Transparency of the Regulatory System
The government continues to undertake various reforms to ensure that no tax, labor, environment, health, safety, or other laws distort or impede foreign or domestic investment. The legal, regulatory, and accounting systems are somewhat transparent and consistent with international norms. For example, to increase transparency in the mining sector, Malawi applied for and was granted EITI candidate status. However, procedural delays continue to impede the business and investment environment.
While market prices for goods are generally not controlled, the government sets minimum prices for some agricultural commodities including tobacco, cotton, and tea. State-provided utilities are regulated and government has instituted automatic pricing mechanisms for fuel and electricity based on, among other factors, exchange rate fluctuations. The Ministry of Industry, Trade and Tourism (MoITT) retains the legal authority to ban the import or export of any good at any time. While this power is seldom used, it can constitute a risk to investors intending to import or export as part of their business. MoITT currently requires export permits for ten categories of goods, including the staple food crops of maize and rice.
Certain professional associations have sectorial rule-making power that amounts to regulatory power. These professional bodies include the National Construction Industry Council, Malawi Law Society, Malawi Accountants Board, and the Employers Consultative Association of Malawi. Some of these associations have set regulations that require the use of local labor, local contractors, or other means to achieve localization or skills transfer to Malawians. Such rules are printed in the Government Gazette, available from the official government printing office. As they are set by associations with closed membership, the rule-making process is not always transparent to foreign firms that have not yet entered the Malawi market, but are considering doing so.
The government of Malawi uses a mix of fiscal, financial, and regulatory instruments to administer its investment policy, and thus management and responsibility is spread across multiple ministries and agencies. The Malawi Investment and Trade Centre (MITC) is normally the first point of inquiry for new investors. MITC falls under the Ministry of Industry, Trade and Tourism as an agency to implement investment promotion initiatives. Taxation policy is the jurisdiction of the Treasury Department in the Ministry of Finance. The Malawi Revenue Authority (MRA) is the main implementing agency for tax policy; it administers the Taxation Act and other relevant legislation. Some regulatory incentives are within the jurisdiction of their respective ministries. The Reserve Bank of Malawi (RBM) administers the market-based exchange rate of the Malawi kwacha, as well as liberal exchange controls to allow free flow of capital and earnings — repatriation of dividends, profits, and royalties. The Ministry of Internal Affairs’ immigration department administers the Employment of Expatriates Policy, Temporary Employment Permits (TEPs), and Business Residence Permits (BRPs). The Ministry of Lands, Housing and Urban Development is responsible for land policy administration.
In 2001, the Institute of Chartered Accountants in Malawi (previously known as Society of Accountants in Malawi) adopted the International Financial Reporting Standards (IFRS), which are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. The IFRS are the applicable framework for all companies incorporated under the Companies Act in Malawi. Subsequently, the Institute of Chartered Accountants in Malawi has also adopted the IFRS for Small and Medium Entities Standard as the applicable framework for all non-publicly accountable entities.
Almost all proposed laws, regulations, and policies are subject to public consultation before they are submitted to Cabinet and Parliament. However, sometimes the public notice of such consultations is not issued in a timely manner, with the effect that only insiders are aware of and able to plan to attend the meetings. Sometimes there is an opportunity to submit written comment rather than, or in addition to, attending a meeting, but this is not always the case. Parliamentary procedure calls for draft bills to be debated in relevant committees before being presented on the floor for a vote. Parliamentary rules do, however, permit fast-tracking bills to avoid this step.
Recent laws can generally be purchased from the government printing office or accessed at the National library and in the High Court libraries in major cities. An increasing number of laws are also available online at www.malawilii.org . Technical regulations on the other hand are not centralized and are managed by relevant government Ministries, Departments, and Agencies (MDA). These are published in the Malawi Government Gazette and form part of schedules to relevant acts. Although some of the MDAs do not have operational websites, those that do often have these laws and regulations available online. Some older regulations can be difficult to locate.
The Ministry of Justice and Constitutional Affairs is mandated to provide oversight or enforcement mechanisms to ensure MDAs follow administrative processes for developing and implementing regulations. If they feel procedures were not followed, private individuals and entities can bring a case against the government in court or seek redress through the Office of The Ombudsman. There are no specific regulatory guidelines for periodically reviewing regulations or conducting impact assessments. Furthermore, there are no specific criteria for determining which proposed regulations are subject to an impact assessment nor is there a specialized government body tasked with reviewing and monitoring regulatory impact assessments conducted by other individual agencies or government bodies. All technical regulations are enforced by relevant government Ministries, Departments, and Agencies.
