VZCZCXRO9869
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLG #0596/01 2810351
ZNR UUUUU ZZH
P 070351Z OCT 08
FM AMEMBASSY LILONGWE
TO RUEHC/SECSTATE WASHDC PRIORITY 0053
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

UNCLAS SECTION 01 OF 03 LILONGWE 000596 
 
SIPDIS 
 
DEPT FOR AF/EPS - ANN BREITER AND GABRIELL MALLORY, AF/S - ELIZABETH 
PELLETREAU 
DEPT PLEASE PASS TO USTR FOR CONNIE HAMILTON 
 
E.O. 12958: N/A 
TAGS: ETRD ECON XA MI
SUBJECT: AGOA ELIGIBILITY REVIEW - MALAWI 
 
REF: STATE 85086 
 
¶1.   Per REFTEL, Embassy Lilongwe submits the following updated AGOA 
eligibility information in the requested format. 
 
¶2.  Country: MALAWI 
Current AGOA Status: Eligible 
 
Country Background Summary:  Malawi's current estimated population 
is about 13 million and GDP at current prices is USD 3.8 billion. 
Agriculture forms the mainstay of Malawi's economy and it accounts 
for over a third of its GDP.  Tobacco, tea, and sugar together 
generate over 80 percent of export earnings, with tobacco providing 
the lion's share (over 60 percent).  The agricultural sector employs 
nearly half of those in formal employment, and directly or 
indirectly supports an estimated 85 percent of the population.  The 
government has for the past three years demonstrated strong 
macroeconomic management.  Macroeconomic stability has been 
restored.  Interest rates are stable and prospects for further 
decline in interest rates are high considering that Malawi goes for 
general and presidential elections next year.  A single digit 
inflation rate has prevailed since February 2007. The exchange rate 
has been stable and predictable for the last three years.  The 
country has enjoyed three years of food surplus.  Foreign direct 
investment has tripled over the same period.  AGOA continues to play 
an important role in the economy.  AGOA exports of over USD 30 
million constitute close to 8 percent of total exports.  AGOA 
exporters employ a significant number of people; close to 5000 
Malawians are currently employed in AGOA-registered apparel 
companies.  The government of Malawi is keen to maintain its AGOA 
eligibility status. 
 
 
Comments on Eligibility Requirements 
 
¶I. Market-based Economy: 
 
¶A. Major Strengths: 
 
** Malawi has been following a market-based economy since its 
independence from Britain in 1964. 
 
** Government participation in the market has existed along side the 
private sector, although the role of the private sector has grown 
substantially over the years. 
 
** To speed up the government's intention to have a private 
sector-led economy, the government instituted a privatization 
program in 1996 and several companies have been privatized; others 
are still being considered for privatization. 
 
** Government has pursued a number of reform programs to improve the 
economic environment with support of various donors including the 
IMF and World Bank.  Development programs have been initiated to 
improve infrastructure, utilities, human capital and institutional 
management.  The reforms being undertaken are broad and include 
stimulation of private sector activity and participation through the 
elimination of price controls and industrial licensing, 
liberalization of trade and foreign exchange, rationalization of 
taxes, privatization of state-owned enterprises, and civil service 
reform. 
 
** Malawi's macroeconomic stability has greatly improved over the 
past three years. 
 
** Malawi operates a liberal import- and export-licensing system 
with restrictions largely based on health, safety and national 
security reasons. 
 
** All Current Account transactions are fully liberalized. 
 
** Domestic protection through tariffs is gradually diminishing as 
the government continues to shift sources of revenue collection from 
customs duties to consumption and direct taxes. 
 
** In 2007, government established a commercial court division in 
the Malawi High Court to facilitate resolution of commercial 
disputes. 
 
** In June 2008 Malawi completed a successful Millennium Challenge 
Account Threshold program focused on control of corruption, 
legislative and judicial strengthening, promoting independent media 
coverage, and expanding and intensifying the work of civil society 
organizations. 
 
** In December 2007, Malawi was selected by the Millennium Challenge 
Corporation (MCC) as "compact eligible;" development is underway on 
a compact proposal for submission to MCC in 2009. 
 
 
LILONGWE 00000596  002 OF 003 
 
 
¶B. Major Issues: 
 
** Barriers to economic growth, investment and trade include high 
transport costs, poor infrastructure, unreliable utility services 
especially water and energy, limited access to technology and 
credit, lack of capacity for quality accreditation and limited 
industrial skills 
 
** Capital account transactions are still controlled. 
 
** In 2008, the Government of Malawi displayed an increased 
willingness to intervene in the market.  Minimum buying prices were 
set for tobacco, maize and cotton; government has indicated it may 
set minimum prices for other agricultural commodities next year. 
 
