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12013 INVESTING IN MalawI

Foreword

Foreword

As one who returned to Malawi only a few months ago, after some years away, it is a great pleasure

to welcome you all to this Second UK-Malawi Investment Forum here in London, United Kingdom.

The First UK-Malawi Investment Forum in 2008 ignited a lot of interest and enthusiasm. It generated further dialogue between potential investors and government officials. New British investments in agriculture (sugar, fruit processing, crop farming) and mining located Malawi as an investment destination.

Since 2008 there have been, as we all know, issues which have caused rifts in Malawi’s relations with the international community. However, in April of last year Joyce Banda was duly sworn in as the new President of the Republic. Her Government swiftly published Malawi’s Economic Recovery Plan (ERP) as an intervention to stimulate growth in the economy in the immediate, short and medium term.

Related to the ERP is the recently launched Export Strategy. The strategy sensibly seeks to build on Malawi’s existing commercial base. Agri-produce, mining and manufacturing are among those sectors set to benefit from increased government and private sector promotion. Malawi is setting in train a transformation of the economy, and actively seeking investment in

commercial agriculture, energy, mining, tourism, and physical infrastructure development, including information and communication technology (ICT). I sense a new seriousness in Malawi to open up to business and to create the conditions for private sector led development, increasingly moving the emphasis from aid to trade.

To attract investment, Malawi is gearing itself towards creating an enabling environment for doing business. This includes providing business incentives and streamlining cumbersome business processes. I have heard Her Excellency The President on several occasions challenge her government to promote Malawi into the top 100 of the World Bank’s “cost of doing business” index within the next five years.

As well as promoting macro-economic stability, the government is also investing heavily in infrastructure, especially in improving export corridors and electricity generation and supply. In this regard, Malawi’s membership of the Southern African Development Community (SADC) is an asset (a SADC Infrastructure Master Plan was agreed by the Community’s Heads of State late last year). I agree with Malawi’s strategic approach to regional integration as the catalyst to the country’s development agenda. I believe that investors should look at Malawi’s potential not just within the confines of its own borders, but as a regional gateway. Mozambique, Tanzania, Zambia are just some of the countries whose economies are doing well. Yet, in some cases, English-speaking Malawi is a more convenient base than capitals of the countries concerned. Blantyre, for example, is the closest major city to

By Michael NevinHer Majesty’s High Commissioner to Malawi

coal-producing Tete in Mozambique, with opportunities in the service, banking, retail and other sectors as a result.

Malawi also offers stability. There is no history of civil war. It is a functioning democracy, with an independent judicial system, including special commercial courts. Malawians are known regionally and internationally for their hard work. The country has a varied but wonderful climate. There are challenges, which the Government is aware of and increasingly focused on. But like many of the opportunities currently being developed in Africa, it is important for companies to realise the potential early in order to take advantage of market presence and knowledge.

This Forum could not have taken place at a better time than now. It could also not have been held in a better country than the United Kingdom, a country with which Malawi has enjoyed warm relations over many years and which remains a key development partner for the country. When I presented my credentials to President Banda last year, I promised her that I would champion Malawi. This Forum helps champion Malawi’s cause, and its opportunities.

I would like to express my gratitude to Her Excellency The President and her Ministers and officials for making the journey to London and to Developing Markets Associates for their great work in putting this forum together. I trust that this is only the beginning of a productive relationship.

Michael Nevin Her Majesty’s High Commissioner to Malawi

2 INVESTING IN MalawI 2013

On behalf of D e v e l o p i n g M a r k e T s associaTes may I welcome you all to Draper’s

Hall. May I also extend an especially warm welcome to the delegation from Malawi, led by Her Excellency, Dr Joyce Banda, President of Malawi, for being prepared to come to London to meet investors when there are many pressing issues facing the government. A welcome too, to the Malawi companies which have chosen to come to the Forum today in order to seek potential partners. The concept of partnership – be it a joint venture between companies or the introduction of new investment to help boost economic development – is the essence of what DMA’s trade and investment events are all about.

Malawi remains one of the world’s poorest countries and has faced growing macroeconomic management challenges for several years. The economy performed well over much of the last decade, with growth of around 7.0%, well above the sub-Saharan Africa average, but that has slowed in the last two years. Nevertheless the figure is still expected to be at 5.3% in 2013. Agriculture continues to be the main economic activity, an issue which

also impacts on youth employment, it is mainly at the subsistence level, and it is inevitably exposed to the vagaries of nature, both drought and flood. Nevertheless, government programmes of fertiliser subsidies have dramatically boosted output in recent years, making Malawi a net food exporter. Meanwhile mining and construction have recently begun to account for a larger share in the economy.

In very recent years, too, there have been issues of difficult relations with donor countries, notably the US and UK, with the International Monetary Fund and with neighbouring states. All of these are well documented. However, President Banda’s government has already reached out to its neighbours, with positive effect. There is the government’s national development plan, the Malawi Growth and Development Strategy (MGDS II, 2011-2016), which identifies nine key priority areas, some of which you will hear about today. And there are possibilities for new areas of development, such as for example eco-tourism. In addition, looking ahead, Malawi should benefit from new links to the outside world – essential for a landlocked country – through the infrastructure master plan of the Southern Africa Development Community (SADC).

Today’s Forum provides an opportunity to connect not only with representatives of the new government but also with

By Atam Sandhu, CEO, Developing Markets Associates

potential Malawian partners, those companies which have taken the time and trouble to come to London with this in mind. You will also hear from outside companies which have established themselves in Malawi in the last few years, and of their experiences. All in all, I hope that the day will provide you with an update on a country in the process of change from the perspective of business.

More than that, though, I hope that it will contribute to setting aside preconceptions and indeed trigger an interest to go and explore opportunities for yourselves. As the Chinese proverb tells us, the journey of a thousand miles begins with a single step. Investment decisions are not made lightly and not made hastily. If however today marks the single step to begin that journey then it has achieved its objective, for the delegation, for the companies here today, and for DMA.

I wish you an interesting and productive day.

Atam Sandhu Chief Executive Developing Markets Associates

IntroductIon and welcome


Publisher: Chris GerrardContributors: Jonathan Levack, Natalia Debczak-Debski, Brian Naughton, Roger MurrayArt Director: Steven JonesConference Team: Deanne Lintorn, Frazer Lang, Rebecca Isaacs, Alison HamiltonConference Directors: Leon Isaacs, Atam Sandhu, Roger Martin

Correspondence Developing Markets Associates Ltd (DMA), 150 Tooley Street, London, SE1 2TU email: [email protected] | web: www.developingmarkets.com | www.moneymove.org | www.sendmoneypacific.org

DMA acknowledge the assistance of all the individuals and organisations who have contributed to this publication. The views expressed herein are the opinions of the authors, and do not necessarily represent the High Commission of Malawi, the Government of Malawi or DMA. All rights reserved. No part of this publication may be reproduced or transmitted in any form without the written permission of the publisher.

Published by Developing Markets Associates Ltd (DMA) Printed by Woodrow Press Picture credits: i-stockphoto.com

© Developing Markets Associates Ltd

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ForeWordIntroductIoncontentsovervIeWAgrIcuLtureInFrAstructureextrActIvetourIsMProgrAMMeour PArtnersMAP

contents

Contents


AfTer years of econoMic TurMoil, Malawi’s prospects have changed for the better. The unexpected transition of power in the capital Lilongwe in April 2012 offers real hope for the country and its 16 million citizens. The new government led by President Joyce Banda has embarked on an ambitious programme of reform that has the potential to reset the country’s economic outlook. The reform programme seeks to address macroeconomic and structural challenges in order to facilitate a rebalancing of the Malawian economy – a major task but the signs are promising. The devaluation of the local currency, transition to market based foreign exchange system, lifting of price controls and efforts to diversify are starting to bear fruit. Following a rocky couple of years, the International Monetary Fund (IMF) now predicts real GDP growth will reach 5.7% in 2013 and

maintain average per annum growth of 6.7% through to 2017 – both above the average for sub-Saharan African.

A vuLnerAbLe stArtIng PoIntOn the surface, Malawi’s economic performance over the last decade has also been encouraging. Growth averaged 6% per annum over the period from 2004 to 2011. Agriculture has performed well and new mining projects have come online to boost GDP. Indeed, Malawi outstripped sub-Saharan African growth in the four years between 2008 and 2011. While the country’s recent performance has been impressive, growth has not been broad based and has been built on vulnerable sectors. In fact, growth was, in part, predicated on debt relief through the Heavily Indebted Poor Countries (HIPC) initiative.

