The World Bank's 23rd edition of the Malawi Economic Monitor has highlighted the financial struggles of Malawi's state-owned enterprises (SOEs). The report notes that most SOEs are financially weak and heavily dependent on state support. They suffer from weak cash flows, poor debt-servicing capacity, and declining dividend contributions to their sole shareholder, the Malawi Government. This has resulted in hidden costs arising from quasi-fiscal activities, as public enterprises provide goods and services below cost-recovery levels.
The World Bank's findings are not new, as the same problems and solutions have been outlined in the Malawi Government's Annual Economic Report and national budget documents. The issue has been debated across multiple platforms, including the Malawi Public Sector Reforms Programme. However, the World Bank's report may bring attention to the issue, as it highlights the severity of the problem. The report notes that the SOEs sector has expanded significantly, with total assets rising from 14 percent of GDP in 2019 to 26 percent in 2024.
Despite the expansion of the SOEs sector, there have been no corresponding improvements in performance. An analysis of the government's 2025 Consolidated SOEs Report shows that commercial entities swallowed K292.17 billion in government grants between 2022 and 2025 alone. Minister of Finance, Economic Planning and Decentralisation Joseph Mwanamvekha conceded that SOEs remain financially weak and operationally inefficient. However, he argued that reforms must recognize the social functions some public enterprises perform.
The social obligations of SOEs in the water and energy sectors have turned them into quasi-monopolies, yet they still struggle to stay afloat. The World Bank notes that technical losses, overstaffing, weak revenue collection, and deeply entrenched governance flaws are the true drivers of this decay. Until these underlying structural issues are addressed, SOEs will continue to struggle. The report also highlights the impact of political interference, which compromises executive recruitment and corporate governance.
The Malawi Government's own ministries, departments, and agencies (MDAs) owe utility parastatals colossal, unpaid bills. This has contributed to the underperformance of SOEs. Finance and corporate strategy professor James Kamwachale Khomba attributes this systemic underperformance directly to deficient leadership styles. He argues that merit must inform the appointment of chief executive officers and boards, and they must be given rigid performance targets.
The lack of merit-based appointments has resulted in stage-managed recruitment interviews, which pass as meritocracy while politically-connected individuals emerge as "successful" candidates. This has led to a lack of accountability and poor performance. Transforming SOEs into profit-making entities that pay dividends requires an absolute embrace of best practices in corporate governance.
To address the challenges facing SOEs, the government must prioritize merit-based appointments, rigid performance targets, and good corporate governance. This will require a significant shift in the way SOEs are managed and governed. The World Bank's report provides a timely reminder of the need for reforms to address the financial struggles of SOEs and ensure they become a national asset rather than a severe fiscal burden.
Key points
- Malawi's state-owned enterprises are financially weak and heavily dependent on state support.
- The World Bank's report highlights the need for reforms to address the financial struggles of SOEs.
- Merit-based appointments and good corporate governance are essential for transforming SOEs into profit-making entities.
