Malawi

1Policy, Plans and Priorities

Vision 2020 &

Growth and Development Strategy

The long-term development perspective for Malawi is set out in the Vision 2020 and has a series of medium-term operational strategies to attain it. The current implementation strategy is the Malawi “Growth and Development Strategy – from Poverty to Prosperity (MGDS 2006-2011)”. The main objective of the MGDS is to reduce poverty through sustained economic growth and infrastructural development. It aims to transform the country from a predominantly importing and consuming economy into a predominantly manufacturing and exporting one.

The MGDS highlights five thematic areas that shall be the basis for national development: sustainable economic growth; social development, social protection; infrastructure development; and improved governance. The key priority areas of the MGDS are: agriculture and food security; irrigation and water development; education, science and technology; transport infrastructure and the Nsanje World Inland Port; climate change, natural resources and environment management; integrated rural development; public health, sanitation and HIV/AIDS management; youth development and empowerment; energy, mining, industrial development;and improved governance.

Trade

Based on the fact that economic growth is export-led in Malawi, trade and export development have been identified as very relevant key priority areas and thematic fields.

Priority Sectors

Priority Sectors identified by the Government for investment are stated in the Investment Promotion Act (1991) section 8 (2) and are:

  • Manufacturing
  • Agriculture
  • Mining
  • Fisheries
  • Tourism
  • Forestry
  • Other productive sectors as MIPA may determine with the approval of the Minister

Legal Framework

The Malawian legislation is based on English common law and the independence of the judiciary.

Investment Framework

The Investment Promotion Act (1991) covers the government’s commitment to assist and strengthen the private sector which is acknowledged to assume the leading role in developing the national economy. Accordingly, the government aims to create a more conducive investment climate and commits to several initiatives targeting:

  • Freedom to invest
  • Industrial licensing and company formation
  • Transfer of land
  • Taxes and duties
  • External transportation routes
  • Availability of foreign exchange
  • Access to local financing
  • Labour practices
  • Encouragement of small-scale and medium-scale enterprises
  • Encouragement of export-oriented investments
  • Investment promotion
  • Investment protection
  • Access to international arbitration

Specific measures are partially described in the Act, but most details on the different topics are regulated in the supplement of the Act, the Investors Guide, and which is revised from time to time.

BESTAP

The Business Environment Strengthening Technical Assistance Project (BESTAP) was launched in 2007 and is funded by the EU and the World Bank. It supports capacity development and investment climate reforms to accelerate economic growth. One specific aim is to raise Malawi’s Doing Business ranking from 132 in 2008/09 to the top 100 by 2012. Project components include modernisation of the business registry, land registry, temporary employment and business residence permits issuance, and revising the Company Law to align with international best practices. Work is underway to review other pieces of legislation such as the Control of Goods Act, the Export Incentives Act and the Business Licensing Act.

2Investment Promotion

2.1Institutions

MIPA

The Malawi Investment Promotion Agency (MIPA) is the body corporate in charge of investment promotion, investor assistance and advice to the Malawi Government on investment matters. It was established by the Act of Parliament in 1991 and became operational in 1993. It has a Board of Directors which consists of representatives of the private sector, parastatal organisations and Government departments. The functions of MIPA are described in the Investment Promotion Act (1991), section 8, and include:

  • to facilitate and support all aspects of the investment process in Malawi;
  • to provide courtesy services to investors;
  • to provide information relating to investment in Malawi;
  • to identify partners in or outside Malawi for joint venture business opportunities in Malawi;
  • to liaise and generally interact with local and international financial institutions for the benefit of investors;
  • to encourage expansions and new investments by existing investors in Malawi;
  • to develop a favourable investment image of Malawi;
  • to undertake investment promotion missions;
  • to recommend to the Government changes in the statutory and administrative framework relevant to the investment climate of Malawi and to make representations against or regarding any changes to any such statutory or administrative framework; and
  • to consult with private sector entities with a view to enabling the Agency to make recommendations to the Government for the improvement of the investment climate in Malawi.

MIPA shall operate as one-stop assistance to investors by providing the following services free of charge (Investment Promotion Act, 1991, Investors Guide):

  • Provide courtesy services to visiting investors;
  • Guide investors through the investment process in Malawi, i.e. assistance with permits, licences, land acquisition and various regulatory and legislative requirements;
  • Provide information on investment opportunities in Malawi;
  • Identify joint venture partners, market linkages, and business development;
  • Linking investors to the financial institutions and providers of professional and business services.

Ministry of Industry and Trade

It is responsible for all matters relating to trade, such as import and export licensing and legislation, trade policy formulation, export promotion programs, and the Export Processing Zones. It also has some regulatory power in the financial services sector together with the Registrar General in terms of savings and credit cooperatives, pension funds and development finance institutions.

Reserve Bank of Malawi

The Bank entails all functions of a central bank being responsible for the national monetary policy. It regulates all foreign capital transactions which have to be registered with the Bank. The Bank also regulates the banking sector under the Banking Act of 1989 and the insurance sector under the Insurance Act of 1957. Even though the Bank has authority, the Ministry of Finance has the ultimate authority in the financial sector which is partially undermining the Bank’s authority and its independence. However, a new Banking Act, new Insurance Act and a new Financial Services Bill have already been developed and will provide clearer division of authority and regulations for the overall sector.

