Doing Business In Malawi:  A Country Commercial Guide for U.S. Companies

INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2005.  ALL RIGHTS RESERVED OUTSIDE OF
THE UNITED STATES.

Chapter 1: Doing Business in Malawi
Market Overview                                                                                
Geographically small (48,000 square miles) and landlocked in central Africa, Malawi is one of the poorest nations on earth.  With 13 million inhabitants and a population growth rate estimated at approximately 2.2%, Malawi is one of the most densely populated countries on the African continent.  Annual per capita GDP is about USD 160. 
Agriculture forms the mainstay of Malawi's economy, accounting for nearly half of its GDP.  Tobacco, tea, and sugar together generate over 70% of export earnings, with tobacco providing the lion’s share (over 60%).  The agricultural sector employs nearly half of those in formal employment, and directly or indirectly supports an estimated 85% of the population (including subsistence farming).  Malawi has a narrow economic base with little industry and mining, and only a few known economically viable deposits of gemstones or precious metals.  A development agreement signed in early 2007 is expected to lead to mining and processing of a sizeable uranium reserve in northern Malawi over the next decade. 

Malawi has a relatively free investment environment, but poor infrastructure (roads, telecommunications, electricity, and water) and bureaucratic hurdles deter investors.  Improved rail service to the Mozambican deepwater port of Nacala subsequent to the December 1999 privatization of Malawi railways is expected to reduce transport costs, particularly after an ongoing rehabilitation program is completed.  The U.S. Overseas Private Investment Corporation (OPIC) provided funding of $30 million towards the current rehabilitation of the railway and port facilities. 

Some Government ownership/control of the economy through parastatal organizations and through share-ownership in large companies remains.  The Government, however, has moved forward with its multi-sectoral privatization program, and as of December 2006, the Privatization Commission had disposed of 63 of the approximately 110 state-owned enterprises targeted for sale.   The Government of Malawi has sold its shares in National Bank and Commercial Bank of Malawi, effectively de-linking itself from the commercial banking sector.  The U.S. Embassy has received few complaints concerning expatriate employment permits since the government issued a revised "Policy Statement and New Guidelines for The Issuance and Renewal of [Expatriate] Employment Permits" (one document) in November 1998; however, some expatriates working in the tobacco sector have experienced delays in the issuance of permits and/or refusals during the past year.  Malawi has a fairly independent, albeit overburdened, judiciary that derives its procedures from English common law.  

Major Political Issues Affecting Business Climate
The macroeconomic situation has much improved over the past two years.  Government's chronic over-expenditure in previous years, coupled with a sharp drop in tax revenues during 2001/02, sent Malawi off-track with its International Monetary Fund (IMF) program and led the IMF to suspend loans through most of 2002 and 2003.  Several donor governments followed suit.  Loans were briefly reinstated in 2003, but lapsed again in 2004 thanks to government overspending in the run-up to presidential and parliamentary elections.  In the absence of IMF and other donor support, the government funded expenditures through domestic borrowing, keeping interest rates high and stifling private sector investment.  Because of high interest rates, the level of domestic debt is widely considered to be unsustainable, and it constitutes the new government’s most serious economic challenge. The new government entered into an IMF staff monitored program (SMP) in June 2004 that was successfully completed in July 2005. A new Poverty Reduction and Growth Facility (PRGF) program was approved on August 5, 2005, retroactive to July 2005. Malawi reached the Completion Point under the Highly Indebted Poor Countries (HIPC) Initiative in August 2006, resulting in debt relief from multilateral and Paris Club creditors. Over $2 billion debt has since been cancelled, enabling the Government to increase expenditures for development. 

Economic and Trade Statistics
Source: Reserve Bank of Malawi, Ministry Economic Planning and Development, National Statistical Office Reports
Note: "n/a" denotes data not available. 
Sources:  Ministry of Economic Planning and Development, Economic Report 2005.

Market Challenges                                                                                           
Malawi's landlocked position results in high transport costs that can reach beyond 30% of the country's total import bill and constitute a serious impediment to trade.  The rail link to the Mozambican port of Nacala and a road through Mozambique to the Zimbabwean capital Harare and on to Durban, South Africa provide the cheapest and fastest routes to the outside world.  Most transporters prefer the land route to the South African port of Durban, as they find it more reliable, though the railroad reports increasing traffic in both directions in bulk commodities.  The privatization of Malawi Railways in December 1999 resulted in improved service on the Malawi section of the Nacala rail link.  The Central East African Railways Company Limited -- a consortium comprising Mozambican rail and ports authority (SDCN/CFM) and U.S.-based Railroad Development Corporation and Edlow Resources Limited -- took over the operations of the former Malawi Railways Limited (MRL) in December 1999.  Plans are underway for the consortium to invest in rolling stock, upgrade the sea port at Nacala, and develop the entire 802 km Nacala Corridor (from port to Nayuchi in Machinga.)  OPIC has provided $30 million for this purpose. This development is expected to improve transport facilities along the Nacala Corridor, draw Malawi's traffic away from the road routes, and significantly reduce transport costs as a portion of Malawi's total import bill. 

Market Opportunities                                                              
South Africa is Malawi's primary supplier of imported goods.  This long-standing commercial relationship, together with comparatively high product and transport costs, and a lack of historical business ties between the United States and Malawi disadvantage U.S. suppliers.  There are around 25 U.S. affiliated companies doing business in Malawi, including the two principal processors and exporters of tobacco.  U.S. products in significant demand include computers, used clothing, telecommunications equipment and used trucks.

Chapter 2: Political and Economic Environment
For background information on the political and economic environment of Malawi, please click on the link below to the U.S. Department of State Background Notes.
http://www.state.gov/r/pa/ei/bgn/7231.htm  

Chapter 3: Selling U.S. Products and Services
Using an Agent or Distributor                                                   
Subsidiary or affiliate companies of U.S. organizations operate in several areas. including agro-industry and tobacco, computers/office equipment, and petroleum products.  Finding partners or agents and distributors for U.S. products is not generally difficult, with the notable exception of technically advanced products requiring substantial local support capabilities; for such products, arrangements are sometimes made with firms operating from South Africa. 

Establishing an Office                                                               
The Government of Malawi is officially supportive of foreign businesses interested in establishing agency, franchise, joint venture, or licensing relationships.  The Malawi Investment Promotion Agency (MIPA), which may eventually be merged with the Malawi Export Promotion Council, publishes "A Roadmap for Investors" which may be obtained upon request.  Another organization useful in establishing commercial links with Malawi is the Malawi Confederation of Chambers of Commerce and Industry (MCCCI).