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Sub-Saharan Africa

Malawi risk report

Updated:

Corruption is rife in Malawi and poses serious compliance risks to businesses investing in the country. All sectors of the economy suffer from widespread corruption, and large networks of clientelism and patronage exist. In addition, extensive bureaucracy and red tape provide a fertile environment for facilitation payments and bribery. Companies contend with corruption and bribery in almost all operations, from obtaining licenses to bidding on public contracts. Malawi has a comprehensive anti-corruption legal framework, yet enforcement is poor and officials sometimes engage in corruption with impunity. The Penal Code and the Corrupt Practices Act criminalize active and passive bribery, extortion, and abuse of office, among other offenses, in both the public and the private sectors. Gifts are also criminalized, yet the practice is widespread.

Judicial system Very high risk

The judiciary presents businesses with a high corruption risk. Bribes and irregular payments are often exchanged in return for favorable court decisions (GCR 2015-2016). The judiciary is only partially independent from political pressure, for deeply entrenched networks of clientelism in all sectors and branches of the government render the institution susceptible to the influence of the president's network (BTI 2016). The courts are perceived to be fairly efficient in providing foreign and domestic investors with accessible legal recourse (ICS 2015). Nonetheless, the institution is undermined by a shortage of judges and a lack of resources and training, causing a backlog of cases and slow judicial processes (HRR 2015; ICS 2015). Businesses perceive the courts' efficiency to be below average when it comes to settling disputes and challenging government regulations (GCR 2015-2016). The vast majority of households perceive the judiciary to be corrupt (GCB 2013).

Malawi is a member of the International Centre for Settlement of Investment Disputes (ICSID) but has not signed the New York Convention 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

Police Moderate risk

The police present business with a moderate risk of corruption. Police officers lack training and are inefficient, and there have been several reports of corruption within the ranks of police officers (HRR 2015; ICS 2015). Police impunity is a problem; officers abusing their power generally face a transfer of post rather than an investigation (HRR 2015). Over 33% of citizens believe the police is corrupt; nonetheless, between 2011 and 2013, only 6% report to have paid a bribe to the police, while almost 70% expressed trust in the police (Afrobarometer, Nov. 2015). Government mechanisms established to control police abuse and corruption were only partially effective (HRR 2015). Victims of police abuse fail to report on cases due to fear of reprisal, and those who do rarely see the cases investigated (GI 2016). Businesses perceive the police to be moderately reliable in protecting them from crime and enforcing order; almost 75% of companies pay for security in Malawi (GCR 2015-2016; ES 2014).

Public services Very high risk

The public services sector carries a very high risk of corruption. More than a quarter of companies expect to give gifts to obtain a water or electrical connection, while less than two in ten companies expect to give gifts to obtain an operating license (ES 2014). Government regulations are moderately burdensome; red tape and delays are impediments to investors (GCR 2015-2016; ICS 2015). Starting a business takes 38 days and includes 8 procedures, more than the regional average (DB 2016).

More generally, the vast majority of households in Malawi deem connections an important factor to getting things done in the public sector (GCB 2013). This supports evidence suggesting that the public administration relies on large patronage and clientelistic networks (Transparency International, Sep. 2014). Cronyism is also widespread in the public administration (BTI 2016).

Land administration Moderate risk

Corruption in the land administration is a moderate risk. More than a third of companies expect to give gifts to obtain a construction license (ES 2014). Property rights are protected by law, but these provisions are challenged in practice as limited funding and the subsequent limited institutional capacities impede enforcement (BTI 2016). Business executives rate the protection of property rights in Malawi as moderate (GCR 2015-2016). Companies can turn to the commercial court in Blantyre (Malawi's second city and commercial hub) to handle property rights issues (BTI 2016). On average, registering property takes businesses 69 days (DB 2016).

Tax administration Very high risk

The tax administration is a high-risk sector (ICS 2015). Bribes and irregular payments are often exchanged when meeting with tax officials (GCR 2015-2016). More than two-thirds of respondents perceive tax authorities to be corrupt to some extent, while three-quarters find the tax system opaque and inaccessible (Afrobarometer, Mar. 2014). Furthermore, almost half of respondents in Malawi perceive tax evasion as wrong but understandable (Afrobarometer, Mar. 2014). Paying taxes is less time-consuming and less costly than the regional average, taking over 170 hours per year (DB 2016).

Customs administration Very high risk

There's a very high risk of encountering corruption when interacting with Malawi's customs authorities. Bribes and irregular payments are widespread when importing or exporting goods, and border operations are opaque (GCR 2015-2016; GETR 2014). Corruption is more prevalent when dealing with importing than with exporting (GETR 2014). Trading across Malawi's borders is generally less costly and less time-consuming than elsewhere in the region (DB 2016).

