Investment Climate Statements for 2016 - Malawi

Executive Summary

The Malawian government is eager to attract foreign direct investment. The Malawi Investment and Trade Center’s One Stop Center offers assistance on how to navigate relevant regulations and procedures In general there are adequate legal instruments to protect investors. Foreign investors are generally accorded national treatment.

Health science research projects need to be approved by the National Health Sciences Research Committee, which charges a 10% fee for its services.

Malawi has been largely free of political violence since gaining independence in 1964. Although divisions do exist, Malawi has no significant tribal, religious, regional, ethnic, or racial tensions that could be expected to lead to violent confrontation.

Although progress has been made addressing the issue of corruption, it continues to be viewed as a major obstacle to doing business in Malawi. Scarcity of skilled and semi-skilled labor is another serious impediment to business in Malawi and is most acute in occupational categories that include accountants and financial management personnel, economists, engineers, lawyers, IT, and medical/health personnel.

There is an established mediation process to promote agreements between parties in disputes before court proceedings start. Both foreign and domestic investors have access to Malawi's legal system, which functions fairly well and is generally unbiased but slow.

All investors have the right to establish, acquire, and dispose of interests in business enterprises. Foreigners require a business residence permit (BRP) to carry out any business activity in Malawi.

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 continue to impede the business and investment approval process.

Table 1

Measure	Year	Index or Rank	Website Address
TI Corruption Perceptions index	2014	112 of 167	http://www.transparency.org/cpi2015
World “Ease of Doing Business” Rank	2015	141 of 189	http://www.doingbusiness.org/rankings
Global Innovation Index	2015	98 of 141	https://www.globalinnovationindex.org
U.S. FDI in partner country ($M USD, stock positions)	2014	-5	http://bea.gov/
World Bank GNI per capita	2014	$250	http://data.worldbank.org/country/malawi

Millennium Challenge Corporation Country Scorecard

The Millennium Challenge Corporation, a U.S. Government entity charged with delivering development grants to countries that have demonstrated a commitment to reform, produces annual scorecards for countries with a per capita gross national income (GNI) of $4,125 or less. A list of countries/economies with MCC scorecards and links to those scorecards is available here: http://www.mcc.gov/pages/selection/scorecards. Details on each of the MCC’s indicators and a guide to reading the scorecards are available here: http://www.mcc.gov/pages/docs/doc/report-guide-to-the-indicators-and-the-selection-process-fy-2015.

1. Openness To, and Restrictions Upon, Foreign Investment

Attitude toward Foreign Direct Investment

Malawi is eager to receive foreign investment and foreign investors are generally granted national treatment. The Malawi constitution protects investment irrespective of nationality. The government encourages both domestic and foreign investment in most sectors of the economy without major restrictions on ownership, size of investment, source of funds, or the destination of the final product.

Other Investment Policy Reviews

The World Trade Organization (WTO) conducts periodic Trade Policy Reviews of Malawi. The last one was conducted in April 2016. These trade policy reviews have informed development co-operation and assistance to Malawi.

Laws/Regulations on Foreign Direct Investment

There are a few legal restrictions on foreign investment based on environmental, health, biosafety, and national security concerns. Affected sectors are firearms and ammunition; chemical and biological weapons; explosives; and manufacturing involving hazardous waste treatment/disposal or radioactive material. 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. Additionally, retail operations in rural areas are limited to only Malawian citizens, although enforcement is weak.

While not discriminatory to foreign investors, investments in Malawi require multiple bureaucratic processes, which may include obtaining a business license, a tax registration number, and a land use permit. These procedures can be time consuming, particularly when it comes to land permits, and may constitute an impediment to investment. Investors may also face bureaucratic hurdles in obtaining temporary employment permits (TEPs) and business residency permits (BRPs).

Business Registration

To facilitate the process of starting a business, the Malawi Investment and Trade Center (MITC) operates a One Stop Center. It offers assistance to foreign and domestic investors of all sizes on how to navigate relevant regulations and procedures. It hosts representatives of the Registrar General, the Malawi Revenue Authority, the Department of Immigration, and the Ministry of Lands, Housing, and Urban Development. MITC’s main website (www.mitc.mw) and trade portal (trade.mitc.mw) provide information about sectors and projects targeted for investment.

