1.   CONTEXT

1.1   Malawi’s Country Trade Profile

Malawi’s Trade Profile

Malawi is located in south-eastern Africa, bordering Zambia (west and northwest), Mozambique (southwest and southeast), and Tanzania (north). It is endowed with vast natural resources, including arable land, water, hydropower, and mineral deposits of uranium, limestone, coal, bauxite, gemstones, and niobium.

Malawi’s economy centres on agriculture, which supports well over 80% of the population. Agricultural produce, including raw tobacco, tea, cotton, coffee, and sugar, brings in more than 80% of the country's export earnings. Manufacturing in the country is at a minimal level. Most industries are based in or around the commercial city of Blantyre in the southern region.

In 2022, the Malawi Investment and Trade Centre (MITC) and the Reserve Bank of Malawi (RBM) reported a 0.1% increase of US$13,600 million in GDP and an overall trade deficit of US$ 612,139 million, a 70.9% decrease from 2021. The export value was US$940,876 million and the import value was US$1,553,015 million. The exports and the imports of goods and services as a percentage of GDP were 8.2% and 12.2% respectively.

Internationally, Malawi's economy was ranked 157 in the world in terms of total exports and 161 in total imports (OEC, 2022). Table 1 below illustrates Malawi’s import and export numbers for top ten products:

1.2   Current Situation of Trade Facilitation in Malawi

The Malawi Government established the Malawi Investment and Trade Centre (MITC) under the Investment and Export Promotion Act (2024) to promote investment and export production of Malawi’s agro-processing goods and services in priority sectors. In addition, the Special Economic Zones Act (2024) designates MITC as a SEZ Authority charged with the necessary powers and functions to manage and regulate SEZs. Among others, MITC facilitates exportation in line with the National Export Strategy (NES II) focusing on agriculture, which includes forestry and fishing, mining, manufacturing, and services. MITC identifies export markets, publishes demanded products and volumes, and facilitates access to tax incentives.

Malawi established an inter-agency National Trade Facilitation Committee (NTFC) on 8 July 2015 to oversee the country's holistic implementation of trade facilitation reforms. The NTFC has 15 members and four observers, including Customs, the Ministry of Trade, Government agencies, and the private sector. The Committee is expected to meet quarterly every year and report to the Cabinet Committee on Doing Business on all trade facilitation matters. Yet, the meetings have been rare, one meeting per year. Following TIPDeP and Ministry of Trade and Industry engagement, TIPDeP, through the thematic lead agency (currently FCDO) on trade facilitation, has been incorporated into NTFC in February 2024.

Malawi has a trade facilitation work plan running from 2017/18 to 2022, which is under review. Malawi embarked on Trade Facilitation Reforms, under which several programs operate under the MoIT coordination. The following are key initiatives in the Trade Facilitation Reforms plan:

1. National Single Window System (NSW): This aims to enable traders to submit documentation and all data requirements for the importation, exportation or transit of goods through a single-entry point.
2. One-Stop Border Posts (OSBPs): Six OSBPs located in Mchinji, Dedza, Mwanza, Muloza in Mulanje, Songwe in Karonga, and Chiponde in Mangochi.
3. Coordination Border Management (CBM): Malawi aims to have only five agencies at the border, including the Malawi Bureau of Standards, Ministry of Agriculture, MRA, Malawi Police, and Ministry of Health.
4. Malawi Trade Portal (MTP): This was established in 2016. However, it had challenges with a server and became dormant.
5. Single Trade Regime: This targets SMEs who run cross-border trade to lobby them to use formal border posts. The threshold for SMEs is US$83,000 duty-free as long as they can satisfy guidelines.

Despite efforts to improve the business environment in Malawi, the World Bank Report on Doing Business indicates that various challenges influence doing business in Malawi. As of 2020, according to the World Bank Group, Malawi was ranked 109 among 190 countries globally. The index ranks countries against each other based on how the regulatory environment is conducive to business operations. Key parameters that affect production and export capacity include trading across borders, tax administration, access to credit, and permit issuance

1.3   Trade Agreements at Regional and Global Levels

Malawi is a member of two regional trade blocs: the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA). Under various trade blocs, Malawi also has bilateral trade agreements with China, South Africa, Zimbabwe, Mozambique and Botswana

Under the COMESA Treaty, all goods traded among member states receive preferential treatment if they satisfy the prescribed rules of origin. The SADC Trade Protocol calls for establishing a SADC Free Trade Area (FTA) that stipulates the gradual elimination of tariffs between member states. SADC FTA took effect in January 2008, but Malawi, Mozambique, Tanzania, and Zambia are still implementing their scheduled tariff phase-down. Malawi also participates in the COMESA-SADC-East African Community (EAC) Tripartite Free Trade Area (TFTA) negotiations. The tripartite arrangement is envisaged to harmonize customs procedures, promote free movement of businesspersons, undertake joint implementation of inter-regional infrastructure programs, and establish institutional arrangements to foster cooperation among the regional economic communities. However, despite Malawi’s membership in these organizations, intraregional trade has not been a vital component of Malawi’s exports.

At a continental level, Malawi signed the African Continental Free Trade Area (AfCFTA) agreement and deposited AfCFTA ratifications to the African Union on 15th January 2021. AfCFTA ensures that Malawi has a more informed negotiation position and helps identify areas for stakeholder trade policy dialogue for stronger negotiation positions. It also aims to enhance the Government of Malawi’s capacity to formulate, negotiate and implement trade agreements, policies and strategies. In addition, Malawi is a party to several existing bilateral and regional trade agreements (RTAs), including the Tripartite Free Trade Agreement (TFTA) as well as the Economic Partnership Agreement (EPA) as part of the Eastern and Southern Africa (ESA) EPA grouping.

