Contents 1 Background 2

MALAWI –
COUNTRY PROFILE
Contents
1
Background 2
5.13Corruption
11
5.14 Bilateral investment agreements
12
5.15Labour
12
5.16 Foreign trade zones/free trade zones
13
5.17 Foreign Direct Investment (FDI) statistics
13
2Population
2
2.1
Population figures
2
2.2
Population growth rate
2
2.3
Age structure (2012 estimates)
2
2.4
Gender ratios (2012 estimates)
2
5.18 Registering a company in Malawi
13
2.5
Life expectancy (2011 estimates)
2
2.6
Ethnic groups
2
6
Country Risk Analysis
14
6.1
Sovereign risk
14
2.7Religion
2
6.2
Currency risk
14
2.8Language
2
6.3
Banking sector risk
14
2.9Education
2
6.4
Political risk
14
2.10Health
2
6.5
Economic structure risk
14
3Economy
3
3.1
Latest Economic indicators
4
7
Country Outlook: 2012 – 2016
14
7.1
Political stability
14
3.2
Two year forecast summary
4
7.2
Election watch
14
3.3
Annual trends
5
7.3
International relations
14
4
Government and Politics
5
7.4
Policy trends
14
4.1
Political structure
5
7.5
Economic growth
14
5
Doing Business in Malawi
6
7.6Inflation
15
5.1
Openness to, and restrictions upon, foreign investment 6
7.7
Exchange rates
15
5.2
Conversion and transfer policies
7
7.8
External sector
15
5.3
Expropriation and compensation
7
A
Appendix one 15
5.4
Dispute settlement
7
5.5
Performance requirements and incentives 8
5.6
Right to private ownership and establishment
9
5.7
Protection of property rights
9
5.8
Transparency of the regulatory system
5.9
Efficient capital markets and portfolio investment
9
10
5.10 Competition from state-owned enterprises
11
5.11 Corporate social responsibility
11
5.12 Political violence
11
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
1
1Background
2.4 Gender ratios (2012 estimates)
Established in 1891, the British
protectorate of Nyasaland became the
independent nation of Malawi in 1964.
Total Population
1.99 male / female
Under 15 years
1 male / female
15 – 64 years
65 years and over
1 male / female
0.74 male / female
Source: CIA World Factbook
After three decades of one-party rule
under President Hastings Kamuzu Banda
the country held multiparty elections in
1994, under a provisional constitution that
came into full effect the following year.
2.5 Life expectancy (2011 estimates)
Total Population
Male
Female
President Bingu wa Mutharika, elected
in May 2004 after a failed attempt by
the previous president to amend the
constitution to permit another term,
struggled to assert his authority against
his predecessor and subsequently started
his own party, the Democratic Progressive
Party (DPP) in 2005. Mutharika was reelected to a second term in May 2009. As
President, he oversaw some economic
improvement. He died abruptly in April
2012 and was succeeded by his vice
president, Joyce Banda.
53.21 years
51.5 years
53.13 years
Source: CIA World Factbook
2.6 Ethnic groups
Ethnically, Malawi is a tribal federation principally of Chewa, Tumbuka,
Yao, and Ngoni peoples, and to a lesser extent Nyanja, Lomwe,
Sena, Tonga, and Ngonde tribes, as well as various Asian and
European groups.
Population growth, increasing pressure on agricultural lands,
corruption, and the spread of HIV/AIDS pose major problems
for Malawi.
2Population
2.7Religion
Approximately 80% of the population is Christian, with the Roman
Catholic Church and the Church of Central Africa Presbyterian making
up the largest Christian groups. There are also smaller numbers
of Anglicans, Baptists, Evangelicals and Seventh Day Adventists.
Around 13% of the population is Muslim, with most of the Muslim
population being Sunni, of either the Qadriya or Sukkutu groups.
Other religious groups within the country include Jews, Rastafarians,
Hindus and Baha’is. Atheists make up around 4% of the population,
although this number includes people who practice traditional
African religions.
2.1 Population figures
Malawi has a population of 16,323,044 (July 2012 est.)
2.8Language
All the different ethnic groups in Malawi have their own language
or dialect. The Chewa are the dominant group and their language,
called Chewa or Chichewa, is the national tongue and is widely used
throughout the country as a common tongue.
Estimates for Malawi explicitly take into account the effects of
excess mortality due to AIDS. This can result in lower life expectancy,
higher infant mortality, higher death rates, lower population growth
rates, and changes in the distribution of population by age and sex
than would otherwise be expected.
English is the official language and is very widely spoken, particularly
in the main towns but even sometimes in remote rural areas. Of
the other languages spoken in Malawi, Tumbuka is spoken by about
500,000 people in the north, and Yao is spoken by about 600,000
people in the south.
2.2 Population growth rate
2.758% (2012 est.)
2.9Education
Malawi has an 8-4-4 education system consisting of primary school
(known as Standard 1 to Standard 8), secondary school (known
as Form 1 to 4) and university education. The official entry age into
primary level education is six years. Primary education in Malawi
is compulsory.
2.3 Age structure (2012 estimates)
Total percentage
Male
Female
0 – 14 years
45.1%
3,586,696
3,571,298
15 – 64 years
52.2%
4,140,874
4,155,015
65 years and
over
2.7%
182,304
243,065
Source: CIA World Factbook
The government established free primary education for all children
in 1994, which increased attendance rates, according to UNICEF. In
1994, the gross primary enrollment rate was 133.9 percent, and the
net primary enrollment rate was 102.6 percent. In 1995, 62 percent
of students entering primary school reached grade two, and 34
percent reached grade five. The dropout rate is higher among girls
than boys.
2.10Health
Medical facilities in Malawi and medications are not consistently
available. Diarrhea and other food borne illnesses are a common
problem. Travelers are urged to avoid tap water, ice cubes, raw fruits
and vegetables. Bottled water is recommended for drinking and
food preparation. Only food that is well cooked and served hot
should be consumed.
Malaria is endemic to Malawi. Schistosomiasis (also known as
Bilharzia) is present in most lakes and rivers in Malawi, including
Lake Malawi. HIV infection is endemic in the Malawian population.
Tuberculosis is prevalent as well. Other health risks include typhoid,
hepatitis A and B, tetanus, and rabies. Vaccination for these diseases
is advised.
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
2
3Economy
Landlocked Malawi ranks among the world’s most densely populated
and least developed countries. The economy is predominately
agricultural with about 80% of the population living in rural areas.
Agriculture, which has benefited from fertilizer subsidies since 2006,
accounts for one-third of GDP and 90% of export revenues.
The performance of the tobacco sector is key to short-term growth
as tobacco accounts for more than half of exports. The economy
depends on substantial inflows of economic assistance from the IMF,
the World Bank, and individual donor nations.
In 2006, Malawi was approved for relief under the Heavily Indebted
Poor Countries (HIPC) programme. In December 2007, the US
granted Malawi eligibility status to receive financial support within
the Millennium Challenge Corporation (MCC) initiative.
The government faces many challenges including developing a
market economy, improving educational facilities, facing up to
environmental problems, dealing with the rapidly growing problem of
HIV/AIDS, and satisfying foreign donors that fiscal discipline is being
tightened.
Since 2005 President Mutharika’s government has exhibited
improved financial discipline under the guidance of Finance Minister
Goodall Gondwe and signed a three year Poverty Reduction and
Growth Facility worth US$56 million with the IMF.
The government has announced infrastructure projects that could
yield improvements, such as a new oil pipeline for better fuel access,
and the potential for a waterway link through Mozambican rivers to
the ocean for better transportation options. Since 2009, however,
Malawi has experienced some setbacks, including a general
shortage of foreign exchange, which has damaged its ability to
pay for imports, and fuel shortages that hinder transportation and
productivity. Investment fell 23% in 2009, and continued to decline
in 2010.
