metadata: authors: 0: author: Foster,Vivien
1: author: Shkaratan,Maria
count: Malawi
docna: 0: docna: Malawi's infrastructure: a continental perspective
docty: Policy Research Working Paper
subtopic: Sanitation and Sewerage,Energy Policies & Economics,Hydrology,Transport Services,Intelligent Transport Systems
teratopic: Transport,Infrastructure Economics and Finance,Energy,Water Supply and Sanitation,Finance and Financial Sector Development
abstracts: cdata!: Infrastructure contributed 1.2
            percentage points to Malawi's annual per capital GDP
            growth over the past decade. Raising the country's
            infrastructure endowment to that of the regions
            middle-income countries could increase that contribution by
            3.5 percentage points. Malawi's successes in
            infrastructure development include reaching the Millennium
            Development Goals for water and making GSM telephone signals
            widely available without public subsidy. Challenges include
            improving the reliability and sustainability of the power
            sector, raising funding for road maintenance, preventing
            overengineering of roads, enhancing market access in
            agricultural areas, and lowering the cost of information and
            communications services. The latter goal may be achievable
            by securing competitive access to the new submarine
            infrastructure on the East African coast.Addressing
            Malawi's infrastructure deficit would require sustained
            expenditures of almost $600 million per year over the decade
            2006-15. During the mid-2000s, the country spent close to
            $200 million per year, about half of which went to the
            transport sector. Because of widespread inefficiencies --
            underpricing of power, improperly maintained roads, and
            utility distribution losses --about $200 million is wasted
            each year. But even if those inefficiencies were eliminated,
            Malawi would still face an annual infrastructure funding gap
            of almost $300 million. That gap could be cut to $100
            million by engaging in regional trade of electricity, using
            lower-cost technologies in water and sanitation, and
            adopting less-ambitious road-building technologies. If
            inefficiencies were eliminated and recent spending levels
            sustained, Malawi could reach its infrastructure targets
            within 16 years.
geo_reg_key: 517195,517191
repnme: repnme: Malawi's infrastructure: a continental perspective
display_title: Malawi's infrastructure: a
            continental perspective
listing_relative_url: /research/2011/03/13921784/malawis-infrastructure-continental-perspective
topicv3: Water m1326522 137,Transport m1326661 135,Power and Electricity Sector m1327094 515,Latrines m1505177 3454,Traffic Management m1583399 4231
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Transport,Infrastructure Economics and Finance,Energy,Water Supply and Sanitation,Finance and Financial Sector Development
no_of_pages: 36
author_keys: 0: author_key: 452278
1: author_key: 143827
model_extractions: WPS5598 Policy Research Working Paper 5598 Malawi’s Infrastructure A Continental Perspective _Vivien Foster Maria Shkaratan_ The World Bank Africa Region Sustainable Development Department March 2011
Policy Research Working Paper 5598

# **Abstract**

Infrastructure contributed 1.2 percentage points to Malawi’s annual per capital GDP growth over the past decade. Raising the country’s infrastructure endowment to that of the region’s middle-income countries could increase that contribution by 3.5 percentage points. Malawi’s successes in infrastructure development include reaching the Millennium Development Goals for water and making GSM telephone signals widely available without public subsidy.

Challenges include improving the reliability and sustainability of the power sector, raising funding for road maintenance, preventing overengineering of roads, enhancing market access in agricultural areas, and lowering the cost of information and communications services. The latter goal may be achievable by securing competitive access to the new submarine infrastructure on the East African coast.

Addressing Malawi’s infrastructure deficit would require sustained expenditures of almost $600 million per year over the decade 2006–15. During the mid2000s, the country spent close to $200 million per year, about half of which went to the transport sector. Because of widespread inefficiencies—underpricing of power, improperly maintained roads, and utility distribution losses—about $200 million is wasted each year.

But even if those inefficiencies were eliminated, Malawi would still face an annual infrastructure funding gap of almost $300 million. That gap could be cut to $100 million by engaging in regional trade of electricity, using lower-cost technologies in water and sanitation, and adopting less-ambitious road-building technologies. If inefficiencies were eliminated and recent spending levels sustained, Malawi could reach its infrastructure targets within 16 years.

This paper is a product of the Sustainable Development Department, Africa Region. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The author may be contacted at vfoster@worldbank.org and/or cbricenogarmendi@worldbank.org.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
# Malawi’s Infrastructure: A Continental Perspective

VIVIEN FOSTER AND MARIA SHKARATAN

## **Acknowledgments**

This paper draws upon a wide range of contributions from sector specialists from the Africa Infrastructure Country Diagnostic Team; notably, Dick Bullock on railways, Mike Mundy on ports, Heinrich Bofinger on air transport, Maria Shkaratan on power, Elvira Morella on water and sanitation, Michael Minges on information and communication technologies, Nataliya Pushak on public expenditure, and Alvaro Federico Barra on spatial analysis.

The paper is based on data collected by local consultants and benefited greatly from feedback provided by colleagues in the relevant World Bank country teams; notably, Tim Gilbo (country manager), Supee Teravaninthorn (transport), Rob Mills (power), Midori Makino (water and sanitation), and Mark Williams (ICT).
# Contents

|**The continental perspective**|**1**|
|---|---|
|**Why infrastructure matters**|**2**|
|**The state of Malawi’s infrastructure**|**3**|
|Roads|7|
|Rail|8|
|Air transport|9|
|Water supply and sanitation|10|
|Power|13|
|Water resources|16|
|Information and communication technologies|17|
|**Financing Malawi’s infrastructure**|**19**|
|How much more can be done within the existing resource envelope?|23|
|Annual funding gap|27|
|What else can be done?|27|
|**Bibliography**|**28**|
|General|28|
|Growth|28|
|Financing|28|
|Information and communication technologies|28|
|Irrigation|29|
|Power|29|
|Transport|29|
|Water supply and sanitation|30|
|**About AICD and its country reports**|**31**|

iii
nfrastructure contributed 1.2 percentage points to the annual per capita growth of Malawi’s gross domestic product (GDP) over the past decade, thanks mainly to the revolution in information and Icommunication technology (ICT). Raising the country’s infrastructure endowment to that of the region’s middle-income countries could further boost annual growth by 3.5 percentage points per capita. Today, Malawi’s basic infrastructure indicators look relatively good when compared with other lowincome countries in Africa, although the performance of that infrastructure could be significantly improved.