Furthermore, despite growth, Malawi remains in a vulnerable position. Overly reliant on agriculture and foreign aid, the landlocked country is susceptible to the whim of mother nature, global commodity prices and international donors. Agriculture has long been the backbone of the Malawian economy. 80% of the population are engaged in the agricultural sector, which accounts for 82.5% of export earnings but less than 40% of GDP. Tobacco is the country’s main export commodity, accounting for a half of export earnings on its own. And this has its risks – take 2010 and 2011; growth fell sharply in 2010 to 6.5% from 9% in 2009 after a poor harvest. In 2011, growth was estimated to have fallen further to 4.3%. In 2011 Malawi was hit by problems with the IMF Extended Credit Facility programme that led to reduced donor inflows, foreign exchange difficulties and shortages of essential commodities such as fuel and inputs for manufacturing. The situation was

economIc overvIewEconomic Overview by Jonathan Levack


Economic Overview

“The new government led by president Joyce banda has embarked on an ambitious programme of reform that has the potential to reset the country’s economic outlook

made worse by disappointing earnings from tobacco, on which the country is so dependent.

Malawi’s vulnerability to external shocks has been compounded by structural challenges that have been left unaddressed. The country has long suffered from a shortage of foreign exchange, impacting on Malawi’s ability to purchase essential goods, such as fuel and medicine, and investment in capital goods. Access to electricity and water are scarce – the World Bank ranks Malawi as one of the lowest countries in the world in terms of power supply, with less than 15% of the population having access to electricity. Transport costs are also high; landlocked Malawi’s nearest port, Nacala in Mozambique, is over 500 miles away. The vast majority of goods are transported by road, with some estimating that transport costs alone constitute 30% of the country’s total import bill. In addition, the country’s manufacturing sector remains nascent and industrial capacity is limited.

Malawi’s challenging economic environment is reflected in many international indicies. The World Bank’s Ease of Doing Business report ranks Malawi at 157th of the 185 countries it surveyed in 2013. The country ranks especially poorly in terms of access to energy and the cost of enforcing contracts, which impacts on Malawi’s competitiveness. Indeed, the country ranks 129th out of 144 in the World Economic Forum’s annual Global Competitiveness Report. The report highlights Malawi’s lack of infrastructure, poor access to foreign exchange and the difficulties of accessing finance. While the country scores poorly on economic indicies, it performs more favourably on governance indicies. The Mo Ibrahim Index ranks the country 17th of 52 African countries assessed in the annual Index of Governance Performance in Africa. The country also ranks a respectable 88th in the latest version of Transparency International’s annual Corruption Perceptions Index – a significant improvement on Malawi’s ranking in 2011.

A chAnge oF Fortune2012 may well mark the year when Malawi’s fortunes changed categorically. President Joyce Banda rose to power in

abrupt circumstances. The first female President in Malawi’s history assumed office following the sudden death of Presient Mutharika from a heart attack in April 2012. But President Banda inherited power from a regime that was unpopular at home and abroad. International donors – on which Malawi has been so reliant – withdrew support in protest at the Mutharika administration’s dismal human rights record, poor economic governance and extravagant spending – the former President was pillared for the purchase of a private jet, while the population struggled in poverty. Malawi’s largest donors, including the UK, the United States, Germany, Norway, the European Union, the World Bank, and the African Development Bank (AfDB), all reduced or suspended financial aid. His propensity towards populism and budget deficits also worried international

Malawi that were neglected under the previous administration. Facing acute fuel and foreign exchange shortages, the government launched its Economic Recovery Plan within five months of assuming office. The ambitious 18-month plan introduced a number of essential reforms that aim to address many of the country’s macroeconomic and structural imbalances. It has largely succeeded. According to IMF Managing Director Christine Lagarde, “President Banda and her team moved quickly, moved boldly, and moved on many fronts. In short, they managed to turn the situation round and restore stability.”

The cornerstone of the plan was a devaluation of Malawi’s currency, the Kwacha. Malawi suffered from chronic shortages of foreign exchange and heavily

investors – government interventions in the market were frequent and wide ranging. At home, the withdrawal of international donors impacted on growth and stability.

It is fair to say that the political transition in Lilongwe has resulted in a genuine change of fortune. President Banda has quickly set about addressing many of the structural challenges facing

restricted foreign exchange transactions. Pegged to the US dollar, the government devalued the Kwacha from MK 167 to MK 250 to the US dollar in May 2012 and it was subsequently floated. In addition, the government moved towards a flexible market based exchange rate system, removing restrictions on foreign exchange transactions by banks and foreign exchange bureaus. According to


the IMF, “this stopped the overvaluation [of the Kwacha] and eased strains on foreign exchange.”

Not only does the Economic Recovery Plan address the value of the Kwacha, but it also looks to tackle economic imbalances and reengage international donors. The Reserve Bank of Malawi has been given more autonomy to implement monetary policy, with increased independence to set interest rates. Price controls on petroleum products and electricity tariffs have also been eased or removed, allowing for more cost efficient distribution. The ease of doing business was also partly addressed. Various taxes impeding the private sector were removed, including the minimum tax on turnover, taxes on gains from the sale of shares and VAT on a number of services. To encourage exports, allowances were also increased by 10% to 25%. Local production and exports have also been encouraged, through the removal of import duty, import excise and VAT on raw materials.

Perhaps most importantly, President Banda sought to reengage the international community. Shortly after taking office, President Banda went about repairing

relations with key international partners with much success. The UK government agreed to reinstall its High Commissioner to Malawi, former US Secretary of State Hilary Clinton promised to resume discussions on a US$350mn energy deal and the EU Commission agreed to release a total of EUR98 million in funding. Three months after taking office, President Banda’s administration signed a three year US$157mn extended credit facility programme with the IMF. The programme aims to achieve and maintain macroeconomic stability and the implementation of policies and structural reforms to spur growth, diversify the economy and reduce poverty. The programme marked the return of budget support from international donors.

The IMF underlined its support for the country in January. In a visit to Malawi,

Christine Lagarde approved of the government’s efforts and praised its current policy direction: “I believe the government’s Economic Recovery Plan lays the foundation for higher and better quality growth.” She also drew attention to the inclusive nature of President Banda’s plans for growth. Quoting the President, the IMF Managing Director said: “President Banda understands this well. Consider how she puts it: ‘Growth is about growth and prosperity for all, opportunity for all, happiness for all, political and economic freedom for all’”. Lagarde went on to confirm the IMF’s continuing support for Malawi, underlining the Fund’s commitment to helping the country restore stability, boost growth, build capacity and strengthen institutions.

Malawi’s business community is broadly in favour of the current policy direction

“not only does the economic recovery plan address the value of the kwacha, but it also looks to tackle economic imbalances and reengage international donors


as well. The President of the Malawi Confederation of Commerce and Industry (MCCI), Matthews Chikankheni, said that the Economic Recovery Plan had released the economy from its “reverse gear” and delivered “much needed confidence.” But many have noted that the economy is still dependent on foreign support. While the return of international donors has been vital, President Banda has stated that the ultimate aim is to become less reliant on foreign aid. In short, she has said she is working to replace “aid with trade”.

But President Banda’s Economic Recovery Plan is not without consequence and opposition. The devaluing of the Kwacha resulted in a spike in inflation due to rising import costs. Inflation rose to over 30% in the last of quarter of 2012, with real wages facing marked downward pressure. Coinciding with a poor harvest, the devaluation of the currency has seen the price of essentials rise sharply: the price of maize has almost doubled, while the cost of electricity has jumped by almost a third. The impact has been widespread. The Malawian Centre for Social Concern estimates that the cost of living for low income families rose by 20% in 2012. In February 2013, Malawi’s civil servants took to the streets to demand a 60% wage increase to compensate for falls to real wages. The country’s 120,000 state employees withdrew their labour, resulting in the closure of many services, including schools and the country’s two international airports. The government eventually ceded to the two week industrial action and signed a memorandum of understanding with unions to address the problem. Wage hikes ranged from 61% for the lowest paid to 11% for the highest paid, with a commitment to keep the situation under review.

Future ProsPectsNo doubt the transition to greater stability and prosperity will continue to be challenging. But, by most accounts, reform efforts are starting to have a positive impact. A more stable macroeconomic climate has allowed the government to start looking towards the medium term and pursue a strategy targeting broader based, more sustainable development. To this end, the government have set out a clear programme of projects to generate growth, diversify the economy and

attract investment. Indeed developments in agriculture, mining, oil and gas and infrastructure, all have the potential to benefit both Malawians and investors.

