This report is part of a larger study by the Overseas Development Institute in London on ‘poor performance’ – i.e., those countries that show little sign of economic growth or improved social indicators no matter how much development assistance reaches them. It is one of four case studies (the others are on Sudan, Rwanda and some states in India) which provide detailed information to be used to draw conclusions about the characteristics and causes of poor performance and inform discussions about more efficient ways of delivering aid.

Malawi’s underdevelopment results from a number of factors, including its landlocked position, poor natural resource base, reliance on rain-fed agriculture, and low levels of social capital and technical and social ingenuity. Most importantly, Malawi’s neopatrimonial system and structures keep Malawi’s development assistance from being used equitably, efficiently, on pro-poor expenditures, or for the betterment of the nation as a whole. Neopatrimonialism also undermines private sector growth by creating an environment where the rule of law is weak, where investment flies in the face of risks and low returns, and where the administration finds it impossible to operate within its budget or to undertake necessary structural reforms.

The report begins with a brief survey of Malawi’s political economy, focusing on the period 1980-2002. The detail can be found in Annex 1. Dr. Banda’s legacy is critical to any understanding of Malawi’s underdevelopment and its failure to consolidate its democracy: civil society is weak, many of Malawi’s current leaders held positions in Banda’s regime where they learned to govern, commerce and industry are underdeveloped, and agriculture remains central to the economy. Agriculture is dualistic, with estates generating most of the nation’s foreign exchange while more than 80% of the population lives on overcrowded plots, growing subsistence crops with backward technology. Their yields are low, hunger is normal, malnutrition is widespread, and famine is not uncommon.

The ‘transition without transformation’ in 1992-94 was relatively peaceful, changed macroeconomic economic policy little, and many of old regime’s laws, institutions, and leaders survived ‘the change’. Extreme rights abuses came to a halt, though rights protection has deteriorated again in recent years. The new government’s ‘poverty alleviation programme’ placed more emphasis on directly helping the poor by providing free primary schooling, liberalising agricultural (especially tobacco) production and marketing, and creating programmes (largely funded by donors) to give employment, food aid, and agricultural inputs to the poorest. Government, donors and specialists agree, though, that the poverty alleviation programme has not generated economic growth because of the ‘absence of a well-articulated action plan’.

Governance has played a role in this failure, for the new president’s focus has been on achieving UDF numerical superiority in parliament. His people have been prepared to use any means to do this – manipulating the powers of parliament’s speaker, undermining the independence of the judiciary, attacking the independent media and opposition politicians, amending the Constitution, allegedly ‘buying’ opposition MPs, influencing the electoral commission, abusing police powers, etc. That confrontation (rather than negotiation with the opposition) was adopted is tragic because ideologically, the three parties in parliament are not significantly different and their social and economic policies would have been similar. Yet this method of rule and the history of governance since 1994 are perfectly consistent with the logic of neopatrimonialism.

The aid regime has consistently requested the same things of Malawi: well-designed budgets and fiscal discipline; reduced budget deficits, domestic borrowing, interest rates and inflation; timely, transparent and accurate reporting; economic growth of at least 6% per annum; a stable kwacha; improved revenue collection; privatisation of inefficient parastatals; structural reforms; better propoor expenditure targeting; liberalisation; prosecution of corrupt officials, etc. These are expected to create an environment conducive to private sector investment and growth. But since 1994 the government has only periodically managed to achieve some of these targets. By and large, and especially since 1999, it has failed to do so. Thus, in late 2001 the ‘Common Approach to Budget Support’ group of donors followed the IMF and halted budgetary support, though project and humanitarian aid continues.

The report summarises the characteristics of poor performance, and analyses them in terms of ‘empirical sovereignty’. The post-transitional government fails the empirical sovereignty test because it has not ensured that the public has prosperous lives, good quality institutions, and social integration and because it is not responsive to the poor.

The underlying reason for poor performance is because the Malawian government is neopatrimonial, using the definition provided by Nicolas van de Walle and others. Its concerns are those of the elite, not the poor, and its policies and practices are moulded by self-interest and patronage, and a desire to retain control of state resources – which are the only assets worth fighting over in Malawi. Where some observers say that ‘a lack of political will’ or ‘weak governance’ explain poor performance, analysts using the neopatrimonial model argue that the deliberate will of the elite to use power and state resources to support its own networks, with little regard for the poor or the nation as a whole, is to blame for poor performance.

International agencies that ignore the wilful and deliberate effort by the elite to use domestic and international resources to benefit themselves will continue to see their funds subverted, wasted and misused. Similarly, the impotence and inefficiency of parliament, the constitutional bodies and other government departments should be seen in this light: real power lies elsewhere and is manifest in neopatrimonial systems and structures, which are largely unobserved, wholly unaccountable, and undermine the functioning of state institutions. Providing aid to such a regime ensures that it remains in power. Donor failures also contribute to poor performance in various ways.

In delivering aid, agencies cannot focus solely on economics, for good governance and politics stand at the centre of good performance. In this spirit several recommendations are made – to use aid funds to strengthen civil society (so it can do its job of holding government accountable), to provide aid to government in a contractual manner with set benchmarks, to renegotiate the PRSP, to prioritise civil service reform; to analyse the role of governance (and neopatrimonialism) in economic performance continually; to select aid modalities in light of the need to monitor performance regularly; to consider the implications of ‘ring-fencing’ pro-poor expenditures; and to make aid dependent on key governance reforms.