In addition to MITC’s One Stop Center, business registration can theoretically be done online at http://www.registrargeneral.gov.mw/. However, there are known problems with accessing the website and delays in acquiring a user name. To operate in Malawi, in addition to registering the company with the Registrar General, companies also need to register with the Malawi Revenue Authority and often with the Ministry or regulatory body overseeing their sector of activity (for example, construction companies, both foreign and domestic, need to register with the National Construction Industry Council of Malawi).

The government affiliated Small and Medium Enterprise Development Institute (SMEDI) offers training, assistance in access to finance, market linkages, and mentorship opportunities to domestic SMEs.

Industrial Promotion

The government’s overall economic and industrial policy does not have discriminatory effects on foreign investors. The Malawi Growth and Development Strategy for 2011-2016 (known as MGDS II) identifies a number of sectors as priority growth areas. In 2014, the government compiled an investment projects compendium which identified investment opportunities in agriculture, mining, tourism, energy, and transport infrastructure. MITC’s website also lists investment opportunities by sector.

Sugar cane production and processing, legumes, livestock production, dairy farming, oil seed processing, irrigation farming, and large scale commercial agriculture have the highest priority for investment in the agricultural sector. Independent power producers, particularly for hydropower and other renewable power sources, are encouraged. Government is also calling for the private sector (both local and foreign) to develop the tourism sector. Private sector-led mineral exploration is also promoted and the Geological Survey Department is making efforts to produce geophysical and geological maps of Malawi.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are some limitations on foreign control. One restriction in the mining industry is that small-scale prospecting and mining operations are reserved for Malawians and foreigners who have resided in Malawi for a minimum of four years. Under the government’s privatization program, participation of an individual foreign portfolio investor is limited to a maximum of 10% of any class or category of security and the maximum total foreign investment in any portfolio is 49%. During the privatization of government assets, 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. While this is not a legal requirement, for at least one large mining project, the Government of Malawi asked for and obtained a 15% equity share during licensing negotiations. Under a revised Land Bill currently being considered by parliament, foreign citizens will no longer be able to own land freehold; all foreign held land would be lease-hold for terms up to 50 years, and potentially longer.

Privatization Program

Malawi has about 60 remaining state-owned enterprises that are involved in commercial operations, particularly in the public utilities sector, agriculture, housing, finance, education, and aviation. All investors, irrespective of ethnic group or source of capital (foreign or local) may participate in privatization bids.

Privatization efforts currently focus on public-private partnerships and attracting strategic investors rather than outright privatization. These are handled by the Public Private Partnership Commission (www.pppc.mw), formed in 2013 to succeed the former Privatization Commission, which the 2010 Public Private Partnership Act and 2011 Public Private Partnership Policy rendered obsolete.

In 2013, the government sold a 49% share of the bankrupt national air carrier Air Malawi to Ethiopian Airlines, which resumed operations under the Malawian Airlines name. The Government of Malawi has officially announced plans to sell its remaining 51% equity share in the airline in the future but no date has been set. In 2015, the Government of Malawi sold a controlling interest in the Malawi Savings Bank and the government’s residual equity in IndeBank. Both foreign and domestic investors were invited to submit bids for these banks. The bidding was considered transparent and one of the banks drew offers from foreign investors, but equity in both banks was ultimately sold to domestic investors.

Screening of FDI

There is no government policy to screen foreign direct investment. However, foreign direct investment (FDI) needs to be registered with the Malawi Investment and Trade Center (MITC, www.mitc.mw) and investment capital over $50,000 must be registered with the Reserve Bank of Malawi (RBM, www.rbm.mw) through any commercial bank in Malawi.

Competition Law

The Malawi Competition and Fair Trading Act of 1998 (CFTA) only became fully operational when the Competition and Fair Trading Commission (CFTC, www.cftc.mw) was established in 2005. Since 2013, the institution has overseen 26 applications for merger and acquisition and dismantled five cartels. The CFTC’s role is to encourage competition in the economy, to regulate and monitor monopolies and concentrations of economic power, to protect consumer welfare and to ensure the best possible fair market conditions. So far no mergers or acquisitions have been disapproved. CFTC decisions may be appealed, first to the Board and subsequently to the Commercial (High) Court.

