In Malawi, agriculture contributes over 25% of GDP and employs nearly 87% of the labor force, most of which comes from small farms. Like many countries, technology adoption is important here to boost productivity and improve business. This article discusses how businesses in Malawi use technology, based on data from the Firm-level Adoption of Technology (FAT) survey and the method proposed by Cirera, Comin, and Cruz (2020). It covers how 465 formal, non-agricultural firms use technology for general business tasks and sector-specific work. 

Most companies in Malawi rely on the usage of basic, manual tools, with only a few of them using advanced systems. Larger firms and certain areas, like monitoring or support, show better use of digital tools. But still, technology use is limited across all sectors and firm sizes. The findings provide a clear picture of where Malawi stands and what improvements are needed. It discusses new measures of technology adoption and use: linking technologies to business functions, technology use in general business functions (GBF) (the relationship between technology use and firm size, heterogeneity across size, region, and sector), sector-specific business functions (manufacturing, services), and cross-sector differences in sector-specific technologies.

1. New Measures of Technology Adoption and Use: Linking Technologies to Business Functions

2. Technology Use in General Business Functions (GBF)

• The Relationship Between Technology Use and Firm Size
• Heterogeneity across size, region, and sector 

3. Sector-Specific Business Functions

• Manufacturing
• Services

4. Cross-Sector Differences in Sector-Specific Technologies

Understanding why a company uses a certain technology is crucial. To proceed with this, one examines how the technology aligns with the specific business task it supports. This approach is done by the methods proposed by Cinera, Comin, and Cruz (2020). These categorize business tasks into 2 types:

1) General Business Functions: These refer to universal tasks present across all firms, such as managing the business, sales, making payments, and checking quality.

2) Sector-Specific Business Functions: These are activities that vary based on the industry and are typically connected to the company’s main production work.

General Business Functions (GBFs) are tasks carried out by most companies, no matter what industry they are in. Because of this, they are useful for comparing how different companies, industries, or countries use technology. The FAT survey identifies what purpose each technology serves. It also outlines the primary GBFs and the corresponding technologies used for each one:

• Business Administration

• Production Planning

• Sourcing and Procurement

• Marketing and Customer Information

• Sales

• Methods of Payment

• Quality Control

Technologies applied to business tasks can range from very simple to very advanced. For instance, a basic method could involve planning production by hand on paper, while a more advanced method would use specialized tools such as Enterprise Resource Planning (ERP) systems to manage production.

Sector-Specific Business Functions (SSBFs) are activities directly related to a company’s main work, like producing goods or providing services, and they differ depending on the industry. In Senegal, the FAT survey includes special sets of questions designed for 9 different sectors:

1. Agriculture (Crops, Fruits, and Vegetables)
2. Agriculture (livestock)
3. Food Processing
4. Wearing apparel
5. Retail and Wholesale
6. Land Transportation
7. Finance
8. Health

Out of the 9 sectors, the survey focuses on and gives reliable results for companies in agriculture, food processing, clothing (wearing apparel), and retail. It gets data on over 300 types of technologies used in almost 50 different business tasks. To understand the level of technological advancement, this data is transformed into a technology index. The index, developed using the method by Cirera et al. (2020), ranges from 1 to 5, where 1 means very basic technology and 5 means very advanced technology. Industry experts helped rank the technologies in each business task based on how advanced they are. The technology index is constructed by identifying the technology that is used most often to carry out each business task. This method is known as the intensive margin, which emphasizes the most commonly used technology for a specific function.

The above table compares technology index scores across Malawi, Ceará (Brazil), Vietnam, and Senegal, showing some crucial differences in the data. For example, Malawi’s data does not include the agricultural sector. Senegal’s report includes information on informal businesses, which is something that was not captured in the other countries. Additionally, 22% of the firms in Malawi’s sample have at least 10% private foreign ownership. This is bigger than in Vietnam (13%), Senegal (6%), and Brazil (1.5%). Since formal and foreign-owned firms usually use more advanced technologies, this could make Malawi’s technology use seem higher than it really is.

