Industrial policy has a mixed track record at best, and governments have made costly mistakes. But industrial policy does not always fail. Indeed, government activity in markets is often the critical difference between sectors' growth and competitiveness. In this era of heightened activism as governments seek to restore economic growth, what matters is understanding what approaches are likely to work best, when and where. The worst outcome for governments is failing to do their homework and spending scarce public resources on ineffectual forays into the market. The latest economic literature on industrial policy is based on institutional and evolutionary economics. The former calls for industrial policy to be about the process of setting de facto policy; while the latter calls for it to be about the process of learning by the productive economy. Our assessment is that it should be about policy. Therefore we recommend to the Government of Malawi that the Industrial Policy to be primarily about: [1] getting the process for policy making and programming right, based on identifying and addressing binding constraints through coordinated policies and programs; [2] getting the process for productive economy learning right, based on supporting economic spill-overs and learning activities, networks and incentives; and [3] calling for policy and budgeting decisions (which set de facto policy), that are needed to address current binding constraints to industrialization, as identified in the National Export Strategy, the Diagnostic Trade Integrated Study and the background research for this Issues Paper on Industrial Policy.

1. Malawi National Industrial Policy
Situation Analysis:
Issues and Evidence
Prepared by Imani Development with funding from UNDP
Presented by: Temwa Gondwe, Snr Economist

2. The problem: Malawi is lagging in region…
Source: IMF World Economic Outlook. IMF forecasts from most
recent data to 2018
IMF’s
Malawi
forecast
based on
status quo

3. Current discourse on Industrial Policy
• Over past thirty years, Malawi has suffered from de-industrialization.
• Declining per capita income, and deteriorating poverty outcomes.
• IMF/WB sponsored SAPs predicated on the belief that by
eliminating “distortions” in the economy, countries like Malawi
would grow faster, following optimal re-allocation of productive
resources.
• Little attention paid to the distribution of income—believing that
as the pie grew, everyone would benefit.
• The result was the opposite- growth declined; job creation didn’t
keep pace with job destruction; workers moved from low
productivity protected sectors to even lower productivity
unemployment e.g. subsistence agriculture in Malawi.

4. Current discourse on Industrial Policy…cont’d
• ‘New’ Industrial Policy following market failures that led to
the global economic crisis of 2008.
• Policies that help shape the sectoral composition of an economy.
The term is now used more broadly than just those policies that
encourage the manufacturing sector. As such a policy that can
encourages agro-business, or even agriculture can be referred to
an industrial policy.
• There is a broad consensus of why countries should have such
policies: to correct market failures, situations where markets by
themselves do not lead to efficient, or desirable, resource
allocations, and in some cases, even to correct other government
failures, etc (World Bank/International Economic Assoc).

5. Current discourse on Industrial Policy
• Three objectives for such policies in Malawi:
• To create jobs: labour market not working according to
neoclassical models; skills gap, govt should encourage labour
intensive sectors and technologies.
• To affect the extent of inequality: increase demand for lower
skilled workers, driving up their wages and lowering
unemployment levels.
• Structural Transformation

6. Why is Malawi not industrialising?
Political Causes
1. Politics: set up in Malawi does not incentivize politicians to develop state capacity
2. Continuous decline of Gov’t capacity: inability to deliver welfare while enabling
economic growth
3. Weak process of policy making & coordination: poor economic development policy
framework
Economic Causes
1. Rapid population growth without effective learning structure: creates growing
welfare burden
2. Lack of economic spillovers: current productive sectors (tobacco, tea etc)
inherently do not lead to value addition & innovation like manufacturing, oil seeds
etc.
3. Lack of structured productive & enabler markets
4. Lack of focus on main bottlenecks: what are constraints that can unlock potential if
addressed?
5. Limited fair competition in many key sectors

7. Purpose of Industrial Policy in 2014
• What did National Export Strategy do?
• Gives road map on how to address economic problems
• Identified sectors with economic spill-overs: manufacturing, oil seeds, sugar cane
• Guidance on main bottlenecks for economy & key sectors
• Priority sector & enabling sector strategies
• Coordination mechanism for gov’t & donors: TIP SWAp
• Industrial Policy builds on NES
• Suggests required Government behaviour (i.e. policy) to allow for the road map to be
followed
• Four Priority Areas of Draft Industrial Policy:
1. Strengthen process of policy making & programming
2. Confirm priority clusters & their strategies as per NES
3. Provide in-depth guidance on key policy decisions to unlock cross-sector binding
constraints
4. Process of learning & empowerment; incorporating education policy & population
policy

