Country Procurement Assessment Report
DETAILS AND ANNEXES
May 24, 2004
Currency Unit = Malawi Kwacha (MWK)
US$ 1.00 = MWK 106.50 (September, 2003)
July 1 – June 30
ABBREVIATIONS AND ACRONYMS
ACB - Anti-Corruption Bureau
CGS - Central Government Stores
CIF - Cost Insurance and Freight
CMS - Central Medical Stores
COMESA - Common Market for Eastern and Southern Africa
DISTMS - Department of Information Systems and Managing Services
DoPP - Director of Public Procurement
FIMTAP - Financial Management, Transparency and Accountability Project
FRDP II Third Fiscal Restructuring and Deregulation Technical Assistance Project
GCU - Government Contracting Unit
GOM - Government of Malawi
HIPC - Heavily-Indebted Poor Countries
IFMIS - Integrated Financial Management System
IPC - Internal Procurement Committee
Kw - Kwacha
MDGs - Millenium Development Goals
MoF - Ministry of Finance
MOH - Ministry of Health
MRA - Malawi Revenue Authority
NAO - National Audit Office
NCIC - National Construction Industry Council
OPC - Office of the President Cabinet
PIU - Project Implementing Units
PSI - Pre-shipment Inspection
PVHO - Plant and Vehicle Hiring Organization
SADC - Southern Africa Development Community
SPU - Specialized Procurement Units
ToT - Training of Trainers
Table of Contents
ABBREVIATIONS AND ACRONYMS i
A. SCOPE OF THE CPAR 3
B. BACKGROUND 3
B.1 RELEVANT COUNTRY INFORMATION 3
B1.1 History 3
B.1.2 Economic Context 3
B.1.3 Development Picture/Donor Coordination 4
B.1.4 World Bank Group's Role 4
B.1.5 Bank’s Involvement in Public Procurement Reforms in Malawi 4
B.1.6 Poverty Reduction Strategy Paper (PRSP) 5
B.1.7 Country Assistance Strategy (CAS) 5
C. MORE DETAILS ON A FEW SUBJECTS 6
C.1 The Anti-Corruption Bureau 6
C.2 E-PROCUREMENT 7
C.2.1 E-procurement in Malawi 7
D. The Malawi Private Sector in Brief 11
D.1 Manufacturing Industry 12
D.2 Imports 12
D.3 Summary of Factors Affecting the Competitiveness of Malawian Manufacturers, Importers and Local Suppliers in Public Sector Procurement 17
D.4 Local Construction Industry 18
D.5 Local Consulting Industry 19
Box 1: Examples of Procurement Cases Investigated by the ACB 20
Box 2: Example of NGO Activities in the Area of Public Procurement 21
Box 3: Examples of Performance Indicators to Monitor Level of Corruption in Public Procurement 22
Figure 1: Structure of the Government Procurement and Supply Organization 23
Figure 2: ACB Organizational Overview 24
Table 1. PVHO Financial year 2001/2002 24
Table 2. PVHO Procurement Volume 2002 (estimates) 25
Table 3: Current CGS Staff 25
Table 4: CGS Procurement Volume 1 July 2002 – 31 June 2003 (estimates) 26
Table 5.1 Major Registration Lists in Use at the Time of Drafting the CPAR 27
Table 5.2 Number of Registered Contractors Under Each Category 28
Table 6. Malawi Portfolio Status (as of September 30, 2003) 29
Table 7. Malawi Bank financed projects’ (portfolio) Performance FY 02-03 30
Procurement Methods 31
Table 8.1 Procurement Methods Provided for In the Interim Guidelines 31
Table 8.2 Procurement Methods Provided for in the New Public Procurement Act 32
Table 9: Composition of IPCs in a Sample 33
ANNEX – QUESTIONNAIRES 34
Annex A - Checklist comparing National Competitive Bidding Procedures and World Bank Policy 34
Annex B – Questionnaire on Public Procurement System 38
Section A - Legal Framework 38
Section B - Trade/Customs Practices 43
Section C - Financial/Budgetary Framework 43
Section D - Public Sector Procurement of Goods/Works 44
Section E - Public Sector Selection of Consultants 56
Section F - Procurement Performance 58
Section G - Private Sector Procurement 60
Section H – Emerging Areas of Interest 62
Annex C – List of People Met 63
Annex D. Government Task Force on the Implementation of the Procurement Assessment Report (Malawi CPAR) 66
Annex E – List of Documents Consulted 68
Malawi CPAR, Volume II 72 May 24, 2004
Details and Annexes
A. SCOPE OF THE CPAR
1. As this CPAR was carried out at the time when the Procurement Act was in the process of final approval, detailed review of the Act was not conducted. Instead, the CPAR focused on steps needed to enhance implementation of the ongoing procurement reforms.