Malawi is one of the few African countries to have already reached the Millennium Development Goals (MDGs) for water—almost a decade ahead of the target. The private sector has made GSM telephone signals widely available without public subsidy. A substantial road investment program has raised the average condition of the country’s road network, and a foundation for institutional reform has been laid in the ICT, power, and road transport sectors.

Despite this success, many challenges remain. Perhaps the most pressing is improving the reliability and sustainability of the power sector, which is taking a significant toll on the economy through underpricing and operational inefficiencies. In the road sector, adequate funding for road maintenance will be needed to preserve the value of recent investments in the sector. Future investments plans must avoid overengineering of the network and put greater emphasis on enhancing rural connectivity in highvalue agricultural areas. In ICT, the main issue is to bring down the cost of services to make them more affordable for the population. Securing access to the new submarine infrastructure along the East African coast holds the key to achieving that goal, as long as competition prevails.

Addressing Malawi’s infrastructure deficit would require sustained expenditures of almost $600 million per year (20 percent of GDP) over the decade 2006–15, about 80 percent of which would be for capital expenditure. The power, water supply, and sanitation sectors each account for about a third of total spending needs.

During the mid-2000s, Malawi’s infrastructure spending was close to $200 million per year (6 percent of GDP). About half of that spending was in the transport sector. Because of widespread inefficiencies in several infrastructure sectors, an additional $200 million is wasted. Key areas of inefficiency include underpricing of power (worth $72 million a year), undermaintenance of roads ($32 million), and utility distribution losses ($21 million).

Even if those inefficiencies could be eliminated, Malawi would still face an infrastructure funding gap of almost $300 million a year. This could be lessened to $100 million by engaging in regional trade of electricity, using lower-cost supply modalities in water supply and sanitation, and adopting appropriate technologies for road sector development. As long as efficiency gains are captured and spending sustained at the levels of the recent past, the country’s infrastructure targets could be reached within 16 years.

# The continental perspective

The Africa Infrastructure Country Diagnostic (AICD) has gathered and analyzed extensive data on infrastructure across almost all African countries, including Malawi. The results have been presented in
MALAWI’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE reports covering different areas of infrastructure—ICT, irrigation, power, transport, WSS—and different policy areas including investment needs, fiscal costs, and sector performance.

This report presents the key AICD findings for Malawi, allowing the country’s infrastructure situation to be benchmarked against that of its African peers. Malawi is benchmarked against both low- and middle-income African peers that, respectively, provide close comparators and a more aspirational point of reference. Detailed comparisons will also be made with immediate regional neighbors in the Southern African Development Community (SADC).

Several methodological issues should be borne in mind. First, because of the cross-country nature of data collection, a time lag is inevitable. The period covered by the AICD runs from 2001 to 2006. Most technical data presented are for 2006 (or the most recent year available), while financial data are typically averaged over the available period to smooth out the effect of short-term fluctuations. Second, in order to make comparisons across countries, the indicators and analysis had to be standardized so that everything was done on a consistent basis. This means that some of the indicators presented here may be slightly different from those that are routinely reported and discussed at the country level.

# Why infrastructure matters

Over the decade 1997–2007, Malawi’s economy grew at an average annual rate of only 2.9 percent, placing it among the slower-growing nations on the continent. This performance falls well short of the sustained 7 percent per year needed to meet the MDGs. About 0.8 percentage points of southern Africa’s improved per capita growth performance during the 2000s can be credited to improved structural and stabilization policies (Calderón 2008), while 1 percent is related to improvements in the countries’ infrastructure platforms. In the case of Malawi, most of the boost was due to the ICT revolution, while power and roads contributed very little. Simulations suggest that if Malawi’s infrastructure could be improved across the board to the level of the African leader—Mauritius—annual per capita growth rates would be 3.5 percent higher than they are at present. All three of the infrastructure sectors considered could make substantial contributions to economic growth (figure 1).

2
<!-- Start of picture text --> 2.5<br>2.0<br>& 15<br>o<br>5 1.0<br>°<br>S 05<br>0.0<br>-0.5<br>eS a RY & ea <> Na we ><br>aS SF & RS & y Ss of<br>weSF KF oh KX WS S<br>we 9eS we o>xoe<br>Mtelecom Oelectricity Mroads<br><!-- End of picture text --> <!-- Start of picture text --> Namibia<br>Botswana<br>Swaziland<br>South Africa<br>Tanzania<br>Zambia<br>Malawi<br>0% 20% 40% 60% 80% 100%<br>infrastructure Onon-infrastructure<br><!-- End of picture text --> <!-- Start of picture text --> 5<br>4<br>a 3<br>B82<br>=<br>o1<br>&<br>0<br>-1<br>2<br>. : < .<br>ee ey s SF fF &§ Y& s Ra Ss<br>SKKSH SF SF SF KF KF<br>VY wge PY vLSS ye tS)+Ss<br>Btelecom Oelectricity Broads<br><!-- End of picture text --> <!-- Start of picture text --> Botswana<br>Swaziland<br>Namibia<br>Zambia<br>South Africa<br>Malawi<br>Tanzania<br>0% 20% 40% 60% 80% 100%<br>electricity Ocustoms @transport OICT Mwater<br><!-- End of picture text -->
MALAWI’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE Malawi’s infrastructure backbones follow the north-south axis running parallel to Lake Malawi. Power and ICT backbones are entirely national in nature, with no regional integration at present, although a number of cross-border connections have been proposed. Regional transport connectivity is also quite limited. While the practice of irrigation is extended across the national territory, the intensity is extremely low—at less than 1 percent of cultivated land, with a slightly higher level of concentration in the far south.

