2013 Investment Climate Statement
Bureau of Economic and Business Affairs
March 2013
Report

Openness to, and Restrictions Upon, Foreign Investment

The government encourages both domestic and foreign investment in most sectors of the economy without restrictions on ownership, size of investment, source of funds, or the destination of the final product. There is no government screening of foreign investment in Malawi. Apart from the privatization program, the government's overall economic and industrial policy does not have discriminatory effects on foreign investors. Since industrial licensing in Malawi applies to both domestic and foreign investment, and is only restricted to a short list of products, it does not limit competition, protect domestic interests, or discriminate against foreign investors at any stage of investment. Restrictions are based on environmental, health, and national security concerns. Affected items are firearms and ammunition; chemical and biological weapons; explosives; and manufacturing involving hazardous waste treatment/disposal or radioactive material. All regulations affecting trade (foreign exchange, taxes, etc.) apply equally to domestic and foreign investors. While not discriminatory to foreign investors, investments in Malawi require multiple bureaucratic processes, which may include licensing and land use permissions that can be time consuming and may constitute an impediment to investment. The government has made progress in the legislative framework to simplify or streamline the process to attract increased investment. Several bills have been passed in 2012 and these include: Investment and Export Promotion Bill, Companies Amendment Bill, Business Registration Bill, and Business Licensing Bill.

Despite government efforts to promote foreign investment, a number of factors have contributed to limiting such investment. These include high transportation costs, unreliable power and water supplies, cumbersome bureaucracy (especially for imports and exports), difficulty in accessing foreign exchange, and lack of skilled labor. After several years of steady increases between 2005 and 2008, Foreign Direct Investment (FDI) declined by 53% from 2008 to 2011 from $195 million to $92 million; however, the amount of FDI in 2008 was significantly above average with investments in a large uranium mine. FDI in 2011 totaled $92 million or 1.6% of GDP.

Malawi has so far privatized 65 formerly state-owned enterprises. A revised divestiture sequence plan to privatize another 65 public enterprises has stalled in the cabinet over the past several years. All investors, irrespective of ethnic group or source of capital (foreign or local) may participate in the privatization program. However, the Malawi Stock Exchange regulations limit participation of an individual foreign portfolio investor to a maximum of 10% of any class or category of security under the program; and limit maximum total foreign investment in any portfolio to 49%. Malawian nationals are offered preferential treatment, including discounted share prices and subsidized credit. Subsidized credit carries a precondition that the shares or assets be retained for at least two years.

A variety of indices measure aspects of a country’s business environment. Malawi’s performance for several of these indices is shown below. The percentile rank for the Millennium Challenge Corporation (MCC) indices are measured against the group of low income countries (per capita income less than $1,915).

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

Measure

Year

Index/Ranking

TI Corruption Index

2012

37 (rank 88 of 174)

Heritage Economic Freedom

2012

56.4 (rank 144 of 179)

World Bank Doing Business

2013

2012

Rank 157 (of 185)

Rank 145 (of 183)

MCC Gov’t Effectiveness

(World Bank/Brookings Institution WGI)

2013

0.44 (89%)

MCC Rule of Law

(World Bank/Brookings Institution WGI)

2013

0.73 (96%)

MCC Control of Corruption

(World Bank/Brookings Institution WGI)

2013

0.48 (87%)

MCC Fiscal Policy

(National sources/IMF WEO)

2013

-2.8 (57%)

MCC Trade Policy

(Heritage Foundation

2013

71.8 (63%)

MCC Regulatory Quality

(World Bank/Brookings Institution WGI)

2013

0.06 (56%)

MCC Business Start Up

(IFC Doing Business 2011 report)

2013

0.827 (31%)

MCC Land Rights Access

(IFAD/IFC)

2013

0.67 (78%)

MCC Natural Resource Mgmt

(CIESN/YCELP Natural Resource Management Index 2010)

2013

96.5 (75%)

Conversion and Transfer Policies

There are no restrictions on remittance of foreign investment funds (including capital, profits, loan repayments and lease repayments) as long as the capital and loans were obtained from foreign sources and registered with the Reserve Bank of Malawi (RBM). The terms and conditions of international loans, management contracts, licensing and royalty arrangements, and similar transfers require initial RBM approval. The RBM grants approval according to prevailing international standards; subsequent remittances do not require further approval. All commercial banks are authorized by the RBM to approve remittances, and approvals are fairly automatic as long as the applicant's accounts have been audited and sufficient foreign exchange is available. In practice foreign exchange availability is very limited and remittances often cannot be made even if approved. Many businesses have recently complained of a lack of foreign exchange to pay for importation of raw materials, causing such businesses to operate below capacity. Traditionally, foreign exchange availability follows the agricultural cycle in Malawi. It is generally plentiful from April through September (when tobacco sales generate foreign exchange inflows), and scarce from October through March. During periods of scarcity, investors may experience extended periods without access to foreign exchange. Since 2009, Malawi has experienced uncharacteristic foreign exchange shortages even during the tobacco auction season. The shortage of foreign exchange reached crisis levels in 2011 and the first quarter of 2012, which created serious shortages of medicines, fuel and made paying arrears for most business imports very difficult. Chronic fuel shortages and power black-outs have had a devastating effect on industrial output and overall productivity. The Reserve Bank of Malawi (RBM) devalued and floated the Malawi Kwacha exchange rate on May 7, 2012, and analysts predict the rate of depreciation to slow in 2013 and for macroeconomic balance to be restored after three years of imbalance caused by the fixed exchange rate policy of former President Bingu wa Mutharika.

