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Malawi

Executive Summary

Malawi’s economy was significantly impacted by the COVID-19 pandemic. Gross domestic product growth slowed to 0.9 percent in 2020, but rebounded slightly in 2021, expanding by 2.2 percent. The government forecasts this trend will continue and forecasts growth of 4.5 percent by 2023. Macroeconomic and fiscal challenges remain, however. The government’s heavy debt burden and persistent fiscal deficits are likely to restrain economic expansion that outpaces population growth. Inflation was 9 percent in 2021, driven largely by currency devaluation and price increases for imported goods, primarily fuel, fertilizers, and food. The economy is heavily dependent on agriculture and is particularly vulnerable to climate related shocks.

The Government of Malawi is eager to attract foreign direct investment. Investment opportunities exist in agricultural, mining, health, transportation, information technology, and energy sectors. Transportation is a potential growth sector as the government works to improve the road network and rehabilitate railway lines connecting Malawi to Mozambique, Zambia, and Tanzania. Public-private partnership opportunities are likely to open in aviation and road networks. Corruption remains a major problem at all levels of the public and private sectors. There is a scarcity of skilled and semi-skilled labor. Political risk in Malawi is manageable and tribal, religious, regional, ethnic, or racial tensions are minimal.

The Malawi Investment and Trade Center assists investors and businesses by providing insight and local knowledge to help navigate the myriad regulations, processes, and procedures required to operate a business. Malawi’s legal system is generally unbiased but is notoriously slow. Investors have the right to establish, acquire, and dispose of interests in business enterprises. Parliament is scheduled to review existing land laws in early 2022. If passed, the reforms may negatively affect foreign ownership and investment in land-based enterprises.

Scarcity of foreign exchange (forex) remains a challenge and negatively affects investors. The government aims to maintain a three-month supply of forex, but often falls short of that goal. Forex rationing has led to several months wait for business to remit foreign investment funds. Despite the long wait times, there are currently no restrictions on remittance of foreign investment funds if the capital and loans initially came from foreign sources and were registered with the Reserve Bank of Malawi.

Malawi is a land-locked country and the road network connecting to ports in neighboring countries is limited. Investment in infrastructure overall has been limited. Formal and informal trade boundaries may restrict imports and exports, and import tariffs tend to be high. Malawi is one of the least electrified countries in the world; approximately eleven percent of the country has access to regular electricity and internet is unreliable, and expensive.

The government is committed to addressing climate change through climate smart policies and programs. The Environmental Management Act provides details on environmental requirements for investors and ministries, departments, and agencies (MDAs). Climate change issues are integrated across the public service and national development plans. However, limited resources and issues related to poverty impede the government’s ability to implement climate adaptation and resilience programs and initiatives.

Malawi’s borders are open to local and international travelers, but all travelers are required to present negative COVID-19 test results and certificate of COVID-19 vaccination.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 110 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 107 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD 188 million https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 USD 580 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

Malawi has 71 public enterprises, 20 of which are SOEs. A full list of the SOEs is available by request from the Office of the President and Cabinet (OPC), but the government does not publish the list in the media or online except in conjunction with the announcement of board members of public enterprises. The government has bailed out several SOEs when they incurred heavy losses. SOE finance and operations data is opaque and not available to the public. Malawi’s SOEs are not required to adhere to the OECD Guidelines on Corporate Governance of SOEs. Corporate governance for the various SOEs is mandated by the law that established the entity. All public enterprises report to their sector-related line ministry, to the Department of Statutory Corporations in the OPC, and have a Chairperson and Board of Directors. The President appoints the board of directors, usually politicians, religious & traditional leaders, and professionals. Boards also include senior government officials as ex-officio/non-voting members. The participation of members as ex-officio/non-voting members, and of politicians as directors, creates a perceived and/or real conflict of interest.

Public and private enterprises are subject to the same terms and conditions, and must compete for access to markets, credit, and business opportunities. Public enterprises are given special preference by the government in the case of public projects. Personal relationships play a significant role in influencing business decision-making. Public enterprises in agriculture, education, and health sectors spend more on research and development than the private sector. Local firms tend to be capital-constrained and highly skilled labor is scarce. There is not a strong tradition of private sector-led research and development in Malawi.

8. Responsible Business Conduct

Corporate entities in Malawi have a well-developed sense of responsible business conduct (RBC) and incorporate corporate social responsibility (CSR) into their business practices. Corporate entities make a point to publicize their CSR activities in the local media. There are no established laws or regulations governing RBC or CSR. As a candidate to the Extractives Industry Transparency Initiative (EITI), the government is promoting RBC in the mining sector.