This report begins by reviewing the main achievements and challenges in each of Malawi’s major infrastructure sectors, with the key findings summarized in table 1. Thereafter, attention will turn to the problem of how to finance Malawi’s outstanding infrastructure needs.

**Table 1. Achievements and challenges in Malawi’s infrastructure sectors**

||**Achievements**|**Challenges**|
|---|---|---|
|Air transport||Addressing lack of sustainability of Air Malawi<br>Strengthening safety oversight|
|ICT|Advanced sector reform<br>GSM signal almost universal|Acquiring competitive access to submarine cable to<br>reduce costs of international connectivity<br>Expanding penetration of GSM services by improving<br>affordability|
|Irrigation|Adoption of national strategy and<br>empowerment of water user associations|Completing institutional framework<br>Developing potential high-return small-scale irrigation<br>schemes|
|Power|Adoption of modern legal framework and<br>regulatory agency|Improving reliability of power supply<br>Addressing underpricing and operational inefficiencies|
|Railways|Awarded concession for the Central East<br>African Railways (CEAR) leading to some<br>improvements in performance|Improving competitiveness of rail network in terms of<br>both cost and quality|
|Roads|Adoption of modern road fund<br>Large investment program leads to high-quality<br>roads|Providing adequate funds for road maintenance<br>Safeguarding against overengineering of road network<br>Improving accessibility to high-value agricultural land|
|WSS|Early attainment of MDG targets<br>Low reliance on surface water and open<br>defecation|Addressing underpricing and operational inefficiencies<br>Moving ahead with rural water reforms<br>Designing policies to promote upgrading of latrines|

_Source:_ Author’s own elaboration based on findings of this report.

4
<!-- Start of picture text --> Y Bee<br>ry ut<br>1A Qe A<br>Cay<br>SE val 7rs<br>fo rap ne ie |<br>q nyt Les Fi ay<br>MOZAMBIQUE ae aX A “ ~~<br>Mie Fd a<br>ZIMBABWE . oe ihyoye-<br><!-- End of picture text -->

<!-- Start of picture text --> (000 Passengers per Annum)<br>B<180 GB) rs s000 CB) = e000<br>Ports<br>=ESE icirocs [RE] civ e ct aant Transevpemanee<br>Railroad (Million Traffic Unit por Annum)<br>—_ — = | tee =<br>penta soe Beet ue “2<br><!-- End of picture text -->

<!-- Start of picture text --> Readee Traffic (Ava Annual Daly trafic)<br>Uninewn <400 @0- a00- = 7000<br>a<br>RoadaType & Condition<br>Ged Far Pow Uninown<br>—— = es meee Powe<br>O0000 S9eee seme oceees Lapeved<br><!-- End of picture text --> <!-- Start of picture text --> Ales |<br>ZAMBIA - id A<br>‘<br>sung4 }<br>ml Niche<br>4 a _ ali hol 1<br>ee — }<br>MOZAMBIQUE eer<br>weZIMBABWE 7oY . = 74A lieHh<br><!-- End of picture text -->

<!-- Start of picture text -->
| Type and Capacity(MW)<br>HYORG THEAMAL OTHER<br>S 2 + ie<br>19-00<br>=i<br>-__oeoeo<br>r Lines rev)<br>see Medium EE High<br><!-- End of picture text -->
<!-- Start of picture text --> ° IST -Imtenalisnal Selewa"<br>mg Fined Transmission Network<br>4 ICT -G5M Coverage<br><!-- End of picture text --> <!-- Start of picture text --> a<br>GY TANZANIA<br>Ye7<br>Y 4 B,q<br>ZAMBIA ZW Y , tyYYG E Lie Beh<br>ZG<br>4ty 7 weVfUe,<br>ENGL Sd<br>in ao i<br>Be Mi Ap i<br>7s 1ty Ade 7YL!Yinyse as4<br>lj ltt G, 4<br>ee<br>a / “fy<br>aan 4y ,, 7 hfe<br>_—“—-aMOZAMBIQUE v Sf‘ 14, ~tf{4,PxysA 4,1 h) BM:<br>ee AYSE, Ode,<br>a Yo,<br>pé ALITZZ:A, Wa Uae<br>yo Weg Tt tee<br>eC LEELL,|<br>SeMS s> SIPS“iyYi<br>ZINBABWE are I “hg :2 S “eyZe<br>gf bad if<br>\ a. ZY<br><!-- End of picture text -->

<!-- Start of picture text --> Current1% IrrigationQy[% ArealGack<br>| Doses.<br><!-- End of picture text -->

<!-- Start of picture text --> “th.<br>] TANZANIA.<br>¢r |<br>. J<br>ZAMBIA 1..ONRRS F<br>‘,<br>~ a.<br>Ssungu<br>} -<br>. ener<br>wa Pio Sal ~<br>: = h<br>7 LJ<br>MOZAMBIQUE aDedza7 “ae eeFs<br>7:<br>/B-Bajaka v<br>“Bes<br>— Bil Piiombe<br>4 :<br>ZIMBABWE . 'Ye<br>1<br><!-- End of picture text -->

<!-- Start of picture text --> BATURAL RESOURCES<br>Mining<br>Sie Potartial<br>VEO? PrecusMowk «Diamonds<br>a<br>@oil Fiala<br>Crepland Extent<br><0 but High Surtadniity<br>@ iox-son<br>@ -am<br><!-- End of picture text -->
MALAWI’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE

# Roads

## **Achievements**

Malawi has been spending heavily on its road network in recent years, and as a result has achieved better levels of road quality. During the early 2000s, Malawi was devoting nearly 4 percent of its GDP to road sector spending, one of the highest ratios in southern Africa. The results are evident when Malawi’s road sector is benchmarked against that of its peers. Paved road density is comparatively high. Paved road quality is somewhat better, while unpaved road quality is substantially better with nearly 90 percent of the network in good or fair condition, compared with less than 60 percent elsewhere (table 2). Malawi has also made significant progress on the institutional reform agenda for roads. Malawi has introduced a road fund that meets most of the best-practice institutional design features.

