Anti-Bakili Muluzi / MALAWI POLITICS TODAY

Company closures drying up—Davies

by Frank Phiri, 27 April 2006 - 06:45:30

A company restructuring expert has said most Malawian firms are now able to service their loans, a development that has reduced the rate of closure resulting from liquidations. Raymond Davies, outgoing Senior Partner for KPMG Malawi—a member of the global audit and business advisory firm—who handled numerous liquidation cases of local firms, said this in an exclusive interview with Nation Business Review in Blantyre last Friday. “The liquidations have dried up. When I first came to Malawi eight years ago, most creditors filed for liquidations. But a significant distinction with the present trend is that we now have orderly closures whereby it is the shareholders themselves filing for voluntary liquidations rather than aggrieved creditors,” he said. In liquidation or winding up, an entity’s assets are converted into cash with the aim of recouping value of a credit and interest and or part thereof depending on the nature and duration of the debt. In some cases, credit is turned into equity as was the case with Candlex Limited a few years back. Davies, who was also Chairman of the Taxation Committee of the Society of Accountants in Malawi (Socam), said improvements in fiscal management by government and adherence to good corporate governance by the private sector have helped to significantly reduce liquidations. “The economic fundamentals in Malawi are coming right—there is much better fiscal policy direction than we never had before. With the adoption of a Corporate Governance Code by Socam, we have seen many businesses buying into the concept,” he said. Davies—who has worked for KPMG for 29 years in Sierra Leone, UK and Malawi—said over the past five years, interest and inflation rates were too high which, he said, pushed many companies to the wall. He said with the scope of interest rates going down to around 20 percent levels, the future for the corporate world could only get better. Currently, the bank rate—the rate at which commercial banks borrow money from the Reserve Bank of Malawi—is at 25 percent. In turn, commercial banks lend to borrowers at 27 percent and above. “If Malawi continues in this direction, we should see the economy picking up tremendously. It’s a question of sustaining good fiscal management,” said Davies. But he warned that political risk remains above expectations and could not inspire much investor confidence. He cited the impeachment case against President Bingu wa Mutharika, the uncertainty of Mutharika’s Democratic Progressive Party (DPP) as a party in government based on its numbers in Parliament. “When you have an impeachment motion in Parliament, foreign investors cannot come. Even those that are here become sceptical,” said Davies. The Polytechnic Management Centre, a branch of University of Malawi, revealed in a survey in 2001 that at least 30 companies had closed shop in the country between 1994 and 2001 due to poor management made worse by a tough economic environment. The report further said many more were sick as a result of the problem. Some of the companies on the sick-list, according to the Polytechnic Management Centre, were forced to scale down operations rapidly over the years and corporate governance remains a big challenge in most such organisations.