** In August 2008, Government banned all private trade of maize, 
designating the parastatal Agricultural Development and Marketing 
Corporation (ADMARC) as the sole dealer, with set buying prices. 
 
 
¶2.  Rule of Law/Political Pluralism/ Anti-Corruption: 
 
¶A. Major Strengths: 
 
** Malawi has an independent judiciary. 
 
** There is a free press with significant independent 
participation. 
 
** Malawi has strong governance institutions such as the Office of 
the Ombudsman, Law Commission and the Malawi Human Rights 
Commission. 
 
** Malawi has held three democratic presidential and parliamentary 
elections since 1994. 
 
** A functioning anti-corruption bureau exists. 
 
¶B. Major Issues: 
 
** Local government elections, scheduled for 2005, have still not 
been held. 
 
** The judiciary is inefficient, largely due to lack of resources 
such as human capital, equipment and finances. 
 
** Continued political feuding has delayed action on needed economic 
legislation, such as development loans, and undermines confidence in 
continued economic stability.  Passage of the 2008-2009 budget was 
delayed for three months. 
 
** The President has refused to implement a constitutional provision 
regarding parliamentary floor-crossing, drawing criticism for not 
respecting the rule of law. 
 
** While independent media are allowed to operate without major 
interference, State television and radio are used as propaganda 
tools against opposition parties. 
 
 
¶3.  Poverty Reduction: 
 
¶A. Major Strengths: 
 
** Government for the past four years has sponsored an agricultural 
input subsidy that has improved food security for the rural and 
urban poor. 
 
** Government has also begun directing resources toward irrigation 
programs to diminish the country's dependence on rain-fed 
agriculture. 
 
** Government allocates significant resources to primary education 
and health services targeting the rural poor, and such resources are 
protected in the national budget. 
 
** Government is implementing a poverty reduction program with 
assistance from the IMF, World Bank and other donors.  These 
programs target the promotion of education, health, agriculture and 
private sector development. 
 
¶B. Major Issues: 
 
** The fertilizer subsidy program has not been adequately targeted, 
and currently represents the bulk of the budget for the Ministry of 
Agriculture. 
 
 
¶4.  Human Rights/Labor/Child Labor: 
 
LILONGWE 00000596  003 OF 003 
 
 
 
¶A. Major Strengths: 
 
** The government generally respects the human rights of its 
citizens. 
 
** Malawi labor laws cover the majority of the International Labor 
Organization's core labor standards. 
 
** Workers have the right to freely associate and to bargain 
collectively.  Unions must register with the Ministry of Labor, but 
this is largely a formality. 
 
** On child labor, Malawi's constitution and employment laws comply 
with the ILO Convention 182.  The Malawi constitution complies with 
the Minimum Age Convention (ILO 138) and the Worst Forms of Child 
Labor Convention (ILO 182).  Malawi has ratified both conventions. 
 
** The government in association with the private sector, unions, 
employers and other stakeholders has developed and implemented a 
national Code of Conduct on Child Labor and placed child labor 
officers in each district of the country. 
 
** Government has established Child Labor District/Area Committees, 
Child Labor Inspectors and Child Labor Youth Activists.  All have 
been trained on child labor monitoring and reporting.  The Child 
Labor Youth Activists have been equipped with bicycles donated by 
UNICEF. 
 
** Child labor offenders have been prosecuted and, if convicted can 
be sentenced to up to five years in prison. 
 
 
¶B. Major Issues: 
 
** Union membership is low due to small workforce in the formal 
sector and lack of awareness about the benefits of such membership. 
 
** Incidences of child labor seem not to be abating despite 
government child labor elimination programs.  Many children continue 
to be engaged in the agricultural sector, especially on tenant 
farms. 
 
** Incidences of tampering with freedom of the press have been 
reported though justified on account of irresponsible journalism. 
 
** Prison conditions continue to remain harsh and a threat to human 
rights. 
 
** Prisoners on remand often experience long waits before being 
brought to trial, especially for murder cases.  The judiciary 
continues to lack resources to try such cases in a timely manner. 
 
** HIV and AIDs remain the biggest threat to human life and the 
labor force. 
 
¶5. International Terrorism/U.S. National Security 
 
¶A. Major Strengths: 
 
** Malawi passed the Money Laundering, Proceeds, and Serious Crimes 
and Terrorist Financing Act in August 2006 to address money 
laundering and terrorist financing. 
 
** A Financial Intelligence Unit has just been established with the 
help of United States government through the MCC Threshold Program 
that investigates irregular and large value monetary transactions. 
 
¶B. Major Issues:  None. 
 
SULLIVAN