M A L A W I

1 P O L I C Y , P L A N S a n d P R I O R I T I E S

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 II– from Poverty to Prosperity (MGDSII 2011-2016)”. 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 producing and exporting economy.

The MGDS II highlights six thematic areas that shall be the basis for national development: Sustainable Economic Growth; Social Development; Social Support and Disaster Risk Management; Infrastructure Development; Governance; and Gender and Capacity Development. The nine key priority areas of the MGDS II are: Agriculture and Food Security; Energy, Industrial Development, Mining and Tourism; Transport Infrastructure and Nsanje World Inland Port; Education Science and Technology; Public Health, Sanitation, Malaria and HIV and AIDS Management; Integrated Rural Development; Green Belt Irrigation and Water Development; Child Development, Youth Development and Empowerment; and Climate Change, Natural Resources and Environmental Management.

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 identified by the Government for investment and trade are stated in section 5 of the Investment and Export Promotion Act (2012) and include :

agriculture; agro-processing; fisheries; forestry; manufacturing; mining; tourism; and such other productive sectors as the Malawi Investment and Trade Centre

(MITC) may, from time to time, determine with the approval of the Minister

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

The Investment and Export Promotion Act (2012) 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. The Act provides guidelines on the granting and processing of the Investment Certificate as well as the revocation of the same. Accordingly, the Act mandates the Centre to operate a one stop shop for business and investment registration. The Act further states that applications for relevant permits made through MITC shall be processed expeditiously and be granted within twenty-one (21) working days from the date of application is made.

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.

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Vision 2020 &Growth and Development Strategy II

Trade

Priority Sectors

Legal Framework

Investment Framework

The NES launched in December 2012, is a prioritized roadmap (2013 - 2018) for developing a productive base for export competitiveness and economic empowerment. The strategy is based on four priority areas:

Develop three prioritised clusters to complement tobacco and drive exports through value addition - oil seed products, sugar cane products and manufacturers,

In addition, support existing clusters including tobacco and tea Develop an environment conducive to economic competitiveness and

economic empowerment of youth, women, farmers and SME’s Invest in supportive economic institutions and organisations to build the

economy’s productive base Invest significantly in competencies, skills and knowledge 

The Export Strategy prioritises the clusters of products to be groomed and promoted for exports and these are manufacturing, sugarcane and oil seeds.

2 I N V E S T M E N T A N D T R A D E P R O M O T I O N

2 . 1 I n s t i t u t i o n s

The Malawi Investment and Trade Centre (MITC) is the body corporate in charge of investment and trade promotion, investor assistance and advice to the Malawi Government on investment and trade matters. It was established by the Act of Parliament in 2012. It has a Board of Directors which consists of representatives of the private sector and Government departments.

MITC operates as one-stop investment centre to investors by providing the following services free of charge

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. Obtaining permits and other business related registration certificates on

behalf of the investors

The Ministry of Industry and Trade is responsible for creating a conducive policy and regulatory environment for industry, Trade Development, ensuring expansion of products and services on the domestic and international markets; empowering Small and Medium enterprises and cooperatives to participate in economic activities.

The Ministry’s mission is therefore to promote, support and facilitate the development of industry, trade and private sector in both existing and potential growth sectors thereby increasing supply of value-added goods and services for domestic and international markets while sustaining comparative advantage.

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 2010 and the insurance sector under the Insurance Act of 2010

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NATIONAL EXPORT STRATEGY

MITC

Ministry of Industry and Trade

Reserve Bank of Malawi

Even though the Bank has authority, the Ministry of Finance has the ultimate authority in the financial sector.

2 . 2 I n v e s t m e n t a n d E x p o r t I n c e n t i v e s

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.

Pre business expenses up to 18 months are allowable expenses (sec 41 of the Taxation Act)

Losses are carried forward to six (6) years Capital allowances & investment allowances are claimed as follows:

100% on new and unused plant and machinery and industrial buildings, 40 % on used plant and machinery and industrial building

Investors can enjoy duty and excise exemption on raw materials if they choose to operate in designated industries in Malawi under industrial rebate scheme. Registered industrial rebate manufacturers are allowed to import raw materials duty and excise free under the CPC401 while VAT is 16.5%.

Use of this procedure implies a legal declaration that the goods are for the sole use in the industry declared and the importer will comply with all legal requirements and conditions relating to industrial rebate. Industries allowed to enjoy industrial rebate in Malawi are listed in the Eight Schedule of the Customs and Excise (Tariffs) Order.

Current incentives applicable to exporting industries include:

25% export allowance for non-traditional exports, these include: processed tea, processed tobacco etc.

15% international transport allowance for non-traditional exports Exports are zero-rated for purposes of Value Added Tax. It implies that

exporters can claim input tax on course of production

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.

The Export Incentives Act also provides assistance to exporters of non-traditional exports. They have to be registered with the Malawi Investment and Trade Centre (MITC). 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

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Manufacturing

Industrial Rebates

Export Incentives

Duty Drawbacks

Registered Exporters

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.