The government has failed to address barriers to investment such
as unreliable power, water shortages, poor telecommunications
infrastructure, amongst others.
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
3
3.1 Latest Economic indicators
Central government finance (MK m)
Revenue & grants
Revenue
Grants
Expenditure
Balance before grants
Balance after grants
Output
Industrial production index (1984=100)
Industrial production (% change, year on year)
Prices
National composite consumer prices
(2000=100)
National composite consumer prices (%
change, year on year)
Financial indicators
Exchange rate MK:US$ (av)
Exchange rate MK:US$ (end-period)
Exchange rate: nominal effective rate
(2000=100)
Exchange rate: real effective rate (2000=100)
Deposit rate (av; %)
Discount rate (end-period; %)
Lending rate (av; %)
Treasury-bill rate (av; %)
M1 (end-period; MK m)
M1 (% change, year on year)
M2 (end-period; MK m)
M2 (% change, year on year)
Interest payments (MK m)
Sectoral trends
Electricity consumption (m kwh)
Tea production (‘000 tonnes)
Tobacco auction sales (‘000 tonnes)
Tobacco auction sales (MK m)
Sugar production ('000 tonnes)
Foreign trade & reserves (US$ m)
Exports fob
Tobacco
Imports cif
Trade balance
Reserves excl gold (end-period)
2009
4 Qtr
1 Qtr
2 Qtr
2010
3 Qtr
4 Qtr
1 Qtr
2011
2 Qtr
52,356
38,685
13,671
64,533
-25,848
-12,178
71,544
39,266
32,277
58,085
-18,819
13,458
75,686
57,802
17,884
59,384
-1,582
16,302
59,478
44,740
14,738
81,743
-37,003
-22,265
89,339
58,454
30,884
83,018
-24,564
6,321
53,858
45,283
8,576
70,936
-25,653
-17,078
74,064
64,812
9,252
51,183
13,629
22,881
n/a
n/a
n/a
n/a
n/a
n/a
162.2
26.9
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
147
163.4
155.2
148
156.5
174.7
166.1
159.1
7.3
8.1
7.8
7.2
6.5
6.9
7
7.6
142.9
146
83.8
149.6
150.8
81.7
150.8
150.8
83.3
150.8
150.8
82.2
150.8
150.8
79.4
150.8
150.8
79.4
150.8
150.8
77.4
159.2
166
74.9
57.3
3.5
15
25.3
7.4
81,900
16
174,032
24.6
2,555
56.6
3.5
15
25.3
7.4
78,033
11.8
168,862
20.1
6,800
58.1
3.5
15
25.3
7.2
89,075
11.6
175,308
12.8
6,100
57.7
3.7
13
24.3
7.4
98,719
17.4
191,327
9
5,000
55.9
3.8
13
23.8
6.7
102,112
24.7
203,898
17.2
3,700
56.5
3.8
13
23.8
6.3
97,951
25.5
203,580
20.6
8,000
55.1
3.8
13
23.8
7.3
116,561
30.9
232,193
32.4
3,900
53.8
3.8
13
23.8
5.7
125,100
26.7
253,000
32.2
n/a
376.4
11.7
10
1,995
71.1
339.1
21.6
13
3,071
0
344.5
14
114.9
34,932
87.6
365.5
6.6
70
19,805
114.5
371.8
9.5
0
0
99.8
356.7
20.9
4.9
560.4
0
n/a
n/a
67.2
10,688.2
96.6
n/a
n/a
104
n/a
n/a
288.6
232.4
-318.8
-30.2
149.4
276.1
31
-276.7
-0.6
214.2
262.8
73.2
-332
-69.2
245.1
222.4
218.7
-441.3
-219
224.8
223.2
1.2
-370.3
-147.1
307.4
249.3
148.3
-317.7
-68.4
198.8
272.5
n/a
-400.3
-127.7
226.6
249.6
n/a
-510.3
-260.7
266
3 Qtr
Source: Economist Intelligence Unit
3.2 Two year forecast summary
Real GDP growth
Gross industrial growth
Gross agricultural production growth
Consumer price inflation (av)
Consumer price inflation (end-period)
Lending rate (av)
Government balance (% of GDP)
Exports of goods fob (US$ m)
Imports of goods fob (US$ m)
Current-account balance (US$ m)
Current-account balance (% of GDP)
External debt (year-end; US$ bn)
Exchange rate MK:US$ (av)
Exchange rate MK:US$ (end-period)
Exchange rate MK:¥100 (av)
Exchange rate MK:€ (av)
2011 (a)
5.3
8.2
5.5
7.6
9.8
23.9
-1.1
912
-1,687
-731.9
-12.3
1.3
156.93
165.5
196.72
218.45
2012 (b)
4
3.4
4
11.5
10
24.1
-1.6
940
-1,556
-563.7
-8.8
1.4
167.07
169.36
216.27
213.02
2013 (b)
4.3
3.8
4.5
19.6
15
23.6
-1.4
982
-1,592
-536.2
-10.3
1.5
254.47
305.9
316.23
315.55
2014 (b)
4.8
3.9
5.2
11.5
8.5
23.3
-2.4
1,054
-1,644
-515.6
-10.8
1.7
319.83
327.52
394.99
392.59
2015 (b)
5
4.3
5.1
8.1
7
22.9
-1.7
1,110
-1,705
-498
-9.8
1.8
338.41
347.82
412.84
418.79
2016 (b)
5.2
4.5
5
7.7
6.5
22.5
-1.3
1,177
-1,785
-497.7
-9.1
1.9
354.7
360.59
427.5
446.92
a) Economist Intelligence Unit estimates; b) Economist Intelligence Unit forecasts; c) Fiscal years ending 7 July
Source: Economist Intelligence Unit
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
4
3.3 Annual trends
Real GDP growth (% change)
Consumer Price Inflation (av %)
Main origin of imports (2010) – share of total
Source: Economist Intelligence Unit
4Government and Politics
4.1 Political structure
Official name
Republic of Malawi
Form of state
Unitary republic
Budget balance (% of GDP)
Legal system
The Malawian legal system is based on English common law.
The constitution was promulgated in May 1995.
National legislature
National Assembly of 193 seats, elected by direct universal suffrage
for a five-year term.
National elections
The last presidential and legislative elections were held on 19 May.
The next elections are due by May 2014 (presidential and legislative).
Head of State
The Head of State is the President, elected by direct universal
suffrage for a term of five years; Bingu wa Mutharika was elected
in May 2009.
Main destination of exports (2010) – share of total
National government
Cabinet, chaired by the President.
Political parties
The Democratic Progressive Party (DPP) is the largest single party in
the National Assembly; the second-largest is the Malawi Congress
Party (MCP), followed by the United Democratic Front (UDF).
Smaller parties include:
• The People’s Progressive Movement
• The Congress for National Unity
• The People’s Transformation Party
• The Republican Party
• The Alliance for Democracy (Aford)
• The Malawi Forum for Unity and Development (Mafunde)
• The National Democratic Alliance (NDA)
• The Movement for Genuine Democratic Change (Mgode)
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
5
Independent members of parliament currently form the secondlargest bloc in the legislature.
