Economic diversification: Crafting a multi-sectoral strategy for economic stabilization for Malawi

Have you ever owned a favorite pen that you found indispensable? I certainly had, every day I relied on it for everything from jotting down quick notes, to sketching out creative ideas, to writing my next blog. It was my go-to tool, always within reach and helping me deliver on items I needed to accomplish. But as time went on, I noticed the ink getting lighter and lighter, just when I needed it the most.

This experience had me thinking about Malawi and its reliance on agriculture. Just like my favorite pen, agriculture is the lifeblood of Malawi--providing jobs, feeding families, and supporting the whole country’s economy. But there can be a tragedy of the commons if there is not enough care taken of this vital resource, and it can run out too. According to the World Bank, the persistence of poverty in Malawi is due to climate shocks, low agricultural productivity, and slow structural transformation, which are interlinked and affect each other. To stabilize our economy we need a multi-sectoral approach, one that builds strength in each of the important pieces. I reviewed the World Bank’s latest Malawi Economic Monitor and thought more. I also looked to Rwanda as a model of a developing country that has diversified its economy, and I’d like to share strategies I think could be useful for Malawi to stabilize the economy.

The tragedy of relying on a single sector is that the sector is not exempted from internal and external shocks. Climate shocks make Malawi’s economy extremely vulnerable, Malawi being one of the countries most affected and least resilient to climate change, ranking 161 out of 181 in the ND-Global Adaptation Initiative Index. Malawi has experienced multiple tropical cyclones and storms, like Ana and Gombe in 2022, and record-setting Cyclone Freddy in 2023, which lasted 38 days. These climate shocks brought Malawi’s agricultural sector to its knees, and this continues to affect the economy of the country now. Slow structural transformation also affects the productivity of our agricultural sector, despite Malawi being a prominent producer and exporter of tobacco, macadamia, and soya in the global market. Malawi’s export performance has weakened in recent decades, due to slow structural transformation that could help transition from subsistence to commercial farming, that can potentially boost exports and sway economic growth.

The difference between a pen and a pencil is the presence of ink. Besides that, they serve the same purpose of being writing instruments. In the same way, the difference between Rwanda and Malawi is economic growth. Unlike Malawi, Rwanda has experienced internal conflicts in history for a longer time (civil wars), affecting the economy. Rwanda’s dominating sector is the agricultural sector, just as Malawi, and they are both landlocked countries that have experienced an amount of bad governance. Yet, even though Rwanda is also a country that relies heavily on agriculture, it has made remarkable strides in economic stabilization and sustainability through economic diversification. So, what can Malawi do? Well, ink is what Malawi needs.

Just as I need to remember to keep spare pens handy, Malawi needs to keep other sectors of the country progressing, through a multi-sectoral strategy, to stabilize economically. In order to keep my indispensable pen working, I need to alternate it with spare pens (economic diversifications).

Lessons can be drawn from the case of Rwanda, which can be useful for Malawi: strengthen strategic partnerships, promote policies aimed at diversification, and of great benefit, focus on tech-driven diversification in the existing agricultural sector to move it into the modern, commercial world. These are some lessons from a country that has similar characters with Malawi but has achieved a middle-class status against all odds.

First, strategic partnership can help lead to economic stabilization. We need to focus on scoring high in governance principles as well as aid engagement. Engaging traditional and non-traditional donors has helped Rwanda to reduce transaction cost and boost the economy through innovations from strategic aid engagement.

Second, promotion of policies that encourage diversification to move from agriculture to mining, service delivery, manufacturing, and tourism can help. But for these policies to work, they need to be supported and influenced by good institutions (rules of the game) and good governance.

Lastly, enhancing and growing the agricultural sector with advanced technology is key so that the transition to commercial agriculture can be at a large scale, to help raise the declining exports.

In conclusion, there is a saying in Malawi’s native language, and I quote, “Kumunda sapita opanda khasu”. This means you cannot go to the farm without farm machinery, the hoe to dig the hard land and the rake to level the surface. In my experience, you cannot rely on a single pen for decades without expecting it to run out. Just as I now keep spare pens at my desk and alternate my use of them, resulting in my favorite lasting longer, Malawi needs a multi-sectoral strategy that keeps agriculture growing and improving, but boosts other sectors to support and stabilize the economy, making it resilient to shocks, and helping it grow and thrive.