2. Conversion and Transfer Policies

Foreign Exchange

Government policy seeks to ensure the availability of foreign exchange for business transactions and remittances in order to attract investors and spur economic growth. Commercial banks may operate as forex dealers. Investors have access to forex with no legal limitation, both to pay for imports and to transfer financial payments abroad. Specifically, there are no licensing requirements to import forex and full repatriation of profits, dividends, investment capital, and interest and principal payments for international loans is permitted. The Malawi Kwacha (MWK) is convertible into major world currencies such as the U.S. Dollar, British Pound, Euro, Japanese Yen, Chinese Yuan, and South African Rand, as well as key regional and trading partners’ currencies.

Since May 7, 2012, the value of the local currency, the MWK, has floated freely against major world currencies. The Malawi Kwacha depreciated over 40% in 2015. Exchange rate fluctuations coincide with agricultural cycles, particularly the tobacco selling season of April through August. Foreign exchange is available throughout the year and Malawi’s official foreign exchange reserves currently are sufficient to cover more than two months of imports.

Remittance 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, www.rbm.mw). 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. While there are no legal restrictions, in recent years there have been some instances of banks lacking sufficient foreign exchange to conduct all remittances immediately.

The 2006 Money Laundering, Proceeds of Serious Crime and Terrorist Financing Act established an autonomous Financial Intelligence Unit (FIU, www.fiumalawi.gov.mw) to combat money laundering and terrorist financing. The FIU is responsible for analyzing disclosures from financial institutions and referring actionable cases to competent authorities such as the Malawi Police Service and the Anti-Corruption Bureau. The FIU is also mandated to monitor compliance by reporting institutions. The 2015 International Narcotics Control Strategy Report lists Malawi as monitored country.

3. 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. Measures that carry expropriation effects are occasionally imposed, including export bans for key commodities. These restrictions applied equally to foreign and domestic investors.

The government can 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. 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. Ongoing discussions regarding new land related bills currently before parliament have created some uncertainty regarding land ownership by non-Malawians.

4. Dispute Settlement

Legal System, Specialized Courts, Judicial Independence, Judgments of Foreign Courts

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. There has been little overt government interference in the court system.

The judiciary derives its procedures from English Common Law. By local standards, the Commercial Courts work reasonably efficiently, with dedicated judges and their own registries. There is an established mediation process to promote agreements between parties in disputes before court proceedings start. Enforcement of judgments can be slow.

The court system in Malawi accepts and enforces foreign court judgments that are registered locally in accordance with established legal procedure. There are reciprocal agreements among Commonwealth countries to enforce judgments without this registration obligation. There is no such agreement between Malawi and the United States, but judgments involving the two countries can still be enforced if the judgment is registered appropriately in Malawi.

Bankruptcy

All bankruptcies are governed by the courts under the provision of the consolidated Insolvency Act of 2016. The Act encourages alternatives to bankruptcy such as receivership and reorganization and gives secured creditors – rank-ordered based upon investment registration dates – priority over other creditors. Monetary judgments are usually made in the investor’s currency. Cross border provisions of the Insolvency Act are modeled after United Nations Commission on International Trade Law model laws.

Investment Disputes

Since 1996, there have been no major investment disputes involving U.S. companies.

International Arbitration

Malawi is a member of the International Center for Settlement of Investment Disputes (ICSID), accepting binding international arbitration of investment disputes between foreign investors and the state. Malawi’s current president is a former arbitrator for ICSID.

ICSID Convention and New York Convention

Malawi has ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). It is not a signatory to the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Duration of Dispute Resolution – Local Courts

Malawi’s courts suffer from long backlogs. The Commercial Courts are no exception. Resolution of commercial cases generally takes many months and often years. It can be difficult to enforce judgments.

5. Performance Requirements and Investment Incentives

WTO/TRIMS

Malawi is not in compliance with World Trade Organization (WTO) Trade Related Investment Measures (TRIMs) notification requirements.