Much of the country’s workforce remains glued to agriculture – and is likely to do so moving forward. But this presents a strong base from which food production can grow, generating wealth and addressing food insecurity. Cash crops, such as tobacco, tea and sugar, have long been mainstays for the country’s exporters and will continue to be. However, Malawi has started to diversify away from overreliance on just a few crops, with success producing groundnuts, sugarcane, cotton and coffee. According to the AfDB production of the four crops grew by 69.8%, 24.6%, 285% and 15% respectively from 2006 to 2010. The US State Department identifies soya bean processing, dairy (Malawi has one of the lowest levels of dairy product

consumption in Africa) and livestock as areas for future growth. The Banda administration is, too, keen to improve agricultural production across the board. The government has committed to diversify and upscale the production of key crops that have potential for export markets, including groundnuts, rice, coffee, sunflower, soya, pigeon peas, cotton, cassava and sugar. To this end, the government has also identified the need to incentivise commercial scale farming through legislative reform and improvements to irrigation.

The Banda administration is targeting tourism as another sector for potential growth, seeing it as having “the potential to generate revenue, employment, improve infrastructure, and promote Micro Small and Medium Enterprises (MSMEs) as well as conserve wildlife and culture.” With areas of genuine natural beauty, including Lake Malawi, rich fauna and flora, nine

Economic Overview

“Shortly after taking office, President banda went about repairing relations with key international partners with much success


national parks and ‘big 5’ potential, the country has plenty to offer adventurous tourists. But the sector lags behind some of its East African neighbours’ tourism industries due to a lack of infrastructure and until recently, lack of marketing. To address this gap and promote the industry, the government is introducing measures as part of the Economic Recovery Plan. These include steps to restock wildlife reserves and develop support infrastructure, promote Malawi as a holiday destination, particularly to European markets, and simplify visa application and train more staff to fill any skills shortages that currently exist.

The mining sector is also attracting both domestic and international attention, registering 30% growth over the last five years. Malawi has significant natural resources that have so far been underexploited for several reasons, including inadequate energy supply infrastructure. These include bauxite, heavy mineral sands, monazite, coal, uranium, precious and semi-precious stones, limestone, niobium, dimension stones and rock aggregates. Currently the sector contributes less than 5%

of GDP, but the government aims to increase this proportion to at least 10%. Uranium is a relative success story in this regard. Discovered in the early 1980s, the country’s uranium resource is a key asset, estimated to be 11,600 million tonnes strong. Paladin Energy has developed a uranium mine at Kayelekara where production is expected to ramp up to 1500 tonnes of uranium per year. Since opening in 2009, the mine has played a significant role in the country’s growth. The government is keen to replicate this success in other areas with the mine alone expected to increase exports by 25% over its lifespan. Under the Economic Recovery Plan, the government intends to incentivise new investment in mining by updating the relevant legal framework, training the local workforce to address skills shortages and ensure transparency throughout.

East Africa has become of increasing interest to the oil and gas industry. From Kenya, to Tanzania and Mozambique, explorers have found substantial oil and gas reserves throughout the region. Malawi too, hopes to join its neighbours in developing potential prospects underneath Lake Malawi (Nyasa). Geological surveys

have suggested that the rock beneath the Lake may well harbour hydrocarbons of significant potential. The government has granted the rights to explore for oil and gas in Lake Malawi to British Surestream Petroleum and South African SacOil. In sum, the government’s commitment to ensuring transparency is encouraging; if oil or gas were to be found, it is vital that is soundly managed in the interest of the population at large.

Malawi’s infrastructure will have to undergo a significant upgrade to facilitate growth in the abovementioned sectors. Malawi’s energy supply is intermittent and unreliable. Consequently, activity in manufacturing and mining suffer. President Banda’s government has targeted energy supply as its leading medium term priority. Hydroelectric power (Malawi is blessed with abundant fresh water), coal and renewables such as solar and wind are under consideration, with public private partnerships (PPP) touted as a potential funding mechanism. Transport links both within and out of Malawi will also need attention, with the government acknowledging that “poor transport infrastructure continues to impinge on domestic and international trade and therefore poses major challenges to economic growth and development.” Efforts are in place to develop the transport corridor to Nacala as well as the Mtwara corridor, linking Tanzania, Zambia and Mozambique.

The Banda administration’s programme to address macroeconomic and structural imbalances, restore relations with the international community, attract foreign investment, remove market distortions and diversify the economy is extremely positive. The challenges addressed, and still to be addressed, are wide reaching but the initial outcomes are beginning to take effect. Growth is expected to be robust, outstripping the regional average over the next five years. As the government have set out, the country will require foreign investment and support to facilitate growth. But this, too, brings opportunity across a number of sectors. Agriculture will continue to represent the mainstay of the economy, but opportunities in mining, infrastructure, tourism and, potentially, oil and gas have the potential to create broad based growth. In turn, the country should be less vulnerable to external shocks. Indeed, if the country continues its newfound path, the future looks positive.


Economic Overview

2007 2008 2009 2010 2011 2012 2013 projected average 2014-2017

Real GDP 9.5 8.3 9 6.5 4.3 1.9 5.7 6.7

TablE 1 GDP GROWTH (%)

Sources: IMF, figures for 2013 onwards are projections.

2007 2008 2009 2010 2011 2012 2013 projected average 2014-2017

Current Account Balance (% of GDP)

1 -9.7 -4.8 -1.3 -5.9 -4.1 -1.4 -2.8

FDI (US$ millions) 88.1 108 100 111 150

TablE 2 ExTERNAL SECToR

Sources: IMF, COMESa

CHaRT 1 ExPORTS (2011)

CHaRT 3 ExPoRT DESTINATIoNS (2011)

CHaRT 2 IMPORTS (2011)

8.9%

8.2%

11.5%

9.1%

5.4%

73.8%80.6%

29.8%

8.8%

8.6%

14.4%

Agricultural Products

Fuel and Mining Products

Manufacturates

Eu (27)

Canada

Zimbabwe

South Africa

USa

CHaRT 4 IMPORT SOURCES (2011)

9.3%

5.3%

25%

12.6%

11.5%

South Africa

EU (27)

India

China

USa

Source: wTO Source: wTO

Source: wTO Source: wTO

Agricultural Products

Fuel and Mining Products

Manufacturates


Ranking aMong The worlD’s MosT densely populated and least developed countries, the Southeast African Republic of Malawi is a predominately agrarian society, with an estimated 82% of the population living in rural areas. Agriculture accounts for more than one-third of GDP and approximately 90% percent of export revenues. In recent years, tobacco production has been central to economic growth – accounting for more than half of all export revenues. Annual production levels of tobacco reached 175,000 tonnes in 2011 but stalled in 2012 due in part to both poor weather conditions. Other important export crops include tea, coffee, macadamia nuts, groundnuts (peanuts), sugar, cotton, soya and timber. According to a 2009 study by the United Nations Food and Agriculture organization (UNFAo), the top ten agricultural products available for local consumption are: maize, potatoes, cassava, sugar, pulses, groundnuts, rice, plantains, wheat and beans.

It is fair to say that 2012 presented significant challenges for Malawi’s agriculture sector. According to the World Food Programme (WFP), erratic rains and prolonged dry spells led to poor harvests in many areas and, even where food was available in local markets, it was often too expensive for the poorest households. Maize retail prices rose nearly 100% from the previous year. Almost two million people were identified by the Malawi Vulnerability Assessment Committee as food insecure and significant international assistance was required in order to avert a humanitarian crisis. Furthermore, other factors such as the political turmoil following the death of President Mutharika, the impact of the global economic crisis, climate change and extreme poverty have all hindered recent growth in the agricultural sector. But with a free market economy and a recently reaffirmed commitment to democracy and good governance, significant international development funding has begun flowing into the country, helping to ease many of Malawi’s historic problems.

In terms of foreign direct investment (FDI), Malawi is also a signatory to international treaties for the protection of foreign investment, and its legal system (based on English common law) protects investment regardless of ownership.

In spite of the poor growing conditions experienced in 2012, there have been some recent good news stories for agriculture in Malawi, including a resumption in the exporting of peanuts (or groundnuts, as the crop is known in much of Africa). Exports of groundnuts from Malawi dried up in the 1970s because of high levels of aflatoxin contamination. Since then, more stringent European limits on aflatoxins in grains and nuts have excluded many growers across Africa, costing the continent an estimated US$750mn per annum in lost export revenues. Recently, however, the National Smallholder Farmers’ Association of Malawi (NASFAM) has been working in partnership with farmers, trade organisations and scientific institutions such as the International Crop

agrIculture In malawIAgriculture by Brian Naughton


Research Institute for the Semi-Arid Tropics (ICRISAT), to tackle the aflatoxin problem. Much has been achieved to re-establish groundnut production; exports resumed in 2005 and this important cash crop is now on the road to recovery. Best practices and new seed strains have also been adopted by farmers in Zambia, Mozambique and Uganda.