Investors intending to invest in the tourism sector in Malawi can enjoy the following incentives: free import duty, free import excise and VAT is zero-ratedCPC 4000.451 and 4071.451

Zero tax on off-road game/scenery viewing motor vehicles.

CPC 442 (a) Goods for hotels, Lodges and Inns – with 50 rooms and above.i. Glass, china porcelain earthenware and stone articles of table ware, enamel and hollowware for table use Electo plated Nickel – silver and pated ware, knives, forks, spoons and similar articles for cutlery and marked linen etched stamped or in any manner marked with the name of the hotel.

ii. Industrial catering equipment, motor boats scuba diving, jet skis, kayaks, wind surfers, pedallos, air conditioners, generators, gym equipment, message equipment, industrial washing machines, bar fridges, sauna, hot steam baths for furniture and furnishings.

CPC 442 (b) Materials and equipment for the establishment of a conference centre of seating capacity of 200 people

Public address system, video conferencing equipment, television screens, amplifiers, LCD equipment and industrial catering and bar equipment and indelibly engraved, itched, stamped or in any other manner marked with the name of the hotel/Lodge or inn

CPC 450 two passenger motor vehicle Two passenger carrying motor vehicles of tariff heading 87.02, except used motor vehicle in every five years for hotels, lodges and inns licensed under Tourism and Hotels Act, duty and VAT free

2 . 3 E P Z s , F r e e p o r t s a n d o t h e r S p e c i a l E c o n o m i c Z o n e s

Export Processing Zones (EPZs) are regulated under the Export Processing Zones (Amended) Act of 2013. 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.

Investors operating in Export Processing Zones enjoy the following incentives:

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 2013.

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Tourism Sector

Incentives

2 . 4 T a x I n c e n t i v e s

Please see the different tax incentives as described under section 2.2 and 2.3. These tax incentives are claimable by all taxpayers Losses are carried forward up to 6 years for traders Initial and annual allowances at various rates are granted besides the

depreciation (annual) allowances Initial and annual allowances are claimed at various rates as stipulated by the

Taxation Act. Commercial building with a construction cost of MK 100 million or above, are

subject to annual allowance at 2.5 %

A taxpayer can claim 50% allowance on social contributions paid directly into the building of a public hospital or school, or the sponsoring of youth sporting development activities.

Agro-processing and Electricity Generation, Transmission & Distribution industrials are eligible and must be formally certified as “priority Industries” by the Commissioner General of Malawi Revenue Authority following due process.

Zero rated corporate tax for any number of years not exceeding the 10 years as determined by Priority Industries Approval Committee

Thresholds to qualify are as under:

i) Agro-processing: Minimum US$500,000 for industries with 100%

shareholding by Malawian citizens subject to verification of at least 35% value addition to the final product

Minimum US$5 million in any other case subject to verification of at least 35% value addition to the final product

ii) Electricity Generation, Transmission and Distribution

Minimum of US$30 million Transmission means conveyance of at least 66,000 volts

from generator or an import point to distributors or large customers or an export point through a transmission power system.

Irrigation (CPC 446)Investors in the irrigation sector enjoy import duty, import excise and VAT free (zero-rated) the following goods for direct use in irrigation: - PVC pipes, asbestos pipes/rubber seals, galvanized pipes, elbow, sprinkles rainers, control valves, solvent cement, diesel engine ranging from 12 kw- 17kw with tubes, pressure gauges and nozzles imported by a farming entity recognized by the Secretary of Agriculture.

Horticulture (CPC 448)

By investing in the horticulture industry, companies can enjoy exemption of duty, import excise and VAT free (zero-rated) on seeds, cuttings, seed netting green house structure, climate control equipment, 1 generator set, water pump or borehole, flower power lights, pump, electrical engines, diesel engine for irrigation with tubing, PVC piping, valves, sprinkler system, irrigation filters/nozzles, pressure regulators, new refrigerated trucks per five years, cold rooms, strapping materials and clips, metal wires, strings elastic bands, processing equipment, bag strikers, laboratory equipment, chemical and reagents, soil testing kits, moisture testers, graders, chemicals rose cutter, spray equipment, sealing equipment and fumigation equipment. These goods must be intended for export.

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General Incentives

Priority Industries

Agriculture Sector

Fishing Industry (CPC 477)By investing in the fishing industry companies can enjoy import duty, import excise and import VAT free (zero-rated) on importation of Machinery, plant, laboratory equipment and materials, aerators, pumps, blowers, diamond mesh, nets, measuring equipment, separators, specialized tanks and diffusers, boat engines and trawlers for deep sea fishing.

In addition, fishing vessels, factory ships and other vessels for processing or preserving fishery products are import duty free in their own right in the Customs and Excise (Tariffs) Order.

Poultry Farming

By investing in poultry farming companies can enjoy import duty free clearance of machines for cleaning, sorting or grading eggs, fruit or other agricultural produce, machinery for preparing animal feeding stuffs, poultry incubators.

