VZCZCXRO8018
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLG #0033/01 0141330
ZNR UUUUU ZZH
R 141330Z JAN 10
FM AMEMBASSY LILONGWE
TO RUEHC/SECSTATE WASHDC 0245
INFO RUEATRS/DEPT OF TREASURY WASHDC 0562
RUCPDOC/DEPT OF COMMERCE WASHDC
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHMU/AMEMBASSY MANAGUA 0008

UNCLAS SECTION 01 OF 09 LILONGWE 000033 
 
SIPDIS 
 
DEPT FOR EB/IFD/OIA 
MANAGUA FOR CHRISTOPHER NYCE 
DEPT PLEASE PASS TO USTR WASHDC 
 
E.O. 12958: N/A 
TAGS: KTDB EINV EFIN ETRD ELAB PGOV MI
SUBJECT:  MALAWI: 2010 INVESTMENT CLIMATE STATEMENT 
 
REF: SECSTATE 124006 
 
OPENNESS TO FOREIGN INVESTMENT 
--------------------------------------------- ---------- 
 
¶1. The government encourages both domestic and foreign investment in 
most sectors of the economy without restrictions on ownership, size 
of investment, source of funds, and destination of 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; 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 done little to simplify or streamline the process to 
attract increased investment. 
 
¶2. 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, lack of skilled 
labor, and government market interventions.  After several years of 
steady increases, investment pledges in 2009 declined by 23.6 
percent from 2008.  Investment pledges in 2009 totaled about 2.6 
percent of GDP. 
 
¶3. Malawi has so far privatized 65 formerly state-owned enterprises. 
 A plan to privatize another 65 public enterprises has stalled for 
the past year pending cabinet approval. 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 percent of any class or 
category of security under the program; and limit maximum total 
foreign investment in any portfolio to 49 percent.  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. 
 
¶4. 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 MCC indices are measured 
against the group of low income countries (per capita income less 
than US$1,855). 
 
Measure     Year  Index/Ranking 
-----------     ------  ------------------- 
 
TI Corruption Index    2009  3.3 (rank 89 of 180) 
 
Heritage Economic Freedom   2009  53.7 (rank 129 of 179) 
 
World Bank Doing Business   2010  Rank 132 (of 183) 
 
MCC Government Effectiveness  2009  0.14 (73%) 
(World Bank Worldwide Governance Indicators 2008) 
 
MCC Rule of Law    2009  0.60 (90%) 
(World Bank Worldwide Governance Indicators 2008) 
 
MCC Control of Corruption   2009  0.19 (69%) 
(World Bank Worldwide Governance Indicators 2008) 
 
MCC Fiscal Policy    2009  -2.5 (37%) 
(National sources/IMF WEO) 
 
MCC Trade Policy    2009  68.6 (55%) 
(Heritage Foundation) 
 
MCC Regulatory Quality   2009  0.24 (73%) 
(World Bank Worldwide Governance Indicators 2008) 
 
MCC Business Start Up   2009  0.864 (32%) 
 
LILONGWE 00000033  002 OF 009 
 
 
(IFC Doing Business 2010 report) 
 
MCC Land Rights Access   2009  0.70 (72%) 
(IFAD/IFC) 
 
MCC Natural Resource Management  2009  76.12 (87%) 
(CIESN/YCELP Natural Resource Management Index 2009) 
 
 
CONVERSION AND TRANSFER POLICIES 
--------------------------------------------- ---------- -- 
 
¶5. 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 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.  In 2009 Malawi 
experienced uncharacteristic foreign exchange shortages even during 
the tobacco auction season.  As of December 2009, foreign reserves 
equaled approximately one month of import cover. 
 
EXPROPRIATION AND COMPENSATION 
--------------------------------------------- ---------- - 
 
¶6. 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 expropiratory effects are occasionally 
imposed, however; in 2008 the government imposed an export ban 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 MSE-listed companies 
requiring significant technical and financial resources. 
 