Investment Incentives

The Malawi Government offers a wide range of tax and non-tax incentives which apply equally to domestic and foreign investors. These incentives apply to several sectors including manufacturing, agriculture, mining, and others relating to businesses in general. Customs and excise tax incentives are provided on raw materials, machinery, and equipment in a number of sectors. Specific incentives tend to vary from year to year. A detailed list of investment incentives can be found at the Malawi Investment and Trade Center (MITC) website: www.mitc.mw.

Generally speaking, the incentives offered to investors are applied consistently, but many companies complain about long delays in accessing the accrued benefits, especially those that require investors to spend first and claim later. Additionally, firms must negotiate their eligibility for these incentives with the responsible government entities. Some companies complain that this amounts to an undue burden, particularly because when the law changes, old incentive agreements are not automatically grandfathered in but must be renegotiated on a case-by-case basis. In all of these areas, foreign investors are generally accorded the same treatment as nationals.

Research and Development

U.S. and other foreign firms are able to participate in government- and donor-financed and/or subsidized research and development programs. Health science research projects need to be approved by the National Health Sciences Research Committee. The body charges a filing fee in addition to a 10% fee from approved research programs.

Performance Requirements

Malawi does not set performance requirements for establishing, maintaining or expanding an investment, nor does it place requirements on source of financing, or geographic location. There is a requirement that at least two Malawian residents be appointed directors of companies registered in Malawi.

The process to obtain employment permits can sometimes discourage investors. Expatriate employees (of both domestic and foreign businesses) who reside and work in Malawi must obtain temporary employment permits (TEPs). The “Policy Statement and New Guidelines for The Issuance and Renewal of [Expatriate] Employment Permits” of 1998 states 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 TEPs take significantly longer and face significant bureaucratic delays as files are not digitized and TEPs are approved by a high-level committee that does not meet regularly. In recent years, several TEP applications have faced extended delays when individuals involved have had disputes with politically-connected individuals. The guidelines have been applied inconsistently and the criteria against which cases are considered is not always clear, leading to delays and considerable uncertainty for both employers and employees.

Data Storage

Embassy Lilongwe is not aware of any forced localization policies.

6. Protection of Property Rights

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, trademarks, etc.).

Real Property

Efforts to improve land tenure have been underway for more than 15 years. At present, most land is under customary land tenure with occupants holding no legally binding title. More than half of arable land is untitled. Government has presented bills to parliament which would convert customary land tenure to leasehold title so that those currently using that land can have legal rights to the land. This would enable them to use such land as collateral for acquiring financing to develop the land and/or to finance other business ventures. The land bills presented would also convert freehold land owned by non-Malawian persons or corporate bodies which are majority owned by non-Malawians to leasehold land unless owners acquire Malawian citizenship within three years of the commencement of the Act.

Currently record keeping for registering land ownership is centralized and inefficient. Efforts are underway to computerize the recordkeeping and to decentralize it to the district councils.

Intellectual Property Rights

Malawi recognizes the importance of intellectual property protection and enforcement but lacks the capacity to do so. The Registrar General administers the Patent and Trademarks Act of 1948, which protects industrial intellectual property rights in Malawi. A public registry of patents and patent licenses is kept. Patents must be registered. Trademarks are registered publicly following advertisement and a period of no objection.

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 (MIGA), the World Intellectual Property Organization (WIPO), the Berne Convention, and the Universal Copyright Convention. Malawi is not listed in USTR’s Special 301 Report, or in the Notorious Markets Report.

Enforcement of intellectual property rights is inadequate. However, general awareness of the importance of protecting intellectual property in all forms (copyrights, trademarks, patents, trade secrets, and others) has improved. The Copyright Society of Malawi (COSOMA), administers the 1989 Copyright Act which protects copyrights and “neighboring” rights in Malawi. Led by COSOMA, intellectual property rights enforcement agencies commemorate World IP Day in April. Although the commemoration has focused primarily on copyrights, it has nonetheless helped to promote awareness of the importance of protection of intellectual property rights.

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 2021. 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. An intellectual property rights policy which would modernize and harmonize related laws and regulations has been drafted, but has not been presented to the Cabinet for approval. In practice, the policy’s approval is a prerequisite for the government to proceed to make the changes to the legal framework to align with TRIPs and modernize Malawi’s intellectual property protection regime.

