Malawi remains one of the least developed countries in the Sub-Saharan region, with a GDP per capita of $260. It ranks 153 of the 169 countries, according to UNDP Human Development Indicators. The economy remains highly dependent on agriculture, which contributes to around 34% of GDP, supports 85% of the population and produces over 80% of exports (driven by commodities such as tobacco, tea and cotton); nearly all of it is attributed to smallholder agriculture, with low inputs, dependence on rains and declining soil fertility.
Manufacturing accounts for only 8% of GDP, relying on the processing of agricultural commodities (tea, tobacco and sugar) and is predominantly inward-oriented, as only 14% of manufacturing is exported. Moreover, the private sector in Malawi presents a dualistic structure.
On one side, there are a few, large, often foreign-owned companies engaged in the production of tea, tobacco marketing, sugar and consumer products, which are the main contributors to economic growth. On the other, there are a large number of micro and small enterprises, which often operate in the informal sector and employ most of the workforce. Their economic contribution is limited by poor entrepreneurial practices, lack of affordable credit, limited product differentiation resulting in stiff competition and high levels of enterprise mortality. The weakness of the private sector severely hampers the country’s ability to achieve high and sustainable economic growth rates, as well as create formal jobs.
Against this background, the United Nations Development Programme (UNDP) engaged Nathan to provide fund management services for a challenge fund in Malawi, the Malawi Innovation Challenge Fund (MICF). The MICF will be an important operational tool to the Government of Malawi’s Private Sector Development Project (PSDP), funded by UNDP and the Department for International Development (DFID), which aims to strengthen the private sector’s ability to serve as the engine of economic growth.
The first round of the $8m fund offered grant funding for innovative projects in two categories: agriculture/agro-processing and manufacturing. They were aimed at stimulating private sector growth in non-traditional exports where commercial viability is unclear and potential social impact is high. The high number and excellent quality of concept notes and proposals during the first round demonstrated a private sector in Malawi that is anxious to innovate and develop more inclusive business models. Based on the excellent outcome of the first round, the Fund is currently exploring launching a second round, dedicated to irrigation, jointly financed by IFAD.