Other Agricultural Goods

In addition to the incentives for the subsectors above, the following are some of the goods which are essential for farming and investors can enjoy duty free clearance in their own right according to the Customs and Excise (Tariffs) Order: Fertilizers, Pesticides, Herbicides, Ploughs, agricultural horticultural or forestry machinery for soil preparation or cultivation i.e. ploughs harrows, scarifers, cultivators, weeders, manure spreaders and fertilizer distributors and Milking machinery.Zero tax on importation of livestock meant for breeding. Animals include bovine, swine, sheep and goats

VAT free on other lifting, handling, loading or unloading equipment such as conveyers, teleferics

Road Transport (CPC 440)

Investors in the road transport industry can enjoy import duty, import excise and import VAT free (zero-rated) clearance of new buses and buses used for a period not exceeding five (5) years of a seating capacity of forty five (45) persons or more persons including the driver.

In addition, goods carrying motor vehicles exceeding 20 tonnes are import duty free but excise duty is payable. Zero import duty on bicycles 15% import duty on motorbikes with engine capacity not exceeding 250cc 15% import duty on motor vehicles of seating capacity of 11 to 31 persons

including the driver and motor vehicles of 32 to 44 persons including the driver regardless of engine capacity and year of make

For vehicles of seating capacity of 32 to 44 persons including the driver Zero excise duty for new and used vehicles not exceeding 8 persons 10% excise duty for used motor vehicles exceeding 8 years but not

exceeding 12 years 25% excise duty for used motor vehicles exceeding 12 years

Rail TransportIn order to promote the railway industry, railway materials are import duty free and exempted from VAT.

Air Transport

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Transport Sector

In order to promote the air transport sector, aeroplanes and other aircraft of unladed weight exceeding 2,000kg are import duty free in their own right in the Customs and Excise (Tariffs) Order.

In order to promote the energy sector, the following goods for use in electricity generation and distribution are import duty and import excise free:- fuses, transformers, sling, ring main unit, insulators, galle chain equipment, conductors, surge arrestors, column duplex, AAC/PVC and electricity supply meters.

Extension of the CPC for ESCOM under Customs & Excise Tariffs Order to all importers of electricity generation and distributing equipment to be duty free

In addition, energy saver bulbs are import duty free in their own right in the Customs and Excise (Tariffs) Order. VAT is payable at 16.5%.

Solar products are import duty free in their right in the Customs and Excise (Tariffs) Order for example solar batteries and solar energy lamps. VAT is payable at 16.5%

In order to promote the mining sector, grading, leveling, scraping, excavating or boring machinery, for earth, minerals or ores; pile drivers and pile extractors are import duty free and VAT exempt in their own right in the Customs and Excise (Tariffs) Order.

ATM machines, point of sale machines and mobile banking vans imported by commercial banks locally registered by the Reserve bank of Malawi are allowed import duty and excise duty free under CPC 487. VAT is payable a 16.5%.

Investors in the education sector can enjoy import duty and import excise free clearance and VAT exemption of various educational materials when they are imported by educational institutions.

The materials are as follows:- School stationery, instruments, apparatus, appliances and other tuitional requisites including specialized furniture for use in the Classroom, workshop or laboratory, athletic and sports goods, for tuitional purposes. In the case of pre-school play groups; Photocopying machines, building materials, pianos, organs, keyboards and computers are import duty free. In addition books are duty free in their right in the Customs and Excise (Tariffs) Order.

By investing in the health sector, investors can enjoy import duty and import excise free clearance and the exemption of VAT on the following goods:- Hospital, nursing home, clinic, surgery and dispensary instruments, apparatus, appliances and requisites including parts thereof and including specialized furniture diagnostic and laboratory reagents for use in the diagnosis or treatment of diseases or affections of humans or animals. In addition medical, surgical, dental and sight testing instruments are also import duty free and exempted from VAT payment.

Zero tax on specialised broadcasting equipment for Television and radio stations

Zero tax crane lorries, concrete mixer lorries, mobile drilling derricks and track laying tractors for the construction industry

2 . 5 I n t e r n a t i o n a l T r a d e & E x p o r t P r o m o t i o n

Trade was liberalised in Malawi since the early 1990s and has ever since opened up the economy to more private sector involvement in production.Malawi’s export basket is largely dominated by tobacco which attracts more than 50 percent of export earnings followed by tea, cotton, sugar and uranium. The country’s export diversification focus is aimed at pulling away the economy from reliance on tobacco

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Energy Sector

Mining Sector

Banking Sector

Education Sector

Health Sector

Communication

Construction

to flourishing on other similarly competitive products and sectors. Nonetheless the trade sector in Malawi faces supply side constraints which have drawn the Government to identify areas that require improving and these include: 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.

The Customs and Excise Act and the Control of Goods Act of 1987 allow for any person or entity to 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 at a maximum fee of MK60,000 (US$133). 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 at a maximum fee of MK20,000 (US$44)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 a generally liberalised export licensing regime except for a few products which include rice, maize and maize products, poultry and poultry products, timber, hides and skins, certain metals and minerals, arms, petroleum products, wild animals, scrap metal.. Import and Export licenses are free of charge.

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).

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.”

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.

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Importing & Exporting

Customs

Trade-related Taxes

COMESA

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.

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%.

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.