Key ministers
• President and Commander-in-Chief of the armed forces:
Bingu wa Mutharika
• Vice-president: Joyce Banda
• Agriculture, Irrigation and Water Development: Peter Mwanza
• Education, Science and Technology: George Chaponda
• Finance and Development Planning: Ken Lipenga
• Foreign Affairs and International Co-operation: Peter Mutharika
• Gender, Children and Community Development: Bessie Kachere
• Health: Jean Kaliani
• Industry and Trade: John Bande
• Information and Civic Education: Patricia Kaliati
• Justice and Constitutional Affairs: Ephraim Chiume
• Labour: Lucious Kanyumba
• Lands, Housing and Urban Development: Yunus Mussa
• Local Government and Rural Development: Henry Mussa
• National Defence: Aaron Sangala
• Natural Resources, Energy and Environment: Goodall Gondwe
• Tourism, Wildlife and Culture: Daniel Liwimbi
• Transport and Public Infrastructure: Sidik Mia
• Youth Development and Welfare: Symon Vuwa Kaunda
• Central Bank Governor: Perks Ligoya
International organisation participation
• ACP
• AfDB
• AU
• COMESA
• FAO
• G-77
• IAEA
• IBRD
• ICAO
• ICCt
• ICRM
• IDA
• IFAD
• IFC
• IFRCS
• ILO
• IMF
• IMO
• Interpol
• IOC
• ITSO
• ISO (correspondent)
• ITU
• ITUC
• MIGA
• MONUC
• NAM
• OPCW
• SADC
• UN
• UNAMID
• UNCTAD
• UNESCO
• UNIDO
• UNMIL
• UNMIS
• UNWTO
• UPU
• WCL
• WCO
• WFTU
• WHO
• WIPO
• WMO
• WTO
5Doing Business in Malawi
5.1 Openness to, and restrictions upon, foreign investment
The government encourages both domestic and foreign investment
in most sectors of the economy without restrictions on ownership,
size of investment, source of funds, or the destination of the
final product.
There is no government screening of foreign investment in Malawi.
Apart from the privatisation programme, the government’s overall
economic and industrial policy does not have discriminatory effects
on foreign investors. Since industrial licensing in Malawi applies to
both domestic and foreign investment, and is only restricted to a
short list of products, it does not limit competition, protect domestic
interests, or discriminate against foreign investors at any stage
of investment. Restrictions are based on environmental, health,
and national security concerns. Affected items are firearms and
ammunition; chemical and biological weapons; explosives; and
manufacturing involving hazardous waste treatment/disposal or
radioactive material.
All regulations affecting trade (foreign exchange, taxes, etc.) apply
equally to domestic and foreign investors. While not discriminatory
to foreign investors, investments in Malawi require multiple
bureaucratic processes, which may include licensing and land
use permissions that can be time consuming and may constitute
an impediment to investment. The government has done little to
simplify or streamline the process to attract increased investment.
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
labour, and government market interventions.
After several years of steady increases, Foreign Direct Investment
(FDI) declined by 64% from 2008 to 2009 from US$170 million to
US$60 million; however, the amount of FDI in 2008 was significantly
above average with investments in a large uranium mine. FDI in 2010
totalled US$140 million or 2.74% of GDP.
Malawi has so far privatised 65 formerly state-owned enterprises.
A revised divestiture sequence plan to privatise another 65 public
enterprises has stalled in the cabinet over the past years pending
cabinet approval. All investors, irrespective of ethnic group or
source of capital (foreign or local) may participate in the privatisation
programme. However, the Malawi Stock Exchange regulations limit
participation of an individual foreign portfolio investor to a maximum
of 10% of any class or category of security under the programme;
and limit maximum total foreign investment in any portfolio to 49%.
Malawian nationals are offered preferential treatment, including
discounted share prices and subsidized credit. Subsidised credit
carries a precondition that the shares or assets be retained for at
least two years.
A variety of indices measure aspects of a country’s business
environment. Malawi’s performance for several of these indices
is shown below. The percentile rank for the Millennium Challenge
Corporation (MCC) indices are measured against the group of low
income countries (per capita income less than US$1,915).
Measure
Year
Index/rating
TI Corruption Index
2011
3.0 (rank 100 of 183)
Heritage Economic Freedom
2011
55.8 (rank 119 of 179)
World Bank Doing Business
2011 2012
Rank 141 (of 183)
Rank 145 (of 183)
MCC Government
Effectiveness (World Bank/
Brookings Institution WGI)
2012
0.46 (90%)
MCC Rule of Law
2012
0.46 (90%)
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
6
Measure
Year
Index/rating
(World Bank/Brookings
Institution WGI)
2012
0.79 (97%)
MCC Control of Corruption
2012
0.79 (97%)
(World Bank/Brookings
Institution WGI)
2012
0.37 (86%)
MCC Fiscal Policy (National
sources/IMF WEO)
2012
-3.1 (42%))
MCC Trade Policy (Heritage
Foundation)
2012
70.9 (59%)
MCC Regulatory Quality
2012
70.9 (59%)
(World Bank/Brookings
Institution WGI)
2012
0.17 (64%)
MCC Business Start Up
2012
0.17 (64%)
(IFC Doing Business 2011
report)
2012
0.890 (32%)
MCC Land Rights Access
(IFAD/IFC)
2012
0.712 (76%)
MCC Natural Resource
Management
2012
0.712 (76%)
(CIESN/YCELP Natural
Resource Management
Index 2010)
2012
97.3 (64%)
(CIESN/YCELP Natural
Resource Management
Index 2010)
2012
97.3 (64%)
5.2 Conversion and transfer policies
There are no restrictions on remittance of foreign investment funds
(including capital, profits, loan repayments and lease repayments) as
long as the capital and loans were obtained from foreign sources and
registered with the Reserve Bank of Malawi (RBM).
The terms and conditions of international loans, management
contracts, licensing and royalty arrangements, and similar transfers
require initial RBM approval. The RBM grants approval according to
prevailing international standards; subsequent remittances do not
require further approval.
All commercial banks are authorised by the RBM to approve
remittances, and approvals are fairly automatic as long as the
applicant’s accounts have been audited and sufficient foreign
exchange is available. In practice foreign exchange availability
is very limited and remittances often cannot be made even if
approved. Many businesses have recently complained of a lack of
foreign exchange to pay for importation of raw materials, causing
such businesses to operate below capacity. Traditionally, foreign
exchange availability follows the agricultural cycle in Malawi. It is
generally plentiful from April through September (when tobacco
sales generate foreign exchange inflows), and scarce from October
through March. During periods of scarcity, investors may experience
extended periods without access to foreign exchange. Since 2009,
Malawi has experienced uncharacteristic foreign exchange shortages
even during the tobacco auction season. The shortage of foreign
exchange reached crisis levels in 2011 and has created serious
shortage of medicines and fuel. Chronic fuel shortages and power
black-outs have had a devastating effect on industrial output and
overall productivity. The situation is unlikely to significantly improve
in 2012.
5.3 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. The likelihood of direct expropriations
has been low since the repeal of the forfeiture act in 1992. Some
measures with expropriatory effects are occasionally imposed. For
example, in both 2008 and early 2012 the government imposed
export bans on maize. Furthermore, the government unilaterally
revoked the licenses of all private maize traders in the country. These
restrictions applied equally to foreign and domestic investors.
Although public tenders for the sale of shares of state-owned
enterprises often encourage local participation, foreign investors tend
to dominate the share-holding of large Malawi Stock Exchange-listed
companies requiring significant technical and financial resources.
The Land Reform Commission – which the government established
in 1996 to review land tenure and establish a new land reform
programme – presented its final report to the President in November
1999. In January 2002, the Ministry of Lands published a new
land policy. Draft legislation has been prepared that incorporates
many recommendations of the Commission’s report, including the
abolition of freehold tenure (owners holding permanent title) and the
conversion of all freehold titles to leasehold (owners holding land on
lease for a maximum period of 99 years).
The Ministry of Lands and the cabinet have approved the new
legislation however the bill has stalled in the Parliamentary
Committee on Lands and Natural Resources. The bill has been under
scrutiny since 2002. Since July 2000, the Malawi Government
stopped issuing freehold land in anticipation of this new legislation.