Public procurement Very high risk

Companies operating in Malawi's public procurement sector face a very high risk of corruption, and several large-scale corruption cases have become public in recent years (ICS 2015). Bribes are often exchanged in the procurement process; one-third of businesses expect to give gifts to officials to obtain a public contract (GCR 2015-2016; ES 2014). Major tenders do not involve competitive bidding, the process of awarding contracts is opaque, and even the system for allocating bids is not transparent (Transparency International, Sept. 2014; GI 2016). Reportedly, the government has awarded contracts to companies bidding on projects with no relevant experience (GI 2016). In addition, entrenched networks of patronage and clientelism in the Malawi economy have undermined transparency in the procurement process of public contracts; favoritism of procurement officials' decisions is a known problem (Transparency International, Sept. 2014; GCR 2015-2016). Discrimination against indigenous Malawians is also reported to occur in the awarding of contracts, a consequence of the opaqueness of the evaluation criteria used to decide on awards (GI 2016). The diversion of public funds due to corruption is widespread in Malawi (GCR 2015-2016).

The Office of the Director of Public Procurement (ODPP) oversees all public procurement activities and most tenders are published on the ODPP website. The Public Procurement Act stipulates the necessary provision of thresholds for the application of procurement methods, bid evaluation procedures and contract management; however, these provisions are poorly enforced due to the inefficiency of the ODPP (Transparency International, Sept. 2014). Companies found guilty of corruption are prohibited from participating in future bids, a provision that is fairly well enforced (GI 2016).

A high-level corruption case involving the diversion of public funds broke out in late-2013; USD 250 million of public revenues were siphoned by public officials into private bank accounts (Transparency International, Sept. 2014). The case became known as the ‘Cashgate’ affair and triggered foreign donors to withhold USD 150 million in aid to the country (Transparency International, Sept. 2014). Former accountant general David Kandoje was arrested in connection with the case in March 2015 for allegedly authorizing the payment of two cheques to contractors without appropriate documentation (GI 2016). Approximately 70 people have been prosecuted in connection with the case as of 2015 (HRR 2015). Nevertheless, the Anti-Corruption Bureau has been criticized for only going after lower-level officials and failing to investigate former presidents Bingu Mutharika and Joyce Banda, despite allegations of their involvement in the case (GI 2016).

Natural resources Very high risk

Businesses may face high corruption risks when operating in the natural resource sector. Malawi was accepted as a candidate country to the Extractive Industries Transparency Initiative (EITI) in 2015; the EITI standard requires greater disclosure of revenues from natural resources and licenses and contracts awarded within the extractive industries. To ensure the implementation of these standards, the government set up a multi-stakeholder group that includes representatives from the government, the private sector and civil society (EITI, Oct. 2015). Nonetheless, evidence suggests that financial records of and documentation related to the exploitation of natural resources are not available for public scrutiny (GI 2016).

In late-2014, the government suspended oil and gas exploration licenses of different companies including Surestream Petroleum Limited, SacOil and Rak Gas, pending review. The following year, the attorney general had found that underlying production-sharing agreements between companies had been signed before the award of licenses and before oil discoveries were made. The attorney general also reported that the licenses breached the Petroleum Act as three of the six companies were revealed to be owned by a single shareholder. The government eventually restored the licenses to some of the companies but did not disclose which had breached the regulations and which did not, thus reflecting the secrecy that plagues the extractive industries and the obscure ownership of companies operating in the sector (The Times, Apr. 2016).

Legislation

The government of Malawi has established a comprehensive legal anti-corruption framework; however, implementation of the relevant laws is ineffective (HRR 2015). The Penal Code and the Corrupt Practices Act criminalize active and passive bribery, bribery of foreign officials, abuse of office and extortion. These provisions apply to both the public and the private sectors. Money laundering is criminalized under the Money Laundering, Proceeds of Serious Crime and Terrorist Financing Act. Among the main factors undermining the fight against corruption is the underfunding of the entities responsible for curbing corruption, such as the Anti-Corruption Bureau and the Office of the Director of Public Prosecutions (Transparency International, Sept. 2014). The executive enjoys broad powers and controls all institutions and branches of the government, and, in the same vein, the recruitment process of senior government officials lacks transparency and is based on large patronage networks (Transparency International, Sept. 2014).

Malawi has ratified the UN Convention against Corruption but is not a signatory to the OECD Anti-Bribery Convention.

Civil society

Freedoms of speech and press are protected under the Malawi constitution, and the government generally respects these rights in practice (HRR 2015). Although the number of reported attacks is small, journalists occasionally suffer harassment, intimidation, and threats from authorities (HRR 2015). The president filed a defamation suit to sue a critic who accused the president of corruption in an online publication (HRR 2015). Citizens are granted the right to access government information, yet no law exists compelling government entities to provide information (Transparency International, Sept. 2014). Malawi's media Malawi is considered "partly free" (FotP 2015).

Freedom of assembly is provided for by the law in Malawi, and the government generally respects this in practice (HRR 2015). NGOs are free to exercise their activities in Malawi, as long as these do not interfere with political issues (Transparency International, Sept. 2014). Despite these limitations, civil society members have managed to be co-opted into different government structures (Transparency International, Sept. 2014). Nonetheless, some sources suggest that this co-option was only to silence NGOs' critical mandates (BTI 2016). Almost 90% of citizens believe public officials and civil servants are corrupt (GCB 2013).

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