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. From 1 January 2014, the European Union will adopt a revised GSP which focuses on easing trade for 89 LDC’s or lower income countries that are greatly in need. The revised system has more products compared to the previous system that will enjoy larger preference and therefore improve their penetration on the international market. In the mean time, countries and businesses are transitioning into the new scheme which will be operational by 2014.

To encourage and stimulate the trade between Malawi and important trading partners, Malawi has concluded bilateral trade agreements with South Africa, Zimbabwe, Mozambique, Botswana, China, India and Malaysia. The agreements enable Malawian importers to buy goods in the respective partner countries and import them without having to pay import duty, or only a small agreed duty rate on the qualified goods. A list of the respective goods is registered with the relevant authorities.

2 . 6 O t h e r I s s u e s

Based on the fact that the government considers the private sector as the striving actor for national development, it also acknowledges the potential of Small and Medium Enterprises (SMEs) for rapid economic growth and employment creation. It has established various assistance programmes, such as entrepreneurship training and technical and financial assistance. Currently, the commercial banks are taking responsibility of enhancing small and medium enterprises through well organised facilities mainly to address financial incapacity and illiteracy. The Government of Malawi merged SME support institutions –Malawi Entrepreneurs Development Institute (MEDI), Small Enterprise Development Organisation( SEDOM) & Development of Malawian Enterprises Trust (DEMAT) - into Small and Medium Entreprise Development Institute (SMEDI) to improve on efficiency and effectiveness of service delivery to SMEs. Malawi is a land-locked country and hence depends on its neighbours for access to the world market. Efficient and secure transport routes are essential both within and outside the national borders for economic development. The Government commits to undertake initiatives to expand domestic transportation networks as well as “transport corridors” to harbours of its neighbour countries, such as the

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SADC Trade Area

African Free Trade Zone

GSP

Bilateral Trade Agreements

Encouragement of SMEs

External Transport Routes

development of the Northern Corridor to Dar-es-Salaam in Tanzania or the rehabilitation of the Nacala Railway Line to the port of Nacala in Mozambique. Besides these two ports, the Mozambican port of Beira handles the dominant share of Malawi’s trade (about 47%), followed by the port of Durban (about 15%) in South Africa.

A joint initiative of COMESA, EAC and SADC is the implementation of the North-South Corridor Aid for Trade Programme which aims to reduce transport costs along two priority corridors. The two corridors cover the Dar-es-Salaam Corridor linking Dar-es-Salaam to the Copperbelt, and the North-South Corridor linking the Copperbelt to the southern ports of South Africa. The later passes through 8 countries: Tanzania, DR Congo, Zambia, Botswana, Malawi, Mozambique, Zimbabwe and South Africa. This pilot programme does not only involve improvement of the physical infrastructure for transport, but also covers the regulatory environment for trade and transport along the Corridor.

3 A C C E S S A N D A D M I S S I O N O F F O R E I G N I N V E S T O R S

3 . 1 F o r e i g n I n v e s t m e n t & C a p i t a l M o b i l i t y

Malawi has no restrictions on maximum ownership by foreign investors. Private investors can either conduct Greenfield investment or partner up with a local company in a joint venture. A database of potential investors in Malawi has been established by MIGA. Investment opportunities arising through privatisation exist especially in the energy sector where government supports the creation of public-private partnership programmes.

The minimum investment level for foreign investments is US$50,000. Foreign investors cannot enter small-scale prospecting and mining operations which are reserved for Malawians as well as foreigners that already lived in Malawi for at least 4 years. Other restrictions apply to industries that pose health, security and environmental concerns such as manufacture of firearms, ammunition, biological and chemical weapons, explosives, and industries involving hazardous waste and radioactive materials.

Modernisation and liberalisation of the financial sector with the enactment of the Capital Market Development Act, 1990, was not only done to facilitate access to local financing for domestic investors, but also to create more possibilities of financing for foreign investors. National and foreign investors have unrestricted access to local financing facilities. Government committed to establish a diversified banking sector with competition and new banking institutions. It furthermore guarantees no direct Government controls on credit and market based interest rates.

3 . 2 F o r e i g n I n v e s t m e n t E s t a b l i s h m e n t , R e g i s t e r i n g a n d L i c e n s i n g P r o c e s s e s

The investment process in Malawi is very simple. According to Business Registration Act (2013), all new companies have to register with the Registrar of Companies as a Limited Liability Company. The process is expected to take about 3 days. Investment in certain designated sectors or industries requires licenses based on the legislation governing those sectors. Such sectors include mining, energy, pharmaceutical among others.

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North-South Corridor

Forms of investment

Investment Requirement &Restrictions

Access to Local Financing

Foreign investors that invest a minimum amount of US$50,000 have to apply for an Investment Certificate from MITC. With the completed application form, the investors must submit a business proposal with all details of the project including staffing and expatriate staffing, land requirements, certificate of incorporation, etc. The application processing fee is US$200, or its equivalent in Malawi Kwacha (MWK). After reception, MITC conducts a background check on the company, evaluates and approves or rejects the application. Once the license is approved, the investor has to pay US$800 or an equivalent in MWK for issuance of the investment certificate.