**Table 2. Malawi’s road indicators benchmarked against Africa’s low- and middle-income countries**

||Unit|Low-income<br>countries|**Malawi**|Middle-income<br>countries|
|---|---|---|---|---|
|Paved road density|km/1,000 km<sup>2</sup><br>of arable land|86.6|**141.2**|507.4|
|Unpaved road density|km/1,000 km<sup>2</sup><br>of arable land|504.7|**164.7**|1,038.3|
|GIS rural accessibility|% of rural population within 2 km of all-<br>season road|21.7|**26.2**|59.9|
|Paved road traffic|Average annual<br>daily traffic|1,049.6|**600.6**|2,786.0|
|Unpaved road traffic|Average annual<br>daily traffic|62.6|**44.5**|12.0|
|Paved network condition|% in good or fair condition|80.0|**85.5**|79.0|
|Unpaved network condition|% in good or fair condition|57.6|**89.4**|58.3|
|Perceived transport quality|% firms identifying roads as major business<br>constraint|23.0|**16.4**|10.7|

_Source:_ Gwillliam and others 2009. Derived from AICD national database, http://www.infrastructureafrica.org/aicd/tools/data. _Note:_ GIS = geographic information system.

## **Challenges**

Road preservation expenditure still falls significantly short of what is needed to preserve the network in good condition. Based on the Road Network Evaluation Tool (RONET) analysis, Malawi’s recent spending on road maintenance falls about 24 percent short of what is needed to sustain the infrastructure (figure 4). One of the issues is that the fuel levy of around $0.07 per liter, while fairly typical of southern Africa, falls substantially short of the $0.25 per liter needed to fully finance optimal maintenance requirements. This benchmark level is probably higher than what could in practice be applied, and certainly well above the highest level observed in the region (in Tanzania, at around $0.16 per liter). Government transfers to the road fund currently make up for part (although by no means all) of this difference, reaching an implicit spending level of almost $0.19 per liter.

7
<!-- Start of picture text --> » 200<br>=<br>a» 150<br>F<br>= 100<br>=<br>o 50<br>i<br>—<br>S 0<br>=<br>4 -50<br>ey)<br>F= -100<br>= @ ites nS (s) “~ nO Bees<br>” RS x» we <e » RNS Vr<br>Oy S ANG<br>AS 5<br>@ maintenance norm Omaintenance and rehabilitation norm<br><!-- End of picture text -->
MALAWI’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE

**Table 3. Railway indicators for Malawi and select countries, 2000–05**

||Kenya (KRC)|South Africa<br>(SPOORNET)|Malawi (CEAR)|Tanzania (TRC)|Tanzania-Zambia<br>(TAZARA)|Uganda (URC)|Zambia (RSZ)|
|---|---|---|---|---|---|---|---|
|Concessioned (1)/ state run (0)|0|0|1|0|0|0|1|
|Traffic density, freight, 1,000 tonne-km/km|690|5,319|112|510|460|815|379|
|**Efficiency**||||||||
|Staff: 1,000 unit tariff (UT) per staff|185|3,037|204|228|300|181|452|
|Coaches: 1,000 passenger-km per coach|1,015|596|1,285|3,157|3,120|n.a.|2,772|
|Cars: 1,000 tonne-km per wagon|200|925|212|692|502|166|180|
|Locomotive availability in %|44.8|—|89.9|74.2|25.2|69.5|31.2|
|**Tariffs**||||||||
|Average UT, freight, U.S. cents/tonne-km|3.8|—|5.8|4.0|3.0|15.2|3.9|
|Average UT, passenger, U.S. cents/passenger-km|0.6|—|1.0|1.6|1.1|2.3|0.8|

_Source:_ Bullock 2009. Derived from AICD railways database, http://www.infrastructureafrica.org/aicd/tools/data. Note: — = data not available; n.a. not applicable.

## **Challenges**

Notwithstanding some improvements made under the concession, the performance of the CEAR still does not compare favorably with networks in neighboring countries (table 3). Relatively high freight tariffs and slow transit times continue to limit the competitiveness of rail vis-à-vis road transport. Moreover, the line is very lightly used—even relative to others in southern Africa—further challenging financial sustainability.

Malawi’s rail links with the rest of the continent are not functioning very effectively. There is interest in improving the performance of the Nacala corridor, which is Malawi’s shortest route to the sea through northern Mozambique, and which is currently beset with performance problems. Another proposal exists to extend the rail network northwards to connect with the Tanzania and Zambia Railway Authority (TAZARA) network; however, the associated costs are high ($200 million) and the economic case is not clear.

# Air transport

## **Challenges**

In common with other small countries in Africa, Malawi has a relatively small air transport market. The domestic market amounts to no more than 167,000 seats, while the international market comes to 435,000 seats. The intercontinental market is negligible. Nevertheless, relative to the population of the country the number of seats per capita—at just over 23—is an order of magnitude higher than would be found in larger countries.

9
MALAWI’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE While Malawi has experienced declining air transport connectivity in recent years, it is well connected with Zambia and the regional hub in South Africa. Whereas in 2004, there were 28 city pairs reachable out of Malawi, this number fell by almost one-half to 15 pairs by 2007. This is a standard trend across Africa’s smaller countries and reflects the concentration of air traffic around a number of regional hubs. With this new pattern, what is most critical is to ensure that the country has regular service to the relevant hubs. As of 2007, Malawi had, on average, 10 flights a week to Johannesburg and 13 to Lusaka, which is not unreasonable.

Air Malawi remains financially unsustainable, and multiple privatization attempts have failed. The main domestic route between Blantyre and Lilongwe is being outsourced to smaller carriers. The air transport market would benefit from allowing new private operators to enter and provide services, as has taken place in Tanzania.

