incentive structure rather than the people themselves that is at fault.
A number of speakers pointed out that people are ultimately rational –
when a bad incentive structure exists, people will therefore not act in national
interests. For example, if there
are poor salaries, no sanctions for poor performance and opportunities to
allocate resources to themselves, people will maximise personal enrichment and
act in conflict with the national good. As
a result, Government cannot directly change peoples’ mindset – people change
their mind-set themselves when they see an opportunity.
It was therefore agreed that there is an urgent need to address the problem of incentives, both positive (wages and salaries, promotion) and negative (sanctions, legal system). More needs to be done to address nepotism, low salaries, unequal distribution of positive incentives and civil service reform.
Dependency
A particular aspect of mind-setting and incentives that received much attention was the creation of a culture of dependency. It was noted by many speakers that people expect Government to provide for them and as a result the self-help spirit has faded and excessive expectations are placed on Government. A number of suggestions were made as to how this situation could be rectified, and these can be divided into two categories – the responsibilities of the general public and the responsibilities of politicians and other leaders.
General publics’ responsibilities
There is need for people to accept that it is not possible to get “something for nothing”. In particular, people must be taught to recognise the trade-offs that Malawi faces. For example, in the case of subsidies, people must recognise that someone has to pay – either through increased taxation, lower allocations to other priority services or indirectly through increased inflation and interest rates.
People must also recognise that they are jointly responsible with Government for reducing their own poverty. In order to lift themselves out of poverty, people must find and take advantage of productive opportunities.
The general public through representative organisations and individuals have a right and responsibility to make constructive criticisms of the Government, but must also allow Government the right of response. Such constructive criticism should offer viable alternatives.
Politicians and leaders’ responsibilities
A crucial change needed to reverse the trend towards a culture of dependency is for those in leadership positions to take appropriate messages to the people. In particular, politicians must acknowledge the poverty situation but spread the message that the responsibility for overcoming poverty is everyone’s. In doing this, leaders must change the terms of political discourse, which creates the expectation of material gain in return for political allegiance and voting, and reinforces the perception of the poor as helpless victims in need of Government hand-outs. Politicians must work more with their constituents to educate them on their roles and responsibilities.
There is also need for leaders to better explain reforms in advance of their implementation. The Minister of Finance and Economic Planning explained that where reforms are well explained and the benefits articulated, the success of that reform is more likely as “constituencies for reform” will have been created.
Leaders must also accept the right of the general public, through representative organisations and individually, to make constructive criticism of policies as implemented by Government. Leaders should act on these criticisms where necessary.
Finally, coalition and consensus building was argued by some to be a precondition for the success of the PRSP.
Implementation
A number of participants noted the need for the PRSP to be properly implemented. In particular, past consultations (such as for Vision 2020), whilst appreciated, have not been properly implemented. In general, there is need for words to be translated into action – in the past actions have often undermined the sentiments expressed by Government.
Macroeconomic stability
It was agreed that macroeconomic stability is a precondition for sustainable and broad based economic growth. This requires tight fiscal discipline and improved macroeconomic management. Improving fiscal control and macroeconomic management should therefore be at the centre of the PRSP.
Micro-enterprise development
Micro-enterprise development was agreed to be an essential issue for assisting the poor to contribute to wealth generation. An important aspect of micro-enterprise development was agreed to be access to markets and market driven incentives. In order for people to have the incentive to increase productivity, they must have access to domestic and international markets in which to sell, implying the need for improved rural infrastructure. Such market-based incentives were agreed to be essential to sustainable broad based growth, rather than Government-based incentives such as subsidies. However, there is also need to train the poor in micro-enterprise development so that they can take advantage of loans.
In addition, in order to address the lack of knowledge of productive opportunities, it was agreed that studies should be conducted to establish comparative advantage at district level. This would require the involvement of the Malawi Export Promotion Council (MEPC) so that the different products meet international demands and standards. It was established that many such studies have been completed under USAID funding and that they need to be updated.
Credit
The issue of credit was repeatedly raised during the discussions. One delegate stated that there can be no meaningful development without credit. The discussions focussed on the need to reduce the current high level of defaulting if credit schemes are to be extended. The most effective solution to the problems of defaulting was agreed to be the incentive structure. There are presently few legal sanctions applied to those who default on loan repayments. The strengthening of incentive systems, and in particular in introducing harsh legal penalties for defaulters (as in the Colombian example) was discussed.
