Malawi Economy

26 January 2010
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MACROECONOMIC  PANEL

 

Malawi's economy is based mainly on agriculture, forestry and fisheries, covering about 85% of exports, employing 80% of the population.

The main productions are those of maize and tobacco even if  recently have been introduced  other  cultivations such as manioc, sweet potato, potato, beans, rice, cassava and peanuts.

 

These as well as food, are also used as raw material for the manufacturing industry.

 

The remaining industry is based on cement, seeds, fertilizers and textile.

 

MINING RESOURCES

 

The country has a mining industry underdeveloped, there are deposits of bauxite, asbestos, graphite and uranium ,and deposits of precious stones but still poorly exploited.

 

 

TRADE

 

The main exports are about tobacco, tea and sugar, intended mainly to EU markets and those of the South African Development Community.

Imports however are about fertilizers, petroleum products, semi-invoiced goods, consumer goods and transport equipments, acquired mostly from South Africa.

 

 

INVESTMENT LAW

 

There is not a real investment law.

However, the government encourages both domestic and foreign investment in many sectors of the economy, without restrictions of ownership, size, source of financial resources and destination of final products.

 

There is no prior government approval for foreign investments and  the economic and industrial policy of the country does not have a discriminatory effects against foreign investors.

 

There are no restrictions on repatriation of investment resources (including capital, profits, repayment of loans), if they have been obtained from foreign sources and registered in the central bank.

 

The country's constitution prohibits the confiscation of private property without adequate compensation.

 

There are no tax laws, of labor, health or safety that distort or impede investment.

 

However, there are procedural delays due to excessive bureaucracy.

 

INVESTMENTS

The Government aims to increase the private investment, particularly foreign direct investment (FDI) through the definition of MGDS, the Strategy for Growth and Development of Malawi, identifying priority areas for investment including agriculture, tourism, manufacturing, infrastructure and mineral resources.

It 's easy to imagine that the domestic market is very small and for this reason the country has entered into a series of multilateral and regional trade agreements that offer to investors an easier access to the local market.

 

Agreements that certainly contributed to this increase, in fact, investments in aviation in these areas increased of the  80%.

 

INVESTMENT OPPORTUNITIES

 

There are many investment opportunities in Malawi, because  each sector has an  high potential.

But the state has identified priority target areas where the economic impact is certainly more important, they are:

 

- Manufacturing;

- Agriculture;

- Mining;

- Tourism;

- Infrastructures.

 

Manufacturing: investment opportunities are also in the manufacturing sector especially in the areas of agricultural processing, in fact traditional agricultural crops such as tea and tobacco are exported in a state of semi-finished products,and  there is an opportunity for investors to intervene by creating production structures capable of converting these agricultural products into finished products.

 

Even textile sector and clothing, under bilateral trade agreements between Malawi and South Africa, is one possible choice of investment as well as domestic electrical equipment sector (cables, plugs etc..) and materials of engineering in iron, given that Malawi imports many of these goods it should good to create an internal productive structure.

 

Agriculture: is the main source of economic production in the country and investment opportunities are many, starting from the graziery(for dairy production and for meat production), aquaculture, horticulture, processing and packaging of other agricultural production.

 

Mining: Malawi is a country rich in mineral resources although production  only focus on the extraction of coal, precious stones (aquamarine, amethyst and quartz) and lime production.

 

Only a small part of  this production is exported.

 

The government's objective is to increase this sector in order to increase the production of these resources and to encourage others such as gold, uranium, platinum, base metals, nickel and copper, phosphates, graphite and charcoal.

 

Tourism: The country presents a landscape still untouched and full of natural beauties like the Lake Malawi and Mulanje Mountain.

Also it has a wide and diverse fauna.

There are several physical infrastructures under construction or renovation designed to accommodate tourists.

 

Specific investment projects include the construction of hotels with adequate facilities to host international conferences.

 

In particular, the eco tourism is a particularly active.

 

Infrastructure: One of the primary objectives of local government include the establishment and strengthening of infrastructures. In fact the Government continually seeks partners aimed at joint implementation of major projects like the renovation of the airport in Lilongwe (the cost is of $ 8 million), of Chileka in Blantyre (the cost is of $ 1 billion) and the creation of New Mangochi Airport.

 

 

OTHER OPPORTUNITIES

 

There are the following areas:

 

Forests: In Malawi there are 69 forest reserves covering the 36% of total forests in the country. Two important documents (the National Forestry Policy and Forestry Act) were the basis for launching a policy of development and management of forests and products derived from them.

 

Energy: 99% of energy demand is satisfied by the use of biomass.

Only the 1% of the total populsation uses energy  for domestic use The use of biomass has led to a substantial deforestation and thus the government is looking seriously forms of investment in hydropower or alternative energy sources such as hydropower, thermal or photo-voltaic.

Hydropower production is the most important resource in itself contributes to 99% of production and there are reforms to liberalize the energy in the country, also because access to electricity is guaranteed for only 7% of the population.

 

Water: the hydraulic structures in cities are provided by 5 water parastatal boards that effectively satisfy only  the 54% of population.To increase this percentage, the government is implementing reforms to encourage private investments in the sector.