Malawi does not have an autonomous civil aviation authority (CAA), and the International Civil Aviation Organization (ICAO) has raised significant concerns about its air safety. Airports are not equipped with radar equipment. Malawi could potentially benefit from a unified air space for the SADC, which would allow regional air traffic control (ATC) to be centralized at one location with representation from member states, and which would provide a stronger financial basis for ensuring the provision of key satellite-based air surveillance equipment and radio communications.

# Water supply and sanitation

## **Achievements**

According to the World Health Organization/United Nations Children’s Fund (WHO/UNICEF) Joint Monitoring Program, Malawi was one of only five Sub-Saharan African countries to already have reached the MDG for water as of 2006, almost a full decade ahead of the target date. This is a considerable achievement, particularly given that most of the other countries in that successful group—notably, Ghana, Namibia, and South Africa—have much higher incomes than Malawi and started out from a higher baseline level of coverage in 1990.

This achievement is reflected in the fact that—relative to other low-income countries in Africa— Malawi has much lower levels of reliance on surface water and sanitation. Reliance on surface water in Malawi is less than 12 percent, compared with 37 percent in the relevant peer group (table 4). Practice of open defecation in Malawi is less than 15 percent, compared with 40 percent for the comparator countries (table 4). This has been achieved through the widespread prevalence of intermediate solutions such as boreholes and traditional latrines. Both of these intermediate modalities have been reaching an additional 3 percent of Malawi’s population each year (figures 5 and 6), a rate of expansion that is substantially higher than what is observed elsewhere in Africa. But it is worrisome that the percentage of the population relying on surface water has been increasing in recent years, albeit from a relatively low base (figure 5).

By the same token, access to higher-end WSS solutions—such as piped water and flush toilets—are substantially lower in Malawi than in other low-income countries in Africa (table 4). Access to piped water is 6.5 percent in Malawi compared to 11.7 percent in the peer group, while access to flush toilets is 3.6 percent in Malawi compared to 5.3 percent in the peer group. This is not necessarily a bad thing, if it 10
<!-- Start of picture text --> 3.0<br>2.5<br><<br>2& 20<br>3 1.5<br>S 1.0<br>e 0.5<br>=<br>0.0<br>-0.5<br>piped water stand posts wells/boreholes surface water<br>access method<br><!-- End of picture text --> <!-- Start of picture text --> 3.0<br>2.5<br>E20<br>2z 1.5<br>3 1.0<br>3<br>x 05<br>0.0<br>-0.5<br>flush toilets improvedlatrines unimprovedlatrines open defecation<br>@Malawi MOSub-Saharan Africa<br><!-- End of picture text --> <!-- Start of picture text --> Zambia<br>Mozambique<br>Malawi<br>Namibia<br>Lesotho<br>South Africa<br>Madagascar<br>0 50 100 150 200 250<br>% of revenues<br>Munaccounted losses Ounderpricing Wcollection inefficiencies<br><!-- End of picture text -->
MALAWI’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE Malawi has not made much progress in rural water sector reform thus far. Malawi has adopted a rural water policy and created a dedicated budget line, but does not yet have a rural water agency, a costrecovery policy, or a map of rural water points. This lack of attention to rural water can be seen in the growing reliance on surface water that has been observed in rural areas in recent years.

**Table 4. Benchmarking water and sanitation indicators**

||Unit|Low-income<br>countries|**Malawi**|Middle-income<br>countries|
|---|---|---|---|---|
|Access to piped water|% pop|10.1|**6.5**|56.4|
|Access to standposts|% pop|16.1|**12.7**|20.4|
|Access to wells/boreholes|% pop|38.3|**69.0**|6.3|
|Access to surface water|% pop|33.8|**11.7**|13.9|
|Access to septic tanks|% pop|5.3|**3.6**|44.0|
|Access to improved latrines|% pop|9.3|**1.2**|0.9|
|Access to traditional latrines|% pop|47.9|**80.7**|33.0|
|Open defecation|% pop|37.1|**14.5**|15.8|
|Domestic water consumption|liter/capita/day|72.4|**109.4**|Na|
|Urban water assets in need of rehabilitation|%|35.5|**42.0**|25.0|
|Revenue collection|% sales|96.0|**50 (est.)**|99.2|
|Distribution losses|% production|33.0|**34.6**|23.1|
|Cost-recovery|% total costs|56.0|**67.7**|80.6|
|Total hidden costs as % of revenue|%|130.0|**153.7**|84.9|
|U.S. cents per m<sup>3</sup>|**Malawi**|Scarce water|resources|Other developing<br>regions|
|Residential tariff|**35.7**||60.26|30–600|
|Nonresidential tariff|**54.0**||120.74|..|

_Source:_ Banerjee and others 2009; Morella and others 2009. Derived from AICD water and sanitation utilities database, http://www.infrastructureafrica.org/aicd/tools/data.

In sanitation, the main policy challenge is how to upgrade traditional latrines to improved standards. While more than 80 percent of Malawi’s population has access to a traditional latrine, little more than 1 percent has access to an improved latrine. While this imbalance is typical across Africa, it is particularly marked in the case of Malawi. This suggests that the main sanitation challenge for the country is how to make it easier for households to improve their latrines. Given that a widespread subsidy policy is likely unaffordable, the right place to begin would be on the supply side, investigating the barriers that prevent the construction of improved latrines, such as lack of technical know-how or the nonavailability of key parts in the local market. There are a few countries in the region that have had some success in expanding traditional latrines—most notably Burkina Faso, Madagascar, and Rwanda—and their experience could be relevant to Malawi.

12
MALAWI’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE

# Power

## **Achievements**

Malawi has been moving ahead with institutional reform in the power sector. In 2004 a new legal framework for the sector was passed, comprising the Energy Regulation Act, Electricity Act, and Rural Electricity Act. In 2007 the first Commissioners of Malawi’s new independent regulator—the Malawi Energy Regulatory Authority (MERA)—were appointed. Overall, Malawi has implemented about 60 percent of best-practice institutional reforms for the power sector, which puts it ahead of the average score for Sub-Saharan Africa.