Expropriation and Compensation

Malawi's constitution prohibits deprivation of an individual's property without due compensation. There are effective laws that protect both local and foreign investment. The likelihood of direct expropriations has been low since the repeal of the forfeiture act in 1992. Some measures with expropriatory effects are occasionally imposed. For example, in both 2008 and early 2012 the government imposed export bans on maize. Furthermore, the government unilaterally revoked the licenses of all private maize traders in the country. These restrictions applied equally to foreign and domestic investors. Although public tenders for the sale of shares of state-owned enterprises often encourage local participation, foreign investors tend to dominate the share-holding of large Malawi Stock Exchange-listed companies requiring significant technical and financial resources.

The Land Reform Commission—which the government established in 1996 to review land tenure and establish a new land reform program—presented its final report to the President in November 1999. In January 2002, the Ministry of Lands published a new land policy. Draft legislation has been prepared that incorporates many recommendations of the Commission's report, including the abolition of freehold tenure (owners holding permanent title) and the conversion of all freehold titles to leasehold (owners holding land on lease for a maximum period of 99 years). The Ministry of Lands and the cabinet have approved the new legislation however the bill has stalled in the Parliamentary Committee on Lands and Natural Resources. The bill has been under scrutiny since 2002. Since July 2000, the Malawi Government stopped issuing freehold land in anticipation of this new legislation.

At present, the government may employ land acquisition procedures set forth in the Land Acquisition Act of 1971. According to this Act, the government must justify its acquisition as being in the public interest and must pay fair market value for the land. Fair market value is assessed by summing the amount the owner originally paid for the land, the value of any permanent improvements that increase the productive capacity, utility or amenity of the land, and any appreciation of the land value. If the private landowner objects to the level of compensation, he may obtain an independent assessment of the land value. According to the Act, however, such cases may not be challenged in court; the Ministry of Lands, Housing and Urban Development remains the final judge.

Dispute Settlement

Malawi has an independent judiciary, which derives its procedures from English Common Law. There has been little government interference in the court system. The commercial courts are working efficiently now that they have qualified personnel who are working toward the improvement of the court system in Malawi. The Commercial Court in Blantyre currently has three judges, and now has its own registry. Currently, there is an established mediation process to promote agreements between parties in disputes before court proceedings start.

Although processing of commercial cases has significantly improved in the court system, enforcement of judgments continues to be a problem. The Commercial Court now has one dedicated enforcement Sheriff. Before that the Commercial Court used Sheriffs assigned to the High Court who did not grant priority to commercial enforcements.

The court system in Malawi accepts and enforces foreign court judgments that are registered in accordance with established legal procedure. There are reciprocal agreements among Commonwealth countries to enforce judgments without this registration obligation. However, the fact that there is no such agreement between Malawi and the United States does not mean that judgments involving the two countries cannot be enforced.

Malawi has legislation that offers adequate protection for property and contractual rights. Malawi has written commercial laws, which codify Common Law. The Sale-Of-Goods Act, the Hire-Purchase Act, the Competition Fair Trading Act and Companies Act cover commercial practices. The first two acts have been consistently applied, and there is a track record of cases involving commercial law. In 2007, Malawi established a Commercial Court in the city Blantyre. The Lilongwe division of the Commercial Court opened in 2010 and has two judges. There is also a written and consistently applied Bankruptcy Law based on Common Law. Under Bankruptcy Law, secured creditors—rank-ordered based upon investment registration dates—have first priority in recovering money. Monetary judgments are usually made in the investor's currency. However, the immediate availability of foreign exchange is dependent upon supply, which varies on a seasonal basis and was chronically low for the past four years. The 2006 Money Laundering, Proceeds of Serious Crime and Terrorist Financing Act established an autonomous Financial Intelligence Unit (FIU) to combat money laundering and terrorist financing. The FIU is responsible for analyzing disclosures from financial institutions and referring actionable cases to competent authorities. It is also mandated to monitor compliance by reporting institutions.

Malawi is a member of the International Center for Settlement of Investment Disputes (ICSID), and accepts binding international arbitration of investment disputes between foreign investors and the state if specified in a written contract. There have been no major investment disputes involving U.S. companies since 1996.

Performance Requirements and Incentives

Malawi is not in compliance with World Trade Organization (WTO) Trade Related Investment Measures (TRIM) notification requirements. Malawi does not set performance requirements for establishing, maintaining or expanding an investment, nor does it place requirements on ownership, source of financing, or geographic location. The government accords Export Processing Zone (EPZ) status only to firms (foreign or domestic) that produce exclusively for export.

Malawi offers the following incentives, which apply equally to domestic and foreign investors:

General Incentives

  • 100% initial investment allowance on qualifying expenditure for new building and machinery
  • Allowances of up to 40% for used buildings and machinery
  • 50% allowance for qualifying training costs
  • Allowance for manufacturing companies to deduct all operating expenses incurred up to 25 months prior to the start of operations
  • Zero duty on raw materials used in manufacturing
  • Loss carry forward of up to seven years, enabling companies to take advantage of allowances
  • Duty-free direct importation of building materials for factories and warehouses
  • Duty-free direct importation of goods used in the tourism industry, which includes building materials, catering and related equipment, and water sport equipment
  • Free repatriation of dividends, profits, and royalties

Incentives for Establishing Operations in Export Processing Zone (EPZ)

  • No withholding tax on dividends
  • No duty on capital equipment and raw materials
  • No excise tax on the purchases of raw materials and packaging materials made in Malawi
  • No value added tax

Incentives for Manufacturing in Bond

  • Export allowance of 25% revenue for non-traditional exports
  • Transport tax allowance equal to 25% of international transport costs, excluding traditional exports
  • No duties on imports of capital equipment used in the manufacture of exports
  • No surtaxes
  • No excise tax or duty on the purchase of raw materials and packaging materials

There are also additional incentives for horticulture, mining and tourism.