At present, the government may employ land acquisition procedures
set forth in the Land Acquisition Act of 1971. According to this Act,
the government must justify its acquisition as being in the public
interest and must pay fair market value for the land. Fair market value
is assessed by summing the amount the owner originally paid for
the land, the value of any permanent improvements that increase
the productive capacity, utility or amenity of the land, and any
appreciation of the land value. If the private landowner objects to the
level of compensation, he may obtain an independent assessment
of the land value. According to the Act, however, such cases may not
be challenged in court; the Ministry of Lands, Housing and Urban
Development remains the final judge.
5.4 Dispute settlement
Malawi has an independent judiciary, which derives its procedures
from English Common Law. There has been little government
interference in the court system. The commercial courts are
working efficiently now that they have qualified personnel who are
working toward the improvement of the court system in Malawi.
The Commercial Court in Blantyre currently has three judges,
and a fourth position remains vacant. The lack of a registry for the
commercial division still hampers its functioning. Currently, there is
an established mediation process to promote agreements between
parties in disputes before court proceedings start.
Although processing of commercial cases has significantly
improved in the court system, enforcement of judgments continues
to be a problem. The Commercial Court now has one dedicated
enforcement Sheriff. Before that the Commercial Court used Sheriffs
assigned to the High Court who did not grant priority to commercial
enforcements.
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
7
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.
Incentives for Establishing Operations in Export Processing Zone
(EPZ)
• No withholding tax on dividends
Malawi has legislation that offers adequate protection for property
and contractual rights. Malawi has written commercial laws, which
codify Common Law. The Sale-Of-Goods Act, the Hire-Purchase
Act, the Competition Fair Trading Act and Companies Act cover
commercial practices. The first two acts have been consistently
applied, and there is a track record of cases involving commercial
law. In 2007, Malawi established a dedicated Commercial Court in
Blantyre. The Lilongwe division of the Commercial Court opened in
2010. 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.
• No value added tax
Monetary judgments are usually made in the investor’s currency.
However, the immediate availability of foreign exchange is
dependent upon supply, which varies on a seasonal basis and was
chronically low for the past three years. The 2006 Money Laundering,
Proceeds of Serious Crime and Terrorist Financing Act established
an autonomous Financial Intelligence Unit (FIU) to combat money
laundering and terrorist financing. The FIU is responsible for analysing
disclosures from financial institutions and referring actionable cases
to competent authorities. It is also mandated to monitor compliance
by reporting institutions.
Malawi is a member of the International Centre 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.
5.5 Performance requirements and incentives
Malawi is not in compliance with World Trade Organisation
(WTO) Trade Related Investment Measures (TRIM) notification
requirements. Malawi does not set performance requirements for
establishing, maintaining or expanding an investment, nor does it
place requirements on ownership, source of financing, or geographic
location. The government accords Export Processing Zone (EPZ)
status only to firms (foreign or domestic) that produce exclusively
for export.
Malawi offers the following incentives, which apply equally to
domestic and foreign investors:
General Incentives
• 100% investment allowance on qualifying expenditure for new
building and machinery
• Allowances of up to 40% for used buildings and machinery
• 50% allowance for qualifying training costs
• Allowance for manufacturing companies to deduct all operating
expenses incurred up to 25 months prior to the start of operations
• Zero duty on raw materials used in manufacturing
• Loss carry forward of up to seven years, enabling companies to
take advantage of allowances
• Duty-free direct importation of building materials for factories and
warehouses
• No duty on capital equipment and raw materials
• No excise tax on the purchases of raw materials and packaging
materials made in Malawi
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
There are also additional incentives for horticulture, mining and
tourism.
The above incentives are applied consistently but many companies
have complained about long delays in accessing the accrued
benefits.
In June 2011, the government imposed the following changes as part
of its 2011/2012 national budget:
• The introduction of a turnover (revenue) tax on businesses at the
rate of 1% for turnover under MK 50 million and 2% for turnover
above MK 50 million (approximately US$ 300,000);
• The abolition of the 15% investment allowance given to
companies operating under Export Processing Zones (EPZ);
• The abolition of the exemption from corporate tax on profits for
companies operating in EPZs;
• The reduction of the investment allowance from 100% to 40%
for new and used industrial buildings and machinery in the
manufacturing, tourism, energy and agriculture sectors;
• The requirement of tax clearance certificates in order to obtain
government approval for business transactions, including:
externalization of funds, renewal of temporary employment
permits, renewal or extension or transfer of mining licenses,
renewal of tourism licenses, renewal of energy licenses, renewal
of telecommunications licenses, change of ownership of a
company and the renewal of other business licenses;
• An increase from 10% to 15% of the withholding tax on rental
properties;
• The introduction of capital gains tax on the sale of shares
regardless of time of disposal. Previously, these gains were not
taxable if shares were held for more than a year;
• The introduction of value added tax (VAT) on goods previously
exempted such as water, bread, meat and edible meat offal, milk
and dairy products, residues and waste from food industries,
saw dust and wood waste, newspapers, table salt, hessian cloth,
machinery, mechanical appliances, spare parts, and fees, charges,
commissions and discounts on financial services.
• 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
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entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
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8
Foreign investors are generally accorded the same treatment as
nationals. Foreign firms are able to participate in government/donorfinanced and/or subsidised research and development programmes.
The following information is required to register and incorporate
a company:
• Name of the company
• Authorised share capital
• Registered office
• Location of account books
• Address of the company secretary
• Names of directors and shareholders
There is also a requirement that at least two Malawian residents be
appointed directors for such a subsidiary company.
Visas do not inhibit investors, but the need for employment permits
sometimes can. Expatriate employees (of both domestic and foreign
businesses) who reside and work in Malawi must obtain temporary
employment permits (TEPs). TEPs have been very difficult to obtain
in some instances.
Government policy on TEPs has been unchanged since a “Policy
Statement and New Guidelines for The Issuance and Renewal of
[Expatriate] Employment Permits” was issued in November 1998.
The guidelines state that investors may employ expatriate personnel
in areas where there is a shortage of “suitable and qualified”
Malawians. The policy provides for two types of TEPs:
• Those for “key posts” (defined as positions of “strategic
importance” in business operations) which are granted for the
lifespan of the organisation
• Those for “time posts” (defined as positions with contracts of
three-year duration or less) which are granted for three-year
periods and renewable once
The policy underscores the government’s desire to make TEPs
readily available to expatriates, and mandates that processing times
for TEP applications shall not exceed 40 working days. In practice
these guidelines have been applied inconsistently, leading to delays
and some uncertainty.
The government issues Business Residence Permits (BRPs) to
foreign nationals who own/operate businesses in Malawi. BRPs
are issued for five-year periods and are renewable. Permanent
Residence Permits (PRPs) are issued to foreign spouses who reside
permanently in Malawi, and to owners/operators of businesses who
reside in Malawi for periods in excess of ten years. PRP holders
cannot work as employees.
Malawi’s immigration laws governing BRPs and PRPs have been
revised. There are three categories of residence permits based on
the amount of investment, the status of applicant (investor, retiree,
student, or spouse of a Malawian citizen) and the period of the
business assignment. The maximum number of resident permits
per organisation is five positions, with the actual number allowed
depending on the amount of investment.
5.6 Right to private ownership and establishment
The government encourages both domestic and foreign investors
to establish and own business enterprises in most sectors of
the economy. All investors have the right to establish, acquire,
and dispose of interests in business enterprises. There are some
restrictions to land ownership by foreigners. Sale of land to foreigners
is approved only after no Malawian has shown interest to match the
price offered by the foreigner. However, land acquired as part of a
business establishment is not subject to this rule.
5.7 Protection of property rights
Both foreign and domestic investors have access to Malawi’s
legal system, which functions fairly well and is generally unbiased.