At the grass roots level, recent good news stories include a project spearheaded by the Global Forum on Agricultural Research (GFAR), working in conjunction with women in Malawi to set up Smallholder Enterprise Development Schemes (SEDS) designed to improve the efficiency of the fishing industry, which supports the livelihoods of 1.5 million people in Malawi and contributes about 4% to the national GDP. With funding from the Norwegian Ministry of Foreign Affairs through the Lake Chilwa Climate Change Adaptation Programme, GFAR has implemented a series of pilots that have dramatically improved the livelihoods of actors in the fish value chain. Historically, 30% of the fish caught have been lost post-harvest due to poor processing and packaging. But with sufficient multi-stakeholder participation, the lessons learned from these pilot programmes can be adopted more widely, providing a much needed boost to an important local industry.

High level political efforts to improve the agricultural sector in Malawi include the Agricultural Sector-Wide Approach (ASWAp), a joined-up initiative by the Malawian government – working in conjunction with development partners – to support priority activities in the agricultural sector that increase agricultural productivity, reduce hunger and enable people access to nutritious foods, as well as increasing the contribution of agro-processing to economic growth. ASWAp directly supports the objectives of the Malawi Growth and Development Strategy (MGDS) of reducing poverty and transforming Malawi from an importing and consuming economy into a manufacturing and exporting economy. It also supports the MGDS in the areas of food security, irrigation and disaster risk reduction. The central emphasis of ASWAp is to increase the contribution of agriculture to economic growth through the production of food crops and agricultural processing activities for both domestic and export markets.

InvestMent oPPortunItIesbAckgroundMalawi provides some strong investment opportunities for foreign investors in its agribusiness sectors. Specific mention should be made of cotton, where investment opportunities include: cotton growing; cotton processing, including ginning, spinning, weaving and knitting; and the manufacturing of textiles and garments. other significant opportunities are to be found in the production of tea, coffee, macadamia nuts, cut flowers, rice, vegetables, fruit and fruit juice processing, aquaculture, dairy and livestock farming, sesame processing, soya bean processing, and the manufacturing of rubber products and phosphate fertilizer.

The Malawi Investment Promotion Agency (MIPA) highlights the fact that Malawi has not fully exploited the production of

the aforementioned agricultural crops under irrigation; and suggests that this is an area ripe for investment. Horticultural products such as vegetables, flowers, fruits and rice can be grown using surface, gravity, pump, river diversion and sprinkler irrigation systems. MIPA estimates that, out of the 400,000 ha of land suitable for irrigation, only 14,000 ha is under smallholder farmer irrigation and 48,000 ha under estate irrigation. This indicates a huge gap that can be addressed through further investment.

cotton ProductIonMalawi has been a cotton growing country since the colonial era. The cotton sector was vibrant for many years but started to slump in the early 1990’s due to the decline in global prices for cotton and the increasing cost of cultivation, which eroded the profitability of the crop for many smallholder farmers.

Agriculture

agricultural research institutions in the country have developed cotton varieties suitable for local climatic conditions and yields are improving”


More recently, things have been looking up. Agricultural research institutions in the country have developed cotton varieties suitable for local climatic conditions and yields are improving. It is hoped that, with the introduction of foreign investment and expertise, yield levels can be increased from a current estimated 800 kg/ha to as much as 3,000 kg/ha in coming years.

Investment opportunities exist in the commercial cultivation of cotton through contract farming, village adoption, cooperatives and associations etc. These help to improve the production and quality of cotton with the objective of providing raw materials to the textile industry for its preferential markets under the African Growth Opportunity Act (AGOA), and the EU.

There are also larger-scale opportunities, such as the call for an investor to establish a second spinning, weaving and knitting plant in the country – to meet the demand of garment manufacturing companies operating under Export Processing Zone (EPZ) status. The investor will address the issue of inadequate raw materials, particularly of knitted fabric.

Increasing capacity and moving up the value chain are two major issues for the cotton sector in Malawi. There are less than 10 gins in the country, which are run by the state owned Agricultural Development and Marketing Corporation (ADMARC) and other private companies. With existing ginneries using only 25% of their ginning capacity, there are opportunities for investors to help increase productivity and add value to the cotton crop by converting it from raw cotton into other cotton products.

teA ProductIon And ProcessIngTea is the second most important export crop for Malawi and it contributes around 8% of total export earnings. Tea is exported to European, Asian and American markets.

Since tea is a major forex earner, additional investments are necessary through joint ventures with Malawian companies in the processing of tea and other byproducts and also in the actual farming of the crop. New opportunities also exist in the processing of green tea for East Asian markets.

The Tea Association of Malawi coordinates information on the production and processing of tea in Malawi.

MAcAdAMIA nuts ProcessIngMacadamia is among the most important cash crops in Malawi. The nuts have a variety of uses, ranging from usage in confectionery products, eaten raw or roasted as dessert nuts. They are also used for household oil extraction and cosmetic manufacturing. Macadamia products are exported to both Asian and European markets.

The current total area under macadamia cultivation is 2,200 hectares. Production of macadamia nuts is by both smallholder farming and large-scale estates. The cost per hectare in Malawi is very low. So far, macadamia bodies have been established and two processing plants are already operating.

However, due to increasing demand for the product, more foreign investment is being sought to boost the production and processing of the nuts into various

marketable products. Opportunities range from the development of commercial macadamia estates to providing post-harvest handling and processing facilities for smallholder farmers.

ArAbIcA coFFee ProductIon And ProcessIngArabica coffee is the fourth most important export crop in Malawi. Exports are made to European markets, Asia markets and American markets. Coffee offers more profits than most other crops.

Coffee production favours the highland areas of Misuku Hills, Phoka hills, Viphya north, Nkhata bay highlands and Southeast Mzimba. Other areas include Dedza, Ntchisi, Chiradzulu and Mulanje. In order to boost production, the government has privatised the Smallholder Coffee Trust, which empowers smallholder farmers to control coffee production.

Opportunities for investment exist in form of joint ventures in production and processing of coffee into marketable products.

soyA beAn ProcessIngMalawi produces more than 35,000 metric tons of soya beans per year. Most of the soya bean is exported raw and little is processed for food domestically. Malawi’s soil is very conducive to soya bean cultivation and farm gate prices are internationally competitive. There is a growing demand, both locally and internationally.

CASE STUDY

CASE STUDY

Large-Scale Cotton ProductionMIPA invites investors to start large-scale cotton farming estates. Presently, cotton is mostly grown by smallholder farmers. The lower Shire valley districts of Chikwawa and Nsanje produce about 31,144 tonnes of cotton out of a national total of close to 50,000 tonnes. However, the cotton produced is not enough to meet the ginning capacity that is available in the country. The three existing ginning companies – Great Lakes Cotton Company, Clark Cotton and Iponga – use only 30% of their processing capacity.

Small Ginneries: Oil Processing PlantsJust like soya beans, cotton has a lot of byproducts that can be processed further. Apart from the cotton lint, the cottonseed can be crushed to make cooking oil and the leftover can be turned into animal feed. Malawi therefore hopes to empower local Malawians to own small-scale ginneries and oil extracting plants, since these do not require heavy capital investment.

The best location for a soya bean processing plant in Malawi is Kasungu, where it is grown in huge quantities. The district produces 17,000 tons of soya per annum. Kasungu Boma (CBD) has adequate infrastructure to support a processing plant. Additionally, Kasungu is ideal because it is centrally located between the high soya producing districts of Ntchisi (17,000 tons) and Mzimba (18,000 tons). Therefore, it is economically viable to transport soya from these districts to Kasungu.


The government is encouraging increased growth, production and utilisation of soya beans. As such, investment opportunities exist in the processing of soya beans into soya milk, soya oil and other secondary products.

sesAMe ProcessIngSesame, locally known as Chitowe, is used in Malawi both for consumption purposes and as a cash medium in some rural areas. It is used in confectionery products, for seasoning side dishes, and in soap making and cooking (including sesame oil).

The crop grows along the lakeshore, in the Shire valley and on the warm plateau areas of Lilongwe, Mzimba, Rumphi and Chitipa. Estimated annual production has averaged 205 tonnes over the past 10 years. The Government is encouraging increases in the production of sesame and therefore opportunities exist in both the

production and processing of sesame oil into marketable products.

cut FLoWer ProductIonInvestment opportunity exist in the production of cut flowers exclusively for the export market in Europe. There are already some firms that are successfully exporting to Europe and additional investment in this sector will create economies of scale and hence make Malawi’s cut flower industry more competitive on the international market. Malawi has a favourable climate and weather for the production of cut flowers.

Since flowers do not do well in cold seasons in Europe, Malawi has an advantage over producers in Europe during the festive cold seasons of November-February in Europe. Investments are likely to yield high returns and an initial investment capital might be no more than US$2mn. Sufficient labour is readily available for such a project within

the city of Lilongwe and surrounding districts where cut flowers can be directly exported by air to Europe.

