Catalysing Malawi’s Economic Surge: Harnessing the Power of Formalised SMEs for Sustainable Growth

Key Business Points

• Formalisation of SMEs is crucial for unlocking growth, jobs, and resilience in Malawi’s economy, as it allows for tax collection, access to finance, and participation in larger markets.
• Balancing benefits and costs is essential for successful SME formalisation, as additional regulatory expenses can reduce profits if not managed properly.
• Access to markets and services can be a significant advantage for formalised SMEs, enabling them to expand their customer base and increase productivity, ultimately contributing to Malawi’s economic growth.

Economists in Malawi have emphasized the importance of small and medium enterprises (SMEs) in driving the country’s economy, with thousands of people employed and innovation sparked across various sectors. However, most SMEs continue to operate informally, limiting their growth potential and government revenue. According to Edward Leman, a macroeconomics lecturer at the University of Malawi, proper registration of SMEs enables the government to collect taxes, a vital revenue source in a country facing persistent budget deficits. Formalisation also opens doors for SMEs to access finance, enter contracts legally, and participate in larger markets, making them more resilient and growth-oriented.

The large informal sector in Malawi suppresses gross domestic product (GDP) growth estimates, keeps firms small and less productive, and hinders overall economic growth. Economist Levison Chiwaula notes that formalisation can benefit small businesses by enabling access to markets and services unavailable to informal businesses. However, he also cautions that formalisation will mean additional expenses, such as taxes, which can reduce profits. A successful SME formalisation strategy must balance these benefits and costs, ensuring that regulatory payments do not eat into profits.

The 2024 Finscope MSME Survey reveals that there are approximately 1.6 million small businesses in Malawi, employing about 1.8 million people and contributing around 40 percent to the country’s GDP. These SMEs are the backbone of Malawi’s economy, and their formalisation can have a significant impact on the country’s economic growth. As Leman notes, "Beyond that, formalisation opens doors for SMEs to access finance, enter contracts legally and participate in larger markets, making them more resilient and growth-oriented." This is particularly relevant in Malawi, where SMEs play a crucial role in driving innovation and job creation. By ziwombo, or growing and developing, these SMEs can contribute to Malawi’s economic growth and prosperity.

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