The above incentives are applied consistently but many companies have complained about long delays in accessing the accrued benefits. The retrogressive changes made in the 2011/2012 national budget that related to various incentives for investors have been removed and the incentives have been reinstated. Of particular note, was the government’s removal of the punitive turnover tax of 2% on revenue above $300,000, although some companies have complained that it is difficult to obtain a determination from the government of when the change went into effect and which companies are above or below that threshold.

Foreign investors are generally accorded the same treatment as nationals. U.S. and other foreign firms are able to participate in government/donor-financed and/or subsidized research and development programs. The following information is required to register and incorporate a company: name of the company, authorized share capital, registered office, location of account books, address of the company secretary, and the names of directors and shareholders. There is also a requirement that at least two Malawian residents be appointed directors for such a subsidiary company.

Visas do not inhibit investors, but the need for employment permits sometimes can. Expatriate employees (of both domestic and foreign businesses) who reside and work in Malawi must obtain temporary employment permits (TEPs). TEPs have been very difficult to obtain in some instances.

Government policy on TEPs has been unchanged since a "Policy Statement and New Guidelines for The Issuance and Renewal of [Expatriate] Employment Permits" was issued in November 1998. The guidelines state that investors may employ expatriate personnel in areas where there is a shortage of "suitable and qualified" Malawians. The policy provides for two types of TEPs:

  • Those for "key posts" (defined as positions of "strategic importance" in business operations) which are granted for the lifespan of the organization.
  • Those for "time posts" (defined as positions with contracts of three-year duration or less) which are granted for three-year periods and renewable once.

The policy underscores the government's desire to make TEPs readily available to expatriates, and mandates that processing times for TEP applications shall not exceed 40 working days. In practice these guidelines have been applied inconsistently, leading to delays and some uncertainty.

The government issues Business Residence Permits (BRPs) to foreign nationals who own/operate businesses in Malawi. BRPs are issued for five-year periods and are renewable. Permanent Residence Permits (PRPs) are issued to foreign spouses who reside permanently in Malawi, and to owners/operators of businesses who reside in Malawi for periods in excess of ten years. PRP holders cannot work as employees. Malawi's immigration laws governing BRPs and PRPs have been revised. There are three categories of residence permits based on the amount of investment, the status of applicant (investor, retiree, student, or spouse of a Malawian citizen) and the period of the business assignment. The maximum number of resident permits per organization is five positions, with the actual number allowed depending on the amount of investment.

Right to Private Ownership and Establishment

The government encourages both domestic and foreign investors to establish and own business enterprises in most sectors of the economy. All investors have the right to establish, acquire, and dispose of interests in business enterprises. There are some restrictions to land ownership by foreigners. Sale of land to foreigners is approved only after no Malawian has shown interest to match the price offered by the foreigner. However, land acquired as part of a business establishment is not subject to this rule. In principle, public enterprises compete equally with private entities with respect to access to markets, credit and other business operations.

Protection of Property Rights

Both foreign and domestic investors have access to Malawi's legal system, which functions fairly well and is generally unbiased. Heavy caseloads and staffing limitations, however, mean that legal remedies can take a long time to achieve. Malawi has laws that govern the acquisition, disposition, recording and protection of all property rights (land, buildings, etc.) as well as intellectual property rights (copyrights, patents and trademarks, etc.). The government has signed and adheres to bilateral and multilateral investment guarantee treaties and key agreements on intellectual property rights. Malawi is a member of the convention establishing the multilateral investment guarantee agency, the World Intellectual Property Organization (WIPO), the Berne Convention, and the Universal Copyright Convention.

The Copyright Society of Malawi (COSOMA), established in 1992, administers the 1989 Copyright Act which protects copyrights and "neighboring" rights in Malawi. The Registrar General administers the Patent and Trademarks Act, which protects industrial intellectual property rights in Malawi. A public registry of patents and patent licenses is kept. Patents must be registered through an agent. Trademarks are registered publicly following advertisement and a period of no objection. WTO rules allow Malawi (as a less developed country) to delay full implementation of the Trade-Related Aspects of Intellectual Property Rights (TRIPs) agreement until 2016. The Ministry of Industry and Trade is working with COSOMA, the Registrar General, and the Africa Regional Intellectual Property Organization (ARIPO) to align relevant domestic legislation with the WTO TRIPs agreement.

Transparency of the Regulatory System

Malawi's industrial and trade reform program—including rationalization of the tax system, liberalization of the foreign exchange regime, and the elimination of trade and industrial licenses for several items and businesses—has produced written guidelines intended to increase government use of transparent and effective policies to foster competition. Government continues to undertake various reforms to ensure that no tax, labor, environment, health and safety or other laws distort or impede investment. However, procedural delays and red tape continue to impede the business and investment approval process. While market prices for goods are generally not controlled, prices of most agricultural goods such as maize and state-provided utilities are regulated. In recent years the government has announced “minimum prices” for tobacco, cotton and maize which buyers have been obliged to offer, under threat of the loss of their buyers’ licenses. Buyers have complained of a lack of transparency in the setting of these prices. This led the largest cotton ginning company in Malawi, a U.S. company, to withdraw from the country in 2009 after the government-set minimum prices for cotton were deemed too high for profitable operations. The new government that took office in April 2012 has moved away from the antagonistic tendency of the previous government against buyers in commodity markets such as tobacco and cotton though minimum prices are still being released. Government has instituted automatic pricing mechanisms for fuel and electricity prices. In addition to these progressive reforms, the government removed a levy on fuel for a price stabilization fund and thereby mitigated overall price increases while removing a contentious tax whose account had been misappropriated by the government in the past.

