A CRUISE through Area 43, a pleasant suburb of Lilongwe, Malawi’s capital, takes one past the high-walled homes of political leaders to a single-storey private medical clinic. Around midnight on September 13th, Paul Mphwiyo, an official at the national treasury, was treated there for gunshot wounds sustained outside his home. Mr Mphwiyo survived. But the shooting brought into the open a scandal that has led to dozens of arrests, including of government ministers, and a freeze of foreign aid, which accounts for 40% of the budget. The scam—dubbed “cashgate”—has raised deep questions about Malawi’s dependence on aid, its stubborn poverty and its inability to match neighbours’ economic growth.
Joyce Banda, Malawi’s president, issued a statement saying Mr Mphwiyo was attacked to stop him exposing high-level fraud. A link was made between the incident and the arrest a week earlier of an accounts clerk in the environment ministry, who was found with $300,000 in various currencies, most of it stuffed into the boot of a new Toyota. Police were alerted to the cash pile by the clerk’s housemaid, who was also found with wads of banknotes.
Other tales of cash-rich civil servants quickly emerged. An accountant in the president’s office was arrested for fraudulent payments to a company with links to the ruling People’s Party. Mrs Banda returned from a three-week foreign trip to find angry protesters on Lilongwe’s streets. She fired her cabinet but then reinstated all but four ministers. One of those who lost his job was Ken Lipenga, the finance minister. Another was Ralph Kasambara, the justice minister, who was arrested in connection with the shooting in Area 43. Mrs Banda, who came to power last year, has said the looting began under her predecessor. She has vowed to tackle cashgate even if it costs her the next election.
Malawi’s donors worry about pouring money into a leaking pot and are pushing for lasting reforms and better economic results. In the mid-1980s neighbouring Mozambique’s income per head was less than half of Malawi’s. It is now 40% higher. One problem is that Malawi seems unwelcoming to foreign investment. Take Paladin Energy, an Australian firm which has invested $500m in a uranium mine at Kayelekera in northern Malawi. It employs 740 people and supports many other jobs. But the slump in uranium prices after the Fukushima nuclear disaster means the mine has never been profitable, says Greg Walker, the local boss. That has not stopped politicians from claiming Malawi got a raw deal from Paladin. There is little recognition that the furore might deter other investors.
Commercial folk say cashgate is a symptom of deeper problems. The state-owned electricity company struggles to keep the lights on even though only 7% of the population is connected to the grid. Power cuts add to the high cost of doing business (Malawi is ranked 171st out of 189 countries by the World Bank). Getting permits to hire foreigners can take months, says Mathews Chikaonda, a former finance minister who is now boss of Press Corporation, a conglomerate. Verifying titles to property can take years, delaying sales and bank loans.
Mrs Banda has been praised for reforms that ended shortages of fuel and other imports. The economy is likely to grow by 5% this year. But Malawi remains the region’s economic laggard. Perhaps the cashgate scandal will trigger the deep reforms needed to turn its fortunes around.
Source : The Economist