Heavy caseloads and staffing limitations, however, mean that legal
remedies can take a long time to achieve. Malawi has laws that
govern the acquisition, disposition, recording and protection of all
property rights (land, buildings, etc.) as well as intellectual property
rights (copyrights, patents and trademarks, etc.).
The government has signed and adheres to bilateral and multilateral
investment guarantee treaties and key agreements on intellectual
property rights. Malawi is a member of the convention establishing
the multilateral investment guarantee agency, the World Intellectual
Property Organisation (WIPO), the Berne Convention, and the
Universal Copyright Convention.
The Copyright Society of Malawi (COSOMA), established in 1992,
administers the 1989 Copyright Act which protects copyrights and
“neighbouring” rights in Malawi. The Registrar General administers
the Patent and Trademarks Act, which protects industrial intellectual
property rights in Malawi. A public registry of patents and patent
licenses is kept. Patents must be registered through an agent.
Trademarks are registered publicly following advertisement and a
period of no objection.
WTO rules allow Malawi (as a less developed country) to delay full
implementation of the Trade-Related Aspects of Intellectual Property
Rights (TRIPs) agreement until 2016. The Ministry of Industry and
Trade is working with COSOMA, the Registrar General, and the
Africa Regional Intellectual Property Organisation (ARIPO) to align
relevant domestic legislation with the WTO TRIPs agreement.
5.8 Transparency of the regulatory system
Malawi’s industrial and trade reform programme – including
rationalisation of the tax system, liberalisation of the foreign
exchange regime, and the elimination of trade and industrial licenses
for several items and businesses – has produced written guidelines
intended to increase government use of transparent and effective
policies to foster competition. No tax, labour, 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 the government has announced “minimum prices”
for tobacco, cotton and maize which buyers have been obliged to
offer, under threat of the loss of their buyers’ licenses. Buyers have
complained of a lack of transparency in the setting of these prices.
There have been both positive and negative steps towards increasing
regulatory transparency and improving the foreign investment
environment.
Notable positive developments include:
• The establishment of the Malawi Energy Regulatory Authority
(MERA)
• The establishment of the Malawi Communication Regulatory
Authority (MACRA)
• The licensing of four cellular phone service providers, two of
which are operating
• The splitting of the former parastatal Malawi Posts and
Telecommunication Corporation (MPTC) into two separate
entities – the Malawi Posts Corporation (MPC) and Malawi
Telecommunications Limited (MTL)
In principle, public enterprises compete equally with private
entities with respect to access to markets, credit and other
business operations.
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
9
MTL has since been partially privatised and government retains 20%
shares which it intends to off load to the public later.
Notable negative developments include government interventions
into the fuel sector and current account transactions (rationing
foreign exchange, restricting foreign exchange bureaus, and
requiring tobacco sales revenue to go to the RBM instead of the
commercial banks). 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.
Malawi has a sound banking sector, overseen and well-regulated by
the Reserve Bank of Malawi – the central bank. There are eleven fullservice commercial banks:
• National Bank of Malawi (NBM)
• First Merchant Bank (FMB) Limited
• Standard Bank (SB)
• New Building Society (NBS) Bank
• Ecobank
In 2011, taking the country back to 2000, the government established
a new company called the National Oil Company of Malawi (NOCMA)
that has assumed similar functions that were performed by PCC prior
to 2000. NOCMA is mandated to import and store fuel for strategic
reserves, but since its arrival has been operating in competition with
Petroleum Importers Limited – a private sector consortium.
• First Discount House Bank
Additional government interventions in the financial sector include
restrictions on the current account. Since September 2010, the
RBM has rationed foreign exchange and required that any request
for US$50,000 or more for imports be pre-approved. The backlog of
requests for foreign exchange in commercial banks is estimated to
exceed US$800 million. Since July 2011, foreign exchange bureaus
are mandated to offer the official rate of the Malawi kwacha which
is widely considered overvalued. Throughout the 2011 tobacco sale
season the RBM required tobacco sales revenue to be deposited in
the RBM instead of passing straight from the auction floors to the
farmers’ commercial banks.
• International Commercial Bank
5.9 Efficient capital markets and portfolio investment
Traditionally the Reserve Bank of Malawi has pursued a tight
monetary policy to bring down the level of inflation. In the recent
past, however, the Reserve Bank has moved to a more expansionary
approach to monetary policy to promote private sector development,
using monetary instruments such as bank rate and liquidity reserve
rations that have been progressively reduced over the past five years.
Inflation dropped, from 15.4% in 2005 to 8.1% in October 2011.
There has been an upward trend in inflation figures for 2011 and the
situation is likely to continue as foreign exchange and fuel shortages
continue. The bank rate has declined considerably over the past
five years, from 45% in 2004 to 13% in 2010, 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.
The Malawi kwacha trades as a heavily managed currency against
the US dollar. After remaining unchanged for over five years, the rate
was allowed to depreciate in late 2009, falling from 143 to 151.8 to
the dollar at the end of December 2009. The Reserve Bank of Malawi
depreciated the Malawi kwacha (MK) further in August 2011 moving
the rate to 168 to the dollar. As of December 2011, the parallel rate on
the black market was estimated to be between 220-250 MK to one
dollar. Continuing shortages of foreign exchange put pressure on the
kwacha and further depreciation is expected in the near future.
The private sector in Malawi has a variety of credit instruments.
Credit is generally allocated on market terms. Foreign investors may
utilize domestic credit, but proceeds from investments made using
local resources are not remittable.
• Malawi Savings Bank
• Indebank
• Nedbank
• 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
• First Discount House
• Trust Securities Limited
Malawi’s four largest banks (NBM, FMB, SB, and NBS) command
90% of the market, with a total capitalization of over US$1 billion.
The Companies Act, the Capital Market Development Act (1990),
and the Capital Market Development Regulations (1992) provide the
legislative and regulatory framework for investment in Malawi. The
attendant legal, regulatory and accounting systems are transparent
and consistent with international norms. These acts govern the
Malawi Stock Exchange (MSE).
Stockbrokers Malawi Limited (SML) is the major registered
stockbroker in Malawi. Other brokerage firms are Continental
Discount House, First Discount House and Trust Securities Limited.
The MSE is regulated by the Stock Exchange Commission.
SML runs a secondary market in government securities, and both
local and foreign investors have equal access to the purchase of
these securities. The following 15 companies are listed on the MSE:
• Blantyre Hotels Limited (BHL)
• First Merchant Bank (FMB) Limited
• Illovo Sugar Malawi Limited
• Malawi Properties Investment Company (MPICO)
• National Bank of Malawi (NBM)
• New Building Society (NBS) Bank
• NICO Holdings Limited
• National Investment Trust Limited (NITL)
• Press Corporation Limited (PCL)
• Packaging Industries of Malawi (PIM)
• Real Insurance Malawi, Standard Bank (Malawi)
• Old Mutual, Sunbird Tourism Limited
• Telecom Network Malawi Limited
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entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
10
The MSE is still in a nascent stage, and hostile takeovers have not
yet occurred. Apart from the restrictions under the privatisation
programme, 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-today trading on the MSE, but regulates mergers, acquisitions, and
takeovers that are of national interest.
The Competition and Fair Trading Act – passed by Parliament in
1998 but made operational in 2000 – aims to regulate and monitor
monopolies and the concentration of economic power, protect
consumer welfare, and strengthen the efficient production
and distribution of goods and services. In accordance with the
Act, the Ministry of Industry and Trade appointed competition
commissioners, who in 2006 established a secretariat to oversee
the Act’s implementation. The secretariat is required to approve only
those acquisitions, mergers or takeovers that increase employment
and net exports, and lower prices for consumers.
5.10Competition from state-owned enterprises
Private and public enterprises freely compete on the same terms
and conditions for access to markets, credit and other business
opportunities. There are exceptions, however, for some public works
assignments where public enterprises tend to be given special
preference by government.