However, analysis has shown that Malawi has overlapping membership in RTAs with conflicting legal provisions. To ensure that Malawi benefits from various RTAs being negotiated, Malawi needs to harmonise its tariffs and tariff offers under various RTAs and push for harmonised and simpler Rules of Origin (RoO).

At a multilateral level, Malawi participates in WTO's Trade Facilitation Agreement (TFA), even though it has yet to ratify the agreement. The TFA aims to address trade barriers across countries. The TFA recognizes that even though member states have applied tariff reductions, trade barriers caused by inefficient and overly burdensome regulatory and administrative procedures remain high– referred to as “red tape”. Malawi, a landlocked country, could benefit from the TFA as it relies on neighbouring countries to access sea ports. TFA enhances transparency in transit procedures and requirements. Coastal countries will be obliged to adopt transparent and predictable transit systems to ensure that goods are shipped from landlocked countries

Additionally, Malawi benefits from development-focused trade groups targeting least-developed countries such as the E.U.’s Everything but Arms (EBA) and the U.S.’s African Growth and Opportunity Act (AGOA).

1.4   Policy and Legislative Environment for Trade Facilitation in Malawi

The Malawi Government aims to expand exportation to international markets for strategic products: Agriculture, Services (excluding tourism), Tourism, Manufacturing, and Mining. The Malawi 2063 First 10-year Implementation (Plan 1) 2021-2030 strategy presents exportation under two development pillars: Pillar 1: Agricultural Productivity and Commercialisation; and Pillar 2: Industrialisation. The Government aims to increase the transformation of raw materials in the agriculture and mining sectors into high-value products for export to support the overall wealth creation and self-reliance agenda. The Government plans to create Special Economic Zones and Export Processing Zones to promote industrialisation through economic incentive structures and programs.

The National Export Strategy II (2021-2026) is a critical framework that presents a national development roadmap to increase exports as a percentage of GDP from 14.6% to 20% by promoting diversification of products and markets to enhance the ‘Made in Malawi’ brand competitiveness.

A critical intervention the Government is undertaking is reviewing relevant legislative and policy frameworks to support the aforementioned strategies to build policy coherence. The following matrix presents the policies that are supporting trade facilitation in Malawi:

Yet, private sector annual assessment reports for the past three years (2020-2023), under MCCCI coordination, identify misalignment and inconsistencies in the regulations, punitive tax measures and procedures, unfair competition by informal sector players, the unavailability of forex, and high logistical costs as some of the key challenges to production and export capacity. Reports recommend the need for strategic interventions to build the local production and processing base for export

2   ACTIONS TAKEN AND LESSONS LEARNED BY DEVELOPMENT PARTNERS

2.1   Actions Taken in Supporting Irrigation Development

Development Partners have demonstrated a commitment to supporting trade facilitation through various projects. Total DP funding for trade facilitation and related interventions is US$368.152 million. The tables below present critical trade facilitation funding and key interventions.

3   KEY MESSAGE FROM TIPDeP

1. APPLAUD

   TIPDeP would like to applaud the Government on the following:
   1. The Malawi Government was among the first ten countries to sign the African Continental Free Trade Area (AfCFTA) agreement, submit AfCFTA ratifications with the Africa Union in January 2021, and develop an AfCFTA Country Implementation Strategy.
   2. TIPDeP applauds the Government for developing a country strategy on AfCFTA, which is a milestone in its domestication. However, further momentum is required to roll out and implement the strategy.
   3. Approval of key legal frameworks, namely the Investment and Export Promotion Act (2024), the Special Economic Zone (2024), and the Competition and Fair-Trading Act (2024).

2. CONCERNS AND ENCOURAGEMENTS

   From the above observations, TIPDeP would like to bring to the Government’s attention the following concerns and recommendations:

   1. Legal Frameworks and Policies:

      1. It remains imperative that Malawi promote agribusiness to leverage its potential in agriculture and enhance its export competitiveness. It is important because the global market has become very demanding of high-quality products, that meet high standard levels of availability, freshness, convenience, and traceability, which can only be met through appropriate value chain development.
      2. TIPDeP urges the Government to accelerate the development of regulations for recently approved enacted laws. These include the Investment and Export Promotion Act (2024), the Special Economic Zone Act (2024), and the Competition and Fair-Trading Act (2024).
      3. The Government should accelerate the finalization and approval of critical but long-pending legal and policy frameworks. These include the Micro, Small, and Medium Enterprises Policy (2019), the National Investment Policy (2023), and the National Industrialization Policy (2023).
      4. The Government should foster an enabling environment by addressing gaps in policy, legal, and regulatory frameworks for mortgage finance, leasing finance, and long-term finance to facilitate financial inclusion, entrepreneurship, and MSME growth. These are critical drivers in increasing production and processing capacity, thereby increasing export volumes.
      5. TIPDeP encourages the Government to make more effort to improve the business environment to attract new investors and nurture and sustain existing investors.

   2. Coordination and Financing

      1. TIPDeP encourages the Government to ensure consistent quarterly meetings of an inter-agency National Trade Facilitation Committee (NTFC) to oversee the holistic implementation of trade facilitation reforms in the country.
      2. The Government and private sector need to invest in technological upgrading, quality control, and marketing networks and connections.

   3. Ratification and Alignment with WTO Standards:

      1. TIPDeP urges the Government to accelerate the domestication of Malawi’s RTAs to ensure that RTA commitments are enforceable. This is critical to keeping momentum in the regional trade negotiations.
      2. TIPDeP encourages the Government to set a priority of strategic interventions to build the local production and processing base for export.