For manufacturing, no license is required except for some small industries that raise safety and health concerns and are:

1. Firearms, ammunition and chemical and biological weapons; 2. Explosives; 3. Manufacturing involving hazardous waste treatment or disposal; and 4. Manufacturing involving radioactive material.

After incorporating/registering the company, the foreign company is required to register any foreign capital inflow with the Reserve Bank of Malawi through a commercial bank. This requirement has a purely for data collection and funds repatriation purposes. Furthermore, the Reserve Bank has to approve terms and conditions of international loans, management contracts, licensing and royalty arrangements and technology transfer. However, granting the approvals is not an issue as they are automatically granted within internationally prevailing standards.

Once the investor has registered the company and attained a Business Residence Permit (BRP) (please see details on section 3.3.), he has to open a business account with any Commercial Bank operating in Malawi.

For payment of the compulsory taxes such as corporate and withholding tax, the investor has now to register with the Commissioner of Domestic Taxes Division of the Malawi Revenue Authority (MRA).

The Mines and Minerals Act of 1981 is regulating any mining operation in Malawi and is administered by the Department of Mines being part of the Ministry of Natural Resources and Environmental Affairs. For large-scale prospecting and mining operations, three different licenses can be issued.

Reconnaissance License: issued for 1 year for an agreed programme and an area which is not exceeding 100,000 square km; subsurface operations are not allowed unless they are specifically authorised.

Exclusive Prospecting License (EPL): It provides exclusive rights to carry out prospecting operations for a specified mineral and in an area of 2,500 square km which is reduced by 50% each time the license is renewed. This license can be issued for a maximum of 3 years and can be renewed twice for a period of two years. Requirement for this license is to provide a proposal for the training and employment of Malawian citizens.

Mining license conferring exclusive rights: Holders and non-holders of an EPL can receive exclusive rights to prospect, mine, produce and sell specified minerals from a designated area not bigger than the area under the EPL. The validity of such mining license is 25 years or the estimated life time of the mine and is renewable for a period of 15 years. The mining licenses entails terms specifying the requirements for employment and training of Malawians.

The financial services sector is under the authority of the Reserve Bank of Malawi for banking and insurance, and the Ministry of Industry and Trade or the Registrar

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Investment License

Industrial License

Foreign capital registration

Tax Registration

Mining

Financial Services

General for savings and credit cooperatives, pension funds and development finance institutions. The regulation of non-bank financial services are not duly regulated nor duly supervised. The regulation is in the process of reform and a new Banking Act and a new Insurance Act were already enacted in November 2009, but have not yet entered into force. A Financial Services Bill and Bills on pension, Credit Cooperative and Microfinance have been drafted. Once they enter into force, the supervisory power will be consolidated under the Reserve Bank of Malawi.

The Banking sector is regulated under the Banking Act of 2010 under which the Reserve Bank of Malawi is responsible for for licensing and supervising commercial banks and other financial institutions. According to the Reserve Bank’s financial stability report of June 2013, the sector is dominated by two banks against a sum of 12 and grew by 19.3% by March 2013 compared to 12.3% achieved in September 2012. The Government’s pursuit to restore economic and financial soundness led it to implement tight monetary policies that would control the rising inflation and foreign exchange availability which are key in influencing the foreign investment course in Malawi. Such policies included inflating the bank rate and floating the exchange rate. Indeed the policies have conspicuously yielded the country a great improvement in the foreign exchange reserves and a downward trend in the inflation rate. Despite some adverse effects, the financial system has been stable.

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Banking

The Insurance Act of 2010 regulates the insurance industry. The Reserve Bank of Malawi is the responsible supervisory authority by delegation from the Ministry of Finance.

The capital market is small and there are 15 companies listed on the Malawi Stock Exchange (MSE). This market is regulated under the Capital Market Development Act of 1990. The MSE is operating under the Reserve Bank of Malawi as a self-regulatory institution and started its trading operations in 1996.

Other Trading Systems Malawi now has two commodity exchanges: The Agricultural Commodity Exchange (ACE) and the Auction Holdings Commodity Exchange (AHCX) established in 2013.Malawi is in the process of developing a legal framework for Commodity Exchanges and Warehouse Receipt System.

3 . 3 F o r e i g n E m p l o y m e n t & R e s i d e n c e

The processing of employment and business permits has been rather restrictive and taken a long time in the past. However, an order was issued in 2013 delegating powers of approval of such permits from the Minister of Home Affairs to the Chief Immigration Officer. The order, which awaits a ministerial signing, will improve the processing time of permits from as long as 12 months to 5 days. Malawi recognises that the employment of expatriates is inevitable in any developing country where specialised skills for industries strived for investment is missing.

In general, there are four different types of permits for expatriate workers: Temporary Residence Permit (TRP), Business Residence Permit (BRP), Temporary Employment Permit (TEP), and the Permanent Residence Permit (PRP). The BRP and TEP are especially of importance to foreign investors and described in more detail.

A TRP is issued for visitors and temporary workers who will stay longer than 90 days but not more than 6 months in the country.