There have been several instances where public enterprises such
as the National Oil Company of Malawi (NOCMA) and Agricultural
Development and Marketing Corporation (ADMARC) have been
favoured with allocation of foreign exchange over the private sector.
The contract to distribute subsidised agricultural inputs is given to
Agricultural Development Marketing Corporation (ADMARC) and
Small-holder Farmers Fertilizer Revolving Fund (SFFRF) on a priority
basis. In the lead up to the 2011 planting season there were virtually
no fertilizers available for sale in the private sector. There are no set
rules or criteria on such exceptions—the government tends to decide
on a case by case basis.
All State Owned Enterprises (SOEs) have 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/non-voting members. The participation of members of
the government as ex-officio/non-voting members on these boards
creates a perceived and/or real conflict of interest.
All SOEs produce annual reports, which are audited by independent
professional audit firms. SOEs predominate in the following sectors:
energy, water, and agriculture.
The Electricity Supply Company of Malawi (ESCOM), Air Malawi, and
ADMARC are three examples of parastatals in Malawi.
Although signed in April 2011, the U.S. Government’s Millennium
Challenge Corporation (MCC) US$350.7 million Compact was put
on operational hold in mid-2011 owing to concerns over negative
trends in economic and political governance. The MCC Compact
Programme focuses on the power sector (strengthening ESCOM)
and promoting private sector investment in power production.
5.11Corporate social responsibility
There is a well-developed sense of corporate social responsibility
in Malawi and most corporate entities make a point to publicise
such activities in the local media. Large domestic companies and
international enterprises tend to be more active and generous than
small domestic companies.
5.12Political violence
Malawi has been largely free of political violence since gaining
independence in 1964. Apart from the disarming of the Malawi Young
Pioneers, a paramilitary group active during Malawi’s 1994 transition
to democracy, incidents of violence were few. Sporadic violence
occurred in the run-up and immediately following the 2004 elections.
Presidential and parliamentary elections in May 2009 were peaceful,
with no significant incidences of violence. On July 20 and 21, 2011,
nationwide demonstrations over economic and political governance
turned violent and 20 Malawians died in the civil unrest that ensued.
Although divisions do exist, Malawi has no significant tribal, religious,
regional, ethnic, or racial tensions that could be expected to lead to
violent confrontation.
Incidents of labour 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 neighbouring Mozambique
and Zambia in recent times.
5.13Corruption
Corruption, including bribery, raises the costs and risks of doing
business. Corruption has a corrosive impact on the business climate.
It also deters international investment, stifles economic growth and
development, distorts prices, and undermines the rule of law.
Anti-Corruption activities in Malawi:
Although progress has been made addressing the issue, corruption
continues to be viewed as a major obstacle to doing business
in Malawi. There have been serious allegations of corruption,
particularly in the area of customs and excise tax, traffic police,
immigration and government procurement. The Corrupt Practices Act
provides the legal framework for combating corruption in Malawi.
The Anti-Corruption Bureau (ACB) is legally mandated to investigate
corruption in Malawi. Opened in 1997 and fully staffed in 1998,
the ACB has thus far brought forward a small number of highlevel 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 authorised to prosecute
cases directly, rather than through the politically appointed Director
of Public Prosecutions (DPP). Legislation to that effect was drafted in
2003, but was not passed. Instead, a revision to the Corrupt Practices
Act, which mandated the DPP to report to Parliament on any cases
the DPP does not give consent to prosecute, was passed in 2004.
Soon after his first election win in 2004, President Bingu wa
Mutharika stated that the fight against corruption was a priority.
However, investigations and trials have moved at a slow pace. In
2008, high-profile cases that were brought to trial included a former
cabinet minister and a CEO of the utility company. Former President
Bakili Muluzi is currently facing corruption charges in court.
Malawi subscribes to the provisions of the OECD Anti-bribery
Convention, but is not a signatory of the Convention. Malawi’s Penal
Code prohibits bribery. Giving or receiving a bribe – whether to or
from a Malawian or foreign official – is a crime under Malawi’s
penal code.
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
11
Anti-Corruption resources
Some useful resources for individuals and companies regarding
combating corruption in global markets include the following:
• Information about the OECD Anti-bribery Convention including
links to national implementing legislation and country monitoring
reports is available at: http://www.oecd.org/department/0,3355,
en_2649_34859_1_1_1_1_1,00.html. .
• General information about anticorruption initiatives, such as the
OECD Convention and the FCPA, including translations of the
statute into several languages, is available at the Department
of Commerce Office of the Chief Counsel for International
Commerce Website: http://www.ogc.doc.gov/trans_anti_bribery.
html.
• Transparency International (TI) publishes an annual Corruption
Perceptions Index (CPI). The CPI measures the perceived level of
public-sector corruption in 180 countries and territories around
the world. The CPI is available at: http://www.transparency.org/
policy_research/surveys_indices/cpi/2009. TI also publishes an
annual Global Corruption Report which provides a systematic
evaluation of the state of corruption around the world. It includes
an in-depth analysis of a focal theme, a series of country reports
that document major corruption related events and developments
from all continents and an overview of the latest research findings
on anti-corruption diagnostics and tools.
• Southern African Development Community (SADC): The
SADC region has a potential market of 258 million people and
a combined GDP of US$471.1 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 2011 few
countries had completed their tariff phase downs, and some –
including Malawi – had not yet started.
• The COMESA-EAC-SADC Tripartite: A Second Tripartite Summit
took place on 12 June 2011, in Sandton, South Africa. The Summit
formally launched the negotiations for a COMESA-EAC-SADC
Tripartite Free Trade Area. The COMESA-EAC-SADC countries
have a combined GDP of about US$624 billion and a population of
over 527 million people.
• African Growth Opportunities Act (AGOA): AGOA offers duty and
quota-free access to the United States market of 312 million
people for 1,800 products, in addition to the standard Generalized
System of Preferences (GSP) programme.
• Everything But Arms (EBA): This initiative extends duty-and quotafree access to the European Union market for all imports from
Least Developed Countries, except arms. Minor variations apply
to bananas, sugar, and rice. Full liberalization took place for these
commodities in 2009.
• The World Bank Institute publishes Worldwide Governance
Indicators (WGI). These indicators assess six dimensions of
governance in 212 countries, including Voice and Accountability,
Political Stability and Absence of Violence, Government
Effectiveness, Regulatory Quality, Rule of Law and Control of
Corruption. See http://info.worldbank.org/governance/wgi/sc_
country.asp.
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.
• The World Economic Forum publishes the Global Enabling Trade
Report, which presents the rankings of the Enabling Trade Index,
and includes an assessment of the transparency of border
administration (focused on bribe payments and corruption)
and a separate segment on corruption and the regulatory
environment. See http://www.weforum.org/en/initiatives/gcp/
GlobalEnablingTradeReport/index.htm.
Malawi acceded to the Multilateral Investment Guarantee Agency
(MIGA) in 1985/86. Malawi has not renewed several investment
treaties that lapsed after 1986, since MIGA provides mechanisms
for the settlement of investment disputes. Malawi also signed
investment promotion and protection agreements (IPPAs) with the
OPEC Fund for International Development, Libya, Italy, Netherlands
and Zimbabwe.
• Additional country information related to corruption can be found
in the U.S. State Department’s annual Human Rights Report
available at http://www.state.gov/g/drl/rls/hrrpt/.
5.15Labour
The Government of Malawi estimates that more than half of the
population is of working age. Unskilled labour is plentiful. Skilled and
semi-skilled labour is scarce. Occupational categories with skills
shortages include accountants and related personnel, economists,
engineers, primary and secondary school teachers, lawyers, and
medical/health personnel.