While enforcement officials routinely seize counterfeit goods and goods suspected to be counterfeit, Malawi does not have a systematic approach to tracking and reporting on such seizures and no reliable estimates of the number of seizures, type or value of goods seized, or related information are available.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.

Resources for Rights Holders

U.S. Embassy
Economic and Commercial Section
40/24 Kenyatta Dr.
Lilongwe, Malawi
+265-1-773-166
LilongweECON@state.gov

A list of local attorneys is available at: http://lilongwe.usembassy.gov/service15.html

7. Transparency of the Regulatory System

The government continues to undertake various reforms to ensure that no tax, labor, environment, health, safety, or other laws distort or impede investment either foreign or domestic. To increase transparency in the mining sector, Malawi applied for and was granted EITI candidate status. Procedural delays continue to impede the business and investment environment.

While market prices for goods are generally not controlled, prices of most agricultural goods such as maize and state-provided utilities are regulated. The government sets minimum prices for many crops including tobacco, cotton, and maize. Buyers have complained of a lack of transparency in the setting of these prices. Government has instituted automatic pricing mechanisms for fuel and electricity prices. The Ministry of Industry and Trade retains the legal authority to ban the import or export of any good at any time. While this power is seldom used, it can constitute a risk to investors intending to import or export as part of their business. The Ministry of Industry and Trade currently requires export permits for 10 categories of goods, including the staple food crops of maize and rice.

Certain industry associations have sectorial rule-making power that amounts to regulatory power. Some of these associations have set regulations that require the use of local labor, local contractors, or other means to achieve localization or skills transfer to Malawians. Such rules are printed in the Government Gazette, available from the Government Printer. As they are set by associations with closed membership, the rule-making process is not always transparent to foreign firms that have not yet entered the Malawi market, but are considering doing so.

There have been positive steps toward increasing regulatory transparency and improving the foreign investment environment. For example, reforms have shortened the turnaround time for government decisions on applications for construction permits and property registration. Almost all proposed laws, regulations, and policies are subject to public consultation before they are submitted to Cabinet and Parliament. However, sometimes the public notice of such consultations is not issued in a timely manner, with the effect that only insiders are aware of and able to plan to attend the meetings. Sometimes there is an opportunity to submit written comment rather than, or in addition to, attending a meeting, but this is not always the case. Parliamentary procedure calls for draft bills to be debated in relevant committees before being presented on the floor for a vote. Parliamentary rules do, however, permit fast-tracking bills to avoid this step.

8. Efficient Capital Markets and Portfolio Investment

The Malawi government recognizes the importance of foreign portfolio investment and has made efforts to provide for a platform for such investment through the establishment of a Malawi Stock Exchange (MSE, www.mse.co.mw). MSE hosts about a dozen listed companies. Most of these companies are local and a few are regional. The demand and supply of shares for existing listed companies is limited. However, demand for newly listed companies has always exceeded the shares on offer.

The MSE is regulated by the Reserve Bank of Malawi and is governed by the Companies Act, Capital Market Development Act (1990), Capital Market Development Regulations (1992) as amended in 2013, and the Securities Act (2010).

Foreign investors can buy and sell shares at the stock market without any restrictions. Trading in shares can either be direct or through any one of the four established brokers. Apart from the restrictions under the privatization program (prohibiting 100% foreign ownership), there are no specific measures taken by private firms or government 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. There is a secondary market in government securities, and both local and foreign investors have equal access to purchase these securities.

Liquidity for stock market participation is not a major problem as the private sector in Malawi has a variety of credit instruments. Credit is generally allocated on market terms. The main problem is the cost of credit given high rates of inflation in recent years. Foreign investors may utilize domestic credit, but proceeds from investments made using local resources are not remittable.

Money and Banking System, Hostile Takeovers

Malawi has a generally sound banking sector, overseen and regulated by the Reserve Bank of Malawi -- the central bank. In 2014, there were eleven full-service commercial banks. 2015 saw two mergers and one creation, bringing the number to ten. Post mergers, the three largest banks -- National Bank of Malawi, Standard Bank, and FDH Bank -- collectively command almost 70% of all banking deposits. In 2014, Malawi’s banks’ total aggregate assets reached MWK 785 billion ($1.1 billion).