## **Challenges**

Malawi has suffered considerably from unreliable power supplies. Although installed generation capacity and power consumption per capita are typical for the region, outages in Malawi have been about three times the average levels observed in the peer group. As a result, almost half of formal sector enterprises surveyed in the Malawi report have backup generators, which is twice the share found in other African low-income countries. Moreover, the percentage of business turnover lost to power outages, at over 22 percent, is more than three times as high as the benchmark. Based on a lost load of $0.50 per kilowatt-hour (kWh), power outages are estimated to be costing the economy around 2 percent of GDP.

The hidden costs of Malawi’s power utility are by far the largest found in southern Africa. Malawi’s utility suffers from a variety of inefficiencies whose total value adds up to 250 percent of the company’s turnover. In other words, the utility loses far more revenue than it makes. The size of this hemorrhage is more than double the next-worst case, the Zambian Electricity Supply Company Ltd. (ZESCO), with hidden costs equivalent to 100 percent of utility turnover.

Although a number of factors are responsible for this situation, by far the largest is underpricing. Existing power tariffs in Malawi—averaging little more than $0.05 per kWh for residential consumers— are among the lowest in Africa and are relatively low even by global standards. These tariffs cover no more than one-half of the total costs of power production. The Government of Malawi is aware of this issue and has increased tariffs by around 50 percent, with further increases planned. In the longer term, as new (more-efficient) investments in power generation capacity are made, the incremental cost of power in Malawi could be expected to fall toward the $0.05–$0.06 per kWh range allowing tariffs to come down in the longer run.

In addition, the power utility suffers from substantial operational inefficiencies. Only 60 percent of bill payments due are actually collected. As a result, the average revenue of the utility—$0.03 per kWh— is well below the effective tariff, and even further from the cost-recovery benchmark. At 23 percent, system losses are about double best-practice levels, even if they are typical among low-income countries in Africa.

13
<!-- Start of picture text --> Malawi<br>Zambia<br>Lesotho<br>Mozambique<br>Madagascar<br>South Africa<br>0 50 100 150 200 250 300<br>% of revenue<br>unaccounted losses Ounderpricing<br>collection inefficiencies Glabor inefficiencies<br><!-- End of picture text --> <!-- Start of picture text --> — 35<br>”<br>-~<br>Ss<br>&<br>oe 30<br>wv<br>—><br>5 25<br>a}<br>S= 20<br>~<br>6<br>=a<br>I 15<br>a<br>-~<br>=&<br>= 10<br>o<br>x<br>~”<br>25<br>o<br>Es}5 |<br>2=® 07SrokaBEwo RUSRSQUESESELESCT 5, a 8 8B se SF we 8B ESBe BOSES2BERSsESRB YD BD BS -m o<br>OY P&E fF Ss MECH ESHEETS Ss RE<br>- S2nae ees ere F FS SERS QSBBEEsSoOt HE<br>aeowgr-Een&§ Seo cfSYé& sesos teogtegsetst32s €#B =-2sNnes<br>CS 6g | 4 o ee $s<br>Oo $s ~~4 oO Prat2 gs=> N<br>a o =<br><!-- End of picture text -->
<!-- Start of picture text --> 10<br>9<br>8<br>_<br>28 7<br>rs<br>= 6<br>Zs<br>&<br>LO<br>o<br>a.<br>24<br>S<br>o<br>=)<br>g 3<br>=)<br>2<br>1<br>0<br>historical cost commercial incremental _ residential average industrial<br>tariff cost tariff revenue tariff<br><!-- End of picture text -->
MALAWI’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE At present, Malawi does not participate in regional power trade in the Southern African Power Pool (SAPP), although the construction of an interconnector with Mozambique is being considered. In the longer term, as regional power trade develops, Malawi would have the opportunity to interconnect with Zambia as well. When the major Inga hydropower scheme is developed in the Democratic Republic of Congo (DRC), Malawi would become a transit country for Congolese power that would flow in through Zambia and onward to Mozambique. About 1.6 terawatt-hours (TWh) of this power could potentially remain in Malawi, contributing to the satisfaction of domestic power demands. There is no particular economic advantage to Malawi from importing Congolese power, since the long-run marginal cost of domestic power _generation_ (only) at just over $0.03 per kWh is comparable to the long-run marginal cost of power imports. But there could be a sizeable financial advantage to the country, since by importing Congolese power Malawi would be able to postpone the major investments needed to develop its own domestic hydropower resources, by delaying projects such as Songwe, Kholombizo, Fufu, and Kaphichira Phase II.

# Water resources

## **Achievements**

Malawi has made some progress in recent years with the development of irrigation. A national irrigation strategy has been adopted, as have measures to empower water user associations throughout the country. But there is no concrete irrigation action plan in place. Institutionally, the development of irrigation infrastructure remains the responsibility of broader agricultural management bodies. Further, there are no specialized river basin organizations for water resource management at the catchment level.

## **Challenges**

At present, Malawi irrigates only 56,000 hectares or just over 1 percent of its agricultural land. In contrast to other countries, this 1 percent is scattered throughout the national territory in the form of lowintensity, small-scale schemes (recall figure 3d).

In the period 1973–2003, irrigated area in Malawi expanded relatively rapidly, at 6 percent annually (albeit from a base lower than many of its neighbors). Since 2003 the growth rate has slowed considerably, to 0.6 percent.

Recent simulations serve to identify the areas with greatest potential for irrigation development (figure 11). While there are significant areas with potential for large-scale dam-based irrigation in the extreme northeast and southwest of the country, the associated economic returns are relatively low, under 6 percent. A larger area shows potential for small-scale irrigation schemes, with the highest return areas clustered in the northwest quadrant of the country. A total of 162,000 hectares is found to be economically viable for small-scale irrigation, with an average rate of return of 9 percent.