• Global Integrity, a non-profit organisation, publishes its annual
Global Integrity Report, which provides indicators for 92
countries with respect to governance and anti-corruption. The
report highlights the strengths and weaknesses of national level
anti-corruption systems. The report is available at: http://report.
globalintegrity.org/.
• The website for the Malawi Anti-Corruption Bureau is: http://www.
anti-corruptionbureau.mw
5.14Bilateral investment agreements
Malawi’s policy is to negotiate bilateral investment treaties with
countries whose nationals opt to invest in Malawi. The country
is a party to a number of multilateral, regional and bilateral trade
agreements, offering wider access and preferential treatment for the
export of Malawian products. These agreements are already being
utilised. The multilateral and regional trade agreements include:
• Common Market for Eastern and Southern Africa (COMESA):
COMESA has a potential market of 430 million people and a
combined GDP of US$472 billion. Member states within the
COMESA have continued to take steps to consolidate the Free
Trade Area in preparation for the forthcoming transition of the
COMESA Free Trade Area into a Customs Union. A customs union
was launched on June 7, 2009.
High transportation costs make the immediate neighbours (Tanzania,
Mozambique, Zambia, Zimbabwe, etc.) critical markets for Malawi.
The University of Malawi provides bachelors and masters degrees
in economics, engineering, medicine, education, agriculture
and administration. The Malawi College of Accountancy teaches
accounting. Chancellor College operates the country’s law
school. In early 1999, the government established the Technical,
Entrepreneurial and Vocational Education and Training Authority
(TEVETA) program to address technical skills shortages in industry.
The Labour Relations Act (LRA), enacted in 1997, governs labourrelations management in Malawi. The Act allows strikes and lockouts
for registered workers and employers after dispute settlement
procedures in collective agreements and conciliation have failed. As
trade union rights have existed only since the transition to multiparty
democracy in 1994, industrial relations are still evolving. Employers,
labour unions, and the government lack sufficient knowledge of their
legitimate roles in labour relations/disputes.
Workers have the legal right to form and join trade unions. Twentynine unions are registered. Union membership is low, however, given
the small percentage of the work force in the formal sector, the lack
of awareness of worker rights and benefits, and a resistance on the
part of many employees to join unions.
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entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
12
Only 18% of people employed in the formal sector belong to unions.
Unions may form or join federations and have the right to affiliate with
and participate in the affairs of international workers’ organisations.
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 Labour, resulting in very few labour-standards
inspections.
5.16Foreign trade zones/free trade zones
Legislation for the establishment of export processing zones (EPZs)
came into force in 1995. All companies engaged exclusively in
manufacture for export may apply for EPZ status. As of December
2011, 16 were operating under the EPZ scheme. Almost all these
companies are foreign owned companies though the law does not
discriminate on ownership. A Manufacturing Under Bond (MUB)
scheme offers slightly less attractive incentives to companies that
export some, but not all, of their products. Thus most investors
prefer to operate under EPZ arrangement. Recent changes in the
governments 2011/2012 national budget remove some of the most
significant incentives for investing in EPZs.
5.17Foreign Direct Investment (FDI) statistics
Malawi is one of the least developed and most densely populated
countries in the world. Malawi’s economy is based on agriculture
which accounts for over 30% of GDP and 90% of export revenues.
Small shareholder agriculture is the source of income for more than
80% of population. Malawi’s economy depends on substantial
inflows of foreign aid from the IMF, the World Bank, and individual
donor nations.
Both the Reserve Bank of Malawi (RBM) and the Malawi Investment
and Trade Centre (MITC) maintain records on the value and
composition of Foreign Direct Investment (FDI) in Malawi. Neither
the RBM nor MITC, however, currently capture actual FDI figures.
The following chart shows the amount of FDI into Malawi since 2005
as well as its relative percentage of the GDP for that year
5.18Registering a company in Malawi
No Procedure
Time to
complete
Associated costs
1.
Initiate a company
name search
1 day
MWK 500
2.
Submit application
for a Certificate of
Incorporation to the
Registrar General,
Ministry of Justice
3 – 7 days if
done in person;
14 days by mail
3.
Register for payment
of income tax with
the Malawi Revenue
Authority
1 day if
application is
hand delivered
4.
Obtain a company
seal
3 – 4 days
5.
File an application
form to obtain a
license from the City
Assembly
29 days
including time
of publication;
simultaneous
with procedure
4
MWK 400 Blantyre
City Assembly
6.
Inspection of
premises for the
issue of the license
14 days;
simultaneous
with procedure
5
No charge
7.
Pay license fee upon
approval of license
and obtain license
1 day;
simultaneous
with procedure
5
MWK 20,000
8.
Apply for a
registration of the
workplace
28 days;
simultaneous
with procedure
5
MWK 1,000,
depends on
the number of
employees
9.
Inspection of
premises by the
Occupational Safety,
Health, and Welfare
Department
7 days;
simultaneous
with procedure
5
No charge
10.
Register for PAYE
and fringe benefit
tax with the Malawi
Revenue Authority
by mail
1 day;
simultaneous
with previous
procedure
No charge
MWK 1,000 +
MWK 100 for first
MWK 1,000 of
capital, and MWK
15 for every MWK
2,000 or part of
capital thereafter
No charge
MWK 19,000
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
13
6Country Risk Analysis
Sovereign Currency Banking Political Economic Country
risk
risk
sector
risk
structure risk
risk
risk
Mar-12
CCC
CCC
CCC
CCC
CCC
CCC
(AAA=least risky, D=most risky)
6.1 Sovereign risk
Stable: The external debt stock is small and largely concessional,
and consists mainly of medium- and long-term debt. Despite this,
debt-servicing capacity could be compromised owing to persistent
aid cuts and worsening foreign-exchange shortages, with little sign of
a prompt end to either.
6.2 Currency risk
Stable. The kwacha remains heavily overvalued. Talks with the
IMF have not led to a solution, with the government continuing to
obfuscate the issue by blaming third parties for the country’s foreignexchange shortages. The outlook for the exchange rate is highly
uncertain and the likelihood of a sudden, sharp devaluation at some
point over the next two years is high.
6.3 Banking sector risk
Stable. Banking sector risk is expected to stay at CCC. Although
the system is well capitalised and the incidence of non-performing
loans is low, risks to the sector have increased in line with broader
economic developments.
6.4 Political risk
Malawi’s political risk score has increased by seven points, pushing
its risk rating to CCC. The president has continued to disregard the
public’s concerns and his critics have continued to be targeted,
raising the risk of further protests.
6.5 Economic structure risk
Malawi depends heavily on rain-fed agriculture, which is vulnerable to
periodic drought, and on burley tobacco, which is subject to uncertain
global demand.
7Country Outlook: 2012 –
2016
7.1 Political stability
Political stability is expected to improve significantly following the
assumption of the presidency by the former Vice-president, Joyce
Banda, after the previous president, Bingu wa Mutharika, died of
a heart attack in April. Under Mr. Mutharika the regime’s credibility
and urban popularity had plummeted because of worsening fuel and
electricity shortages, rising unemployment and a clampdown on
political freedoms. Ms. Banda has moved swiftly to reverse previous
policies, re-establish relations with international donors and replace
several of Mr. Mutharika’s key allies, including the head of the police
force, who was heavily implicated in the mishandling of the 2011 riots
during which 19 people were killed.
Political freedoms are expected to increase and Ms. Banda appears
intent on rebuilding popular trust in state institutions, as seen by
her launching an investigation into the suspicious death of a political
activist, under highly suspicious circumstances, last year. Owing
partly to her reforms and personal popularity and partly to the
benefits that come with access to power, Ms. Banda has for now
secured a workable majority in parliament for her People’s Party
(PP), which includes former members of Mr. Mutharika’s party, the
Democratic Progressive Party (DPP).
7.2 Election watch
The next presidential and legislative elections are due in May 2014.
