Malawi

Profile

Landlocked Malawi ranks among the world’s most densely populated and least developed countries. The economy is predominately agricultural with about 85% of the population living in rural areas. Agriculture accounts for more than one-third of GDP and 90% of export revenues.

The performance of the tobacco sector is key to short-term growth, as tobacco accounts for more than half of exports. The economy depends on substantial inflows of economic assistance from the IMF, the World Bank, and individual donor nations. In December 2007, the US granted Malawi eligibility status to receive financial support within the Millennium Challenge Corporation (MCC) initiative.

In 2006, Malawi was approved for relief under the Heavily Indebted Poor Countries (HIPC) program. The government faces many challenges, including developing a market economy, improving educational facilities, facing up to environmental problems, dealing with the rapidly growing problem of HIV/AIDS, and satisfying foreign donors that fiscal discipline is being tightened.

In 2005, President MUTHARIKA championed an anticorruption campaign. Since 2005 President MUTHARIKA’S government has exhibited improved financial discipline under the guidance of Finance Minister Goodall GONDWE and signed a three year Poverty Reduction and Growth Facility worth $56 million with the IMF. Improved relations with the IMF lead other international donors to resume aid as well.

Geography and Climate

Malawi is about as large as England, and is situated in south-central Africa. It is bordered on the north by Tanzania on the east and south by Mozambique, and on the west by Zambia.

Malawi is a long, narrow country extending from north to south and containing within its borders the large Lake Malawi (formerly Lake Nyasa). It also has a rather diverse relief with mountains rising above 3,000 m/10,000 ft and land in the lower Shire valley below 180 m/600 ft.

The mountainous regions of southern Malawi, and in the north overlooking Lake Malawi, are amongst the wettest districts in this part of Africa with an annual rainfall of between 1,500 mm/60 in and 2,000 mm/80 in. Unusually for this area the heaviest rains are delayed until March or April and some rain may fall in all months. Over most of the country an annual rainfall of between 875-1,250 mm/35-50 in is more usual.

Apart from the lowlands in the south, which are unhealthy, sultry, and oppressive, the
weather and climate over the rest of the country are generally healthy and pleasant. At times the weather can be surprisingly cold during the dry season, particularly above 1,500 m/5,000 ft.

Economics

Malawi is a very poor country, with more than half the population living below the poverty line. The Malawi economy is heavily reliant on the agricultural sector, employing 80 percent of the country’s workforce, contributing 80 percent towards export earnings, and 35 - 40 percent of the Gross Domestic Product. Industry and Services contribute approximately 18.1% and 44.1% respectively.

Tobacco accounts for 53% of exports followed by sugar, coffee tea, cotton, peanuts, wood products and apparel as the most important exports. Other agricultural products include sugarcane, corn (maize), potatoes, cassava (tapioca), sorghum, pulses, macadamia nuts, cattle and goats.

Agriculture in Malawi is dominated by a low input, low output subsistence system. Strategies are required to enhance incomes from commercialization through productivity growth, higher standards and reduced marketing costs.

The Malawi Growth and Development Strategy 2006-2011 is a government program which prioritizes six key areas:

• Agriculture and Food Security,
• Irrigation and Water Development,
• Transport and Infrastucture development,
• Energy generation and supply,
• Integrated rural development,
• Prevention and Management of HIV/AIDS and Nutrition Disorders

Malawi has rich uranium reserves, which the government is seeking to exploit to boost the country’s low export earnings. It is estimated the project could contribute US$100 million to the economy, outstripping the annual proceeds of US$19m from tobacco. However, the project has given rise to some controversy, due to the potential health and environmental concerns of uranium mining.

External Debt

In August 2006, Malawi’s total external debt stock which was at US$3 billion in nominal terms was reduced to US$400 million under the Highly Indebted Poor Countries (HIPC) Initiative. This means that Malawi will be saving on an annual average approximately US$110 million in debt service over the 2006 - 2025 period. Excluding new borrowing, this will leave Malawi with annual external debt service payments of less than US$5 million on average over the same period.

By reaching HIPC completion point, Malawi also became eligible for further debt relief from IDA, the IMF and the African Development Bank (ADB) Group under the Multilateral Debt Relief Initiative (MDRI). Under MDRI, there is 100 percent cancellation of debt contracted and disbursed prior to December 31, 2003 (for the World Bank) and December 31, 2004 (for the IMF and ADB Group).

Foreign Exchange Reserves: $217m (’07 est.)

Currency: Malawi Kwacha pegged to U.S. Dollar; 141.12/ $ (’07), 108.896/$(’05) 97.443/$ (’03)

Interest rates down from 45% in 2003 to 15% in 2007

Domestic Debt down to 12.6% of GDP in 2007 from 22.6% in 2004

The World Bank 4th Country Assistance Strategy for 2007-2010 aims to help Malawi build on these foundations by amongst other things; focusing on improving smallholder agricultural productivity and integration into agro-processing. The International Finance Corporation (part of the World Bank) is now actively looking to identify financing and technical assistance opportunities. Similarly, the Multilateral Investment Guarantee Agency (a division of the World Bank) is looking for opportunities to leverage additional private sector support for the Malawi Growth and Development Strategy.

The investment environment in Malawi is not conducive for doing business. The World Bank plans to support the development of the private sector as a driver of the economy through infrastructure investments and by helping to address constraints in the investment environment.

Doing business in Malawi

Stock Market

The Malawi Stock Exchange had a market capitalisation of US$ 1.3bnb (31/12/07) and
traded 13 shares.

As with many other countries in Africa, one serious threat to the future economic stability of the country is the AIDS epidemic.

Taxation

Corporate tax is charged at a rate of 30% for local businesses while branches of foreign companies attract a rate of 35%

Politics and Government

Malawi elects on a national level the head of state (president) and legislature. The president and vice president are elected on one ballot for a five year term. There are 194 members in the National Assembly, elected for a five year term in single seat constituencies.

Elections were held in May 2009 and Bingu Wa Mutharika, has been elected for a second term.
In 2005 President Mutharika championed an anti-corruption drive and Finance Minister Goodall has improved financial discipline.

Since 2007 the World Bank Institute has been focusing on reforms in the judicial and legal systems.