There are a variety of laws and regulations to protect the environment and on waste disposal for producers and consumers. All foreign and domestic enterprises are expected to adhere to the national and local laws and regulations regarding employment and compensation, the work environment, industrial safety, age limits, and minimum wages. However, there is a lack of resources for meaningful enforcement of laws and regulations and no comprehensive reporting mechanism to track violations.

There is no history of any laws or regulations being waived to attract investment, nor of the government factoring in RBC practices into its procurement decisions. There are no verified reports of high profile or controversial instances of any private sector entity impacting human rights or related resolutions. In the recent past, the media reported on complaints by indigenous communities against government MDAs related to land or natural resource allocations. Most land allocation complaints are related to development projects and are decided by the courts or in mediation. There is a general lack of government enforcement and reporting on human rights, labor rights, environment protections because of budget and capacity constraints.

The private sector is required to adhere to international accounting standards. Executive compensation requirements are not defined. The law requires all Malawi Stock Exchange (MSE) listed companies to publish their annual audited accounts in local newspapers. Listed companies are also required to publicly declare profits, dividends, planned takeovers, major portfolio investments, and all relevant information for shareholders to make informed decisions.

The Institute for Policy Interaction (IPI), the Catholic Commission for Justice and Peace (CCJP), the Centre for Environmental Policy and Advocacy, Institute for Sustainable Development, Consumers Association of Malawi, Malawi Economic Justice Network (MEJN), and Natural Resources Justice Network are civil society organizations that monitor and advocate freely for CSR and RBC in Malawi. Malawi does not adhere to OECD Guidelines for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. There are no domestic requirements for due diligence by companies engaged in the supply chain of minerals that may originate from conflict-affected areas.

The EITI Board approved Malawi as a candidate country in 2015. Malawi’s Validation was completed in 2018, and the EITI Board concluded that Malawi has made meaningful progress overall in implementing the EITI Standards. The Board determined Malawi must carry out corrective actions regarding the findings of the initial assessment. Due to the COVID-19 pandemic, the final assessment has been delayed until sometime in 2022. Failure to achieve meaningful progress on the second validation will result in suspension in accordance with the EITI Standard.

9. Corruption

Corruption remains a major challenge for firms operating in Malawi. Corruption, fraud, bribery of public officials, illicit payments, misuse of funds, and conflicts of interest are not uncommon. A number of high-profile government scandals have occurred during all recent presidential administrations. President Lazarus Chakwera dissolved his cabinet in January 2022 over a corruption scandal. Corruption in all forms is illegal in Malawi. However, enforcement is insufficient and slow. The Corrupt Practices Act established the independent Anti-Corruption Bureau (ACB) which works with other anti-corruption bureaus in the region but is consistently under-staffed and under-resourced. The Act widened the definition of corruption to include offences for abuse of office and possession of unexplained wealth. The Act also provides protection for whistleblowers. The ACB encourages private sector companies and institutions to develop and implement corruption prevention policies as a way of mainstreaming anti-corruption initiatives into their operations. The business sector may join forces to collectively engage in the fight against corruption, but no formal mechanism currently exists. Some companies employ their own fraud controls, but to date fraud identified through internal controls has failed to result in any high-level prosecutions.

Malawian law requires all public officials from all levels of government to declare their assets and business interests. However, access to view or obtaining copies of the declarations is difficult at best. However, the law does not extend to family members. The Political Parties Act requires all political parties to disclose source of funds. If corruption evidence implicates family members or members of a political party the ACB has the power to build a case against accomplices and bring them to court. All public officials are required to disclose any conflict of interest and to recuse themselves from any deliberation or decision-making process in relation to the conflict. However, there is no clear definition of what constitutes conflict of interest. Despite have the legal framework in place, in practice the requirements for public asset declarations, political party financial reporting, and conflict of interest disclosures are rarely enforced, and noncompliance is high.

Malawi is party to the UN Convention Against Corruption and the African Union Convention on Preventing and Combating Corruption. According to Malawi law, citizens have a right to form NGOs focused on anti-corruption or good governance and these NGOs are free to accept funding from any domestic or foreign sources. Malawi’s civil society and the media play an important and visible role in fighting corruption, investigating, and uncovering cases of corruption. Specific firms with U.S. affiliations have noted irregularities in tender processes and mining licensing but have nonetheless continued to pursue business opportunities. Although some progress has been made, corruption remains a major obstacle to businesses in Malawi.