But, even with these factors, the data show that firms in Malawi are generally far behind the global technology frontier. For both General Business Functions (GBFs) and Sector-Specific Business Functions (SBFs), Malawian firms are only ahead of Senegal’s firms overall, but fall behind when comparing just formal firms in Senegal. Compared to Ceará, which scores the highest, Malawi’s technology gap ranges from 0.85 points lower for GBFs to 0.41 points lower for SBFs.

The above figure shows the usage of technology in General Business Functions (GBFs) and Sector-Specific Business Functions (SSBFs) among different firms in Malawi. The data shows that the majority of firms rely on very basic technologies, with most scoring 1 or 2 on the technology index. A small share of varied firms get and adopt more advanced technologies to get better, notable advantages from their higher tech adoption.

The above figure shows that varied firms using more and better technologies usually report having better, higher-valued output per worker. This is usually in the General Business Functions (GBFs). But, of course, more research is needed to confirm a direct causal relationship. Current logical evidence points to a good connection between technology usage and improved performance. Previous research, such as studies by Easterly and Levine (2001), Comin and Hobijn (2010), and Comin and Mestieri (2018a), has identified technology as a key driver of productivity differences across countries. Similar findings were reported by Kwon and Stoneman (1995) in the manufacturing sector, and numerous agricultural studies also show that technology adoption leads to higher farm productivity.

• The Relationship Between Technology Use and Firm Size

Firms in Malawi, no matter their size, still lag significantly behind in adopting the most advanced technologies

The above figure presents the average technology indices for the intensive margin, broken down by firm size. The solid line shows the average index, while the dashed line indicates the country’s median. The GBF index falls between 1.4 and 2.1, reflecting a clear positive link between firm size and the use of more advanced technologies. Smaller firms in Malawi mostly depend on basic technologies for general business tasks, and even larger firms continue to lag behind the global technology frontier.

The above figure shows the level of technology adoption for General Business Functions (GBFs) among firms in Malawi. The data reveals that most firms continue to rely on basic tools, such as handwritten methods and standard software, for tasks like business administration and production operations. For instance, about 78% of firms use these kinds of basic approaches in business administration, but only 18% of the firms use specialized software, and just 2.8% have adopted ERP systems. In the area of sales, 41.7% of firms report using social media, but only 0.7% consider it their primary sales tool. Instead, around 96% of firms still depend on traditional methods like in-person sales or communication via phone/email. For customer information gathering, over 80% of Malawian firms mainly rely on face-to-face conversations. The findings emphasize that, although a few firms are beginning to adopt more advanced tools, most remain at a basic level of technology use.

Heterogeneity across size, region, and sector 

Moreover, to the differences in the sizes of firms, the firms in Malawi also differ by region and sector. Figure 8 presents how the technology adoption index varies across firm size, region, and sector. The data shows immense regional differences, with firms in Blantyre and Lilongwe reported to use more advanced technologies. Additionally, bigger firms and those in the service sectors tend to have the biggest technology adoption Index.

Sector-Specific Business Functions

Sector-Specific Business Functions (SSBFs) refer to the technologies directly associated with each sector’s core production or service activities. There is substantial variation in the level of technology adoption across different business functions, depending on the firm and sector.

• Manufacturing

In the food processing sector, the technology index for SSBFs ranges from 1.3 for food storage to 2.5 for input testing, based on the intensive margin. Many of these production tasks still rely on outdated technologies. For instance, only 38% of firms reported using non-computer-controlled testing kits as the primary technology for input testing. Machine use is still limited. About 70% of firms still depend on equipment that requires manual processes for food preparation, and 60% continue to rely on manual packaging. 

In terms of food storage, 83% of firms use basic, low protective methods, while just 1.5% utilize fully automated, climate-controlled storage systems. For antibacterial treatments, around 95% of firms apply basic processes and techniques. For instance, they use low-processing preservation or anti-bacterial wash/soaking. Only 5% have adopted advanced thermal processing technologies. The data also shows clear differences by firm size. Larger firms tend to use more advanced technologies in input testing, food storage, and packaging, while antibacterial practices remain consistent across firms of all sizes. Medium-sized firms, however, are more likely to use sophisticated methods for mixing, blending, and cooking.