There have been positive steps towards increasing regulatory transparency and improving the foreign investment environment.

Notable positive developments include: the establishment of the Malawi Energy Regulatory Authority (MERA), the establishment of the Malawi Communication Regulatory Authority (MACRA), the licensing of four cellular phone service providers, two of which are operating, and the splitting of the former parastatal Malawi Posts and Telecommunication Corporation (MPTC) into two separate entities—the Malawi Posts Corporation (MPC) and Malawi Telecommunications Limited (MTL). MTL has since been partially privatized and government retains 20% shares which it intends to sell to the public later. The government has also made significant steps towards privatizing the loss making national airline, Air Malawi. Air Malawi is currently under liquidation and the Privatization Commission is currently evaluating bids for a strategic partner.

While there have been many positive reforms since April 2012 under President Banda, one negative development that has been carried over from the previous administration is the governments establishment and perpetuation of a new company called the National Oil Company of Malawi (NOCMA) in 2011 that has assumed similar functions that were performed by the Petroleum Control Commission (PCC) that was disbanded in 2000. NOCMA is mandated to import and store fuel for strategic reserves, but since its arrival has been operating in competition with Petroleum Importers Limited—a private sector consortium.

Efficient Capital Markets and Portfolio Investment

Traditionally the Reserve Bank of Malawi has pursued a tight monetary policy to bring down the level of inflation. In the recent past, however, the Reserve Bank has moved to a more expansionary approach to monetary policy to promote private sector development, using monetary instruments such as bank rate and liquidity reserve rations that have been progressively reduced over the past five years. Inflation dropped, from 15.4% in 2005 to 8.1% in October 2011. There has been an upward trend in inflation figures since 2011 and the situation is likely to continue as foreign exchange and fuel shortages continue. The bank rate has declined considerably over the past five years, from 45% in 2004 to 13% in 2010 before rising again in 2012 to 25%, where it remains. The lending rate for commercial borrowers has correspondingly risen in 2012 to over 40%.

The Malawi Kwacha was a heavily managed currency against the US dollar during the past 8 years before President Joyce Banda took over power as President of Malawi in April 2012. After remaining unchanged for over five years, the rate was allowed to depreciate in late 2009, falling from 143 to 151.8 to the dollar at the end of December 2009. The Reserve Bank of Malawi depreciated the Malawi Kwacha (MK) further in August 2011 moving the rate to 168 to the dollar. The Malawi Kwacha was floated in May 2012 and is now trading at 356 to one dollar. Foreign exchange shortages continue and further depreciation is expected. On a positive note, the international estimates predict a slowdown in inflation and an uptick in GDP growth of between 4.6% and 5.5% for 2013 as the export harvests begin to come in from March through July 2013 and development partner flows continue to normalize.

The private sector in Malawi has a variety of credit instruments. Credit is generally allocated on market terms. Foreign investors may utilize domestic credit, but proceeds from investments made using local resources are not remittable.

Malawi has a sound banking sector, overseen and well-regulated by the Reserve Bank of Malawi—the central bank. There are twelve full-service commercial banks: National Bank of Malawi (NBM), First Merchant Bank (FMB) Limited, Standard Bank (SB), New Building Society (NBS) Bank, Ecobank, First Discount House Bank, Malawi Savings Bank, Indebank, Nedbank, International Commercial Bank, Opportunity International Bank, and Continental Discount House Bank. Other financial institutions are: Indefinance, Investment and Development Fund of Malawi (INDEFUND), Finance Corporation of Malawi (Fincom), Leasing and Finance Company of Malawi (LFC), the Malawi Rural Finance Company (MRFC), Continental Discount House, First Discount House, and Trust Securities Limited. Malawi’s four largest banks (NBM, FMB, SB, and NBS) command 90% of the market, with a total capitalization of over $1 billion.

The Companies Act, the Capital Market Development Act (1990), and the Capital Market Development Regulations (1992) provide the legislative and regulatory framework for investment in Malawi. The attendant legal, regulatory and accounting systems are transparent and consistent with international norms. These acts govern the Malawi Stock Exchange (MSE).

Stockbrokers Malawi Limited (SML) is the major registered stockbroker in Malawi. Other brokerage firms are Continental Discount House, First Discount House and Trust Securities Limited. The MSE is regulated by the Stock Exchange Commission.

SML runs a secondary market in government securities, and both local and foreign investors have equal access to the purchase of these securities. The following 14 companies are listed on the MSE: Blantyre Hotels Limited (BHL), First Merchant Bank (FMB) Limited, Illovo Sugar Malawi Limited, Malawi Properties Investment Company (MPICO), National Bank of Malawi (NBM), New Building Society (NBS) Bank, NICO Holdings Limited, National Investment Trust Limited (NITL), Press Corporation Limited (PCL), Real Insurance Malawi, Standard Bank (Malawi), Old Mutual, Sunbird Tourism Limited, and Telecom Network Malawi Limited.