The Competition and Fair Trading Act does not cover the day-to-day trading on the MSE, but regulates mergers, acquisitions, and takeovers.

9. Competition from State-Owned Enterprises

Malawi has over 60 State-Owned Enterprises (SOEs) scattered across many industries/sectors including agriculture and agribusiness, education, construction, energy, finance, health, information and communication, media, and services. A list of these enterprises is available from the Office of the President and Cabinet, but Government does not publish the list in the media or online, nor can it be purchased from the Government Printer. These enterprises are defined by the level of support that they require from government in order to operate, that is, those that are listed as fully funded, partially funded, and fully commercial. Government is sometimes required to bail out commercially-run SOEs when they have incurred losses.

Some SOEs perform public service functions, some are commercial in nature, and some are a mixture of both. All are subject to government regulations that apply to other government departments including on employment and procurement procedures, though some variations apply. All SOEs are required by law to produce annual reports, but do not always do so on time. Commercial SOEs are required to be audited by independent professional audit firms. Non-commercial SOEs should be audited by either the Auditor General or professional audit firms depending on availability of financial resources to pay for the audit.

Private and public enterprises freely compete on the same terms and conditions for access to markets, credit, and other business opportunities, although in practice personal relationships can influence decisions heavily. There are exceptions for some public works assignments where public enterprises tend to be given special preference by government. There have been several instances in the past where public enterprises such as the Agricultural Development and Marketing Corporation (ADMARC) and the Small-holder Farmers Fertilizer Revolving Fund (SFFRF) have been awarded contracts to distribute subsidized agricultural inputs without competing with private sector enterprises. These SOEs also access cheap financing from government, acquiring an advantage over private companies in the agricultural sector. There are no set rules or criteria on such exceptions -- the government tends to decide, often capriciously, on a case by case basis. In general, SOEs tend to get a bigger share of government contracts than privately-owned enterprises.

SOEs in the agriculture, education, and health sectors spend more on research and development than local private sector players and they are seen as doing so for the public good rather than for profit. Because local firms tend to be capital-constrained and because highly-skilled labor (such as research scientists and engineers) is scarce, there is not a strong tradition of private sector-led research and development in Malawi. This can affect government perceptions of foreign firms’ research and development activities.

SOEs are subject to the same taxes, including value added tax, as their private sector counterparts. However, capital acquisition (motor vehicles, equipment, and machinery) is not subject to the same taxes. SOEs, particularly non-profit SOEs, also enjoy preferential access to land compared to private sector competitors.

In March 2016, the Government of Malawi clarified its dividend and surplus policy, requiring profit-making SOEs to pay 40% of dividends to the national treasury. SOEs that issue credit, such as, but not limited to, the SFFRF, often refrain from collecting against outstanding debts. Private enterprises complain that these features distort Malawi’s markets.

Also important to note is that the government is the major consumer in the Malawian economy, but frequently fails to pay its bills, goes into arrears, and occasionally pays in zero-coupon bonds payable one to three years after issuance, presenting a significant challenge to sellers in the in-country market.

OECD Guidelines on Corporate Governance of SOEs

Malawi’s SOEs are not required to adhere to the OECD Guidelines on Corporate Governance of SOEs. Corporate governance for most SOEs follows the terms of the relevant Malawi law that established the entity. All SOEs report to a line ministry and to the Department of Statutory Corporations in the Office of President and Cabinet, but also have a Chairperson and Board of Directors. The boards are composed of politicians and professionals typically appointed by the president to be directors. Boards usually 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, and of politicians as directors, creates a perceived and/or real conflict of interest.

Sovereign Wealth Funds

Malawi does not have a Sovereign Wealth Fund or Asset Management Bureau.

10. Responsible Business Conduct

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. There are no established laws or regulations governing Corporate Social Responsibility (CSR), nor does the government formally direct CSR to particular sectors.

