Third Trade Policy Review of Malawi: Minutes of the Meeting
The third Trade Policy Review of Malawi was held on 27 and 29 April 2016, providing a good opportunity for Members to discuss in greater detail issues of interest to them and of systemic importance to the multilateral trading system.
At the previous TPR meeting in 2010, Members had commended Malawi for its impressive economic performance and progress in poverty alleviation. Members had appreciated that Malawi had remained on the path of reform and had not retreated from its open policy stance despite the global financial crisis. However, Members had noted that foreign investors had faced administrative difficulties occasionally, and had encouraged Malawi to further reduce the cost of doing business in the country. Members had also encouraged Malawi to modernize its trade-related legislation to align it with WTO obligations and international best practices.
Since then, Malawi’s economy had continued to grow; exports had diversified; and merchandise trade had increased significantly. Nevertheless, Malawi was also under continuous pressure to cope with widespread poverty among a rapidly expanding population, as well as high inflation, and a very tight fiscal situation characterized by rising public debts and deteriorating current account deficits. The Chairperson believed Members would wish to learn more about Malawi’s long term economic and development strategies, including its efforts to combat corruption as one way to support these strategies.
With regard to trade policy, it was noted at the time of the last Review that Malawi’s tariff regime was encumbered with numerous exceptions which made it complex, and that trade facilitation could play a vital role in reducing trading costs. During the period under review, Malawi had launched several important trade facilitation initiatives, but Members had yet to see fundamental changes to the tariff regime which could enhance predictability, or to the complex system of duty and tax concessions which could make its administration more efficient and transparent.
Focusing on specific trade sectors, Members had, at the last TPR meeting, asked how Malawi would address the questions of chronic electricity shortages, and strike a balance between subsidizing fertilizers and investing in the long-term development of the agriculture sector. These concerns appeared to be still valid today. Furthermore, severe weather conditions were now posing a serious threat to food security, despite the improvements made in this regard in previous years.
All these were issues that merited Members’ attention. Indeed, some of them had been raised again in Members’ advance questions this time. In addition, Members had asked about the progress that Malawi was making in negotiating RTAs and ratifying the Trade Facilitation Agreement; as well as its plans to improve adherence to WTO notification requirements.
Opening Statement by the Representative of Malawi
Honourable Mr. Cliff Chiunda, Principal Secretary, Ministry of Industry and Trade
I feel elated this morning to make this opening statement on behalf of the Government of Malawi. Malawi believes that the requirement by the WTO to undertake Trade Policy Reviews is an important activity in the multilateral trading system. This process, as you are already aware, is a transparency mechanism within the WTO framework. It constitutes a unique and important opportunity for countries such as Malawi which is one of the founding Members of the WTO, to present the policy measures that it is pursuing within the multilateral trading system.
Malawi firmly believes that the trade policy review process seeks to promote, and thus re-affirms her commitment to opening up its trading regime for evaluation within the context of her obligations under the WTO. This commitment is a demonstration of Malawi’s unrelenting support and belief in the multilateral trading system and processes.
I would also like at this juncture to express my sincere gratitude to the WTO Secretariat for the good work that it has carried out in Malawi, of course with our support, which resulted in the report that has been circulated, which meets, to some degree, our expectations in terms of presentation of facts, quality and comprehensiveness. We did not spare any efforts to make this TPR a success.
Since the last trade policy review in 2010, The Government of Malawi has continued to pursue economic policies aimed at transforming the economy from being a predominantly importing and consuming to a producing and exporting economy. The primary goal and ultimate objective of the Government of Malawi is to reduce poverty, create wealth and achieve sustainable economic growth. In this regard, the Government will continue to pursue policies that reduce fiscal imbalances in the economy, diversify the export base and destination markets with the view to broaden the economic base.
Malawi’s economy has on average grown steadily since its last TPR in 2010. While annual GDP growth rates peaked at 9.5%, the period under review also included a marked slowdown of the economy in 2012. Total merchandise trade increased rapidly during the period under review, from 60% of GDP in 2010 to 102% in 2014. It is also worth noting that Malawi is a least-developed country (LDC) whose economy is largely based on agriculture. As a result, its performance remains vulnerable to exogenous factors such as adverse weather conditions which have tremendously reduced agriculture output. This trend compounded by lowering commodity prices is immensely impacting on economic growth in Malawi.
On the revenue side, revenues are currently at 23% of GDP and are expected to grow between 1% and 1.5% of GDP over the next three years. In order to achieve this, the Government of Malawi is committed to broad-based tax reform initiatives with the aim of creating a simple, efficient, transparent and fair tax system which can generate more revenue in a progressive manner.
Furthermore, we are also streamlining the tax system with the hope of doing away with tax exemptions which have excessive distortionary effects on the economy. Let me also highlight that under regional integration commitments, in particular our tariff liberalization in SADC, has led to some revenue losses. Hence, the Government has had to devise new mechanisms or new ways of collecting more revenue from domestic taxes by broadening and widening our domestic tax base. However, let me point out that tax compliance remains a challenge as the country implements these tax reforms.