¶7. 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 and the bill is 
currently being scrutinized by the Parliamentary Committee on Lands 
and Natural Resources before submission to the National Assembly 
(Parliament) for a vote.  Since July 2000, the Malawi Government 
stopped issuing freehold land in anticipation of new legislation. 
Pending since 2002, the new land bill has yet to be presented to 
Parliament. 
 
¶8. 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 
--------------------------------- 
 
LILONGWE 00000033  003 OF 009 
 
 
 
¶9. 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 that are 
expeditiously working toward the improvement of the court system in 
Malawi. The Commercial Court in Blantyre currently has three judges, 
and a fourth position remains vacant. The Lilongwe division of the 
Commercial Court is not yet open and will be manned by two judges. 
The lack of a registry for the commercial division still hampers its 
functioning.  Currently, there is a fully established mediation 
process to promote agreements between parties in disputes before 
court proceeding starts. 
 
¶10.  Although processing of commercial cases has significantly 
improved in the court system, enforcement of judgments continues to 
be a problem.  The Commercial Court has no dedicated enforcement 
sheriffs.  Sheriffs assigned to the High Court are used, who do not 
accord priority to commercial enforcements.  By mid-September, 2008, 
only 50 percent of judgments passed had been enforced. 
 
¶11. 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. 
 
¶12. 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, and 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 set up dedicated 
Commercial Courts. 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 throughout 2009. 
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, referring actionable cases to competent authorities. 
It is also mandated to monitor compliance by reporting 
institutions. 
 
¶13. 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/INCENTIVES 
--------------------------------------------- ---------- ---------- 
 
¶14. Malawi is not in compliance with WTO Trade Related Investment 
Measures (TRIM) notification requirements.  However, 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. 
 
¶15. Malawi offers the following incentives, which apply equally to 
domestic and foreign investors: 
 
GENERAL INCENTIVES 
* 100 % 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 
* Additional 15 % allowance for investment in designated areas of 
the country 
* Duty-free importation of buses with a seating capacity of 45 
persons (including the driver) and above 
* Duty-free direct importation of building materials for factories 
 
LILONGWE 00000033  004 OF 009 
 
 
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) 
* Zero corporate tax rate 
* 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 12 % 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 
* A timely refund of all duties (duty drawback) on imports of raw 
materials and packaging materials used in the production of 
exports. 
There are also additional incentives for the horticulture, mining 
and tourism. 
 
¶16. The above incentives are applied consistently.  Foreign 
investors are generally accorded national treatment.  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 books of accounts, address of the company secretary, and 
names of directors and shareholders.  There is also a requirement 
that at least two Malawian residents be appointed directors for such 
subsidiary company. 
 
¶17. 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). 
 
¶18. 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. 
 
¶19. 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 amount of investment, status of applicant (investor, 
retiree, student, or spouse of a Malawi citizen) and period of 
business assignment.  The maximum number of resident permits per 
organization is five, with the actual number allowed depending on 
the amount of investment. 
 
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHEMENT 
--------------------------------------------- ---------- 
-------------------------- 
 
¶20. 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 
 
LILONGWE 00000033  005 OF 009 
 
 
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. 
Public enterprises compete equally with private entities with 
respect to access to markets, credit and other business operations. 
 
PROTECTION OF PROPERTY RIGHTS 
--------------------------------------------- ------- 
 
¶21. 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.). 
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. 
 
¶22. 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 and the Registrar General to align relevant domestic 
legislation with the WTO TRIPs agreement with technical assistance 
from the Africa Regional Intellectual Property Organization 
(ARIPO). 
 
TRANSPARENCY OF THE REGULATORY SYSTEM 
--------------------------------------------- --------- 
--------------- 
 
¶23. Malawi's industrial and trade reform program -- including 
rationalization of the tax system, liberalization of the foreign 
exchange regime, and elimination of trade and industrial licenses on 
several items and businesses -- has produced written guidelines 
intended to increase government use of transparent and effective 
policies to foster competition.  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 -- 
tobacco, cotton, sugar, and maize -- petroleum products, and 
state-provided utilities are regulated.  In recent years 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' license.  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 government-set minimum prices for cotton were deemed too 
high for profitable operations. 
 