There have been positive steps toward increasing regulatory transparency and improving the foreign investment environment, including the passing of the Credit Reference (Amendment) Act of 2016, the Electronic Transactions Act of 2016, the Financial Crimes Act of 2017, the Payment Systems Act of 2016, and the Insolvency Act 2016, and the coming into force of the Companies Act of 2013.
Over the past 24 months, government has implemented a number of reforms to improve the ease of doing business, such as consolidating procedures at the borders to facilitate smooth flow of goods, reducing the number of days needed to register a business, as well as improving the handling of business related cases. These reforms, among others, have helped Malawi improve its Doing Business ranking from 141 in 2016 to 133 in 2017. Others reforms are meant to reduce the delays in the approval of construction permits and property registration thereby helping to attract more local and foreign investors.
International Regulatory Considerations
Malawi is a member of the Common Market for Eastern and Southern Africa (COMESA) Customs Union and the Southern African Development Community (SADC) Free Trade Area, which is governed by the SADC Protocol on Trade. All regulations are developed in line with the regulatory policy provisions that are set out by COMESA and SADC, but national regulations rule if there is a conflict.
As a member of both SADC and COMESA, Malawi is bound by their respective norms and standards. Details can be found on the organizations respective websites:
Since 1995, there is no record of Malawi providing notification on draft technical regulations to the WTO Committee on Technical Barriers to Trade. The last time Malawi submitted a statement on implementation and administration of the WTO Agreement on Technical
Barriers to Trade was in 2007.
Legal System and Judicial Independence
Malawi’s legal system is based on English Common Law. The judiciary consists of local courts and a local appeals court in every district. The higher tiers consist of the Supreme Court of Appeal, the High Court, and the magistrates’ courts. The High Court is presided over by a chief justice and four judges, appointed by the president. It has judicial authority over all civil and criminal cases, and sits in Blantyre, Lilongwe, Mzuzu, and Zomba. Magistrates’ courts are located in cities and towns in 24 districts throughout the country. Appeals from the magistrates’ courts are heard by the High Court and those arising from the High Court by the Supreme Court of Appeal in Blantyre.
Malawi does not have written commercial law or contractual law but has legislation that governs commercial transactions which include the Sale of Goods Act, Companies Act, Employment Act, Hire Purchase Act, Insolvency Act, and Control of Goods Act. By local standards, the Commercial Courts work reasonably efficiently, with dedicated judges and their own registries. There is an established mediation process to promote agreements between parties in disputes before court proceedings start. Enforcement of judgments can be slow.
Both foreign and domestic investors have access to Malawi’s legal system, which functions fairly well and is generally unbiased. Heavy caseloads, staffing limitations, and inadequate funding, however, mean that legal remedies can take a long time to achieve. There has been little overt government interference in the court system. However, the judicial system has been criticized for the ease with which court injunctions are granted in Malawi, further contributing to the backlog and delays.
Regulations and enforcement actions are appealable and are adjudicated in the national court system. In the financial sector, regulations and enforcement actions are appealable through the Financial Services Appeals Committee. If the decision by the Appeals Committee is not accepted, local and foreign investors are free to seek judicial review through the High Court of Malawi.
Laws and Regulations on Foreign Direct Investment
Malawi Recently passed a number of laws aimed at improving the investment environment and these include:
- The Companies Act 2013 which only came into force in 2016. The Act strengthens the Office of the Registrar of Companies and in many respects aims to reduce the cost of doing business in Malawi.
- The Payment Systems Act 2016 provides clarity and transparency to oversight and regulatory arrangements for payment instruments in Malawi, including automated high value transfer systems.
- The Electronic Transactions Act 2016 seeks to enable people to transact various services electronically with full protection of the law and also ensure that people are protected from computer related harassments like viruses, hacks, and cybercrimes.
- The Insolvency Act 2016 aims to provide a modern, harmonized, and fair framework to address more effectively instances of cross-border insolvency. These include foreign assistance for an insolvency proceeding taking place in the enacting State; foreign representatives’ access to courts of the enacting State; recognition of foreign proceedings; and cross-border cooperation.