An investor investing at least US$50,000 in Malawi is eligible for a Business Residence Permit (BRP). It covers foreigners who are shareholders and establish a company in Malawi. The permit is valid for 5 years and is renewable. The application shall be submitted to MITC which acts as Secretariat. The application has to contain:

Application forms in duplicate (available at MITC); Two passport size photographs; Project proposal with full details of the investment project; Police clearance from the last country of residence; Processing fee of MK 10,000.

MITC will process the application and present it to the Chief Immigration Officer for further action. At approval, the investor has to pay the issuance fee of MK 500,000.

The Temporary Employment Permit (TEP) is for expatriate workers employed by a Malawian firm or firms working on Government contracts and who expect to stay for more than 6 months in the country. The permit is valid for up to 2 years and has to be renewed in case an extension beyond that period is required. Any new application shall contain:

The immigration application forms; 2 copies of the curriculum vitae of the applicant; 2 passport size photos;

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Insurance

Security Trading

Temporary Residence Permit

Business Residence Permit

Temporary Employment Permit (TEP)

Copies of certificates; Organisation chart of the company indicating the position in question; Processing fee of MK 10,000.

The application is filed with MITC for processing and presentation to the Immigration Department and the TEP Committee for approval or rejection. An issuance fee of MK 120,000 has to be paid and the TEP will be received from the Chief Immigration Officer.

This permit applies to foreigners who have legally stayed in Malawi for not less than 7 years who may wish to take up residence in Malawi.

Foreign investors face their biggest challenges with the Department of Immigration when applying for TEPs. The areas of difficulty are on the one side that permits have an upper limit which does not match the duration of the worker’s contract, and the requirement to conduct a labour market test proofing that no Malawian worker with similar skills can fill the position.

3 . 4 F o r e i g n I n v e s t o r A c c e s s t o L a n d a n d P r o p e r t y R i g h t s

The Government of Malawi, realising the urgent need for serviced land for investment purposes, is working with the Malawi Investment and Trade Centre in developing and servicing land for investor use inorder to reduce and eventually eliminate the cost and period that would delay the establishment of investments in Malawi.

Customary LandThis is land under the jurisdiction of traditional authority and accounts for not less than 60% of the total land mass. Ideally, this land is preserved for agricultural activities by locals. Nevertheless, customary land can be accessed by foreign investors upon approval of required applications.

Public LandThis is land that is occupied, used or acquired by the Government of Malawi,

Private LandThis is land held either in freehold or leasehold ownership both in rural and urban areas. Commercial or industrial development is possible on all three types of land, although the location must conform to the zoning regulations set by the Department of Housing and Physical Planning. Prior to development an applicant must apply for and receive an Offer of a Lease from the Ministry of Lands, Physical Planning and Surveys in the case of customary and public lands. Transfers of freehold land are private transactions, although notice of intended sale must be given to Government when freehold property is sold. An investor may approach a freeholder for a direct transfer or lease of freehold land.

4 F O R E I G N I N V E S T M E N T O P E R A T I O N S

4 . 1 E m p l o y m e n t

The labour legislation consists of the following main acts:

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Permanent Residence Permit

Department of Immigration

Land Availability

Types of Land

Land development

CostsMinistry of Lands and Valuation

The Labour Relations Act of 1996 promotes sound labour relations by protecting and promoting the freedom of association, encouraging the engagement in and establishment of trade unions and employer’s organisations, pursuing collective bargaining and organisational rights, and expeditious dispute settlement. The Act also covers the establishment and functioning of the Tripartite Labour Advisory Council, and the Industrial Relations Court.

The Employment Act No. 6 of 2000 sets out the fundamental principles of the labour conditions in Malawi, functions, powers and administration of the Labour Commission and labour officers, the regulation on the employment of young people, requirements on establishment, reinforcement and regulations of standards of employment, of wages and contracts, and dismissal and disciplinary processes.

The Workers Compensation Act covers the following matters: Eligibility for Compensation in Case of Injury other than the Contraction of a

Scheduled Disease. Compensation for Injury Caused otherwise than by the Contraction of a

Scheduled Disease. Calculation and Distribution of Compensation Medical Aid Compensation for Injury due to the Contraction of a Scheduled Disease. Procedure for Obtaining Compensation Administration Workers’ Compensation Fund

The Technical, Entrepreneurial and Vocational Education and Training Act of 1999 provides for the promotion and co-ordination of Technical, Entrepreneurial and Vocational Education and Training and the establishment of the Technical, Entrepreneurial and Vocational Education and Training Authority of Malawi. It sets the basis for the Technical, Entrepreneurial and Vocational Education and Training Fund, and regulates the payment into the fund through periodical contributions levied on employers. the application of the fund towards the defraying various costs and expenses relating to technical education and training and further to provide for matters incidental to or connected with the foregoing.

4 . 2 B u s i n e s s T a x a t i o n

In general, Malawi is considered to have numerous taxes and levies.

Malawi has a corporate tax rate of 30% for domestic companies and 35% for foreign branches. For dividends, a withholding tax of 3% applies.