¶24. There have been positive steps towards increasing regulatory 
transparency and improving the foreign investment environment. These 
developments include:  establishment of the Malawi Energy Regulatory 
Authority (MERA), 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 the Malawi Posts Corporation (MPC) and Malawi 
Telecommunications Limited (MTL) as separate entities.  MTL has 
since been privatized. The state-owned Petroleum Control Commission 
(PCC) relinquished its monopoly on petroleum imports in May 2000, 
allowing the private sector to import Malawi's entire fuel 
requirement.  PCC now has a largely regulatory function within the 
petroleum sector, although fuel prices are still controlled. 
 
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
--------------------------------------------- ---------- 
--------------------------------- 
 
¶25. Traditionally the Reserve Bank of Malawi has pursued a tight 
monetary policy to bring down the level of inflation.  In the recent 
 
LILONGWE 00000033  006.2 OF 009 
 
 
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 percent in 2005 to 7.9 percent 
in 2007.  Rising fuel and food prices in 2008 pushed the inflation 
rate for the year to 8.7 percent.    The Bank rate has declined 
considerably over the past five years, from 45 percent in 2004 to 15 
percent in 2008, where it remains.  The lending rate for commercial 
borrowers has correspondingly also declined.  As a result, there has 
been an increase in credit extension to the private sector over the 
same period. 
 
¶26. The Malawi kwacha trades as a heavily managed float against the 
dollar. After remaining unchanged for over five years, the rate was 
allowed to depreciate in late 2009, falling from 143 to 146 to the 
dollar at the end of December 2009.  Continuing shortages of foreign 
exchange put pressure on the kwacha and further depreciation is 
expected in 2010. 
 
¶27. 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. 
 
¶28. Malawi has a sound banking sector, overseen and well regulated 
by the Reserve Bank of Malawi -- its central bank.  There are ten 
full-service commercial banks: Ecobank, First Merchant Bank Limited; 
Indebank; National Bank of Malawi (NBM); Standard Bank (SB); First 
Discount Merchant Bank; New Building Society Bank; Malawi Savings 
Bank; Nedbank; and Opportunity International 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, and First Discount 
House.  Malawi's three largest banks command 60 percent of the 
market, with a total capitalization of $952 million. 
 
¶29. 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). 
 
¶30. 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. 
 
¶31. 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 15 companies are listed on the MSE: 
Blantyre Hotels Limited (BHL), First Merchant Bank (FMB), ILLOVO 
Malawi Limited, Malawi Properties Investment Company (MPICO), 
National Bank of Malawi (NBM), NBS Bank, NICO, National Investment 
Trust Limited (NITL), Press Corporation Limited (PCL), Packaging 
Industries of Malawi (PIM), Real Insurance Malawi, Standard Bank 
(Malawi), Old Mutual, Sunbird Tourism Limited, and Telecom Network 
Malawi Limited. 
 
¶32. The MSE is still in a nascent stage, and hostile takeovers have 
not yet occurred.  Apart from the restrictions under the 
privatization program, 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 will regulate mergers, 
acquisitions, and takeovers that are of national interest. 
 
¶33. 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 
Trade and Private Sector Development appointed competition 
commissioners, who in 2006 established a secretariat to oversee the 
Act's implementation.  The secretariat approves only those 
acquisitions, mergers or takeovers that increase employment and net 
exports, and lower prices for consumers. 
 
COMPETITION FROM STATE OWNED ENTERPRISES 
--------------------------------------------- ---------- 
----------------- 
 
 
LILONGWE 00000033  007 OF 009 
 
 
¶34. 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 are no set rules or criteria on 
such exceptions -  Government tends to decide on case by case basis. 
 For the past two years Government has excluded the private sector 
from participation in its Agricultural Input Subsidy Program.  State 
Owned Enterprises (SOEs) tend to be very active in energy, water, 
agriculture, tourism, health and education. 
 
¶35. All SOEs have an independent 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 members.  All SOEs 
produce annual reports, which are audited by independent 
professional audit firms. 
 