16
DF) Large scale IRR <= 6% BBE Large scale IRR = 12% WE Large scale IRE <- 20 LargeBB scale IRE> 20% WE small scale IRB < 10 WD **small scale IR** ER ==50K30 WD small scale IRR => 50% <!-- Start of picture text --> i,<br>|<br>ff . : TM<br>‘a _ —_ . sy _<br>Ls<br>><br>a L<br>‘fil a<br>= = 1” : ons =)<br>— Sa ‘<br>: —_<br>i<br>Ans \<br>.<br>&| Tar<br>a q ld<br><!-- End of picture text -->
<!-- Start of picture text --> Congo, Dem. Rep. of [_<br>Madagascar pT<br>Congo, Rep. of [<br>Mozambique Pd<br>Chad OO]<br>Botswana PT<br>Namibia a<br>Lesotho oe<br>Tanzania Pt<br>Cameroon ———<br>Cape Verde ae<br>Burkina Faso PT<br>Malawi =<br>Sudan fT<br>Kenya [1]<br>Senegal L___<br>Cote d'Ivoire CT<br>Benin pd<br>Ghana CL]<br>Uganda (1<br>Rwanda [-———]<br>Nigeria,<br>South Africa<br>0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%<br>% of population<br><!-- End of picture text -->
MALAWI’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE

**Table 6. Benchmarking ICT indicators**

||Unit<br>Lo|w-income countries<br>**Malawi**||Middle-income<br>countries|
|---|---|---|---|---|
|GSM coverage|% population|48.2<br>**93.3**||97.2|
|International bandwidth|Mbps/capita|5.8<br>**0.19**||30.2|
|Internet|subscribers/100 people|0.1<br>**0.15**||2.0|
|Landline|subscribers/100 people|0.8<br>**1.3**||9.4|
|Mobile phone|subscribers/100 people|15.1<br>**5.2**<br>**Malawi**<br>Countries wit<br>access to subm<br>cables|hout<br>arine|86.7<br>Other developing<br>regions|
|Price of monthly mobile basket||**11.0**|11.12|9.9|
|Price of monthly fixed-line basket||**16.5**|13.58|—|
|Price of 20-hour Internet package||**46.6**|67.95|11.0|
|Price of call to the United States||**1.33**|2.59|2.0|
|Price of intra-African calls, mean||**1.10**|0.72|n.a.|

_Source:_ Minges and others 2009. Derived from AICD national database, http://www.infrastructureafrica.org/aicd/tools/data. _Note:_ Mbps = megabit per second; — = data not available; n.a. = not applicable.

## **Table 7. High international call charges driven by both technology and market power**

|$|**Percent of**<br>**cases**|**Call within**<br>**region**|**Call to the**<br>**United**<br>**States**|**Internet**<br>**dial-up**|**Internet**<br>**ADSL**|
|---|---|---|---|---|---|
|Without submarine cable|67|1.34|0.86|68|283|
|With submarine cable|33|0.57|0.48|47|111|
| Monopoly on international gateway|16|0.70|0.72|37|120|
| Competitive international gateway|16|0.48|0.23|37|98|

_Source:_ Minges and others 2009.

# Financing Malawi’s infrastructure

To meet its most pressing infrastructure needs and to catch up with developing countries in other parts of the world, Malawi needs to expand its infrastructure assets in key areas (table 8). The targets outlined in table 8 are purely illustrative, but they represent a level of aspiration that is not unreasonable. Developed in a standardized way across African countries, they allow for cross-country comparisons of the affordability of meeting the targets, which can be modified or delayed as needed to achieve financial balance.

19
MALAWI’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE

**Table 8. Illustrative investment targets for infrastructure in Malawi**

||**Economic target**|**Social target**|
|---|---|---|
|ICT|Fiber-optic links to neighboring capitals<br>and submarine cable|Universal access to GSM signal<br>and public broadband facilities|
|Irrigation|Develop 162,000 hectares of small-scale irrigation|n.a.|
|Power|700 MW new generation|Electricity coverage of 17.1%<br>(75.9% urban and 1.1% rural)|
|Transport|Regional connectivity by good quality 2-lane paved road<br>National connectivity by good quality 1-lane paved road|Rural network gives access to 80% agricultural<br>production<br>Urban population within 500-meter paved road|
|WSS|n.a.|Sustain MDG target for water<br>Achieve MDG target for sanitation<br>Clear sector rehabilitation backlog|

_Source:_ Mayer and others 2008; Rosnes and Vennemo 2009; Carruthers and others 2009; You and other, 2009. n.a. = not applicable.

Meeting these illustrative infrastructure targets for Malawi would cost $0.6 billion per year through 2015. Capital expenditure would account for 80 percent of this requirement. The two highest price tags are associated with the power and water sectors, each requiring about $190 million annually, which is about as much as the other three sectors put together. The power sector need is associated with providing 700 megawatts (MW) of new generation capacity to meet demands over the next decade, as well as boosting electrification to 17 percent overall. The water-spending needs relate to sustaining the MDG target level for water as population expands, attaining the MDG target for sanitation and clearing the sector’s rehabilitation backlog (table 9).

**Table 9. Indicative infrastructure spending needs in Malawi, 2006–15**

|Sector|CAPEX|O&M|Total needs|
|---|---|---|---|
|ICT|29|12|41|
|Irrigation|59|1|61|
|Power|176|14|190|
|Transport|45|39|84|
|WSS|144|44|188|
|Total|471|113|564|

Sources: Mayer and others 2008; Rosnes and Vennemo 2009; Carruthers and others 2009; You and others 2009. Derived from models at http://www.infrastructureafrica.org/aicd/tools/models.

_Note:_ O&M = operations and maintenance; CAPEX = capital expenditure.

Malawi’s infrastructure spending needs look particularly high relative to the country’s GDP, since they would absorb 20 percent of GDP for a decade. Infrastructure investment alone would absorb 15 percent of GDP, comparable to what China invested in infrastructure during the mid-2000s. Although these numbers are very high, they are still below the average 22 percent of GDP that other low-income, nonfragile African countries would need to spend.