2.2Investment and Export Incentives

Malawian legislation allows for a number of incentives for investment in specific industries as well as in export industries. The incentives include customs duty, tax concession and exemptions, VAT exemptions and tax allowances.

Manufacturing

Investments in the manufacturing sector are presently granted the following incentives:

  • 100 percent investment allowance on qualifying expenditure for new building and machinery;
  • Allowance up to 40 percent for used buildings and machinery
  • 50 percent allowance for qualifying training costs;
  • Allowance for manufacturing companies to deduct all operating expenses incurred up to 25 months prior to the start of operations;
  • Zero duty on raw materials used in manufacturing
  • Loss carry forward of up to seven years, enabling companies to take advantage of allowances;
  • Additional 15 percent allowance for investment in designated areas of the country;
  • No duties on imports of capital equipment and machinery;
  • Any other incentives upon investors’ request to the Minister of Finance.

Manufacturing under Bond

Business entities operating in manufacturing under bond can presently receive the following incentives.

  • Export tax allowance of 15 percent of export revenues for non-traditional exports;
  • Transport tax allowance equal to 25 percent of international transport costs, excluding traditional exports;
  • No duties on imports of capital equipment used in the manufacture of exports;
  • No Value Added Tax;
  • No excise taxes or duties on purchases of raw material and packaging materials;
  • Any other incentives upon investors’ request to the Minister of Finance.

Export Incentives

Current incentives applicable to exporting industries include:

  • Tax allowance amounting to 15 per cent of export revenues for non-traditional exports (i.e. other than tobacco, tea, sugar and coffee)
  • Transport tax allowance in the amount of 25 per cent of international transport costs, excluding traditional exports
  • No duties on imports of capital equipment used mainly in the manufacture of exports for those manufacturing in bond
  • No surtax (value added tax) on exports
  • No excise taxes on purchases of raw materials and packaging materials made in Malawi for those manufacturing under bond
  • Timely refund of all duties (duty drawback) on imports of raw materials and packaging materials used in the production of exports
  • No duties on raw materials and packaging materials for those manufacturing in bond

Duty Drawbacks

The Export Incentives Act of 1989 gives a provision for tariff and excise drawbacks on goods exported within two years of manufacture on certain imported inputs used in the manufacturing process. Depending on the specific product, the drawback can be used in partial or total on products used in the manufacturing process. In order to qualify for such incentive, registered manufacturers have to apply to the Malawi Revenue Authority (MRA) for drawbacks and submit documentary evidence showing the use of materials and the export of the product. The MRA then determines the amount of duty drawback through a process of consultation with the manufacturer. Authorities state that the refunds process takes approximately 30 days. Exporters have to file their claims within six months of the date of export.

Registered Exporters

The Export Incentives Act also provides assistance to exporters of non-traditional exports. They have to be registered with the Malawi Export Promotion Council (MEPC). Incentives for them are a 15% income tax allowance, duty drawback on imported raw materials including packaging materials for export production, technical assistance in promoting and marketing of export products and other activities, duty-free import of capital equipment used in the manufacture of exports, and a transport allowance that equals 25% of the international transport costs incurred to the exporter.

Addition incentives for attracting export-oriented zones have been developed with the time which led to the establishment of Export Processing Zones (EPZ) and other incentives for all exporters not operating in EPZs and including manufacturing in bond. These additional incentives are covered in the Investors Guide, the supplement of the Act. For the EPZ incentives please see section 2.3 below.

Tourism Sector

The incentives that are applicable to hotels, lodges and inns are duty, excise and VAT free for catering equipment, linen, cutlery, and crockery with hotel insignia, as well as on equipment used in water sports, furniture and furnishing, video conferencing equipment, public address systems, television screens, and LCD equipment for hotels with more than 50 rooms.

2.3EPZs, Freeports and other Special Economic Zones

Export Processing Zones (EPZs) are regulated under the Export Processing Zones Act of 1995. Individual companies can apply for EPZ status at the Ministry of Industry and Trade which is the responsible authority for the Act. An Export Processing Zones Appraisal Committee is established through the Act, responsible for appraising and reviewing of applications and for making appropriate recommendations to the Minister. Important criteria influencing the approval of business entities as EPZs are job creation, technology transfer, export diversification, use of local raw materials, warehousing capability, and the proof of export markets. The EPZ status is granted for 5 years and can be renewed for two-year periods thereafter. The establishment of EPZs is based on the idea to encourage the production of non-traditional products in these zones.

Incentives

Investors operating in Export Processing Zones enjoy the following incentives:

  • Zero corporate tax rate
  • No withholding tax on dividends
  • No duty on capital equipment and raw materials
  • No excise taxes on purchases of raw materials and packaging materials made in Malawi
  • No value added tax

However, certain goods are not eligible for exemptions and they are specified under section 18 of the Export Processing Zones Act of 1995.