CORPORATE SOCIAL RESPONSIBILITY 
--------------------------------------------- ---------- 
 
¶36. 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 
--------------------------------- 
 
¶37. Malawi has been largely free of political violence since gaining 
independence in 1964.  Apart from the disarming of the paramilitary 
group, the Malawi Young Pioneers, incidents of violence associated 
with Malawi's 1994 transition to democracy 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.  Although 
divisions do exist, Malawi has no significant tribal, religious, 
regional, ethnic, or racial tensions that could be expected to lead 
to violent confrontation. 
 
¶38. Incidents of labor unrest occasionally occur, but these are 
usually tame affairs.  There are no nascent insurrections, 
belligerent neighbors, or other politically motivated activities of 
major concern to investors. 
 
CORRUPTION 
-------------------- 
 
¶39. 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. 
 
¶40. 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 it does not give consent to prosecute, was passed in 2004. 
 
¶41. Soon after his first election win in 2004, the 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 a utility company. 
Former President Bakili Muluzi is currently facing corruption 
charges in court. 
 
¶42. Malawi subscribes to the provisions of the OECD Convention on 
Combating Bribery, 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 section 90 of Malawi's penal code. 
 
 
LILONGWE 00000033  008 OF 009 
 
 
BILATERAL TRADE AND INVESTMENT AGREEMENTS 
--------------------------------------------- --------- 
---------------------- 
 
¶43. 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 
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 340 million people and a combined GDP of 
US$170 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 due to come into force in December 2008.  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 199 million people and a combined QP of 
US$176 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 2010 few countries had completed their tariff phase 
downs, and some - including Malawi - had not yet started. 
** AFRICAN GROWTH AND OPPORTUNITY ACT (AGOA): AGOA offers duty and 
quota-free access to the United States market of 298 million people 
for 1,800 products, in addition to the standard 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 2009. 
¶44. 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. 
 
¶45. Malawi acceded to the Multilateral Investment Guarantee Agency 
(MIGA) in 1985/86.  Since MIGA provides mechanisms for the 
settlement of investment disputes, Malawi has not renewed several 
investment treaties that lapsed after 1986.  Malawi also signed 
investment promotion and protection agreements (IPPAs) with the OPEC 
Fund for International Development, Libya, Italy, Netherlands and 
Zimbabwe. 
 
OPIC AND OTHER INSURANCE PROGRAMS 
--------------------------------------------- ---------- ----- 
 
¶46. 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 
----------- 
 
¶47. 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 and 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 (TEVET) program to address technical skills shortages 
in industry. 
 
¶48. 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 democracy and trade union rights have existed only since 
1994, industrial relations are still evolving.  Employers, labor 
unions, and government lack sufficient knowledge of their legitimate 
roles in labor relations/disputes. 
 
¶49. 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 (about 12 percent), the lack of awareness of worker rights 
 
LILONGWE 00000033  009 OF 009 
 
 
and benefits, and a resistance on the part of many employees to join 
unions.  Only 13 percent 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 
almost no labor-standards inspections. 
 
FOREIGN TRADE ZONES/FREE PORTS 
--------------------------------------------- --------- 
 
¶50. 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 December 
2009, 24 firms were licensed and 19 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. Thus 
most prefer to operate under EPZ arrangement. 
 
FOREIGN DIRECT INVESTMENT STATISTICS 
--------------------------------------------- ---------- ------- 
 
¶51. Both the Reserve Bank of Malawi (RBM) and the Malawi Investment 
Promotion Agency (MIPA) maintain records on the value and 
composition of foreign direct investment in Malawi.  Neither the RBM 
nor MIPA, however, currently capture actual FDI figures, so data 
since 2004 only includes investment pledges.  Registered investment 
pledges flowing into Malawi increased from an average annual rate of 
US$ 50 million to US$ 143.5 million in 2008. That was the highest 
level of investment that had been attained by Malawi since 1993, 
with the exception of 2006 when Australian mining company Paladin 
Uranium Mining alone invested US$ 130 million.  From this high, 
investment pledges declined 23.6 percent to US$ 109.5 million in 
¶2009. 
 
 
 
2