The MSE is still in a nascent stage, and hostile takeovers have not yet occurred. A weekly average of only $40,000 of trades is registered on the MSE. Apart from the restrictions under the privatization program (prohibiting 100% foreign ownership), there are no specific measures taken by private firms to restrict foreign investment or participation. Foreign investors tend to be the dominant shareholders in large MSE-listed companies requiring significant technical and financial resources. The Competition and Fair Trading Act does not cover the day-to-day trading on the MSE, but regulates mergers, acquisitions, and takeovers that are of national interest.

The Competition and Fair Trading Act—passed by Parliament in 1998 but made operational in 2000—aims to regulate and monitor monopolies and the concentration of economic power, protect consumer welfare, and strengthen the efficient production and distribution of goods and services. In accordance with the Act, the Ministry of Industry and Trade appointed competition commissioners, who in 2006 established a secretariat to oversee the Act’s implementation. The secretariat is required to approve only those acquisitions, mergers or takeovers that increase employment and net exports, and lower prices for consumers. The Malawi Commission for Fair Trade and Competition (MCFTC) has reviewed and approved a number of applications including Puma/BP merger, Africa Leaf/JTI merger and Game Stores/Wal-Mart merger.

Competition from State Owned Enterprises

Private and public enterprises freely compete on the same terms and conditions for access to markets, credit and other business opportunities. There are exceptions, however, for some public works assignments where public enterprises tend to be given special preference by government. There have been several instances where public enterprises such as the National Oil Company of Malawi (NOCMA) and Agricultural Development and Marketing Corporation (ADMARC) have been favored with allocation of foreign exchange over the private sector. The contract to distribute subsidized agricultural inputs is given to Agricultural Development Marketing Corporation (ADMARC) and Small-holder Farmers Fertilizer Revolving Fund (SFFRF) on a priority basis. In the lead up to the 2011 planting season there were virtually no fertilizers available for sale in the private sector. There are no set rules or criteria on such exceptions—the government tends to decide on a case by case basis.

All State Owned Enterprises (SOEs) have a Chairperson and Board of Directors. The boards are composed of politicians and professionals as directors. All such boards also have senior government officials representing government departments as ex-officio/non-voting members. The participation of members of the government as ex-officio/non-voting members on these boards creates a perceived and/or real conflict of interest. All SOEs produce annual reports, which are audited by independent professional audit firms. SOEs predominate in the following sectors: energy, water, and agriculture. The Electricity Supply Company of Malawi (ESCOM), Air Malawi, and ADMARC are three examples of parastatals in Malawi. Although signed in April 2011, the U.S. Government’s Millennium Challenge Corporation (MCC) US$350.7 million Compact was put on operational hold in mid-2011 owing to concerns over negative trends in economic and political governance. The Compact was re-instated in June 2012 after President Banda’s positive steps to address the MCC concerns that led to its operational hold and eventual suspension. The MCC Compact Program focuses on the power sector (strengthening ESCOM) and promoting private sector investment in power production.

Corporate Social Responsibility

There is a well-developed sense of corporate social responsibility in Malawi and most corporate entities make a point to publicize such activities in the local media. Large domestic companies and international enterprises tend to be more active and generous than small domestic companies.

Political Violence

Malawi has been largely free of political violence since gaining independence in 1964. Apart from the disarming of the Malawi Young Pioneers, a paramilitary group active during Malawi's 1994 transition to democracy, incidents of violence were few. Sporadic violence occurred in the run-up and immediately following the 2004 elections. Presidential and parliamentary elections in May 2009 were peaceful, with no significant incidences of violence. On July 20 and 21, 2011, nationwide demonstrations over economic and political governance turned violent and 20 Malawians died in the civil unrest that ensued. Although divisions do exist, Malawi has no significant tribal, religious, regional, ethnic, or racial tensions that could be expected to lead to violent confrontation. There was a peaceful transition of power after President Mutharika’s death to his Vice President, Joyce Banda, who was at the time of his death not a member of Mutharika’s ruling party. Despite two days of uncertainty, the Constitution was followed and Joyce Banda was sworn in as the new president.

Incidents of labor unrest occasionally occur, but these are usually nonviolent. There are no nascent insurrections or other politically motivated activities of major concern to investors. However there have been some political tensions with neighboring Mozambique, Zambia, and Tanzania in recent times. Tanzania and Malawi are currently trying to resolve a border dispute over the North Eastern portion of Lake Malawi.

Corruption

Corruption, including bribery, raises the costs and risks of doing business. Corruption has a corrosive impact on both market opportunities overseas for U.S. companies and the broader business climate. It also deters international investment, stifles economic growth and development, distorts prices, and undermines the rule of law.

It is important for U.S. companies, irrespective of their size, to assess the business climate in the relevant market in which they will be operating or investing, and to have an effective compliance program or measures to prevent and detect corruption, including foreign bribery. U.S. individuals and firms operating or investing in foreign markets should take the time to become familiar with the relevant anticorruption laws of both the foreign country and the United States in order to properly comply with them, and where appropriate, they should seek the advice of legal counsel.

The U.S. Government seeks to level the global playing field for U.S. businesses by encouraging other countries to take steps to criminalize their own companies’ acts of corruption, including bribery of foreign public officials, by requiring them to uphold their obligations under relevant international conventions. A U. S. firm that believes a competitor is seeking to use bribery of a foreign public official to secure a contract should bring this to the attention of appropriate U.S. agencies, as noted below.