10. Political and Security Environment

Malawi continues to enjoy a stable and democratic government. Since the end of one-party rule in 1994, the country has had 7 peaceful presidential and 6 parliamentary elections. In 2020, Malawians voted for a new government in a court sanctioned presidential re-run ousting the then ruling party. Although political divisions exist, Malawi has no significant tribal, religious, regional, ethnic, or racial tensions that might lead to widespread violence. Incidents of labor unrest occasionally occur but are usually non-violent. Despite instances of political uncertainty there are no nascent insurrections or politically motivated activities of major concern to investors. Democratic processes in Malawi are well established, and destabilizing unrest is unlikely.

11. Labor Policies and Practices

Most working-age individuals in Malawi live in rural areas and are involved in the informal sector and subsistence agriculture. The informal economy covers 89 percent of the labor force. Informal employment is primarily small-scale, minimally capitalized, and relies on household members for labor. Across all age groups, more males are employed than females. Informal employment is usually easier to get, is less stable, and usually pays far less than minimum wage. The COVID-19 pandemic significantly and adversely affected the informal sector.

Child labor remains a problem. A 2015 Child Labor Survey found 38% of children aged 5-17 are active in child labor. In November 2019, the U.S. Customs and Border Protection Agency issued a Withhold Release Order against tobacco from Malawi due to child and forced labor concerns. As of February 2022, three companies were granted waivers enabling them to export tobacco to the U.S.

Due to capital requirements, all foreign investors are categorized in the formal sector. Labor laws cut across all sectors and the courts may get involved in any labor dispute.

Skilled and semi-skilled labor is scarce and skilled employment opportunities are extremely limited. Despite the Gender Equality Act in 2013, discrimination against women is pervasive, and women still have lower literacy and education levels and less access to employment opportunities. Occupational categories with skills shortages include accountants, economists, engineers, lawyers, IT, and medical/health personnel. Malawi has six public universities that provide bachelor’s, and master’s degrees in several fields including accountancy, economics, engineering, medicine, education, agriculture, and administration. In response to a need for skilled tradesmen, the government is expanding its network of vocational schools. The University of Malawi and the privately owned Catholic University are accredited to offer law degrees. There are few PhD programs that usually enroll few candidates.

Employment, immigration laws, and regulations require that any local or foreign investor prioritize hiring of nationals except in cases where the needed skills are not available locally. There are no restrictions on employers adjusting employment to respond to fluctuating market conditions so long as such adjustments comply with employment laws and regulations. There are also no social safety net programs for workers laid off due to economic reasons nor are employers required to have employment insurance for their employees. There are no provisions for labor laws to be waived to attract or retain investment in Malawi nor are there additional or different labor law provisions in Export Processing and Special Economic zones for purpose of promoting exports.

Aside from military or police personnel, all workers are legally permitted to form and join trade unions without previous authorization or excessive requirements. Unions must register with Registrar of Trade Unions and Employers’ Organizations in the Ministry of Labor. Most unions are affiliated with the Malawi Congress of Trade Unions (MCTU) with a membership of approximately 300,000 workers. Despite the membership size, the MCTU Unions power is limited and weak. The government is a signatory to the ILO Convention protecting worker rights, ratified all eight of the fundamental International Labor Conventions, and the Forced Labor Protocol to fast-track implementation of Target 8.7, but enforcement is weak due to a serious labor inspector shortage and resource constraints. The Occupation Safety, Health and Welfare Act of 1997 is scheduled for review in 2022. Government designated labor officers, police officers and immigration officers also serve as trafficking in persons (TIP) enforcement officers.

The Industrial Relations Court (IRC) has jurisdiction over labor disputes and other issues relating to employment. An aggrieved party may appeal the decision of the IRC to the High Court of Malawi but only on matters of law or jurisdiction, the IRC decision is final and binding on all other matters. The Labor Relations Act (LRA) governs labor-relations management in Malawi’s formal sector. Employers, labor unions, and the government lack sophistication regarding labor relations/disputes. There have not been any major strikes that posed any serious investment risk since 2012. In October 2021, government amended LRA and the Employment Act. The LRA amendment allows an employer to deduct wages from an employee who strikes for more than three days per annum and authorizes the Minister of Labor to designate categories of workers as essential, thereby prohibiting them from striking or lockdowns. The LRA removed the requirement of employer and employee panelists in the IRC, thereby loosening the bottleneck at the IRC. Amendments to the Employment Act prohibits forced and tenancy labor, provides special working conditions for pregnant and breastfeeding female employees, provides for paternity leave, and makes provisions for deduction of wages for the period an employee is absent from work due to participation in a strike.

14. Contact for More Information

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

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