In addition, it was agreed that the lack of co-ordination of credit schemes in the past has been a contributing factor in their failure. Many schemes have been donor driven and have sent out mixed signals, pulling the credit sector in different directions. There is therefore need to co-ordinate credit schemes through a national credit policy.
It was noted that some credit schemes have been manipulated for political benefit by politicians. Several delegates urged politicians to stop this practice. Finally, the lack of collateral was also noted as a cause of lack of access to credit. This was seen as largely due to bureaucratic problems in processing title deeds.
Education
A consensus emerged on the need to make education more relevant to the central goal of creating the conditions whereby the poor can generate their own income. In particular, the curriculum needs to be focussed on education for self-employment and technical and vocational education. In this regard, a number of practical suggestions were made. Firstly, it was suggested that the technical education wings of secondary schools should be revived. Secondly, at primary and secondary level, people must be educated in “real world” basics such as the dangers of building up debt. Thirdly, more resources must be directed towards the Technical and Vocational Educational Trust (TEVET).
Gender
There was some debate on the importance of reducing gender inequalities. Some speakers denied its importance, arguing that special treatment should not be given to women. However, many participants opposed this view, arguing that it should be a priority as current gender inequalities disadvantage more than 50 percent of the population. It was generally agreed, however, that changing attitudes to gender relationships is more important than providing additional resources for groups of women.
Private Sector Development
In general, it was felt that Government should concentrate on removing the barriers to private sector development (credit, taxation, infrastructure, security) before providing more direct support to pre-selected sectors.
Representatives from the private sector stressed that there is need for a level playing field in taxation – it appears that certain new companies have been given tax exemptions whilst longstanding firms are being undermined.
Infrastructure
A number of participants stressed the need to ensure that we “clean up the house” and build on what we already have rather than building new infrastructure – Government should maintain existing infrastructure (particularly roads, hospitals, etc.) and ensure that it is working efficiently before building new infrastructure.
Technology
Several delegates raised the issue of technology. In particular, it was stressed that gains in productivity require the use of appropriate technology and therefore technology transfer from other countries. In addition, more needs to be done to make use of information technology. All working groups were urged to include the use of information technology in their strategies.
Land
Many speakers thought that the availability of land was not a very important issue. The use of land was seen as more important. Examples of countries with limited land but with high levels of development were given. It was argued that the underlying factor was one of productivity and technology – if more is done to harness technology and improve productivity, the availability of land will be less of an issue.
International aspects
It was noted that there is need to avoid being too inward looking – in devising the poverty reduction strategy, we must look at international causes of poverty and consider solutions in the international context. In particular, the PRSP must take into account Malawi’s declining terms of trade, whilst identifying Malawi’s comparative advantage.
Natural resource based production
The importance of natural resource based production was highlighted. The mining, fisheries and forestry sub-sectors must be covered by the PRSP since they offer an opportunity for growth.
Role of the World Bank/IMF and links to SAPs
Concerns were expressed about the PRSP in relation to the Structural Adjustment Programmes (SAPs) of the 1980s and 1990s. A number of speakers urged that the PRSP should be more than a continuation of SAPs with a safety net attached. In addition, several participants requested that there be a realistic appraisal of SAPs and that the relevant lessons be incorporated into the PRSP.
One speaker expressed concern that the PRSP consultations and preparations would be undermined by pre-existing agreements made with the World Bank and IMF. In particular, it was feared that the IMF and World Bank would enforce the “conditions” under the Highly Indebted Poor Countries (HIPC) Initiative, the Poverty Reduction and Growth Facility (PRGF) and the third Fiscal Restructuring and Deregulation Programme (FRDP III) and the policies outlined in the Interim PRSP. This would then undermine the PRSP. The World Bank and IMF explained that the PRSP is not coming into a vacuum and that there are Government programmes ongoing, some of which are supported by the World Bank and the IMF. Despite the need to continue with these programmes, the World Bank and the IMF have no intention of limiting or undermining the PRSP. It was stressed that the Boards of the two institutions had urged that the PRSP process be as participatory and consultative as possible. In addition, they stressed that the World Bank and the IMF were also intent on learning the lessons of the past. Finally, it was noted that details of all of the agreements Government has made with the IMF and the World Bank are available on the internet and that efforts are to be made to make them available to those without internet access.