The annual threshold level for exemption from personal income tax is MK240,000, and all income in excess is taxed at varying rates with MK60,000 being taxed at 15%. All income in excess of the MK60,000 above is taxed at 30%. Non-residents have to pay a 15% withholding tax on their gross income in Malawi. There is also a payroll levy of 2%.

VAT applies to most goods and rates at 16,5%.

Estate taxes vary from 0 to 9% and depend on the value of the estate.

Stamp duties apply to instruments such as mortgages, bonds, leases, and insurance policies. They vary according to the nature of the instruments and the value of the transaction.

Improvements have been identified by the Government. The two points that have been suggested to improve the tax system consist of improving the transparency, especially in sequencing, design and language of forms employed, and to change

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Corporate Tax

Income Tax

VAT

Estate Tax

Stamp Duty

Department of Income Tax

the advance payment system of corporate taxes for manufacturers which face difficulties in their first-year as no tax payment record is yet established.

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4 . 3 E n v i r o n m e n t , P h y s i c a l P l a n n i n g , H e a l t h & S a f e t y , C o n s u m e r P r o t e c t i o n

General working standards are regulated by the Employment Act of 2000. The Workers’ Compensation Act covers for employee compensation for injuries suffered or diseases contracted in the course of their employment. The Act also initiates the establishment and management of a Workers’ Compensation Fund that is providing for such matters. The Occupational Safety, Health and Welfare Act of 1997 makes furthermore provisions for all conditions of employment in workplaces relation to the safety, health and welfare of persons employed. It also states regulations for plant and machinery inspections, the preventions and regulation of accidents occurring at the workplace.

The Environment Management Act No. 23 of 1996 provides for environmental conservation measures while the Environment (Specification of Projects Requiring Environmental Impact Assessment) Notice of 1998 specifies all cases in which as Environmental Impact Assessment (EIA) is required for a project approval.

The topic of consumer protection is covered by the existing competition policy under the Competition and Fair Trading Act of 1998.

4 . 4 C o m p e t i t i o n P o l i c y & L a w

Malawi has a competition policy, the Competition and Fair Trading Act (CFTA) which was enacted in 1998 and entered into force in 2000. However, the application of the act only started in 2005 when the Competition Commission was created. The Commission is independent in its procedures and decisions and investigates anti-competitive and unfair trading cases. The policy prohibits anti-competitive trade practices, regulates and monitors monopolies and other concentration of economic power, ensures the best possible market conditions and protects consumer welfare.

Under the COMESA initiative, a COMESA Competition Commission (CCC) was established and started operating in 2009. The CCC is based in Malawi with nine commissioners from member countries. The objective of CCC is to eliminate the abuse of over-pricing and dominance, price fixing and collusion.

There are price controls of certain agricultural products such as maize, raw tobacco and cotton. Electricity tariffs are controlled through an “automatic tariff adjustment” mechanism that comes into effect in case of a 5% fluctuation in inflation or the exchange rate. Fuel prices are under control of the government and are approved by the Malawi Energy Regulatory Authority (MERA). The water price is a result of the proposal of its price to the Minister of Water Development by the five water boards in place. However, a water sector reform has been initiated which aims to provide MERA also the power to regulate the water sector.

4 . 5 M o n e t a r y P o l i c y , F o r e i g n E x c h a n g e a n d F o r e i g n I n v e s t o r s

The Reserve Bank of Malawi (RBM) is in charge of the monetary policy and has a key role authorizing all foreign capital transactions in the country. In the IMF (2009) report it is noted that the RBM needs to reduce its role in the market in order to improve the monetary and exchange policy transparency. The supply of foreign exchange to commercial banks had largely stopped led to a serious imbalance of available foreign exchange in the country as well as to a fundamental foreign

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Labour Standards

Environment

Consumer Protection

Competition Policy

COMESA Competition Commission

Price Controls

RBM and its role

exchange rate imbalance. Such development has negative impact on the operating businesses and, hence, the economic growth and development.

Government and IMF agreed that a restructuring of the foreign exchange markets is required including respective policy adjustments. Measures include the re-activation of the interbank market for foreign exchange, reducing RBM’s market-making role, introduce more flexibility to the exchange rate to achieve a market-based rate, and revise and update respective laws and regulations. Besides reforms on the foreign exchange regime, further reforms on reserve money ceilings and the general monetary policy approach have been initiated.

Access to foreign exchange is free to foreign investors as well as paying for imports and transferring financial payments. Full remittance is allowed for dividends, investment capital on repatriation, interest and principal payments for approved international loans, and approved fees for management, licenses, royalties and similar obligations.

The current regulations oblige exporters to surrender 40 percent of proceeds to the banking system, while tobacco exporters haven to retain even 60% of their export proceeds in Foreign Currency Deposit Accounts (FCDAs) and 40% to commercial banks. Tobacco exporters who do not possess an FCDA have to retain 100% of their proceeds to commercial banks at the commercial bank rate.

4 . 6 P u b l i c P r o c u r e m e n t

The Public Procurement Act No. 8 of 2003 and the Procurement Regulations of 2004 are covering the different procurement rules, procedures and methods to be employed for Government procurement. According to the regulations and the Act, the procurement responsibility is decentralised to the procuring entities through the establishment of internal procurement committees in the entity. The act also established the Office of the Director of Public Procurement (ODPP) which shall regulate, monitor, and oversee public procurement.