The Government has also embarked on serious reform programmes to restore public and donor confidence. Advances have been made in fixing security gaps in public financial management (PFM) system that were identified during the so-called “cashgate” that the country experienced some 2-3 years ago. The Electronic Fund Transfer (EFT) has been successfully used for payment of salaries to all civil servants and the risk assessment for using the EFT has also been concluded.
As a result, donor confidence has been restored after the sustenance of the IMF Extended Credit Facility (ECF). Other development partners such as the African Development Bank have indicated their intentions to restore budget support to Malawi signifying confidence in the system.
The development agenda of Malawi is anchored in the Malawi Growth and Development Strategy (MGDS) and its subsidiary National Export Strategy (NES). The MGDS is Malawi’s medium term developmental framework and is also a pinnacle to sustainable growth in the country. It is harnessed within five thematic areas which are sustainable economic growth, social protection, social development, infrastructure development and improved governance. Let me take this opportunity to inform the gathering that Malawi is in the process of consulting and finalizing the successor strategy to MGDS II.
Realizing the importance of growing the economy, Malawi is diversifying its export base from the traditional exports of tobacco, tea and sugar by focusing on value addition of non-traditional products and other high value crops including beneficiation in the extractive industries. The National Export Strategy, therefore, is meant to support the diversification by building productive capacity and export markets for Malawi products.
Allow me to continue isolating some notable developments that have taken place since the last trade policy review.
Public service reforms
During the period under review, the Government of Malawi established the Public Service Reform Commission which has been spearheaded by the country’s Vice President. The aim of this Public Service Reform programme was to facilitate the creation of an effective and efficient Public Service that will spearhead economic growth in Malawi.
In order to address corruption and thereby improve index on transparency international, the Government of Malawi has put in place a number of mechanisms and initiatives to help in the fight against corruption. The major initiative is the development of the National Anti-Corruption Strategy which is a national document that consolidates multi-sectoral efforts to fight and prevent corruption in the country.
Malawi Investment and Trade centre
Another milestone done in the period under review is the merging of the Malawi Investment Promotion Agency (MIPA) and the Malawi Export Promotion Council (MEPC), into one Malawi Investment and Trade Centre (MITC) in order to remove bureaucratic processes for doing business in the country. The establishment of One Stop Service Centre under MITC is a fundamental achievement in the right direction as it will result in reduced time and cost of doing business in Malawi by consolidating all the doing business services under one roof.
Given our geographical challenge as a landlocked country, Malawi fully supports trade facilitation initiatives including the objectives of the Agreement on Trade Facilitation (ATF). I hope by now the WTO Secretariat has received notification of our Schedule of Commitments covering all categories. The instruments of ratification would be deployed soon after the final process and the consultation is completed. It is pleasing to report that Malawi has already started implementing some aspects of the ATF including the establishment of the trade portal, expected to be launched in June 2016; one stop border post projects for six border posts with Zambia, Tanzania and Mozambique; the national single window project; and the migration from ASYCUDA ++ to ASYCUDA World, just to mention a few are some of the milestones under the ATF.
The Government of Malawi recognizes that the mining sector has a significant potential to contribute towards rapid economic growth and development of the country. Through the Mines and Minerals Policy (2013), the Government seeks to stimulate and guide investment in the sector by administering, regulating and facilitating growth through a well-organized and efficient institutional framework thereby enhancing the sector as an investment destination. In fact, this is one of the potential investment areas that Malawi is pursuing. It is the Government’s conviction that if the country’s mineral resources are fully exploited, the contribution of mining will improve from the current 10% to 20% of the GDP within the next 10 years.
Of late, Malawi has subscribed to global and regional initiatives such as the Kimberly Process, Multilateral Investment Guarantee Agency (MIGA) and Extractive Industries Transparency Initiative (EITI) that addresses mineral sector issues including practice, governance and other emerging realities.
In 2015, the Government also undertook Airborne Geological Survey throughout the country to assist perspective investors to identify potential areas for investment.
Furthermore, the Government has established structures meant to enhance public and private sector dialogue on trade and doing business issues. The Public Private Dialogue (PPD) Forum serves as the highest platform for discussing issues affecting business in Malawi, whereas the National Working Group on Trade Policy is the lower technical forum for technical discussions. The Ministerial Committee on doing business has also been set up at the ministerial level to specifically enforce and monitor the reforms on doing business.
Standards, quality assurance, accreditation and metrology
In order to promote competitive production and exports, the Government is enhancing the capacity of the Malawi Bureau of Standards to offer better and international services in accreditation, standards, certification and quality assurance.
Trade in services
Concerning Trade in Services, the Government also recognizes the importance of this sector to sustainable economic growth. Overall, the financial performance of the commercial banks has been satisfactory with all banks adequately capitalized and liquid.
In a bid to strengthen the financial sector in general, a number of legal frameworks including the Financial Services Authority Act; the Personal Securities Act; the Microfinance Act; the Financial Cooperative Societies Act, and the Pensions Act, among others, were reviewed and enacted.