U.S. Foreign Corrupt Practices Act: In 1977, the United States enacted the Foreign Corrupt Practices Act (FCPA), which makes it unlawful for a U.S. person, and certain foreign issuers of securities, to make a corrupt payment to foreign public officials for the purpose of obtaining or retaining business for or with, or directing business to, any person. The FCPA also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. For more detailed information on the FCPA, see the FCPA Lay-Person’s Guide at: http://www.justice.gov/criminal/fraud/docs/dojdocb.html.

Other Instruments: It is U.S. Government policy to promote good governance, including host country implementation and enforcement of anti-corruption laws and policies pursuant to their obligations under international agreements. Since enactment of the FCPA, the United States has been instrumental to the expansion of the international framework to fight corruption. Several significant components of this framework are the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Anti-bribery Convention), the United Nations Convention against Corruption (UN Convention), the Inter-American Convention against Corruption (OAS Convention), the Council of Europe Criminal and Civil Law Conventions, and a growing list of U.S. free trade agreements. Malawi is in conformity with the above principles and prohibits the bribery and solicitation of its public officials.

OECD Anti-bribery Convention: The OECD Anti-bribery Convention entered into force in February 1999. As of April 2012, there are 39 parties to the Convention including the United States (see http://www.oecd.org/dataoecd/59/13/40272933.pdf). Major exporters China, India, and Russia are not parties, although the U.S. Government strongly endorses their eventual accession to the Convention. The Convention obligates the Parties to criminalize bribery of foreign public officials in the conduct of international business. The United States meets its international obligations under the OECD Anti-bribery Convention through the U.S. FCPA. Malawi is not a party to the OECD Anti-bribery Convention, although it subscribes to the provisions of the convention.

UN Convention: The UN Anticorruption Convention entered into force on December 14, 2005, and there are 140 signatories and 168 parties to the UN Convention as of November 2012 (see http://www.unodc.org/unodc/en/treaties/CAC/signatories.html). The UN Convention is the first comprehensive global international anticorruption agreement. The UN Convention requires countries to establish criminal and other offences to cover a wide range of acts of corruption. The UN Convention goes beyond previous anticorruption instruments, covering a broad range of issues ranging from basic forms of corruption such as bribery and solicitation, embezzlement, trading in influence to the concealment and laundering of the proceeds of corruption. The Convention contains transnational business bribery provisions that are functionally similar to those in the OECD Anti-bribery Convention and contains provisions on private sector auditing as well as book and record requirements. Other provisions address matters such as prevention, international cooperation, and asset recovery. Malawi is a party to the UN Convention.

OAS Convention: In 1996, the Member States of the Organization of American States (OAS) adopted the first international anticorruption legal instrument, the Inter-American Convention against Corruption (OAS Convention), which entered into force in March 1997. The OAS Convention, among other things, establishes a set of preventive measures against corruption, provides for the criminalization of certain acts of corruption, including transnational bribery and illicit enrichment, and contains a series of provisions to strengthen the cooperation between its States Parties in areas such as mutual legal assistance and technical cooperation. As of November 2012, the OAS Convention had 34 parties (see http://www.oas.org/juridico/english/Sigs/b-58.html). Malawi is not a party to the OAS Convention.

Council of Europe Criminal Law and Civil Law Conventions: Malawi is not a party to the Council of Europe Conventions.

Free Trade Agreements: Malawi does not have an FTA with the United States.

Local Laws: U.S. firms should familiarize themselves with local anticorruption laws, and, where appropriate, seek legal counsel. While the U.S. Department of Commerce cannot provide legal advice on local laws, the Department’s U.S. and Foreign Commercial Service can provide assistance with navigating the host country’s legal system and obtaining a list of local legal counsel.

Assistance for U.S. Businesses: The U.S. Department of Commerce offers several services to aid U.S. businesses seeking to address business-related corruption issues. For example, the U.S. and Foreign Commercial Service can provide services that may assist U.S. companies in conducting their due diligence as part of the company’s overarching compliance program when choosing business partners or agents overseas. The U.S. Foreign and Commercial Service can be reached directly through its offices in every major U.S. and foreign city, or through its Website at www.trade.gov/cs.

The Departments of State and Commerce provide worldwide support for qualified U.S. companies bidding on foreign government contracts through the Commerce Department’s Advocacy Center and State’s Office of Commercial and Business Affairs. Problems, including alleged corruption by foreign governments or competitors, encountered by U.S. companies in seeking such foreign business opportunities can be brought to the attention of appropriate U.S. government officials, including local embassy personnel and through the Department of Commerce Trade Compliance Center “Report a Trade Barrier” Website at tcc.export.gov/Report_a_Barrier/index.asp.

Guidance on the U.S. FCPA: The Department of Justice’s (DOJ) FCPA Opinion Procedure enables U.S. firms and individuals to request a statement of the Justice Department’s present enforcement intentions under the anti-bribery provisions of the FCPA regarding any proposed business conduct. The details of the opinion procedure are available on DOJ’s Fraud Section Website at www.justice.gov/criminal/fraud/fcpa. Although the Department of Commerce has no enforcement role with respect to the FCPA, it supplies general guidance to U.S. exporters who have questions about the FCPA and about international developments concerning the FCPA. For further information, see the Office of the Chief Counsel for International Commerce, U.S. Department of Commerce, Website, at http://www.ogc.doc.gov/trans_anti_bribery.html. More general information on the FCPA is available at the Websites listed in the web resources at the end of this section.