One setback is that the regulations allow Government ministries to import products duty free which disadvantaged local producers and caused serious problems to national SMEs.

4 . 7 I n t e l l e c t u a l P r o p e r t y

Intellectual Property legislation is covered by the Patents Act of 1958, the Trade Marks Act of 1958, the Registered Designs Act of 1985, the Trade Descriptions Act of 1987, and the Copyright Act of 1989. The laws are outdated and relevant authorities are aware of the need for reviewing them and adapting them to the new international standards and agreements. Hence, a new IP policy has been drafted and is awaiting the approval by the Cabinet. The IP policy aims to stimulate the generation, commercialization, and protection of intellectual property rights as an economic stimulant for wealth creation. It also aims to encourage institutions to adopt their own IP policies; and to integrate the IP system in government development strategies. The new policy is apparently already in the Office of the President for its review and approval.

Responsible authorities for intellectual property issues are the Registrar General under the Ministry of Justice for patents, trademarks and designs; the Ministry of Trade and Industry for trade-related aspects of IPR; the Copyright Society of Malawi (COSOMA) under the Ministry of Culture for copyright matters. A proposal of the new IP policy is to consolidate all IPR matters through the creation of the Malawi Intellectual Property Office (MIPO).

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Restructuring of the Financial Market

General Rights

Exporter Requirements

Legislation

Authorities

4 . 8 I n v e s t m e n t P r o t e c t i o n a n d D i s p u t e S e t t l e m e n t

Article 28 of the Constitution of Malawi states the right of property irrespective of ownership and therefore applies to both national and foreign investors:

1. Every person shall be able to acquire property alone or in association with others.

2. No person shall be arbitrarily deprived of property.

Malawi is member of the International Centre for the Settlement of Investment Disputes (ICSID) and the Multilateral Investment Guarantee Agency (MIGA). Being member of the WTO, Malawi intends to comply with the TRIPS Agreement by the end of 2013 and by 2016 with the implementation of patent protection for pharmaceutical products. Furthermore, Malawi has concluded several Bilateral Investment Promotion and Protection Agreements. A list of all BITs can be found below.

4 . 9 I n t e r n a t i o n a l A g r e e m e n t s a n d O b l i g a t i o n s – T r a d e a n d o t h e r A g r e e m e n t s , B I T s , D T T s

Malawi is actively involved in COMESA institution, trade facilitation schemes, the COMESA Customs Union as well as the COMESA Common Investment Area as signed in August 2010.

Malawi is part of the WTO and is signatory to the ACP-EU Lomé Conventions and subsequent agreements. Based on the requirement to establish WTO-compatible trade agreements, Malawi entered negotiations for the European Partnership Agreements (EPAs) under the ESA configuration. The ESA group consists of 11 members.

Malawi qualifies under the US-Africa Growth Opportunity Act (AGOA) to receive preferential market access to the US market for about 6,400 goods.

As stated above, Malawi is member of ICSID, MIGA and has signed Bilateral Investment Treaties (BITs) with several countries.

A list of Bilateral Investment Treaties and Double Taxation Treaties is attached below.

5 S A D C R E L A T E D I S S U E S

The Dual membership of SADC and COMESA has been evaluated as following by the WTO Policy Review (2010): “Malawi's dual membership in SADC and COMESA has so far not created any conflict, according to the authorities. The issue of overlapping membership may be also resolved once the plan to harmonize the three regional economic groupings of COMESA, East African Community (EAC), and SADC, materializes. However, the authorities are expecting a delay in launching the SADC Customs Union as planned in 2010.”

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Constitution of Malawi

International Agreements

COMESA

WTO, EC and EPA

AGOA and others

Bilateral Investment Treaties Concluded with MalawiPartner Country Date of signature Date of Entry

into force1 Egypt 21-Oct-97 07-Sep-992 Italy 28-Aug-03 -3 Malaysia 05-Sep-96 -4 Netherlands 11-Dec-03 01-Nov-075 Taiwan Province of

China22-Apr-95 -

6 Zimbabwe 04-Jul-03 -7. Libya 1999 -

Double Taxation Agreements concluded with Malawi as of 1 June 2009Partner Country Type of Agreement Date of Signature

1 Denmark Income and Capital 17-Jan-592 France Income and Capital 05-Nov-633 Netherlands Income and Capital 07-Jun-694 Norway Income and Capital 16-Dec-635 South Africa Income and Capital 03-May-716 Sweden Income and Capital 25-Nov-547 Switzerland Income and Capital 03-May-658 United Kingdom Income and Capital 25-Nov-55

Malawi is negotiating Bilateral Investment Treaties and some cases double Taxation agreements with Mauritius, United Arab Emirates, India, Germany and Brazil among others

Sources included

Government of Malawi (2012) Malawi Growth and Development Strategy 2011 – 2016

Government of Malawi: Relevant Legislation

Ibid: National Export Strategy (2012)

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Double Taxation Agreements

Agreements under Negotiations