VZCZCXRO5491
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLG #0554/01 2811402
ZNR UUUUU ZZH
P 081402Z OCT 09
FM AMEMBASSY LILONGWE
TO RUEHC/SECSTATE WASHDC PRIORITY 0788
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC 0554

UNCLAS SECTION 01 OF 04 LILONGWE 000554 
 
SIPDIS 
 
STATE FOR AF/EPS - GABRIELLE MALLORY, AF/S - PHAEDRA GWYN 
COMMERCE FOR KEVIN BOYD 
TREASURY FOR ANTHONY IEROMINO 
STATE PASS USTR FOR CONSTANCE HAMILTON 
 
E.O. 12958: N/A 
TAGS: ETRD ECON XA MI
SUBJECT:  MALAWI - AGOA ELIGIBILITY REVIEW 
 
REF: STATE 97769 
 
¶1.  Per reftel request, 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 population is approximately 13 
million and GDP at current prices is USD 4.6 billion.  Agriculture 
forms the mainstay of Malawi's economy, accounting for over one 
third of GDP.  Tobacco, tea, and sugar together generate over 80 
percent of export earnings, with tobacco alone providing 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 country has enjoyed four years of 
food surplus. 
 
The Government has demonstrated strong macroeconomic management for 
the past four years and the country generally enjoys macroeconomic 
stability.  Interest rates are stable.  A single digit inflation 
rate has prevailed since February 2007.  Government has held the 
exchange rate unchanged for the last three years, despite increasing 
pressure on foreign exchange reserves, which fell to less than one 
month's import cover in mid-2009.  The construction of a major new 
uranium mine in the north of the country contributed significantly 
to a substantial rise in foreign direct investment over the past 
five years. 
 
AGOA continues to play an important role in the economy.  AGOA 
exports of about USD 30 million constitute close to three percent of 
total exports.  AGOA exporters employ a significant number of 
people, although the number has declined recently due to reduced 
orders.  Over 4000 Malawians are currently employed in 
AGOA-registered apparel companies.  The Government of Malawi is keen 
to maintain its AGOA eligibility status. 
 
Malawian President Bingu wa Mutharika was re-elected in May 2009 for 
a second and final term in presidential and parliamentary elections 
that were generally acknowledged to have been free and fair. 
 
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. 
 
** The Government instituted a privatization program in 1996 and 
several companies have been privatized. 
 
** 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 industrial licensing, liberalization of trade, 
rationalization of taxes, privatization of state-owned enterprises, 
and civil service reform. 
 
** Malawi has enjoyed macroeconomic stability over the past four 
years. 
 
** Malawi operates a liberal import- and export-licensing system 
with restrictions largely based on health, safety and national 
security reasons. 
 
** Current Account transactions are generally 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 December 2007, Malawi was selected by the Millennium Challenge 
Corporation (MCC) as "compact eligible."  Development is underway on 
 
LILONGWE 00000554  002 OF 004 
 
 
a compact proposal with a signing target in mid-2010. 
 
¶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 
 
** Severe shortages of foreign exchange have led to a system of 
rationing that hampers the private sector's ability to pay for 
imports. 
 
** The Government requires that all dollar payments for tobacco be 
deposited with the Reserve Bank of Malawi. 
 
** Capital account transactions are still controlled. 
 
** The Government of Malawi has displayed an increased willingness 
to intervene in the market.  Minimum buying prices have been set for 
tobacco, maize and cotton.  In September 2009 four senior executives 
from three major tobacco buying companies were deported on the 
grounds that the low prices being paid at auction were exploiting 
Malawi's farmers. 
 
** 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. 
[The ban on private trade was lifted in June, 2009.] 
 
II. Political Reform/Rule of Law/Anti-Corruption: 
 
¶A. Major Strengths: 
 
** Malawi has an independent judiciary. 
 
** There is a free press with significant independent 
participation. 
 
** Malawi has functioning good governance institutions such as an 
Office of the Ombudsman, a Law Commission and a Human Rights 
Commission. 
 
** Malawi has held four democratic presidential and parliamentary 
elections since 1994.  Elections in 2009 were peaceful and generally 
acknowledged to have been free and fair. 
 
** 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. 
 
** A functioning anti-corruption bureau exists. 
 
¶B. Major Issues: 
 
** Constitutionally mandated local government elections scheduled 
for 2005 were never held.  There has been no official announcement 
concerning a firm date for local elections in 2010. 
 
** The judiciary is inefficient, largely due to lack of human 
capital, equipment, and finances. 
 
** During the 2004-2009 term, presidential and ruling party 
obstructionism prevented implementation of Constitutional provisions 
regarding Members of Parliament changing political parties. 
 
** While independent media are allowed to operate without major 
interference, state controlled television and radio are used as 
propaganda tools against opposition parties. 
 
III. Poverty Reduction: 
 
¶A. Major Strengths: 
 
** Government has sponsored an agricultural input subsidy for the 
past five years that has improved food security for the rural and 
urban poor. 
 
** Government has begun directing resources towards a "Green-Belt 
Initiative" promoting irrigation programs to decrease the country's 
dependence on rain-fed agriculture. 
 
** Government allocates significant resources to primary education 
 
LILONGWE 00000554  003 OF 004 
 
 
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 been inadequately targeted, 
with some legitimate claims of politicization.  Its cost represents 
the bulk of the budget for the Ministry of Agriculture and is widely 
considered unsustainable. 
 
IV. Workers' Rights/Child Labor/Human Rights: 
 
¶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 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. 
 
** 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 the small workforce in the formal 
sector and lack of awareness about the benefits of such membership. 
 
** Although outreach and investigations have reduced child labor on 
commercial tea and tobacco farms, it remains a problem in 
smallholder agriculture. 
 
** Prison conditions remain harsh.  Prison authorities lack the 
resources to make improvements. 
 
** Prisoners on remand often experience long waits before being 
brought to trial, especially for murder cases.  The judiciary lacks 
the resources to try cases in a timely manner. 
 
** Trial by jury is not guaranteed by law.  Trial by jury in murder 
cases has been indefinitely suspended. 
 
 
** HIV/AIDs and malaria remain the largest threats to human life and 
the labor force. 
 
¶V. 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 (FIU) has just been established 
with the help of United States Government through the MCC Threshold 
Program.  The FIU investigates irregular and large value monetary 
transactions. 
 
¶B. Major Issues: 
 
** Porous and unmonitored borders limit the Government's ability to 
control or monitor the entry or movement of foreign elements. 
 
LILONGWE 00000554  004 OF 004 
 
 
 
** Malawi has become an established transit country for 
immigrants/refugees traveling to South Africa from north and east 
Africa, including Somalia.  Limited Government capacity to monitor 
this flow leaves Malawi vulnerable to extremists in this 
population. 
 
SULLIVAN