Under tourism, the Government is seeking to drive reforms in the sector, thereby encouraging more private sector involvement through review of laws that impede tourism growth.
The Government has developed a Strategic Plan that will guide the development of the sector in the next five years (2016-2020). Implementation of the National Tourism Policy which provides an overall guide on how the sector should be developed including: improving transportation links to tourism destinations; increasing attractiveness of national parks for tourism and eco-tourism; and improving tourism marketing regionally and internationally is being enhanced.
Recognizing the importance of the energy sector, the Government has also restructured the sector in order to improve the generation, transmission, distribution and accessibility of electricity in the country.
The major reform in the sector is the splitting of the state-owned Electricity Supply Corporation of Malawi (ESCOM) into two components of power generation and power distribution to be operated by two different companies. The process is expected to be completed by 2017. The reform will improve power generation, which is the biggest challenge in the country, as investors will be encouraged to invest in power generation that will be supplied to a single power buyer (Single Market Operator) at harmonized rates for distribution to various consumers.
In order to create an environment conducive to trade and investment, a number of legislations were passed in Parliament such as the insolvency Act, Metrology Act and the Credit Reference Bureau. The Control of Goods Act, which is the main law that governs import and export trade, was reviewed. Other Acts that were reviewed include the Companies (Amendment) Act, the Business Licensing Act, and the Business Names Registration Act. The following Bills have been lined up for enactment: the Investment and Export Promotion Bill, the Export Processing Zones Bill, the Export Incentives Bill, Warehouse Receipt and Commodity Exchange Bill. Trade remedies bill is also under draft and yet to be finalized through public consultations before it can reach the Parliament for approval.
Malawi continues to pursue regional integration within COMESA, SADC and the SADC-EAC-COMESA Tripartite framework. For instance, Malawi does trade with all members of the COMESA Free Tarde Area (FTA) and is ready to do so with all members that will be joining the COMESA FTA. We are also ready to trade more with member States of the Tripartite FTA after signing the FTA in Sharm el-Sheik, Egypt on 10 June 2015. We are also participating in the negotiations for the Continental Free Trade Area (CFTA). In other ways, Malawi will continue to strengthen its trade relations with member States of all regional economic communities to which it is a signatory.
Furthermore, Malawi continues to participate in the Economic Partnership Agreement negotiations with the EU with a view to concluding a more development friendly EPA.
Malawi being an LDC, it benefits from a series of preferential trade arrangements including Everything But Arms (EBA) initiative offered by the European Union (EU), the African Growth and Opportunity Act (AGOA) offered by the United States of America, and many other initiatives from Canada, India, and China among others from which Malawi is keen to derive maximum benefits.
Given the tremendous reforms that Malawi has implemented over the last few years, I am more than convinced that the stage is set for Malawi to attract more investment and increase trade with the rest of the world. However, this will require multilateral support. As the Government, we will continue with the reforms in order to create a conducive environment for trade and investment in the country.
Malawi’s position on multilateralism
Since the coming into force of the Uruguay Round Agreement, Malawi, like other LDCs, has been significantly beset by problems arising from the implementation of these agreements. Indeed, the Geneva Ministerial Declaration duly recognized the plight and marginalization of the least-developed countries and small economies such as Malawi. To this effect, the effective implementation of the WTO commitments by Malawi continues to be hampered by the lack of adequate financial, institutional, technological and technical support.
Therefore, we call for renewed commitment to technical cooperation, including adequate provision of resources in the regular budget of the WTO, and other core agencies according to their mandates. I cannot conclude without mentioning the importance of the Enhanced Integrated Framework (EIF) towards dealing with some of our supply side capacities as well as capacity building of our nations. The EIF has supported many activities in Malawi and I would like to urge the WTO and other agencies for more support under this facility as we migrate to phase 2 of the implementation of the EIF. At this point, allow me to thank all those donor partners who pledged their support towards EIF during the MC10 donor pleading conference in Nairobi last year.
Furthermore, we would like to emphasize the need for improved coordination in the delivery of this assistance as an urgent requirement to facilitate our effective participation in the multilateral trading system.
In conclusion, I would like to register our commitments towards undertaking and fulfilling obligations under the WTO agreements despite our limited resource base. The adoption and adjustment of legislation and regulation for a better implementation of some WTO Agreements in Malawi has been taking place though at a slower pace than expected. This situation is attributable, to a large extent, to the lack of adequate institutional capacity, technical infrastructure, financial resources and human capital. This reinforces the need for capacity building programmes in our countries.
Supply side constraints still remain Malawi’s major obstacle for integration into the multilateral trading system. Some of the major constraints include high transportation costs, inability to meet Sanitary and Phytosanitary (SPS) requirements and standards, insufficient and unreliable energy and water supply, customs procedures and documentation, just to mention a few. In this regard, Malawi needs external support such as increased developmental assistance, increased balance of payment support, technology transfer, and increased FDI flows, among other forms of support.
Finally, I would like to reiterate Malawi’s commitment to the multilateral trading system. Malawi, like any other least-developed country will strive to contribute to the strengthening of the multilateral trading system within the WTO.