There are laws governing protection of the environment and waste disposal for producers and consumers. Government expects all enterprises to follow all laws of Malawi regarding employment and compensation. Malawi has a number of labor laws governing employment, work environment, industrial safety, age limits, hours of work, and minimum wages. The Government of Malawi lacks the resources to meaningfully enforce environmental, consumer, and labor related laws and regulations. There is no history of provisions of environmental, social, or labor laws being waived to attract investment. There is no history of the government factoring responsible business conduct policies or practices into its procurement decisions.

Government has enacted accounting standards that conform to international standards that the corporate sector is expected to adhere to. Executive compensations are not defined. All MSE-listed companies are required by law to publish their annual audited accounts in the local newspapers. Listed companies are also required to publicly declare their profits, dividends to be paid out, planned takeovers (or major portfolio investments in or out of the company), and all relevant information that shareholders need to make informed decisions. They are also required to announce their annual shareholders meetings in the newspapers.

11. Political Violence

Malawi has been largely free of political violence since gaining independence in 1964. Presidential and parliamentary elections in 2009 and 2014 were peaceful, with no significant incidences of violence. President Peter Mutharika’s May 2014 election marked the first electoral victory by a candidate not belonging to the incumbent party since 1994. International observers from the EU characterized the 2014 presidential, parliamentary, and local government elections as generally “peaceful, free, transparent, and credible.”

Although divisions do exist, Malawi has no significant tribal, religious, regional, ethnic, or racial tensions that could be expected to lead to violent confrontation. Incidents of labor unrest occasionally occur, but these are usually non-violent. 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 and Tanzania in recent years. Tanzania and Malawi are currently trying to resolve a border dispute over the north eastern portion of Lake Malawi.

12. Corruption

Malawi law prohibits bribery. Giving or receiving a bribe -- whether to or from a Malawian or foreign official -- is a crime under Malawi’s penal code. Public sector corruption, including bribery of public officials and conflicts of interest, however, remain rampant and a major challenge for firms operating in Malawi.

The Corrupt Practices Act established the Anti-Corruption Bureau (ACB) with a mandate of preventing corruption in Malawi. The ACB Director and Deputy Director are both appointed by the President, subject to confirmation by the Public Appointments Committee of Parliament. ACB began full operations in 1998, and in 2004 the Corrupt Practices Act was amended to give ACB additional powers. The definition of corruption was widened to include, among other things, offences for abuse of office and possession of unexplained wealth. The Act provides for the investigation of cases not only for corruption but for other offences that come to light during the course of investigating corruption. The Act also provides protection for “whistleblowers.” Malawi's ACB cooperates with other anti-corruption bureaus in the region and beyond. In 2015, a deputy director of the ACB was murdered likely due to his affiliation with the corruption fighting body.

The law provides for criminal penalties for corruption by officials. There are regular reports of government corruption at all levels of government. Notably, 2013 saw the revelation of a massive national corruption scandal known as “Cashgate,” involving the theft of at least 20 billion MWK (then USD 49 million) through fraudulent transactions using the government’s automated payments system. More than 70 individuals were arrested including a former minister and the commander and deputy commander of the military. As of March 2016, all ten defendants whose cases have come to an end have been found guilty. Many more cases remain to be prosecuted.

Companies are encouraged to participate in the fight against corruption. The ACB encourages institutions to develop and implement Corruption Prevention Policy frameworks as a way of mainstreaming anticorruption initiatives into their operations. Many companies have signed up to the anti-corruption campaign. The business sector has its own anti-corruption campaign drive called “Business Action against Corruption” that deals with corruption issues within the private sector. Civil society organizations (CSOs) also formed their own institution called “Civil Society Action against Corruption” to deal with corruption within civil society. Few CSOs investigate corruption issues in Malawi.

Forty-eight categories of public officers – including all levels of officials from the president and members of parliament, down to specific categories of civil servants, including traffic police and immigration officers – are required to declare their assets and business interests. The paper declarations are accessible to the public upon request.

Although progress has been made in addressing the issue, corruption continues to be viewed as a major obstacle to doing business in Malawi. There have been serious allegations of corruption, which is perceived to be particularly endemic in the following sectors: police, immigration, road traffic, tax administration, traditional leaders, and government procurement.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Malawi signed and ratified the UN Anticorruption Convention. Malawi subscribes to the provisions of the OECD Anti-bribery Convention, though it is not yet a signatory to the Convention. The government has also signed on to the Extractive Industries Transparency Initiative (EITI) and EITI’s International Board has designated Malawi as a candidate country.

