The study establishes that Malawi has gone through three stages of trade and industrial policy. During the colonial era the main focus was on production and trade of agricultural commodities, namely coffee, tobacco and tea. In the post-independence era, Government sought to industrialise by pursuing import substitution policies. The poor economic performance experienced in the late 1970s and early 1980s led to Government adopting economic liberalisation policies under the Structural Adjustment Programmes (SAPs) which were expected to reverse the trends experienced in the 1980s. However, evidence from studies show that manufacturing activities declined during the SAPs period.
Against this background, Government adopted a new development planning framework, the Malawi Growth and Development Strategy (MGDS) which seeks to transform the country from net importer and consumer to net producer and exporter. The MGDS has adopted trade and private sector development as a viable means to achieve economic growth and a reduction of poverty. Implementation of the MGDS has started bearing fruit in some sectors such as agriculture, where Government has managed to achieve food security. There are substantial policy reforms aimed at enhancing the performance of trade and industry. Government has applied a range of policy measures including investment and export incentives, an expanded market through regional integration and trade agreements,
ii
infrastructure development and the creation of a favourable policy environment. However, little progress has been made in particular areas such as that of the diversification of exports.
As such, the country’s economic structure has remained unchanged. The country continues to depend on agriculture with tobacco, tea and sugar being major commodities produced and exported. The contributions of trade (imports and exports) and industrial sector to GDP have stagnated at around 45% and 20%, respectively, with the manufacturing sector accounting for 11% of GDP. A further examination of the country’s Index of Industry Production shows that, overall, the industrial sector has indeed stagnated. The World Bank (2006) identified high cost of doing business as among the major causes of the poor performance of the private sector. Therefore, Government needs to step up its effort to improve the business climate by undertaking further reforms of its policy and regulatory system and by improving power and utility supply.