Turning the Tide: Malawi’s PPPs Need Fresh Capital—AfDB Finds

Key Business Points

• Public‑private partnerships account for less than 0.1 % of GDP, signaling a need to improve risk management and negotiation skills.
• Malawi faces a $4.5 billion development financing gap, requiring stronger domestic revenue mobilisation and reduced aid dependence.
• The tax‑to‑GDP ratio stands at 14.2 %; raising revenue and limiting debt will unlock private‑sector investment.

The African Development Bank’s 2026 Country Focus Report highlights that Malawi’s effort to use public‑private partnerships for infrastructure is not attracting sufficient private capital. PPPs represent less than 0.1 % of gross domestic product, compared with a sub‑Saharan average of 4.2 %. Although the PPP Act of 2022 improved the legal framework, high risk perception, substantial debt levels, and limited experience in complex contract negotiations are blocking private investment.

Malawi’s development financing needs are estimated at $4.5 billion, creating an annual gap of about $3.59 billion. In health, per‑capita spending is only $40, far below the World Health Organization’s recommended $86. The energy sector requires $5.5 billion to reach 70 % access by 2030, while transport needs $9.15 billion. Education funding remains under the United Nations’ recommended 15‑20 % of the national budget.

The report also notes that donor dependence is deepening, with 60 % of social spending externally financed. Aid inflows are projected to decline by 26 % by 2026, which could reduce funding by $400 million. At the same time, illicit financial flows drain about $400 million annually, equivalent to K700 billion.

Economist Velli Nyirongo says the aid shock exposes long‑standing structural weaknesses. He explains that limited fiscal space forces the government to make difficult trade‑offs. Over the past decade, revenue growth averaged 1.6 % while expenditure grew 4.6 %, leading to increased borrowing. Banks hold 65 % of government paper, crowding out private‑sector credit.

The Public Private Partnership Commission chief executive, Arthur Nanthuru, observes growing interest from both public and private sectors. He states that the challenge is no longer identifying projects but ensuring they are investment‑ready. Proper preparation, clear risk‑sharing, and transparent procurement are essential.

To close the financing gap, the report recommends strengthening domestic resource mobilisation. The tax‑to‑GDP ratio stands at 14.2 %, reflecting a narrow tax base and weak buoyancy. Raising revenue through broader tax reforms and improving collection can reduce reliance on debt and free capital for private investment.

For local entrepreneurs, the environment presents both challenges and opportunities. Improving the investment climate and streamlining PPP processes can attract foreign and local capital. Stability of the Malawi kwacha and transparent procurement are crucial. Chichewa business networks may leverage local knowledge to identify viable projects.

Policymakers are urged to adopt reforms that lower perceived risk, build capacity in contract negotiation, and create clear risk‑sharing mechanisms. By doing so, Malawi can unlock the private sector’s potential, stimulate job creation, and drive sustainable growth.

Renewable energy projects, including solar farms and small hydro, offer returns while addressing climate goals. Agricultural value chains may benefit from improved storage and processing facilities, reducing post‑harvest losses.

Establishing a one‑stop shop for investors would streamline permits and reduce bureaucratic delays. Strengthening contract enforcement through specialized commercial courts would increase investor confidence.

Regional development banks can provide concessional finance and technical assistance, complementing domestic resources. Small and medium enterprises should be encouraged to form consortia to meet the scale required for large projects.

By addressing these areas, Malawi can transform its investment climate, attract foreign direct investment, and generate inclusive economic growth.

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