FruIt ProcessIng And cAnnIng PLAntMalawi currently has no processing plant using local fresh fruit. Malawi has a favourable climate for the production of a wide range of fruits that include pineapples, tangerines and mangoes. The local market for these products is good and there are export opportunities to South Africa and other regional markets.

An investment opportunity exists to set up a fruit juice processing plant in the southern region of Malawi. The estimated project cost is US$5mn and the expected return on investment is 33%.

concLusIonIt is clear that Malawi has vast untapped potential in terms of the development of agribusiness. It has good transport connections for exports to both regional and international markets and an underserved, indigenous market. It also has preferential access to major markets represented by COMESA, SADC, LOME IV and AGOA.

Much of what needs to be achieved relates to adopting best practices, improving efficiency and increasing economies of scale. Foreign investment brings with it not only capital but also international expertise; enabling Malawi to make much more of its agricultural resources, not only in terms of scaling up production but in terms of moving up the value chain into agro-processing, where higher prices for commodities can be achieved.

There are clearly challenges to overcome, such as the need for strategic investment into irrigation to counter the problems associated with the recent volatility of the seasonal rainy spells, but there’s no denying the raw potential. With competitive investment incentives, a stable political environment, a liberalised economy and an English speaking labour force, the future of agriculture in Malawi should indeed be bright.

[A special thanks to: Richard Chirombo, a journalist

at The Sunday Times (Blantyre Newspapers Ltd),

for contributing material referenced in this article]

CASE STUDYLivestock FarmingThe livestock industry in Malawi is not fully developed, evidenced by the huge importations of dairy products, currently at around 50%. Opportunities exist in cattle farming for beef and meat products, as well as in milk and milk products, such as cheese and yoghurt. Mzimba District in Northern Malawi is highly recommended for the beef and dairy industry because of the existing cattle population and culture. Particular areas such as Mzimba Boma, Champhira and Euthini have been earmarked for the development of the beef/dairy industry because they have the basic infrastructure needed for industrial development, including electricity, roads (or planned secondary roads) and water/sanitation.

Dairy IndustryMalawi has about 4,000 registered dairy farmers producing approximately 6,500 tonNEs of milk annually. Malawi’s milk consumption is the lowest in Africa at 5 litres per capita – against Africa’s per capita consumption of 80 litres and the World Health Organization (WHO) recommended intake of 200 litres. This shortfall underlines the opportunity for investment. Key areas for investment at primary production level include:

• Cattle breeding• Feed growing and feed production

• Hay production through growing of Rhodes grass and stocking it for sale to farmers

• The manufacture of cooling tanks and collection equipment (e.g. milk churns)

• Service provision, e.g. artificial insemination, the operation of dipping tanks, administration of drugs and transportation of raw milk to processing plants.

The Rehabilitation and Expansion of Northern Dairies LimitedThe owner is seeking a loan to finance the rehabilitation and expansion of the dairy. This includes the acquisition of a milk collection tanker, processing equipment and general rehabilitation of the factory. In addition, the company intends to increase the population of dairy cows to meet its processing capacity through adequate supplies of raw milk. The project would also enable the dairy to increase its product range to include the manufacture of cheese and sterilised milk.

Mini DairyInvestors may also explore the possibility of opening up another dairy in the Northern region of Malawi. Mzimba and Karonga are preferred locations because they have a ready market and infrastructure to support this kind of development.

Agriculture


Over The pasT DecaDe, infrastructure has contributed 1.2% to the annual per capita growth of Malawi’s gross domestic product (GDP). According to the African Development Bank (AfDB), raising the country’s infrastructure endowment to that of the region’s middle-income countries could increase that contribution by 3.5%. Although Malawi has had some success in infrastructure development – including reaching its Millennium Development Goal (MDG) for water almost a decade ahead of the target and making GSM telephone signals widely available without public subsidy-there are a number of challenges that still remain.

In order to keep up with the demands of sustained economic growth, the government of Malawi has actively taken steps to address its infrastructure needs through a number of policies, including The Malawi Growth and Development Strategy (MGDS II) which is the overarching medium-term strategy from 2011 to 2016 aimed at further reducing

poverty through sustainable economic growth and infrastructure development. It follows the implementation of the country’s first medium-term strategy, MGDS I, which was implemented between 2006 and 2011. Furthermore, the development of infrastructure is one of the five priority pillars of President Joyce Banda’s administration’s Economic Recovery Plan (ERP).

President Banda has highlighted the importance of the sector, stating “a reliable and modern transport infrastructure and network is crucial for any country’s socio-economic growth and development.” As a landlocked country, the government recognizes that Malawi is heavily dependent on effective road, rail and air transport networks, which are critical in supporting its key economic activities, including agriculture and tourism. Although steps towards improving the transportation network are already taking place, poor transport infrastructure continues to impinge on domestic and international trade as well as on the country’s development. With such a wealth of natural resources in remote parts

of the country, Malawi is in need of greater investment in transportation infrastructure to release its huge potential capacity.

roAdsDuring the mid-2000s, Malawi spent close to US$200mn per year, about half of which went to the transport sector. However, road expenditure has fallen since and is short of what is needed to preserve the network in good condition. Furthermore, fuel shortages and some imported basic commodities have affected the implementation schedules of major road construction projects, leading to huge costs for the projects, which were predominantly financed by international donors. Currently, over 70% of Malawi’s public road network, just under 15,500 kilometers is unpaved. This includes a large proportion of secondary roads (approximately 87%), and almost all the tertiary and district roads. Despite the poor condition of roads, road transport is the dominant mode of transport in Malawi, accounting for 70% of all domestic traffic and 95% of all external trade.

InFrastructure In malawIInfrastructure by Natalia Debczak-Debski


In December 2012, the government invited Expressions of Interest from consulting firms that were keen to provide supervision services for the construction of the Jenda–Edingeni–Euthini road, in the north of the country. The project will rehabilitate the 52km section and will be co-financed by the Malawi government together with the Abu Dhabi Fund for Development. Meanwhile, the 160km Lilongwe-Nsipe road, which is part of Malawi’s longest road running from the northern to the southern border is progressing. The project is mainly contracted by Portuguese multinational Mota-Engil and is being financed by the European Union. The government has also contracted Mota-Engil to reconstruct the Blantyre–Zomba road. The project is being financed by the AfDB as part of the Nacala Road Corridor Project, which falls under the Nacala Development Corridor, a development initiative involving areas in Malawi, Mozambique and Zambia.

The government also remains committed to doing as much as it can to improve the country’s road infrastructure in areas of tourist attraction as tourism is another key sector identified in the ERP, with the Minister of Transport and Public Infrastructure, Sidik Mia, noting that the government is “prioritising roads that are in touristic areas such as in Mangochi”.

rAILMalawi Railways was the national rail network in Malawi until it was privatized in 1999, when the Central East African Railways (CEAR) consortium began operating the network. Although some improvements have been made since privatisation, the CEAR’s performance does not compare favorably with rail networks in neighboring countries. Malawi’s rail network, which totals 797km of single track, much of which is in poor condition, has relatively high freight tariffs and slow transit times. Improving Malawi’s rail capacity is thus seen as essential for regional development and trade. As President Banda noted; ‘”transport costs constitute about 60% of the landed cost of goods in Malawi. If we are going to be competitive regionally and internationally we need to bring those costs down.”

As part of Malawi’s ERP, the government has hopes to reduce transport costs by making rail transport more efficient and competitive by rehabilitating and expanding

the railway line and related infrastructure as well as creating connections to ports and thus to industrial sites and regional and international markets.

Malawi’s links with the rest of the continent are steadily improving. In December 2011, Brazilian mining group Vale Logistics Limited signed a concession contract with the government of Malawi to rehabilitate and operate the existing railway, the Nacala Railway Line to the port of Nacala in Mozambique, Malawi’s shortest route to the sea. The project will provide a cheaper alternative to road transport and facilitate an annual freight of 5.1mn metric tonnes of exports and imports. Furthermore, the construction itself represents a US$1bn investment in Malawi over three years and the project is expected to create over 3,000 jobs. The railway line is to be completed in 2014 and once it is fully operational, the government will earn US$8mn annually from concession fees.

AvIAtIon And AIrPortsMalawi has a relatively small air transport market. In a 2010 report by the Africa Infrastructure Country Diagnostic, it was reported that the domestic market accounted for no more than 167,000 seats, while the international market came to 435,000 seats.