2. The CPAR also saw, as one of its primary goals, to assess the preparedness of the procurement environment in Malawi for the new legal procurement framework. In that context, it was found relevant to explore, and document, the current practices in several key areas, and indicate whether these practices are in compliance with internationally recognised practices.
B.1 RELEVANT COUNTRY INFORMATION
3. Malawi became an independent nation in 1964 after 73 years of British rule. The authoritarian one-party rule lasted until 1994, when it was defeated in the first multiparty elections held in Malawi. Local elections were held in the country for the first time in November 2000; the incumbent party won 70 percent of the wards, albeit on very low voter turnout.
4. Malawi's economy prospered in the 1970s with the assistance of foreign aid and investment, and grew at an annual rate of 6 percent. In general, though, 30 years of authoritarian rule did not spur significant and broad-based economic development. The new government, which has initiated an economic reform agenda, faces challenges on several fronts, among them a rapidly growing population, a high HIV/AIDS infection rate (about 14.9 percent), limited natural resources, high levels of inequality resulting from years of an elitist development strategy, and the corrosive effects of recurring droughts, poor resource management, and environmental degradation.
B.1.2 Economic Context
5. Malawi's economy is based largely on agriculture, which accounts for more than 90 percent of its export earnings, contributes 45 percent of gross domestic product (GDP), and supports 90 percent of the population. Almost 70 percent of agricultural product comes from smallholder farmers. The country's export trade is dominated by tobacco, tea, cotton, coffee and sugar.
6. The Government of Malawi followed good economic policies from 1995 to 1997, but in more recent years the pace of reforms has decelerated, expenditure control has weakened, and agricultural prospects have become more mixed. Tobacco revenues declined in 2000, due to slumping prices, declining yields and declining quality. This, together with a sharp depreciation, high annual inflation (30 percent in February 2001) and high real interest rates, has resulted in slow growth of about 2 percent in 2000 and -1.5 percent in 2001.
7. Over the last couple of years, the Government has tried to implement a growth-oriented reform program with the support of the Bank and the IMF, but results have been mixed. Fiscal slippages in 2001 and early 2002 resulted in limited progress on reducing inflation and high interest rates. In addition, Malawi's economy was adversely affected by a severe drought in the 2001/02 season agricultural season. As a result, Malawi's economy still remains heavily dependent on aid from international nearly 60 percent financial institutions and individual donors. Poverty has remained virtually unchanged over the decade and currently nearly 60perecent of Malawians live below the poverty line. In March 2000 the country started the process for obtaining debt relief under the HIPC initiative.
B.1.3 Development Picture/Donor Coordination
8. The World Bank, the European Union, and the United Nations are the major multilateral agencies active in Malawi. Britain, Canada, Germany, Japan, the Netherlands, and the United States are the major bilateral donors. Almost all donors are involved in a variety of programs in agriculture, infrastructure, finance, the social sectors, and the environment, with a common aim of reducing poverty.
B.1.4 World Bank Group's Role
9. The active portfolio for Malawi includes 13 projects with total commitments of US$454 million (as of September 30, 2003). The majority of support is concentrated in the social sectors, representing more than 50% of total commitments.  The World Bank also provides technical assistance and advisory services on the formulation of sector investment strategies, assessments, and expenditure reviews.
10. The World Bank Institute (WBI) has sponsored a number of workshops and training programs for senior officials and technical personnel of the government in a variety areas including institution building, anti-corruption, fiscal decentralization, health, education, micro-finance, and banking.
B.1.5 Bank’s Involvement in Public Procurement Reforms in Malawi
11. In 1996, Bank financed a diagnostic study (by M/s International Procurement Services Ltd) to pin point problem areas in the public procurement and supply management system.
The implementation of some of the recommendations (phase II of this work) was financed through the Third Fiscal Restructuring and Deregulation Technical Assistance Project (FRDP III-TA). This Phase II support through FRDP III TA has three main components:
· Component 1: drafting of the procurement code, Financial management and Audit Acts. The Procurement Law, inspired by UNICTRAL Model Law on Procurement of Goods, Construction and Services was enacted on August 1, 2003.
· Component 2: capacity building and training program, which was at the commencement stage during the main CPAR mission.
· Component 3: institutional reforms including restructuring of the Central Government Stores, which was also at the commencement stage during the main CPAR mission.