Exporters and investors should be aware that generally all countries prohibit the bribery of their public officials, and prohibit their officials from soliciting bribes under domestic laws. Most countries are required to criminalize such bribery and other acts of corruption by virtue of being parties to the various international conventions discussed above.

Anti-Corruption Activities in Malawi:

Although progress has been made addressing the issue, corruption continues to be viewed as a major obstacle to doing business in Malawi. There have been serious allegations of corruption, particularly in the area of customs and excise tax, traffic police, immigration and government procurement. The Corrupt Practices Act provides the legal framework for combating corruption in Malawi.

The Anti-Corruption Bureau (ACB) is legally mandated to investigate corruption in Malawi. Opened in 1997 and fully staffed in 1998, the ACB has thus far brought forward a small number of high-level cases, including cases against a former Minister of Transport and Public Works (acquitted), the former Chief Executive Officer of the Petroleum Control Commission (sentenced to six years imprisonment), and the former Mayor of the City of Blantyre (who served a nine month sentence). The ACB has had difficulties in getting high-level cases prosecuted. Malawi's Law Commission recommended in 2002 that the ACB be authorized to prosecute cases directly, rather than through the politically appointed Director of Public Prosecutions (DPP). Legislation to that effect was drafted in 2003, but was not passed. Instead, a revision to the Corrupt

Practices Act, which mandated the DPP to report to Parliament on any cases the DPP does not give consent to prosecute, was passed in 2004.

Soon after his first election win in 2004, President Bingu wa Mutharika stated that the fight against corruption was a priority. However, investigations and trials have moved at a slow pace. In 2008, high-profile cases that were brought to trial included a former cabinet minister and a CEO of the utility company. Former President Bakili Muluzi is currently facing corruption charges in court.

Malawi subscribes to the provisions of the OECD Anti-bribery Convention, but is not a signatory of the Convention. Malawi's Penal Code prohibits bribery. Giving or receiving a bribe—whether to or from a Malawian or foreign official—is a crime under Malawi’s penal code.

Anti-Corruption Resources

Some useful resources for individuals and companies regarding combating corruption in global markets include the following:

  • Information about the U.S. Foreign Corrupt Practices Act (FCPA), including a “Lay-Person’s Guide to the FCPA” is available at the U.S. Department of Justice’s Website at: http://www.justice.gov/criminal/fraud/fcpa.
  • Information about the OECD Anti-bribery Convention including links to national implementing legislation and country monitoring reports is available at: http://www.oecd.org/department/0,3355,en_2649_34859_1_1_1_1_1,00.html. See also new Anti-bribery Recommendation and Good Practice Guidance Annex for companies: http://www.oecd.org/dataoecd/11/40/44176910.pdf
  • General information about anticorruption initiatives, such as the OECD Convention and the FCPA, including translations of the statute into several languages, is available at the Department of Commerce Office of the Chief Counsel for International Commerce Website: http://www.ogc.doc.gov/trans_anti_bribery.html.
  • Transparency International (TI) publishes an annual Corruption Perceptions Index (CPI). The CPI measures the perceived level of public-sector corruption in 180 countries and territories around the world. The CPI is available at: http://www.transparency.org/policy_research/surveys_indices/cpi/2009. TI also publishes an annual Global Corruption Report which provides a systematic evaluation of the state of corruption around the world. It includes an in-depth analysis of a focal theme, a series of country reports that document major corruption related events and developments from all continents and an overview of the latest research findings on anti-corruption diagnostics and tools. See http://www.transparency.org/publications/gcr.
  • The World Bank Institute publishes Worldwide Governance Indicators (WGI). These indicators assess six dimensions of governance in 212 countries, including Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption. See http://info.worldbank.org/governance/wgi/sc_country.asp. The World Bank Business Environment and Enterprise Performance Surveys may also be of interest and are available at: http://go.worldbank.org/RQQXYJ6210.
  • The World Economic Forum publishes the Global Enabling Trade Report, which presents the rankings of the Enabling Trade Index, and includes an assessment of the transparency of border administration (focused on bribe payments and corruption) and a separate segment on corruption and the regulatory environment. See http://www.weforum.org/en/initiatives/gcp/GlobalEnablingTradeReport/index.htm.
  • Additional country information related to corruption can be found in the U.S. State Department’s annual Human Rights Report available at http://www.state.gov/g/drl/rls/hrrpt/.
  • Global Integrity, a nonprofit organization, publishes its annual Global Integrity Report, which provides indicators for 92 countries with respect to governance and anti-corruption. The report highlights the strengths and weaknesses of national level anti-corruption systems. The report is available at: http://report.globalintegrity.org/.
  • The website for the Malawi Anti-Corruption Bureau is: http://www.anti-corruptionbureau.mw

Bilateral Investment Agreements

Malawi's policy is to negotiate bilateral investment treaties with countries whose nationals opt to invest in Malawi. The country is a party to a number of multilateral, regional and bilateral trade agreements, offering wider access and preferential treatment for the export of Malawian products. These agreements are already being utilized. The multilateral and regional trade agreements include:

  • Common Market for Eastern and Southern Africa (COMESA): COMESA has a potential market of 443 million people and a combined GDP of over US$518 billion. Member states within the COMESA have continued to take steps to consolidate the Free Trade Area in preparation for the forthcoming transition of the COMESA Free Trade Area into a Customs Union. A customs union was launched on June 7, 2009. COMESA has signed a Trade and Investment Framework Agreement (TIFA) with the United States.
  • Southern African Development Community (SADC): The SADC region has a potential market of 277 million people and a combined GDP of US$575.5 billion. Under SADC, Malawi is committed to reducing tariffs on intra-SADC trade progressively. Tariff reductions for all member states (except for DRC and Angola) started in January 2000. SADC was to have achieved Free Trade Area status on January 1, 2008, but as of January 2013 few countries had completed their tariff phase downs.
  • Negotiations are on-going for the establishment of a COMESA-EAC-SADC Tripartite Free Trade Area. African Growth Opportunities Act (AGOA): AGOA offers duty and quota-free access to the United States market of 312 million people for 1,800 products, in addition to the standard Generalized System of Preferences (GSP) program.
  • Everything But Arms (EBA): This initiative extends duty-and quota-free access to the European Union market for all imports from Least Developed Countries, except arms. Minor variations apply to bananas, sugar and rice. Full liberalization took place for these commodities in 2009.