In late 2012, Air Malawi Limited, the state-owned national airline of Malawi, was placed in voluntary liquidation, after two previous restructuring attempts failed. Since then, it was agreed in March 2013 that Ethiopian Airlines would control a 49% stake in Air Malawi with the Malawian government holding 20%. The remaining 31% has been open to Malawian citizens who can either as individuals or institutions invest in the national airline. In the short to medium term, encouraging, indeed achieving investment is crucial to improving the

Infrastructure

“as a landlocked country, the government recognizes that Malawi is heavily dependent on effective road, rail and air transport networks, which are critical in supporting its key economic activities


capacity of the country’s aviation sector and will provide it with reliable service to regional hubs. For the time being, although Air Malawi Limited remains financially unstable, regional airlines, including South Africa Airways and Kenya Airways, also serve the landlocked country.

In the 2011/2012 fiscal year, the government reported that it had completed the rehabilitation of the runway at Kamuzu International Airport as well as the rehabilitation of the terminal building. The Malawi government has also recently signed a Memorandum of Understanding with China Harbour Engineering Company (CHEC) for the upgrading of Kamuzu International Airport, in Lilongwe, and the building of a new airport in the resort town of Mangochi.

Furthermore, the government is optimistic that the establishment of a new independent airports management company, the Malawi Airports Authority, which is expected to be operational by July 2014, will provide the country with a unique opportunity to support and improve its ageing infrastructure.

InLAnd WAter trAnsPortWater transport is generally cheaper than other forms of transport and provides a viable alternative for transporting goods domestically as well as internationally. With a wealth of lakes and navigable rivers, Malawi has an advantage in water transport, yet the country’s water transport system is not fully developed and faces a number of challenges including dilapidated port infrastructure; an ageing fleet of vessels; and capacity problems.

The government has stated in the MGDS II that the development of Nsanje World Inland Port and Shire Zambezi Waterway, construction and rehabilitation of ports along Lake Malawi and acquisition of vessels will be a priority. The government

has calculated that when the new port becomes fully operational, Malawi may save US$175mn of its total annual import bill. The project will open the country to ports along the Indian Ocean and it is anticipated that the reduced transport costs will facilitate increased production of agricultural crops including maize, cassava, sweet potatoes and rice.

IctThe dismantling of regulatory barriers has allowed the private sector to expand GSM services throughout the Malawi, which has resulted in the country’s GSM signal coverage reaching over 94% of the population. Currently a duopoly is held by Bharti Airtel and Telecom Networks in Malawi, but with the addition of a third operator, Celecom, which is expected to

“as part of Malawi’s erp, the government has hopes to reduce transport costs by making rail transport more efficient and competitive


Infrastructure

be launched in April 2013, competition will be increased.

Malawi’s Internet sector is reasonably competitive with 15 licensed ISPs, however, with high costs and limited availability of broadband access, growth has been slow and prices have remained relatively high. However, this is all set to change as the government is in the process of seeking a private partner to gain access to international submarine fiber optic cables for the first time when a transit link via neighboring countries is completed, which will reduce the cost of international bandwidth as well as broadband marketing.

WAter And sAnItAtIonThe Government of Malawi, through the Ministry of Agriculture, Irrigation and Water Development, leads efforts to deliver improved water and sanitation in throughout the country and has made progress in providing access to safe water and sanitation to an increasing number of its people. According to the World Health organization/United National’s Children Fund (WHo/UNICEF) Joint Monitoring Program (JMP), Malawi was one of only five sub-Saharan African countries to already have reached its MDG for water in 2006. In 2012, the WHo/UNICEF JMP reported that 83% of the population had access to an improved drinking water source. Despite these achievements, there has been less progress made in sanitation, and Malawi remains off-track from achieving its sanction MDG target with only 51% of the population having access to an improved sanitation source. However, with the development of the National Water Policy and National Sanitation Policy, the government hopes to stimulate improvements across water and sanitation facilities.

Currently, the financing of water and sanitation programmes is predominantly provided by donors through agencies such as NGos, UNICEF and the government itself. For example, up to 850,000 Malawians are expected to benefit from UK government’s Department for International Development’s (DFID) US$33.3mn Malawi Integrated Water and Sanitation Programme, which seeks to improve access to safe water, hygiene and sanitation in the country’s least served districts by 2015. Progress is also being made through the private sector

becoming increasingly involved in the construction and repair of water supply, irrigation and sanitation facilities. And increasing investment opportunities in this vital sector – partly through Public Private Partnerships (PPPs) – are being promoted by the government.

concLusIonAccording to estimates by the AfDB, addressing Malawi’s infrastructure deficit would require sustained expenditures of almost US$600mn per year between 2006 to 2015. The government of Malawi is determined to facilitate the necessary

“The government of Malawi is determined to facilitate the necessary investment to key infrastructure sectors and create an essential, yet favorable environment for investors to ensure that the economy continues to flourish

investment to key infrastructure sectors and create an essential, yet favorable environment for investors to ensure that the economy continues to flourish. Specific measures have already been enacted in order to deregulate the private sector and create new investment opportunities including the elimination of price controls and the termination of import restrictions and import licenses.

2013 is certainly looking promising for Malawi’s infrastructural development and a great deal of progress is being made with a number of key developments on the horizon.


Malawi hosTs a varieTy of minerals – including uranium, coal, gold, niobium, rare earth elements (REEs) and graphite – of which only two, uranium and coal, are currently mined. Malawi is generally under-explored but in recent years a growing number of foreign firms and local Malawian investor partners have been granted prospecting rights, and exploration now underway is likely to result in the development of several new mines, especially for niobium and REEs.

Mining currently accounts for only around 2% of GDP, with tobacco, sugar and tea remaining the main exports by value. However, the start of uranium production in 2009 by the Kayelekera mine has diversified Malawi’s export base: uranium exports were worth Kw19.4bn (US$76 mn) in 2011, an 8% share of total exports (Kw236bn), and will have further increased in 2012 due to higher production that year.

Geological data indicates that Malawi also hosts potentially large recoverable oil and gas deposits beneath Lake Malawi (Lake Nyasa), and three exploration licences have been granted so far. However, drilling for hydrocarbons will not proceed until an agreement has been reached with Tanzania on the delineation of their common border through the lake. Malawi claims it runs along the Tanzanian shore, while Tanzania claims the border should run through the middle of the lake.

Thankfully, both governments have agreed to mediate the territorial dispute; in January 2013 the Forum of Former African Heads of State and Governments chairperson and previous Mozambiquan President Joaquim Chissano accepted the Malawi and Tanzania governments’ December 2012 submission of a joint application of mediation for negotiation of the Lake Malawi boundary. Both governments have committed to finding a peaceful solution to the dispute.

For oil and gas exploration purposes, the government divided Lake Malawi into six blocks and invited bids for acreage in 2010. Two four-year exploration licences have been awarded so far : to South Africa’s Sacoil (Block 1) and the UK’s Surestream Petroleum (Blocks 2 and 3). Surestream is initially conducting an environmental and social impact assessment (ESIA), while SacOil plans to spend US$2mn on the acquisition of gravity and magnetic to evaluate the petroleum potential of its block.

governMent to revAMP current LAWsExploration and mining licences are granted in accordance with the provisions of the Mines and Minerals Act, 1981; exclusive prospecting licences (EPLs) are allocated for an initial three years, renewable for further two year periods. Mine production rights are negotiated

extractIve IndustrIes In malawI

Extractive Industries by Roger Murray


through specific mining development agreements, usually lasting for ten years. The system has been well-regarded by mining investors as providing a transparent regulatory and licencing regime.

However, it lacks some of the desirable aspects of a modern investment regime, particularly in respect of provisions to encourage local participation and downstream value adding. In consequence, President Joyce Banda announced a comprehensive review of the regulatory, fiscal and investment regime for the mining and oil sectors in her February 2013 State of the Nation address.

As a first step, the former Ministry of Mines and Energy was split into two ministries at the end of 2012, involving the creation of a separate Ministry of Mining. The Minister of Mining is John Bande, the former Minister of Trade and Industry, with Leonard Kalindekafe appointed as Permanent Secretary. Dr Kalindekafe is the former director of the Malawi Geological Survey and holds a PhD from the University of Dundee Centre for Energy, Petroleum, Mineral Law and Policy.

President Banda said the review is designed to create an enabling environment for a conducive, transparent and accountable mining regime in the country. She stated: “My government will ensure that the mineral resources benefit Malawians”, adding that “chaka chino ndi chaka chamayankho” (the year will be marked with breakthroughs) as the government implemented the 18-month Economic Recovery Plan (ERP) launched in mid-2012. She also emphasised the importance of improving the legal and institutional framework, enhancing mining and oil exploration activities and promoting foreign and local investors along with small-scale artisanal miners. Planned improvements in infrastructure (such as roads and railway connections) as well as in the energy sector will also have a positive impact on mining.