12. Financial Management, Transparency and Accountability Project (FIMTAP)- As some parts of Components 1,2 and 3 of FRDP III TA could not be finished before that project closed, the overflow of the work, and any actions emerging from this CPAR’s Action Plan are expected to be financed through FIMTAP. The objective FIMTAP is to improve the effective and accountable use of public expenditures through capacity building and institutional strengthening for budget implementation and oversight and increased transparency of government institutions.
B.1.6 Poverty Reduction Strategy Paper (PRSP)
13. Government’s Poverty Reduction Strategy Paper (PRSP) was endorsed by the Bank and Fund Boards in August 2002. One of the pillars of the strategy is promoting good governance. The overall objective of this pillar is to ensure that public institutions and systems protect and benefit the poor. This includes ensuring good public expenditure, establishing an effective incentive structure that will improve works ethics and productivity, taking steps to eliminate corruption and fraud by improving prevention measures, developing institutional capacities for local governance (decentralization) etc. This CPAR report has diagnosed the current public procurement system and its environment and has recommended actions that will contribute to the success of the PRSP objectives.
B.1.7 Country Assistance Strategy (CAS)
14. During the proposed CAS period (FY04 to FY06), the Bank will provide limited and selective lending to help the Government achieve a relatively small number of critical outcomes reflecting the priorities of the Government’s PRSP program.
15. This CAS for FY04-06, presents a transitional program, aimed at helping the Government address urgent development issues that the country currently confronts. The program builds on three pillars: (1) strengthening economic management; (2) establishing a platform for growth; and, (3) improving service delivery, and strengthening safety nets. During this period, Bank will provide financing in the low case for projects that could succeed even if the macroeconomic performance is weak, as well as analytical and advisory services, aimed at achieving critical outcomes that restore the country’s development prospects. These outcomes include (a) reduced HIV incidence, (b) macroeconomic stability, (c) selected agriculture reforms, and (d) improved delivery of basic health, and education services.
16. The CAS (FY 04-06) has clearly identified the Country Procurement Assessment Review (CPAR) and Public Expenditure Review (PER) as analytical tools supporting the pillars of the strategy. Among other reasons, this justifies the timing and relevance of the current CPAR.
C. MORE DETAILS ON A FEW SUBJECTS
C.1 The Anti-Corruption Bureau
17. The ACB, which was established under the CPA and is headed by a Director, who is appointed by the President. The Director refers to the Minister of Justice on policy related matters, but is not otherwise subject to control or direction in the performance of his professional duties. The ACB has developed the following approach in tackling corruption.
· Prevention by direct intervention in public and private bodies in order to effectively change practices and procedures and by educating and empowering people to take a stand against corruption
· Enforcement through the Investigation and prosecution of offenders
18. The ACB currently employs 85 staff out of 101 designated posts. An organisational overview of the Bureau is shown in Figure 3- Annexes.
19. The ACB interventions in the area of public procurement have mainly been of preventive and investigative nature. Preventive measures have included the introduction of Regulations under the CPA regarding disclosure of information and conflict of interest; the ACB has also worked with the GCU on the development of the Interim Guidelines and with the Ministry of Finance on the identification and removal of “ghost companies”. Also, ACB officers have received specialised training in procurement processes. Thus, in early 2003 all Corruption Prevention Officers attended a course in Lilongwe designed to transfer knowledge of the Public Procurement Processes to the ACB. This was delivered by consultants from the CGS. A second course for those in the new Specialised Unit was given in August 2003. It is too early to judge effect, but it is important for ACB Investigators to have knowledge of the procurement processes. Once the transfer of knowledge is complete, a specialised course will be organised focusing on enhancing implementation skills. On the investigative side, several high-profile procurement cases have been detected. A few examples are provided in Box 1- Annexes.
20. As mentioned above, the ACB is in the process of establishing a specialised investigation unit focusing specifically on procurement and contracts. The unit currently comprises 6 officers and is based in Lilongwe, however, officers based in Blantyre and Mzuzu will also receive procurement training.
C.2.1 E-procurement in Malawi
21. E-procurement is a term used to describe a procurement system utilizing the possibilities created by electronic communication and office computers. An e-procurement system is governed by the same basic principles as a normal paper-based system. The main purposes of the system are to promote value for money in public spending, through the application of sound, transparent practices. Besides, an e-procurement system can offer a number of advantages over a normal paper-based system of procurement. Examples could be access for bidders to advertisements, for authorities to legal documents and guidelines, and for oversight authorities to individual electronic procurement protocols and any documents on file.