The popularity of Ms. Banda and her party will largely depend on
whether she can successfully reform the economy while reining in
discontent over price rises and economic hardships. Despite still
being the second-largest party in the legislature, the future of the
DPP is uncertain. Several of its members have left the party, and it
will remain tainted by the authoritarianism of Mr. Mutharika’s rule.
The former main opposition parties – the Malawi Congress Party
(MCP) and the United Democratic Front (UDF) – lost influence
following their resounding electoral defeat in 2009 and have taken
a conciliatory stance towards Ms. Banda. The MCP has indicated
that it could support Ms. Banda’s government on certain issues,
and Atupele Muluzi – who was expected to lead the UDF in the
upcoming elections – is now a member of the new cabinet. However,
as the elections come closer, they could seek to raise their profiles
and capitalise on any disgruntlement over the PP’s reforms and the
decline of the DPP’s appeal.
7.3 International relations
Following the regime change, Malawi’s relations with its major
international donors, including the US, the EU and the former
colonial power, the UK, will improve significantly. This will lead to
sharp increases in aid inflows, which will help to sustain the new
government’s reform efforts. It is expected to stay on good terms
with the other countries in Southern Africa, including Zambia, with
which Mr. Mutharika had a fractious relationship after a diplomatic
row with its recently elected president, Michael Sata. Relations
with other African countries could be strained by the government’s
decision to refuse to allow Sudan’s president, Omar al-Bashir, who is
wanted on war crimes charges by the International Criminal Court, to
attend the next African Union (AU) annual summit. This was initially
scheduled to be held in Malawi in July but the AU was forced to move
the meeting to Ethiopia. China’s economic presence in Malawi will
grow, but from a very low base.
7.4 Policy trends
Policy outlook has improved following the accession of Ms. Banda,
who has set out to repair relations with international donors and
scrap the kwacha’s implicit peg to the US dollar. The currency was
devalued in May, after the previous government’s refusal to allow
a free-floating exchange rate, and consequently a new, US$157m,
three-year IMF agreement is expected to be approved in July. The
liberalisation of the exchange-rate regime was inevitable and will
strengthen investor sentiment and encourage renewed aid inflows. It
will also arrest the fall in agricultural and industrial production, which
suffered as a result of the overvalued currency and the resultant
foreign-exchange shortages, which, in turn, caused shortages of fuel
and other imported goods.
The new IMF programme will, in the short term, focus on mitigating
the effects of the kwacha’s flotation on prices of food and other
essential goods. In the longer term it will support the government’s
efforts to improve fiscal discipline and public finance management,
while seeking to increase the country’s resilience to external shocks
by diversifying the economy and improving the business climate.
7.5 Economic growth
Real GDP growth is expected to slow to 4.2% in 2012, as agricultural
performance is weaker than in the previous year, power supply
continues to be intermittent, growth in uranium production is slowing
and costly economic adjustments are damaging productivity.
Growth will pick up to 5.4% in 2013, supported by the recovery in
aid, the expansion of agricultural subsidies and improved investor
sentiment. It is expected to fall slightly in 2014 as uncertainties over
the elections affect investment levels, although increased capital
spending by the government will sustain growth. Growth will rise
again in 2015-16 but, unless major new foreign direct investment
deals are secured, growth will not reach the levels seen during Mr.
Mutharika’s first term as president.
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
14
Agricultural growth will be supported by public investments in rural
roads and irrigation infrastructure and is forecast to reach 7% by
2016, despite the declining potential for raising maize output through
fertiliser usage. The mining sector will grow slowly as exploration
takes place for oil in Lake Malawi and for rare earth minerals but
uranium output stabilises. Growth in construction, manufacturing
and services is expected to recover as macroeconomic stability
improves.
Overall, growth is forecast at 5.2% in 2014, rising to an average
of 6.2% in 2015-16. Downside risks to this are high, owing to the
possibility of a severe drought, a worsening of the euro-zone crisis or
a sharp slump in prices for Malawi’s main export, tobacco.
7.6Inflation
Inflation is forecast to accelerate to 18.4% in 2012 as a result of
the liberalisation of the exchange-rate regime, which raised the
price of the US dollar by 50% and has stoked imported inflation.
The increases in electricity tariffs, which are required to support
much-needed investment in the sector, and the withdrawal of fuel
subsidies will also generate upwards inflationary pressures.
Inflation will be moderated by aid-funded subsidies for poor
households, falling global food prices and sufficient domestic
production of the staple food, maize (food accounts for more than
half of the consumption basket). Inflation is forecast to fall slightly
to 16.6% in 2013 as global commodity prices fall and domestic
agricultural production picks up but the currency continues to
depreciate. Thereafter, inflation is expected to moderate from 11.4%
in 2014 to 9.3% in 2016 as the currency depreciates more gradually,
monetary policy becomes more effective, productivity continues to
increase and a slight rise in international oil prices is offset by fairly
stable food prices.
However, increasing domestic demand, including for capital goods
to support the public investment programme, together with the
continued currency depreciation, will generate upward price
pressures towards the end of the outlook period. A major risk to the
inflation forecast is the possibility of severe drought, which would
reduce maize production (agriculture is largely rain-fed) and boost
food prices.
Imports are expected to increase in 2012 as food and fuel imports are
boosted by emergency measures to cover essential imports in the
wake of the currency adjustment. In 2013-14 imports will rise slightly
owing to election-related spending although a weaker currency
constrains demand. Thereafter imports will continue to pick up on
the back of increased economic activity and slightly higher global
commodity prices.
Services debits will remain large, as the cost of transporting goods
into and out of the country remains high. Income debits will rise as
mining profits are repatriated. Current transfer credits are expected
to rise sharply in line with our forecast for aid flows. Driven by
developments on the transfer account, the current-account deficit is
forecast to narrow in nominal terms from an estimated US$678m in
2011 to US$625m in 2012, although the decrease is moderated by
higher imports. However, as a result of the currency depreciation,
the current-account deficit is expected to widen in relative terms
to 13.6% of GDP in 2012. As imports decrease, aid inflows rise and
exports continue to grow, the deficit will narrow to 12.1% in 2013
and further, to 9.6% of GDP in 2016. With improvements in donor
relations and the economic policy outlook, the government is not
expected to face any difficulties in financing the deficits.
AAppendix one
Sources of Information
World Bank
CIA World Factbook
Economist Intelligence Unit
Doingbusiness.org
SomaliPress.com
Wikipedia
US State Government
7.7 Exchange rates
The exchange-rate regime was liberalised in May, following
heavy overvaluation and foreign-exchange shortages during the
previous regime. The flotation caused the kwacha to depreciate
overnight by 50% from MK167:US$1 to MK250:1US$1. Several
exchange restrictions were also removed and the exchange rate
will now be determined by the market. The kwacha is expected
to continue to depreciate for the remainder of 2012, ending the
year at MK300:US$1, giving an average exchange rate in 2012 of
MK244:US$1. Largely due to the base effects of the re-evaluation in
mid-2012, as well as the large current-account deficit, the kwacha
will depreciate to an average of MK314:US$1 in 2013. From 2014
onwards the currency is expected to continue to weaken, albeit
more gradually, and to depreciate by an average of 4% per year to
MK356:US$1 in 2016 as the current-account deficit remains wide
and foreign direct investment inflows stay fairly weak.
7.8 External sector
Following a decline in 2011 (owing to a slump in earnings from
tobacco), exports are forecast to pick up slightly in 2012, supported
by a recovery in local tobacco prices. In 2013-16 export growth
is expected to average 6% as tobacco exports are supported by
increased competiveness due to the kwacha’s depreciation and
favourable international price trends (while remaining below the
levels seen in 2007-10) and as uranium prices strengthen in 2014-16.
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
15