She outlined the following priority projects of the Ministry of Mining:

Establishment of legal and institutional framework – the government is reviewing the Mines and Minerals Act, Petroleum Policy and Petroleum Act. The government has also launched (on January 22, 2013) the Mining Growth and Governance Support Project,

funded by the European Union, French government, World Bank and the European Union. The project will facilitate the development of infrastructure for generation and distribution of reliable geological information and the development of policy instruments to steer good governance and growth of the mining sector.

Promotion of local and foreign investors in the mining industryThe government has put in place mechanisms to promote the participation of local and foreign investors in the mining industry as a means of generating income and creating employment for poverty reduction. The government is assisting small scale miners by mobilising mining artisans into cooperatives and building their capacity in mining so that they add value to their mineral products.

MInIng And exPLorAtIon

urAnIuMAustralia’s Paladin Energy owns an 85% interest in the Kayelekera uranium mine near Karonga in northern Malawi in partnership with the government (15% interest) under a ten year mining development agreement signed in 2007. Kayelekera was officially opened in April 2009. Uranium oxide (U3o8) is sold to global utilities under contracts negotiated by Paladin for use as fuel for nuclear power plants. Initial operational problems have been successively overcome and Kayelekera operated close to its design capacity of 3.3 million pounds (1,497 tonnes (U3o8)) per year in 2012. Production was 1,298 tonnes (U3o8) last year, up 30% on 2011.

Extractive Industries

“geological data indicates that Malawi also hosts potentially large recoverable oil and gas deposits beneath lake Malawi (lake nyasa), and three exploration licences have been granted so far


operating profitability has been adversely affected by the depressed uranium price since the March 2011 tsunami-related damage to Japan’s Fukushima nuclear power plant. To counter the impact of events over which the firm had no control, it is implementing a cost reduction programme aimed at driving down Kayelekera’s high unit costs. This is focussed on optimising processing efficiencies, expanding acid output from the on-site plant to further reduce import requirements and a power connection to the national grid. It also involved the temporary retrenchment in January 2013 of 130 employees (110 Malawians and 20 expatriates).

The grid connection is scheduled for September 2013 and is expected to achieve two-thirds of the targeted reductions by ending the need to use expensive on-site diesel generation. Paladin anticipates unit costs will be cut to around US$35-38 per pound U3o8 during its 2013/14 (July-June) financial year ; at the prevailing uranium price of just over US$40 per pound this would enable Kayelekera to run at an operating profit.

nIobIuMThe most advanced new mining development is the Kanyika niobium project at Mzimba, north of Lilongwe, with production of ferro-niobium expected to start in 2015, with a 20-year mine-life. The project is owned by Canada’s Globe Metals & Mining, in which state-owned East China Mineral Exploration and Development Bureau (ECE) is the majority (53%) shareholder. ECE has invested A$48mn to take Kanyika through to final feasibility and the environmental impact assessment (EIA) for the project was approved by the government in late 2012.

Negotiations on a mining development agreement with the government are expected to be completed by mid-2013 and once in place the firm says it is ready to take an investment decision to start construction of a mine, as a definitive feasibility study (DFS) of the project is nearly finished. The firm is also working with Chinese niobium and tantalum mining firms to discuss opportunities for developing a joint venture to assist in optimising production processes for Kanyika once it is in production.

Kanyika would comprise an open pit mine and refinery (costing an estimated US$220mn), with a production capacity of 3,000 tonnes per year of niobium metal and 4,500 tonnes per year of ferro-niobium. The current financial model (which may be adjusted by the DFS) indicates a base case net present value (NPV) of US$301mn and a 23% internal rate of return (IRR). The Kanyika deposit contains 60 million tonnes grading 0.29% niobium, including a high-grade component of 21 million tonnes grading 0.41%.

reesCanada’s Gold Canyon Resources is exploring the 1,050 square kilometre Chambe Basin clay-hosted REE deposit at Mount Mulanje in southern Malawi, one of the few of the ion-adsorption type occurrences known to exist outside China. The project is a joint venture between Gold Canyon (33%) and Japan oil, Gas and Metals National Corp.

(JOGMEC; 67%), a quasi-government company, through Spring Stone Exploration, with Japan’s Mitsui Mineral Development Engineering Co. (MINDECo) conducting exploration under a technical services agreement.

No resource estimate has yet been completed but sample analysis showed good potential for extracting REEs through leaching. A US$4mn phase two drilling began in August 2012, with the aim of moving to pre-feasibility by mid-2013. MINDECo is to conduct metallurgical testing to determine REE leachability. Phase one drilling in 2011 located a surficial horizon of REE-bearing clays, with drill core analysis revealing heavy REE enrichment. Initial leach testing indicated that REE recovery may be possible through ionic solution leaching. Exploration work was temporarily suspended in late January 2013, after the local community obtained a court injunction, owing to concerns that the project would affect tourism in the area.

“The government has put in place mechanisms to promote the participation of local and foreign investors in the mining industry


Another Canadian firm, Mkango Resources, is focussed on the exploration and development of REEs and associated minerals in Malawi, via its 100% interest in the carbonatite-hosted Songwe Hill deposit, Phalombe district, Southern Region. The firm has located a near surface resource thought to be sufficient for a 20-year mining operation. An initial (October 2012) code-compliant mineral resource estimate for 469,200 tonnes of total rare earth oxides (TREO) covers the deposit’s northeast portion; 213,100 tonnes is classified as indicated at a 1.62% TREo average grade, and 256,100 tonnes inferred, grading an average 1.38%. The resource is mainly above 200 metres’ depth and mineralised ore deeper than 350 metres has yet to be drill-tested.

Scoping and metallurgical test work on ore samples are underway by South

Africa’s Mintek. Mkango completed the first US$750,000 tranche of a US$2mn private share placement in March 2013, the proceeds of which will fund further metallurgical test work, mine planning, environmental studies to move the project through pre-feasibility.

coALMalawi hosts a number of known bituminous and semi-bituminous coal deposits, the greater number (13) of which are located in northern Karoo basins. About 70,000 tonnes per year are produced for the domestic and regional (Kenya and Tanzania) markets, with active plans in hand to expand production. Currently operating mines include Mwaulambo colliery on the Lufira coal field and Mchenga colliery on the Livingstonia field, both in northern Malawi. Eland Coal Mining is set to double

production at Mwaulambo, following the installation of a new mining plant. This is expected to more than double capacity from 10 tonnes per hour to 25 tonnes per hour of washed coal.

In January 2013, Australian Intra Energy Corp. (IEC) acquired coal mining and exploration licences, including the operational Nkhachira colliery, through its US$0.8mn purchase of Consolidated Mining Industries and a loan to the local company of US$150,000. Intra Energy has formed a joint venture company, Malawi Coal Co. (Malcoal), in which it owns a 90% interest and CMI a 10% free-carried interest, to which the licences have been transferred. Three exclusive prospecting licences (EPLs) are located in northern Malawi at Livingstonia, Mwapu and Mwenewenya.

On completion of the transaction, the IEC chairman, Graeme Roberston, said the firm’s objective was to develop “an international standard coal mine to supply existing industrial markets and support coal-fired electricity generation in the country”. IEC completed geological mapping and exploration drilling as part of due diligence in 2012; its immediate focus will be expanding output at Nkhachira by introducing mechanised operations, with a contract mining agreement already negotiated with a local contractor.

other MInerALsThe UK’s Britannia Mining (49.3% the Carpe Group, 49.3% Elsworth and Fen) is exploring high-grade iron ore and coal resources on licences at Nthale (Mindale Hill) and Ntcheu in southern Malawi, and Mphwamphwa in the north. Its main Nthale iron ore project close to Blantyre has existing road and rail links to Mozambique’s Nacala port. Johannesburg-based geological consultants Bastion Resources have been contracted to conduct further exploration, with Blue Mantle Partners appointed to complete environmental studies.

Another UK firm, South East African Mining (SEAM), has begun exploratory drilling for gold and base metals at its South Dwangwa project in central Malawi. Drilling is being conducted jointly with Portuguese engineering group Mota-Engii, focussed initially on the Kadyalumba Hill and Kamwala-Mtenthela primary targets.

“The most advanced new mining development is the kanyika niobium project at Mzimba, north of lilongwe, with production of ferro-niobium expected to start in 2015, with a 20-year mine-life

Extractive Industries


if you were an enThusiasTic traveler planning your next exotic holiday location and you happened to chance upon the landlocked Republic of Malawi in a glossy holiday brochure, you would be forgiven for thinking that you had stepped into the rarified world of an ad man’s over-fertile imagination. In such brochures, Malawi is invariably lauded as “the warm heart of Africa” and its central attraction – the 500km-long Lake Malawi – is emphatically described as the “lake of stars”. Emotive though the promotional language may be, it’s not altogether misleading. Malawi does indeed have an unrivalled reputation for hospitality and friendliness, and a magnificent, shimmering lake stretching along its mountainous, eastern borders with Tanzania and Mozambique. Malawi also has its fair share of wildlife (even by African standards), including an opportunity to see the ‘big five’ (lions, leopards, elephants, rhinos and Cape buffalo) in the Majete Wildlife Reserve plus a host of other wildlife opportunities, including exploring the abundant aquatic life in its great lake.