Bilateral trade agreements exist with South Africa, Zimbabwe, and Mozambique, and a customs agreement is in place with Botswana. In addition, trade agreements are currently under consideration with Zambia and Tanzania. These offer considerable opportunities for increased trade and investment.

High transportation costs make the immediate neighbors (Tanzania, Mozambique, Zambia, Zimbabwe, etc.) critical markets for Malawi.

Malawi acceded to the Multilateral Investment Guarantee Agency (MIGA) in 1985/86. Malawi has not renewed several investment treaties that lapsed after 1986, since MIGA provides mechanisms for the settlement of investment disputes. Malawi also signed investment promotion and protection agreements (IPPAs) with the OPEC Fund for International Development, Libya, Italy, Netherlands and Zimbabwe.

OPIC and Other Investment Insurance Programs

Malawi has had an OPIC investment guarantee agreement since 1967. In August 1999 the U.S. Export-Import Bank included Malawi under its new Africa Short-term Export Credit Insurance Program.

Labor

The Government of Malawi estimates that more than half of the population is of working age. Unskilled labor is plentiful. Skilled and semi-skilled labor is scarce. Occupational categories with skills shortages include accountants and related personnel, economists, engineers, primary and secondary school teachers, lawyers, and medical/health personnel. The University of Malawi provides bachelors and masters degrees in economics, engineering, medicine, education, agriculture and administration. The Malawi College of Accountancy teaches accounting. Chancellor College operates the country's law school. In early 1999, the government established the Technical, Entrepreneurial and Vocational Education and Training Authority (TEVETA) program to address technical skills shortages in industry.

The Labor Relations Act (LRA), enacted in 1997, governs labor-relations management in Malawi. The Act allows strikes and lockouts for registered workers and employers after dispute settlement procedures in collective agreements and conciliation have failed. As trade union rights have existed only since the transition to multiparty democracy in 1994, industrial relations are still evolving. Employers, labor unions, and the government lack sufficient knowledge of their legitimate roles in labor relations/disputes.

Workers have the legal right to form and join trade unions. Twenty-nine unions are registered. Union membership is low, however, given the small percentage of the work force in the formal sector, the lack of awareness of worker rights and benefits, and a resistance on the part of many employees to join unions. Only 18% of people employed in the formal sector belong to unions. Unions may form or join federations and have the right to affiliate with and participate in the affairs of international workers' organizations. While the government is a signatory to the ILO Convention protecting worker rights, mechanisms for enforcing the provisions of the convention are weak. There are serious manpower shortages at the Ministry of Labor, resulting in very few labor-standards inspections.

Foreign Trade Zones/Free Trade Zones

Legislation for the establishment of export processing zones (EPZs) came into force in 1995. All companies engaged exclusively in manufacture for export may apply for EPZ status. As of November 2012, 16 were operating under the EPZ scheme. Almost all these companies are foreign owned companies though the law does not discriminate on ownership. A Manufacturing Under Bond (MUB) scheme offers slightly less attractive incentives to companies that export some, but not all, of their products. Most investors prefer to operate under EPZ arrangement.

Foreign Direct Investment Statistics

Malawi is one of the least developed and most densely populated countries in the world. Malawi’s economy is based on agriculture which accounts for over 30% of GDP and 90% of export revenues. Small shareholder agriculture is the source of income for more than 80% of population. Malawi's economy depends on substantial inflows of foreign aid from the IMF, the World Bank, and individual donor nations.

Both the Reserve Bank of Malawi (RBM) and the Malawi Investment and Trade Center (MITC) maintain records on the value and composition of Foreign Direct Investment (FDI) in Malawi. Neither the RBM nor MITC, however, currently capture actual FDI figures. The following chart shows the amount of FDI into Malawi since 2005 as well as its relative percentage of the GDP for that year

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

Year

FDI Inflows (US$)

% GDP

2005

52,327,161

1.8

2006

72,192,866

2.3

2007

92,055,126

2.6

2008

195,424,461

4.6

2009

49,130,855

1

2010

97,010,028

1.8

2011

92,407,704

1.6

Source: Source International Monetary Fund, International Financial Statistics and Balance of Payments databases, and World Bank, Global Development Finance.

Foreign Direct Investment (FDI) from 2005 to 2011 ranged from 1 to 4.6% of GDP. The prospect for future FDI is bright following government’s move to devalue and float the currency, the Malawi Kwacha. Malawi’s government is implementing its economic recovery plan that is expected to stimulate the growth of the economy and attract foreign direct investment. The economy is likely to grow by between 4.6% to 5.5% in 2013 according to international forecasts. The liberalization of the exchange rate regime is an important step towards improving Malawi’s investment climate.

Web Resources

Corruption Resources

[This is a mobile copy of Malawi]