20
<!-- Start of picture text --> Sub-Saharan Africa ae<br>fragile low-income countries [T_<br>COMESA _<br>nonfragile low-income countries fd]<br>resourch-rich countries {___<br>SADC a<br>middle-income countries {|__|<br>Madagascar Po<br>Mozambique Td<br>Zambia [<br>Malawi __]<br>Lesotho J]<br>Namibia [__<br>South Africa [<br>0 5 10 15 20 25 30 35 40<br>% of GDP<br><!-- End of picture text -->

capital expenditure Ooperations and maintenance
<!-- Start of picture text --> Sub-Saharan Africa P<br>nonfragile low-income countries po<br>COMESA Pd<br>SADC jt<br>middle-income countries Ld<br>fragile low-income countries [<br>resourch-rich countries {fo<br>Lesotho Ld<br>Mozambique Po<br>Zambia Pe<br>Namibia _—<br>Malawi PC<br>South Africa Ld<br>0 2 4 6 8 10 12<br>% of GDP<br><!-- End of picture text --> capital expenditure Ooperations and maintenance
<!-- Start of picture text --> 3.0<br>Malawi nonfragile low-income<br>countries<br>25<br>2.0<br>a<br>a<br>Pius<br>c=]<br>#z<br>1.0<br>os<br>0.0<br>bCT power transport WSS. ICT power transport WSS<br>Boublc OODA Bnon-OECD OPPI<br><!-- End of picture text -->
<!-- Start of picture text --> 2.0<br>1.5<br>oy<br>S<br>s 1.0<br>BS<br>0.5<br>0.0<br>power water<br><!-- End of picture text -->
<!-- Start of picture text --> 100<br>= go at ee<br>3 60 ws,<br>& *s<br>3 40 ae<br>& veneer<br>20 Te er ae<br>0 secseeeeeeeeee Tose ek .<br>Ql Q2 Q3 Q4 Qs<br>income quintile<br>—piped water = **"""" standposts<br>---7--wells/boreholes — * — surface water<br><!-- End of picture text --> <!-- Start of picture text --> 100<br>°°<br>§ 70<br>= 60<br>3<br>= 50<br>= 40<br>x 30<br>20<br>10<br>0<br>Ql Q2 Q3 Q4 Qs<br>income quintile<br><!-- End of picture text -->
<!-- Start of picture text --> 100.0 Ferre one am ae oe eee ccece<br>90.0<br>= 80.0 ieri<br>g 70.0 Me<br>io Se<br>= 60.0 ms,<br>e 44.0 a=<br>S 40.0 a<br>~ .300 ao* =n<br>20.0 ie<br>10.0<br>0.0<br>1 #£ 4 4 5 6 F EF & 20 11 it 13 14 15 16<br>monthly utility bill (U5)<br><!-- End of picture text --> mee——Walawl cc middle-income counties ==" low-income countries <!-- Start of picture text -->
1.6<br>1.4<br>1.2<br>3 1<br>ss 0.8<br>= 0.6<br>0.4<br>0.2<br>0<br>Malawi low-income countries<br><!-- End of picture text -->

<!-- Start of picture text -->
1.6<br>1.4<br>1.2<br>a 1<br>s 0.8<br>= 0.6<br>0.4<br>0.2<br>0<br>Malawi low-income countries<br><!-- End of picture text -->
MALAWI’S INFRASTRUCTURE: A CONTINENTAL PERSPECTIVE

# Annual funding gap

Malawi’s infrastructure funding gap amounts to $0.3 billion per year, or about 10 percent of GDP. Almost half of the country’s entire funding gap is found in the WSS sector, where the annual shortfall in meeting the MDGs is $141 million (table 12). Another significant part of the gap is found in the power sector, where an additional $69 million is needed to meet the country’s development goals.

## **Table 12. Funding gaps by sector**

|$ millions|ICT|Irrigation|Power|Transport|WSS|Total|
|---|---|---|---|---|---|---|
|Spending needs|(41)|(61)|(190)|(84)|(188)|(585)|
|Existing spending|19|2|30|84|40|175|
|Efficiency gains|0|0|91|63|28|182|
|Funding gap|**(22)**|**(59)**|**(69)**|**63**|**(120)**|**(270)***|

_Source:_ Derived from Foster and Briceño-Garmendia, AICD Flagship Report, 2009. _Note:_ Potential overspending is not included in the calculation of the funding gap, because it cannot be assumed that it would be applied toward other infrastructure sectors.

# What else can be done?

The most obvious way to address the funding gap is by raising additional finance. While prospects for doing so may be limited, it is worth noting that (relative to its GDP) Malawi is capturing less external finance for infrastructure than other African low-income countries, whether through ODA, private investment, or non-OECD finance.

But even if additional finance is hard to secure, there is still much that Malawi can do to reduce the infrastructure funding gap through its own policy choices, and in particular the technology choices it makes to meet its infrastructure targets. The single-largest measure that Malawi could take to reduce its infrastructure spending needs would be to integrate itself more closely with the SAPP. As a result, the country would become a net importer of power—importing up to 1.5 TWh of electricity by 2015 from neighboring countries—and as a result would save $134 million of annual investment requirements. Another $30 million a year could be saved by adopting lower-cost technologies to meet the MDGs; for example, by placing greater emphasis on standposts, boreholes, and improved latrines. Finally, $15 million a year could be saved by adopting appropriate technologies for the surfacing of paved roads. If all these policy measures were adopted, Malawi could save $179 million a year, cutting its infrastructure funding gap by two-thirds and bringing it down to $91 million a year.

Finally, if all else fails, it may be necessary to extend the time horizon for meeting the infrastructure targets beyond the illustrative 10-year period considered here. Simulations suggest that if Malawi were unable to raise additional finance but addressed inefficiencies, the identified infrastructure targets could be achieved within a 16-year horizon. Without stemming inefficiencies, however, the existing resource envelope would not suffice to meet infrastructure targets in the medium term.

27