US embassy cable - 05LILONGWE107

UNCLAS SECTION 01 OF 02 LILONGWE 000107 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AF/S 
STATE PLEASE PASS TO MCC FOR KEVIN SABA 
STATE PASS TO TREASURY/INTERNATIONAL AFFAIRS/AFRICA/LUKAS 
KOHLER 
JOHANNESBURG FOR FCS 
 
E.O. 12958: N/A 
TAGS: KMCA, KCOR, PREL, ECON, EINV, EAID, MI, Economic, President 
SUBJECT: MALAWI REIGNING IN PARASTATALS, PUSHING 
PRIVATIZATION 
 
 
This message is sensitive but unclassified--not for Internet 
distribution. 
 
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SUMMARY 
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1. (SBU) President Bingu wa Mutharika has recently 
reactivated the GOM's privatization program with a public 
speech strongly endorsing the Privatization Commission's 
efforts to push ahead with selling parastatal corporations. 
He is also said to have ordered the halt of operations at the 
Malawi Development Corporation, and to be considering 
reconstituting the boards of many parastatals to replace 
political appointees with technocrats.  These moves appear to 
aim at bringing the expensive and corruption-ridden 
commercial operations of the Government under control.  End 
summary. 
 
 
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AN AMBITIOUS NEW PLAN, DEFYING RESISTANCE 
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2. (SBU) At the launch of the Privatization Commission's 
strategy conference last week, President Mutharika delivered 
a definitive answer to speculation about a possibly 
state-centric approach to develop Malawi's economy.  Shortly 
after Mutharika took office, the Privatization Commission 
itself had become suspicious when he took the portfolio for 
statutory corporations to himself and immediately froze all 
pending privatizations.  The GOM explained that this was to 
vet the pending deals for possible corruption.  At least some 
observers, knowing that Mutharika had previously advocated 
state-centric approaches to economic growth, figured this was 
the first step to shutting down the privatization pipeline. 
 
3. (SBU) But at the launch on January 25, Mutharika not only 
delivered a televised speech endorsing privatization, he also 
required his entire Cabinet to attend the day-long seminar. 
Describing privatization as an opportunity for both the 
private sector and the public, Mutharika outlined a program 
for accomplishing 65 privatizations over the next three years 
(compared with 64 privatizations over the past 8 years).  He 
also proposed three changes to the program started in 1997: 
 
--A different sequence of privatizations to reflect new 
priorities 
--Emphasis on public-private partnerships in cases where sale 
of assets is unpalatable 
--Creation of a social program to address layoffs 
 
4. (SBU) Mutharika also made a bid for support among his 
Cabinet in pushing privatizations forward, saying that 
overcoming resistance to privatization must be an integral 
part of the plan.  After Mutharika left the meeting, however, 
several Cabinet members made it clear that the President has 
some ways to go to recruit them to the cause.  They pointed 
to several problems with past privatizations: inappropriate 
use of proceeds, short-term unemployment, and heavily foreign 
ownership, among others. Mutharika will need Cabinet and 
Parliament approval for several components of the program, 
including the new divestiture plan and specific approvals for 
a number of "strategic enterprises." 
 
 
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IN THE MEANTIME, SOME QUICK ACTION 
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5. (SBU) As an indication of Mutharika's current attitude 
toward parastatals, he is reported to be on the verge of 
reconstituting the boards of several--and possibly all--major 
parastatals.  Several reliable and well-placed officials have 
confirmed these reports.  He has complained publicly that the 
previous administration passed out board seats as political 
candy, which has resulted in incompetent and often dishonest 
boards.  High on the target list would be electrical utility 
ESCOM, agricultural conglomerate ADMARC, and the 
manufacturing and real estate conglomerate Malawi Development 
Corporation (MDC). 
 
6. (SBU) In the case of MDC, Mutharika is not waiting for a 
clean sweep of parastatal boards to take action.  The company 
operates or owns substantial interest in commercial real 
estate, light manufacturing, hotels, and financial services 
throughout Malawi.  Faced with a crushing debt burden, a 
series of failed investments, and rumors of corruption, MDC 
recently applied to the GOM for a fresh infusion of capital. 
The President instead shut the company down for a review of 
its finances, hoping to get a clearer financial picture 
before deciding its fate. 
 
 
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COMMENT: THE HEAD IS THINKING; WILL THE BODY FOLLOW? 
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7. (SBU) Mutharika has pushed the theme of economic growth 
since his inaugural address.  Many local observers have 
wondered whether he would choose the well-worn path of 
statist solutions rather than enabling the private sector to 
assume the work of building a viable Malawian economy. 
Mutharika's plans for aggressive privatization indicate that 
these suspicions are unjustified.  If he can pull it off, a 
rapid privatization schedule will deliver much-needed 
short-term revenue and clean up a major locus of corruption. 
That said, however, it is clear he has much work left to 
persuade the rest of his government, let alone the rest of 
the body politic, to go along. 
 
GILMOUR