8. Priority Area 1: Process of Policy Making & Programming
• Industrial Policy is summation of de facto (not de jure) agricultural, energy,
transport, fiscal, education, finance & other policies
• If these not consistent & not focused on productive economy, then there is no de
facto industrial policy
• So good 21st century industrial policy needs to ensure:
• An effective process for identifying binding constraints to productive economy
• An effective process of addressing those binding constraints to foster productive
economy by ensuring consistency & coherence in de facto agricultural, energy,
transport, fiscal, education, finance & other policies
• At present Malawi doesn’t have appropriate process & framework to adequately
deliver these
• This is key reason why Malawi has not industrialized since 1960s
• So core of industrial policy must be to deliver such a process, permanently

9. Priority Area 2 Priority Clusters for Structural Transformation
Value of Malawi Exports as percentage of Value of Imports
Source: Trademap.org
Malawi Imports
Tobacco is
48% of
exports, but
is not
keeping
pace of
imports
All other clusters remain
in infancy because we
have been piecemeal in
our approach since
tobacco in 1970s

10. Why prioritise clusters?
Prioritisation is needed because of:
• Industrialisation has failed without prioritization- piecemeal approach
since 1970s
• Industrialisation only occurred in 1960s when Kamuzu Banda prioritized
• Scarce public finances—minimal resources are targetted at facilitating
growth in the productive sector.
• Scarce institutional capacity – weak economic planning; which has
solely been welfare driven not focused on productive economy, i.e.
MGDS.
• Limited capacity to deliver policy consistency
• Limited political interest to develop economy
• Dependence on aid means that de facto policy is not entirely Malawian;
hence is piecemeal & not focused

11. Priority Clusters for Industrial Development
The Government of Malawi will prioritise development of sustainable market systems in these
clusters:
• Manufacturing
• Agro-Processing (dairy, maize, wheat, cassava, pigeon peas, & rice)
• Beverages
• Plastics & Packaging
• Assembly
• Other manufacturing where private sector leads
• Oil Seed Products
• Soya
• Groundnuts
• Sunflower
• Cotton
• Other oil seeds where private sector leads
• Sugar Cane Products
• Other contributors (but not drivers): mining, tobacco, tea, tourism, other services
• This does not mean other sectors cannot emerge, e.g. pharmaceuticals.

12. Priority 3: Policy decisions to address main cross-sector
bottlenecks
NES/DTIS/NIP identified following binding constraints to industrialisation (see draft document for policy
statements)
1. Agricultural policy: main issue is it’s run as social welfare sector not as productive sector; food security &
commercialisation viewed separately; limited Ministry incentive to create structured markets
2. Lack of reliable access to energy: main issue is no incentive to invest & provide good service
3. Limited affordable access to finance:main issue unfair competition, information gaps & policy gap
4. Access to land: main issue is ineffective land market: a weak regulatory framework that isn’t conducive to
commercial agriculture & industry investors; weak land policy not geared to economic growth
5. Cost of transport, particularly domestic transport: main issue is unfair competition for domestic transport,
barriers to entry for MSMEs & lack of infrastructure focus on railways & feeder roads
6. Investment, incentives, tax, trade & competition policy: main issue is not applied for industrialisation &
applied separately from each other. Must ensure environmental sustainability & gender balance
7. Education policy: main issue is it’s run as social welfare sector not as productive sector because de facto
education policy is set by donors not Malawians.

13. Priority 4: Upskilling, Access to Technology & Quality
Key aspect is development of an effective labour market that can ensure adequate information flows
between the demand & supply of skills:
• Develop permanent cross-agency system that permanently links demand & supply of skills
• Establish industrial liaison body to link demand & supply of skills, including vocational training linkages
between MITA, TEVET, private providers & key clusters, such as plastics & packaging
• Ensure effective coordination of MSME support by SMEDI to facilitate MSME upskilling nationwide
• Link immigration policy to current skills shortages
• Link agricultural extension services to NES priority crops, & to promote commercial agriculture
• Target industrial extension on facilitating MSME manufacturing access to tech. for NES priority products
• Ensure fair competition & adequate skills in among business development service providers
• Implement National Quality Policy, including splitting MBS into standard developer & enforcer
• MBS needs to be more of a facilitator of quality & technology access; not just an enforcer of standards
• All above must be gender neutral

14. Thank you for your attention.
Imani Development
john@imanidevelopment.com
nick@imanidevelopment.com
jonathan@imanidevelopment.com
temwa@imanidevelopment.com
Liz@imanidevelopment.com
brentedelman@gmail.com