So perhaps Malawi is a destination that lives up to the hype after all? Well, it is certainly true that investors are beginning to reassess this small African country and growing numbers now perceive it to be a viable, investable, eco-tourist destination. With bags of untapped natural potential, recent investments into its wildlife reserves by the likes of the World Bank, a largely English speaking population and a liberalised, free market investment environment, it’s not hard to see why serious tourism money is starting to take a renewed interest in Malawi – it is beginning to look like a safe bet from a risk-reward perspective. There are of course still challenges to overcome, including those that relate to the lack of infrastructure and the negative impacts of climate change and rural poverty, but the general trend is definitely towards an increasingly vibrant tourism sector; capable of competing with some of the more established African tourist destinations such as Kenya and South Africa.

Malawi’s economy is currently based primarily on agriculture; with over 80% of its 15 million people living in rural areas,

and agriculture accounting for more than one-third of GDP and almost 90% of export revenues. It has historically relied heavily on cash crops such as tobacco and tea as sources of foreign exchange but in recent years the government has made concerted efforts to diversify the country’s economy into other sectors – and tourism is a priority sector.

A thriving tourism sector will not only provide a welcome, additional supply of foreign exchange but it will attract much needed foreign direct investment (FDI), which will in turn facilitate a more sustainable form of ‘grass roots’ development; including, for example, new employment opportunities for poor, rural communities, and sustainable forms of tourism that will facilitate and fund the protection and preservation of the natural resources that they rely on.

Tourism is considered a key strand in Malawi’s poverty reduction strategy, especially as the country can attract high-spending tourists as an eco-destination. According to the government, 5% of

tourIsm In malawITourism by Brian Naughton


the income generated by tourists visiting national parks is already redistributed to local communities for economic and social projects, including investment into schools, healthcare clinics and local agricultural programmes. In other words, the tourism sector is already having a significant impact on socio-economic development at the local level.

As previously mentioned, in terms of established tourism, Malawi’s biggest attraction is its great lake -– a vast stretch of crystal water lying beneath its mountainous eastern borders with Tanzania and Mozambique. Lake Malawi is the third largest lake in Africa – and the ninth largest in the world. Small villages adorn its northern shoreline and the stunning Liwonde National Park lies on its southern shores. over 500 species of fish are to be found in its clear blue waters, making it an excellent destination for freshwater diving and snorkelling. It is also home to some beautiful beach resorts, offering a wide variety of activities, including swimming, snorkelling and diving, boat trips, kayaking, sailing, water skiing and sailboarding.

But Malawi as a tourist destination has much more to offer than just water sports and beach holidays. It has world class wildlife reserves, including opportunities to see the ‘big five’ in their native habitat, as well as some of the finest hiking routes in Africa, with a wonderfully diverse range of landscapes, from the rolling hills and high altitude grasslands of the Nyika Plateau, to the rugged, sheer escarpments and dramatic peaks of Mount Mulanje, to the breathtaking scenery, rich history and culture of the Lower Shire Valley.

InvestMent oPPortunItIesThe government of Malawi is actively encouraging the growth and development of the tourism sector under the Strategic Tourism Development Plan, placing emphasis on the development of eco-tourism, the construction of international conference facilities, hotels, lodges, recreational facilities and the development of tourist camps around the country’s numerous hot springs. Prospective investors may invest in some of Malawi’s unique areas of natural beauty around Lake Malawi, Mulanje mountain slopes, Nyika Plateau, protected areas such as national parks, wildlife reserves and nature sanctuaries, as well as in

cultural and historical sites such as missionary graves and slave trade villages.

Areas within the tourism sector which have huge potential for investment and development include the following;

Development of tourism facilities near Lake Malawi: construction of lodges, transport facilities (including cruise ships) and recreational activities

Cultural Tourism: potential to develop the rich cultural heritage, which would include showcasing of arts and crafts, traditional dances and historical sites such as slave trade villages

Spas: exploiting the potential at hot springs in Nkhotakota, Liwonde and along the northern lakeshore to develop spas

Recreation Facilities: development of cinemas, casinos, water sports, horseback riding and nature walks.

Multiple regional areas have been earmarked for high quality, eco-tourism projects, many of which offer significant opportunities for investors.

Northern Region: Rumphi, Nyika Plateau, Chisanga Falls, Nkhata Bay

Central Region: Nkhotakota Hot Springs, Nkhotakota Rain Forest Game Reserve, Deza Rain Forest Eco-Lodge

Southern Region: Mulanje Likhubula Dam, Game Lodge within the Liwonde National Park, Zomba Plateau (Williams Falls), Mangochi (Cape Maclear), Nsanje (Majete Game Reserve)

LIkhubuLA FALLs eco-tourIsM ProjectAn opportunity exists for construction of twenty-five eco-tourism accommodation units at Dziwe Lankhalamba Pool, at an elevation of 1,000 metres, on the western slopes of Mount Mulanje.

MAncheWe FALLsThe site is four kilometres from the historic Livingstonia Mission in northern Malawi. Investment is needed to construct a two-storey eco-lodge with fifteen double rooms, accommodating up to thirty people.

Tourism

“Tourism is considered a key strand in Malawi’s poverty reduction strategy, especially as the country can attract high-spending tourists as an eco-destination


LIkoMA IsLAnd Projects – chIPonde sIteThe Chiponde site is on the southeast shores of Likoma Island. Likoma has a diversity of attractions and the market envisaged for the unit is both local, regional and international.

uLIsA 1, 2 And 3Ulisa is on the western shore of Likoma Island where sandy bays are protected by granite rock outcrop.

MALerI IsLAndsThese are three islands in the northern part of Lake Malawi National Park. A multi-purpose structure incorporating a restaurant/bar/lounge with 20 independent grade separated units built with natural materials would be suitable.

other InvestMent oPPortunItIes A total of four sites have also been identified for eco-tourism development in the Nkhotakota Wildlife Reserve.

Land & Lake Safari is seeking a joint venture partner to build, develop and run a tourist lodge in Lilongwe, within the protected confines of the Lilongwe Nature Sanctuary. This is one of the tourism projects that the government is working on with the private sector under a concessionary agreement.

The Malawi Development Corporation (MDC) intends to construct and operate a game lodge within the Liwonde National Park, this can be investment opportunity for investors. Hotels can be built along the beautiful Lake Malawi as it is a popular tourist destination. Its sandy beaches and unique species of fish offer tourists and other visitors exciting holidays.

concLusIonIn summary, it is fair to say that the tourism sector in Malawi is already well established and growing. In spite of recent global challenges, such as the high cost of travel, and more local problems, such as the provision of adequate tourist facilities and basic infrastructure, it is clear that the potential for growth in Malawi’s tourism sector is considerable – especially in the rapidly growing, high-value area of eco-tourism. The government has embarked

on an ambitious plan to make the country a leading eco-tourism destination over the medium-term, with an emphasis on sustainable development and making the most out of its inherent strengths – its abundant wildlife and its stunning landscapes, including its vast lake and its mountainous plateaux.

Malawi has recently had some major tourism-related wins, including being crowned runners up in the 2012 Safari Awards “Best Africa Tourist Board” category – beaten only by Kenya, which has long been deemed the gold standard for African safaris. The recent introduction of leopards and lions into the 70,000 hectare Majete Wildlife Reserve – to compliment the existing elephants, Cape buffalo, sable and black rhinos – has been the focus of much industry and media attention, and it marks a significant milestone in the rehabilitation of the reserve, as part of an ongoing conservation success story that is enabling Malawi to compete with the likes of Zambia, Tanzania and Kenya for safari tourism dollars.

In the east of the country, approximately US$850,000 is being invested by The World Bank into the 700 square mile Nkhotakota Wildlife Reserve, in order to conserve and protect wildlife and develop strategies to drive sustainable tourism. The investment, which includes training for local people in both guiding and natural resource management, is expected to significantly boost visitor numbers and interest in the region.

In addition to investment in wildlife, Malawi is benefiting from gradual improvements to its infrastructure, including better airline links to Europe. Ethiopian Airlines, for example, has recently introduced an improved summer schedul

MALAWI - Developing Markets · its risks – take 2010 and 2011; growth fell sharply in 2010 to...

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