- The Credit Bureau (Amendment) Act 2016 aims to free institutions, such as banks, to provide client information to Credit Reference Bureaus (CRB) without running the risk of breaching bank client confidentiality.
- The Financial Crimes Act 2017 establishes the Financial Intelligence Authority (FIA), criminalizes laundering and proliferation of weapons of mass destruction, imposes heavy penalties on money laundering and terrorist financing crimes, and provides for administrative sanctions for non-compliant financial institutions.
- Taxation Amendment Act 2016 allows for taxpayers to enter into an Advance Pricing Agreement (APA) with the Malawi Revenue Authority with respect to income derived from mining projects, provided that the duration of the APAs does not exceed a period of five years.
- Land Laws comprising the Land Act 2016, Physical Planning Act 2016, Land Survey Act 2016, and Customary Land Act 2016.
- Electricity (Amendment) Act 2016 allows for the bringing in of independent power producers and unbundling the Electricity Supply Commission of Malawi into two separate entities — one for distribution and one for generation and transmission.
- Access to Information Act 2017 provides the right to access information in accordance with the principles that government information should be available to the public.
- The Copyright Act 2016 provides enhanced legislation related to copyright in Malawi to ensure that legislation is adapted to the modern digital environment and complies with international conventions.
Competition and Anti-Trust Laws
The Malawi Competition and Fair Trading Act of 1998 (CFTA) only became fully operational when the Competition and Fair Trading Commission (CFTC, www.cftc.mw ) was established in 2005. Since 2013, the institution has overseen 26 applications for merger and acquisition and dismantled five cartels. The CFTC’s role is to encourage competition in the economy, to regulate and monitor monopolies and concentrations of economic power, to protect consumer welfare, and to ensure the best possible fair market conditions. So far no mergers or acquisitions have been disapproved. CFTC decisions may be appealed, first to the Board and subsequently to the Commercial (High) Court.
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. Measures that carry expropriation effects are occasionally imposed, including export bans (and implicit bans due to the government’s authority to required export licenses for any good at any time) for key commodities. These restrictions applied equally to foreign and domestic investors.
The government can employ land acquisition procedures set forth in the Land Acquisition Act of 2016. 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. If the private landowner objects to the level of compensation, it 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.
Malawi has ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). Malawi is a member of the International Center for Settlement of Investment Disputes (ICSID), accepting binding international arbitration of investment disputes between foreign investors and the state. Malawi’s current president is a former arbitrator for ICSID. It is not a signatory to the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).
The Investment Disputes (Enforcement of Awards) Act, 1966 makes provision for the enforcement in Malawi of Awards of the Tribunal of the International Centre for Settlement of Investment Disputes.
Malawi does not have Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with an investment chapter with the United States.
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. The Embassy is not aware of any extrajudicial actions that have been taken against foreign investors in the recent past. Since 1996, there have been no major investment disputes involving U.S. companies.
Malawi does not have an arbitration body. There is no statutory requirement for parties to arbitration to submit to alternative dispute resolution. Parties will only be required to go through mediation before proceeding to arbitration if an agreement entered into between them requires them to do so.
With respect to litigation, most cases commenced in the High Court of Malawi or any subordinate court must, where the defendant indicates an intention to defend, first go to mediation. The Assistant Registrar of the High Court maintains a list of mediators and a list of experts. The mandatory mediation is conducted by a person chosen by the agreement of the parties from the list of mediators maintained by the Assistant Registrar or, if the parties consent, a person who is not named on the list. If the matter is not settled during mediation, the action will proceed in the court in which it was commenced.
The court system in Malawi accepts and enforces foreign court judgments that are registered locally in accordance with established legal procedure. There are reciprocal agreements among Commonwealth countries to enforce judgments without this registration obligation. There is no such agreement between Malawi and the United States, but judgments involving the two countries can still be enforced if the judgment is registered appropriately in Malawi.
The Embassy does not have available statistics on investment disputes involving SOEs.
All bankruptcies are governed by the courts under the provision of the consolidated Insolvency Act of 2016. The Act encourages alternatives to bankruptcy such as receivership and reorganization and gives secured creditors – rank-ordered based upon investment registration dates – priority over other creditors. Monetary judgments are usually made in the investor’s currency. Cross border provisions of the Insolvency Act are modeled after United Nations Commission on International Trade Law model laws.