Resources to Report Corruption

Mr. Lucas Kondowe
Director General
Anti-Corruption Bureau
Mulanje House, P.O. Box 2437, Lilongwe, Malawi
Tel: +265-1-772-107
Fax: +265-1-770-108
E-mail: lkondowe@acbmw.com
Website: http://www.acbmw.com

13. Bilateral Investment Agreements

Malawi's policy is to negotiate bilateral investment treaties with countries whose nationals opt to invest in Malawi. Malawi has signed investment agreements with Italy, Libya, Netherlands, and Zimbabwe. Malawi does not have a bilateral investment treaty with the United States.

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.

Bilateral Taxation Treaties

Malawi and the United States do not have a bilateral tax treaty. Investments, and income derived from them, are subject to applicable taxes in both jurisdictions.

14. 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 Africa Short-term Export Credit Insurance Program.

15. Labor

A large majority of working age individuals in Malawi live in rural areas and are involved in subsistence agriculture farming. Unskilled labor is plentiful. Skilled and semi-skilled labor on the other hand is scarce.

Occupational categories with skills shortages include accountants and related personnel, economists, engineers, primary and secondary school teachers, lawyers, IT 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, part of the University of Malawi system, operates the country’s law school. The government also recently expanded its network of vocational schools to address technical skills shortages in the trades and the construction industry.

The Labor Relations Act (LRA) governs labor-relations management in the small Malawi formal sector. The Act allows strikes and lockouts for registered workers and employers after dispute settlement procedures in collective agreements and conciliation have failed. 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. There are 23 unions affiliated with the Malawi Congress of Trade Unions. 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. In 2013 only 6% of people in wage employment belonged to a union. Despite the enactment of the Gender Equality Act in 2013, discrimination against women remains pervasive as they continue to have lower literacy and education levels and less access to employment opportunities than men. Children in Malawi continue to engage in the worst forms of child labor, most notably in agriculture, including on tobacco farms. While the government is a signatory to the ILO Convention protecting worker rights, mechanisms for enforcing the provisions of the convention are weak. Serious manpower shortages at the Ministry of Labor result in very few labor inspections.

16. Foreign Trade Zones/Free Ports/Trade Facilitation

Malawi is a beneficiary of the African Growth and Opportunity Act (AGOA), a U.S. trade preference program.

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 March 2016, thirteen companies were operating under the EPZ scheme. Almost all of these are foreign owned companies, though the law does not discriminate on ownership.

The government accords EPZ status only to firms (foreign or domestic) that produce exclusively for export. 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 the EPZ arrangement.

17. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

	Host Country Statistical source*		USG or international statistical source		USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data	Year	Amount	Year	Amount
Host Country Gross Domestic Product (GDP) ($M USD)	2014	$4,257	2014	4,258	www.worldbank.org/en/country
Foreign Direct Investment	Host Country Statistical source*		USG or international statistical source		USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions)	2014	Data not available	2014	-5.0	http://bea.gov/international/factsheet/
Host country’s FDI in the United States ($M USD, stock positions)	2014	Data not available	2014	0.0	http://bea.gov/international/factsheet/
Total inbound stock of FDI as % host GDP	2014	Data not available	2014	N/A	N/A

* Malawi National Statistical Office (http://www.nsomalawi.mw/)

18. Contact for More Information

U.S. Embassy
Economic and Commercial Section
40/24 Kenyatta Dr.
Lilongwe, Malawi
+265-1-773-166
LilongweECON@state.gov

ecoi.net description:: Annual report on investment climate, incl. information on legal and regulatory system, political violence, corruption, labour and economic issues, etc. (as of March 2016)

Country:: Malawi
Source:: USDOS – US Department of State (Author)
Published:: 5 July 2016
Original link:: http://www.state.gov/e/eb/rls/othr/ics/2016/af/254217.htm
Document type:: Periodical Report
Language:: English
Document ID:: 1101914 (former ID 332422)