• Services

1. Retail Sector: In the retail sector, firms still mainly depend on manual approaches for important operations such as customer service, pricing, merchandising, inventory management, and advertising. Lower than 2%  of the firms use social media as their main technology for customer service. But the majority serve customers in person (83.5%) or by phone (12.4%). Still, when it comes to the pricing processes, over two-thirds of the firms implement manual approaches and processes. But only 1.2% report using automated machinery. 

2. Inventory Management: Inventory management also remains huge regarding manual processes, with 65% using handwritten records. For advertising, 46% still rely on paper-based communication, although 21% use email, mobile phones, or social media as their primary advertising method. Technology usage differences between medium and small firms are generally minimal, but medium-sized firms show greater use of advanced technologies in merchandising functions.

3. Financial Services: The financial services sector in Malawi has not yet widely adopted digital technologies for its main business functions and continues to rely heavily on paper-based methods and in-person processes. For instance, 65% of firms deliver customer services for checking and savings accounts face-to-face, and none report using mobile applications as their primary tool. Fraud prevention and customer identification are typically conducted through in-person interactions and document verification, with less than 2% of firms using digital authentication systems. 

Similarly, loan applications are handled mostly in person, with no firms using online or mobile platforms as their main method. But digital technologies are more applied in operational support functions. About 18% of firms use centralized systems across branches. These operational systems tend to be better in large firms, whereas smaller firms are more likely to offer modern technologies in customer service areas.

4. Land Transport: In Malawi’s land transport sector, technology use follows similar patterns to those in retail, wholesale, and financial services, with most sector-specific business functions still depending on manual methods. Except for monitoring, the technology index remains below 2 for all key functions, pointing to a continued reliance on basic tools. For transportation planning, 86% of firms get information and data by using non-specialized workers to create load plans, while the remaining 14% depend on email or fax for data sharing. Same way, 73.8% of firms execute plans using manual methods, supported by fax, text messages, or phone calls. Less than 10% of firms use special technology like GPS or dynamic routing software. 

One area that stands out more than all the other areas is monitoring. In this area, more than 1/3 of firms use dedicated software solutions. But traditional methods still remain: 71% of firms still rely on manual tools to track performance, and nearly 80% use paper-based systems for maintenance and fleet management. Larger firms are more likely to adopt advanced technologies for fleet maintenance and performance tracking. Interestingly, small firms surpass both medium and large firms in the technology index for plan execution, despite their overall limited use of digital tools.

When comparing different sectors, firms in the financial services sector generally make greater use of more advanced sector-specific technologies than firms in other industries. Even though specific sector functions may not be directly comparable, the technology index helps to consistently measure the distance to the frontier across all sectors. 

1. The figure below shows that both within-sector and between-sector differences in technology adoption for Sector-Specific Business Functions (SSBFs), offering the following key takeaways: 

The financial services sector stands out for its overall use of more advanced technologies, although adoption levels vary widely across individual firms in the sector. 

2. The land transport sector shows the greatest variance in technology use, indicating major differences in adoption among firms. 

3. The food processing sector has low variance, meaning firms tend to use similar and relatively basic technologies across the board.

Nowadays, it is important to fasten digital transformation as Malawi has already seen how difficult it has been for businesses to run during COVID-19. Technology use in Malawi’s formal sector is still very limited. Most firms, big or small, rely on simple, manual methods to run their operations. Upon discussing the study, it is clear that bigger firms use more advanced tools in some areas, but smaller firms sometimes do better in specific tasks.  Even though more firms have foreign investors than in some other countries, Malawi still lags in global technology use. Among sectors, financial services lead in digital tools, while land transport shows the biggest gaps. These results show that Malawi needs more support, investment, and planning to improve how its firms use technology in daily business.

However, the problems holding them back can be solved by bringing awareness about the latest and updated technologies, skilled and trained management and labour force, and making it easier to access finance for the small firmholders. The government of Malawi can play a crucial role in ensuring all these by proper planning and strategy. The country has already launched its first-ever Digital Readiness Assessment(DRA) to guide inclusive digital transformation. Now it’s time to bridge the gap and move towards a brighter future with the highest determination and commitment.