 

Transport: transport appears to be crucial to facilitate economic activity in the country.For this reason, the government aims to improve logistics systems especially those on:

 

- Road, within the country there are already 16,450 kilometers of roads, of which only 15% is paved, the National Roads Authority has implemented a strong program for the development, upgrading and maintenance of road infrastructure and for the international routes for local traffic.

 

- Water, lagoon transport is guaranteed by the Department of the Navy, which handles both civil and commercial traffic, covering all major ports in Lake Malawi, including Chilumba Island, Likoma, Nkhata Bay, and Bay Chipoka of the Monkey.

 

The potential  of  lagoon transport is estimated at 80,000 tonnes of cargo material and equipment of approximately 15,000 tonnes of cargo fuel per year.

 

There are plans to reopen the waterways of the Shire and Zambezi rivers, so as to allow access to the sea, and to use this channel for handling of goods not only of  Malawi but also of neighboring countries.

 

- Air, there are two main airports in Malawi: Kamuzu International Airport (KIA) in Lilongwe the international airport of Chileka in Blantyre.

 

Overall, the entire freight traffic can be measured in about 7,000 tons annually and both the airports are subject to a number of improvements and renovations to meet modern aerial needs.

 

- Fish / Aquaculture, the waters of Lake Malawi host the Chambo, a very tasty types of fish consumed in the country.

 

The fish industry in Malawi is characterized by the presence of Maldeco Fishieries, a company specilized in commercial fish farm especially the chambo, kept in cages along the coast of the lake.

 

The rest of the fish industry is characterized by small companies.

 

 

FACILITIES FOR THE INVESTMENTS THROUGH MIPA

 

The M.I.P.A. (National Agency for the Promotion Incentives) is the main reference point for potential investors, since that agency was created by the government to fulfill the following functions:

- Spreading a favorable investment image of the country at regional and international levels;

- to undertake promotional missions to encourage investment;

- to provide courtesy services to investors in view;

- provide information about the country ;

- Identifying partners for joint ventures when required;

- Working with local financial institutions and international investors;

- To encourage existing investors to expand or start new investments;

- Consultations with private sector organizations creating a series of contacts capable of achieving the best possible investment climate.

 

To request approval of M.I.P.A.it is necessary to invest a minimum capital of $ 50,000.

 

If the entity grants the authorization  it issues a certificate of investment which allows investors to access a range of services such as the assistance for the acquisition of land and commercial and cultural tips.

 

THE TAX SYSTEM

 

The incomes derived from or produced in Malawi, are subject to tax if the company is not resident.

 

Instead the incomes perceived  outside the Malawi by a resident company are not taxable.

About resident company, it means a company registered in Malawi.

 

The following sources of income are taxable:

• gains and profits from trade and business;

• profits and earnings from work;

• dividends and interest;

• rents and royalties;

• pensions, annuities or other periodic payments;

• fringe benefits

 

Direct taxes

The incomes of both individuals and corporations are taxed.

 

Not taxable incomes of individuals which derived  from assignments of representation  of companies who only work part-time in the country or incomes earned abroad by resident companies in Malawi.

 

Value Added Tax (VAT)

Consumers do not pay sales tax, but indirectly pay the surcharge which is levied on all goods at the manufacturing stage.

 

Withholding

It is about payments for non-residents, including royalties, rents, and services,and is assessed at a flat rate of 10%.

 

The agreements on double taxation

Double taxation agreement are signed on avoidance of double taxation on income internationally as earnings, dividends, interest and royalties produced in one country and transferred to another country.

 

Malawi has double taxation agreements with the following countries: Denmark, France, Kenya, Netherlands, Norway, South Africa, Sweden, Switzerland and United Kingdom.

 

TRADE AGREEMENTS

 

Since 1981, Malawi has embarked on programs of structural reform of the economic system by using funds from the World Bank, International Monetary Fund (IMF) and other donors.

 

Among the general objectives there are the development of private enterprise through systems of price controls, liberalization of trade and exchange with foreign countries.

Malawi has bilateral trade agreements with South Africa and Zimbabwe, the exchange of goods in these countries is not subject to customs duties (ie apply a system is "duty-free").

And it is member of COMESA, Common Market for Eastern Africa and  of the SADC The Southern African Development Community (SADC) organization for the development.

 

WORK

 

The cost of work in Malawi is the lowest in the region and has an adequate level of education and training so it is easy to find specialized staff.

 

The Government guarantees free primary education, while secondary education has grown proportionately. As regards tertiary education, this has had a great takeoff through the creation of the University of Livingstone and the University Cattolica.

 

 

HEALTH

 

Government policy is to increase the population's health status through the development of a health system which can prevent, reduce and treat disease, also trying to limit the premature deaths in the population.

 

There are many clinics and private hospitals that offer specialized treatments and  4 are  major hospitals in the country: Queen Elizabeth, Kamuzu, Mzuzu and Zomba, and several district hospitals in different areas of the country.

 

 

CUSTOMS DUTIES

 

The government of Malawi is actively taking to reduce or eliminate tariff and non tariff barriers still existing , trying to replace the source of duties  into direct and indirect taxation.

Import duties vary between products and countries of origin.

 

As a member of SADC and COMESA, Malawi grants preferences to the other countries belonging to these trade agreements.

 

PROPERTY

 

The property is recognized in Malawi.

The country has an adequate legislation to ensure the protection of property rights and contract rights connected.

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