2.4Tax Incentives

Please see the different tax incentives as described under section 2.2 and 2.3.

2.5International Trade & Export Promotion

Trade is liberalised in Malawi since the early 1990s. The Private Sector Development (PSD) Strategy and the Integrated Trade and Industry Policy have recognised that the trade sector faces supply side constraints in Malawi. The strategies identified several areas where improvements have to be achieved such as:

  • Support for customs modernization,
  • Support for development/rehabilitation of internal and regional transport links,
  • Standards development and enforcement,
  • Institutional capacity building,
  • Issues of productivity,
  • Low levels of investment;
  • Limited trade and industry financing,
  • Inadequate skilled manpower,
  • Lack of an adequate network of trade representation abroad, and
  • Quality and skills development.

Importing & Exporting

The Customs and Excise Act and the Control of Goods Act of 1987 require that any person or entity can import goods for commercial purposes. Foreign firms in the trading sector are required to obtain a Trading License from the Ministry of Industry and Trade. In order to qualify they must possess either a Business Resident Permit, or a permanent resident permit which is issued by the Ministry of Home Affairs and Internal Security. Malawian nationals can acquire trading licenses from the city assembly upon application. Trading licenses are free of charge.

Import licensing is required for certain products and based on the Control of Goods Act of 1987. The Ministry of Industry and Trade is the responsible authority for issuing import licenses. Malawi has an export licensing regime covering dominantly agricultural products, certain metals and minerals, arms, petroleum products, wild animals, scrap metal, and cotton.

Customs

In terms of customs procedures, Malawi has adopted UNCTAD’s Automated System for Customs Data (ASYCUDA) and post clearance audits. However, import shipment is still dominantly subject to physical inspection. Malawi also has infant-industry protection mechanisms such as applying non-automatic licensing procedures for certain products like sugar and wheat-flour. Custom Clearance has to follow a four step procedure and the employment of custom broker/clearing agents is mandatory for all importers.

Customs duties are calculated on the c.i.f. price of the imported products and according to the Customs and Excise Act. The tariff structure has 6 bands, rules of origin regulations, diverse tax exemptions and concessions(please refer to the Customs and Excise Act for details).

Trade-related Taxes

The latest WTO Trade Policy Review (2010) states: “Malawi relies heavily on trade-related taxes (customs duties, VAT, and excise taxes), which were responsible for approximately 42% of tax revenue in 2009. Additionally, the overall tariff structure is complicated to administer, with six bands and myriad concessions and exemptions (Chapter III(1)(iii)), which tend to be discretionary and ad-hoc in nature, leaving scope for corruption.”

National Export Strategy (NES)

Export development has been recognised being important for the economic development of the country. The Ministry of Industry and Trade is being developing a National Export Strategy (NES) for 2010 – 2014 together with other ministries and relevant authorities, the private sector, civil society and members of academia and the donor community. NES has the objective to promote the production of those goods and services in which Malawi has a comparative advantage in the regional markets. The strategy shall also help to prioritise available resources and to attract further resources from the donor community.

COMESA

As member of the COMESA Customs Union launched in June 2009, member states are given 3 years to align their national tariffs with the COMESA External Tariff (CET). The COMESA three-band structure is: 0% for capital goods and raw materials, 10% for intermediate goods, and 25% for finished goods. A provisional list of national sensitive products has already been submitted to COMESA Secretariat. No customs duties are generally applied to imports from other COMESA members. COMESA tariff rates as stated in Malawi’s tariff schedule can reach up to 20% on some products but do only apply to those members that have not yet signed the FTA Protocol.

Besides the customs union, Malawi is also implementing other COMESA trade facilitation initiatives, such as the COMESA Simplified Trade Regime, the COMESA Yellow Card Scheme (a motor vehicle insurance valid in all participating countries), and the Regional Customs Bond Guarantee Scheme. Furthermore, Malawi is also a party to the COMESA Protocol on Trade in Services.

SADC Trade Area

As member of SADC, Malawi has signed the SADC Free Trade Area and the SADC Protocol on Trade. In the process of phasing down of tariffs, authorities stated that they are behind schedule but derogation had already been sought from SADC for extension of the implementation period. The list of sensitive products under SADC is similar to COMESA's and includes sugar, and textiles and clothing. The simple average preferential tariff in 2009 was 10.2% on imports from South Africa, and 7.8% on imports from other SADC countries, with a maximum tariff of 25%.

African Free Trade Zone

Since October 2008, SADC, COMESA and EAC have agreed to form an African Free Trade Zone uniting the existing free trade zones of COMESA and SADC.

GSP

The Generalised System of Preference (GSP) is a trade arrangement between the EU, some other developed countries such as Russia, Japan, USA and Canada and LDC countries. It allows LDC countries exemption from import duties when exporting finished goods or agricultural commodities. A proof of origin of the products has to be shown by completing the GSP form which can be obtained from the Malawi Confederation of Chambers of Commerce and Industry (MCCCI). The certificate has to be approved by both MCCCI and the MRA.

Bilateral Trade Agreements