ECONOMY-MALAWI: Workers Stand Up to the Manipulations of Investors

By IPS Correspondents Reprint | | Print |

Frank Phiri

BLANTYRE, Jun 4 2003 (IPS) - The sale of Malawi’s state-owned firms has run into problem following protests from workers and civil society that it smacks of fraud.

The protests follow last week’s sale of the giant textile firm, David Whitehead and Sons (DWS), to a consortium of a local and Indian investor for a paltry MK73 million (786,289 U.S. dollars).

The deal was finalised by Malawi’s Privatisation Commission (PC), following an international tender process in 2002. But the company’s management, unhappy with the deal, rushed to the High Court, where it successfully sought an injunction to stop the investors from proceeding with the transaction.

The court order says that PC officials and the investors – Mapeto Wholesalers of Malawi and Jimtex of India and Tanzania – would be held in contempt of court and liable to imprisonment if they go ahead with plans to sell DWS.

It says the company’s management and its employees are opposed to the sale because the price tag was ‘too low for real’ and that the firm was no longer posting losses.

The court says the employees estimate MK300 million (about 3.3 million U.S. dollars) to be a fair price for the firm, in the wake of a turn around in its profit from last October when government downsized its operations leading to the retrenchment of 2,000 workers.

The Privatisation Commission is preparing to challenge the injunction.

On Monday, some 250 staff at the company and cotton farmers from seven districts said they would present a petition to President Bakili Muluzi, the International Monetary Fund (IMF) and World Bank, protesting the sale of the company. They are planning to hand in the petition this week.

Civil societies have said they would join the protests. And that they would call for an immediate suspension of the privatisation process to pave way for a review in which tax-payers would be consulted on how to run the firms.

"The manner in which privatisation is being conducted lacks genuine transparency and smacks of fraud. It is unacceptable to sell DWS and other companies at a throw away price," says John Kapito of the Consumers Association of Malawi (CAMA).

He calls for a delay in the process. "Let’s wait until the economy picks up, and then resume with a meaningful privatisation," says Kapito.

DWS failed to attract buyers in 1996, after government rejected the "low offers" put on the table by investors.

To the chagrin of the workers, the Privatisation Commission has resorted to selling DWS at nearly the same price which government rejected as being low five years ago. They say offers of between MK50 million (around 538,000 U.S. dollars) and MK90 million (around 968,000 U.S. dollars), which the government rejected in 1996, were better than the present price. By then the Malawi Kwacha (MK), which is depreciating now, fetched more U.S. dollars than it does now.

Standing by its decision, the Privatisation Commission says its evaluation found that the company’s assets and current operations are worth ‘negative’ as a ‘going concern’.

It claims that DWS has failed to adequately respond to radical market changes brought by economic liberalisation leading to erosion of its capital and profit base.

This has resulted in DWS, described as a one time prosperous giant textile mill in Malawi and the region, to cut production from 33 million metres of cloth to barely half a million and retrench over 2,000 workers, says a DWS report.

The report says that in addition to obsolete machinery, DWS is weighed down by a debt of MK 1.2 billion (about 13 million U.S. dollars), which government would hive off, leading to the investors snapping it free of accumulated liabilities.

It is not the first time that Malawi’s privatisation has faced setbacks. In 2001, the cabinet quietly suspended the programme. Former Finance Minister Mathews Chikaonda attributed the suspension to "low offers" for the corporations, which included the Malawi Telecoms Limited (MTL).

Last year Malawi’s civil society, led by the British charity, Oxfam, rejected the part-privatisation of the state-run grain marketer, Admarc, which until recently was a holding company for DWS.

A two-phased report funded by Oxfam recommended that Admarc should not be sold off until government and donors identified a competent body to take it over. The report has been followed by a heated debate on state radio outlining the advantages and disadvantages of privatising Admarc.

To date, at least 35 state companies have been sold in Malawi since 1996, raising MK1.9 billion (about 21 million U.S. dollars) to government coffer, according to official statistics.

Privatisation of state-owned corporations is one of the conditions imposed by the donors on this impoverished southern African nation of 10 million people.